<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY , 1999
REGISTRATION NOS. 002-94996;
811-4185
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO. [ ]
POST-EFFECTIVE AMENDMENT NO. 33 [X]
REGISTRATION STATEMENT UNDER THE INVESTMENTCOMPANY ACT OF 1940 [X]
AMENDMENT NO. 34 [X]
THE HUDSON RIVER TRUST
(Exact Name of Registrant as Specified in Declaration of Trust)
1345 Avenue of the Americas
New York, New York 10105
(Address of Principal Executive Offices, including zip code)
John D. Carifa, President
1345 Avenue of the Americas
New York, New York 10105
(Name and Address of Agent for Service)
925-254-6464
(Registrant's Telephone Number, including Area Code)
Please Send Copies of all Communications to:
--------------------------------------------
Edmund P. Bergan, Jr. J.B. Kittredge, Esq.
Alliance Capital Management L.P. Ropes & Gray
1345 Avenue of the Americas One International Place
New York, New York 10105 Boston, MA 02110-2624
Approximate Date of Proposed Public Offering: Continuous.
It is proposed that this filing will become effective (check appropriate box):
[ ] Immediately upon filing purusant to [ ] On (date) pursuant to
paragraph (b) paragraph (b)
[ ] 60 days after filing pursuant to [X] On (May 1, 1999) pursuant to
paragraph (a)(1) paragraph (a) (1)
[ ] 75 days after filing pursuant to (a)(2) [ ] On (date) pursuant to paragraph
(a)(2) of Rule 485.
If appropriate, check the following box:
[ ] This post-effecitve amendment designates a
new effective date for a previously filed
post-effective amendment.
================================================================================
<PAGE>
THE HUDSON RIVER TRUST
THE ASSET ALLOCATION SERIES
---------------------------
Alliance Conservative Investors Portfolio
Alliance Balanced Portfolio
Alliance Growth Investors Portfolio
THE EQUITY SERIES THE FIXED INCOME SERIES
----------------- -----------------------
Alliance Growth and Income Portfolio Alliance Money Market Portfolio
Alliance Equity Index Portfolio Alliance Intermediate Government
Alliance Common Stock Portfolio Securities Portfolio
Alliance Global Portfolio Alliance Quality Bond Portfolio
Alliance International Portfolio Alliance High Yield Portfolio
Alliance Aggressive Stock Portfolio
Alliance Small Cap Growth Portfolio
This Prospectus describes the Portfolios that are available as underlying
investments through your variable [life insurance contract/annuity certificate
or contract.] For information about your variable [life insurance
contract/annuity certificate or contract], including information about
insurance-related expenses, see the prospectus for your variable [life
insurance contract/annuity certificate or contract], which accompanies this
Prospectus.
The Securities and Exchange Commission has not approved or
disapproved these securities or passed upon the adequacy of this
prospectus. Any representation to the contrary is a crime.
PROSPECTUS
, 1999
<PAGE>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Page
RISK/RETURN SUMMARY .......................................................
DESCRIPTION OF THE PORTFOLIOS .............................................
The Asset Allocation Series ...............................................
The Equity Series .........................................................
The Fixed Income Series ...................................................
INVESTMENT TECHNIQUES .....................................................
CERTAIN INVESTMENT RESTRICTIONS ...........................................
MANAGEMENT OF THE TRUST ...................................................
DESCRIPTION OF THE TRUST'S SHARES .........................................
DIVIDENDS, DISTRIBUTIONS AND TAXES ........................................
APPENDIX A--DESCRIPTION OF BOND RATINGS ...................................
APPENDIX B--PERFORMANCE INFORMATION .......................................
</TABLE>
RISK/RETURN SUMMARY
The following is a summary of certain key information about the Hudson River
Trust Portfolios. You will find additional information about each Portfolio,
including a detailed description of the risks of an investment in each
Portfolio, after this Summary.
This Summary identifies each Portfolio's investment objective, principal
investment strategies and principal risks. The summary of each Portfolio's
principal investment strategies is accompanied by a short discussion of some of
the Portfolio's principal risks. The principal risks of each Portfolio are
identified and more fully discussed beginning on page 18.
You can find more detailed descriptions of the Portfolios, including the risks
associated with investing in the Portfolios, further back in this Prospectus.
Please be sure to read this additional information BEFORE you invest. Each of
the Portfolios (except for the Alliance Money Market Portfolio) may at times
use certain types of investment derivatives such as options, futures, forwards
and swaps. The use of these techniques involves special risks that are
discussed in this Prospectus. The Risk/Return Summary includes a table for each
Portfolio showing its average annual returns and a bar chart showing its annual
returns. The table and bar chart provide an indication of the historical risk
of an investment in each Portfolio by showing:
o how the Portfolio's average annual returns for one, five, and 10 years
(or over the life of the Portfolio if the Portfolio is less than 10
years old) compare to those of a broad based securities market index
(you will find more information on each referenced index in Appendix B)
[and to the average performance for mutual funds in each Portfolio's
broad investment category in the Lipper Investment Averages]; and
o changes in the Portfolio's performance from year to year over 10 years
(or over the life of the Portfolio if the Portfolio is less than 10
years old).
A Portfolio's past performance, of course, does not necessarily indicate how it
will perform in the future.
Other important things for you to note:
o You may lose money by investing in the Portfolios.
o An investment in the Portfolios is not a deposit in a bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation or
any other government agency.
- --------------------------------------------------------------------------------
3 The Hudson River Trust
<PAGE>
THE ASSET ALLOCATION SERIES
ALLIANCE CONSERVATIVE INVESTORS PORTFOLIO
- --------------------------------------------------------------------------------
OBJECTIVE:
This Portfolio seeks to achieve a high total return without, in the opinion of
Alliance Capital Management L.P., the Portfolio's investment adviser
("Alliance"), undue risk to principal.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS:
The Portfolio invests varying portions of its assets in debt and equity
securities. Investment grade debt securities generally represent between 50%
and 90% of the Portfolio's holdings, with equity securities comprising the
remainder of the Portfolio's assets. The Portfolio may invest in foreign
securities and may also make use of various other investment strategies,
including securities lending. The Portfolio may use derivatives.
Among the principal risks of investing in the Portfolio are market risk,
management risk, credit risk, derivatives risk and leveraging risk. The
Portfolio is subject to credit risk through its investments in debt securities
and to foreign investment risk and currency risk through its investments in
foreign securities.
YEARLY PERFORMANCE
- --------------------------------------------------------------------------------
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE
PURPOSE OF EDGAR FILING.]
[BAR GRAPH]
1990 1991 1992 1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ---- ---- ---- ----
6.3 19.8 5.6 10.8 -4.1 20.4 5.2 13.3
Calendar Year End
During the periods shown above, the highest quarterly return was for the
quarter ended , and the lowest was for the quarter ended . For the
quarter ended March 31, 1999, the Portfolio's return was %.
PERFORMANCE TABLE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL SINCE
RETURNS (FOR PERIODS INCEPTION
ENDING DECEMBER 31, PAST ONE PAST FIVE (OCTOBER 10,
1998) YEAR YEARS 1989)
- -----------------------------------------------------------------
<S> <C> <C> <C>
CLASS IA SHARES
- -----------------------------------------------------------------
LIPPER FLEXIBLE
PORTFOLIO AVERAGE
- -----------------------------------------------------------------
70% LEHMAN
TREASURY/30% S&P 500
- -----------------------------------------------------------------
S&P 500
- -----------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
The Hudson River Trust 4
<PAGE>
ALLIANCE BALANCED PORTFOLIO
- --------------------------------------------------------------------------------
OBJECTIVE:
This Portfolio seeks to achieve a high return through both appreciation of
capital and current income.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS:
The Portfolio invests varying portions of its assets in debt and equity
securities. The Portfolio's debt securities may have equity features such as
conversion or exchange rights, stock warrants or participations based on
revenues, rates or profits. There will be times when the Portfolio places
significantly greater emphasis on equity securities or debt securities, but
over time the Portfolio's holdings are expected, on average, to be equally
divided between debt securities and equity securities. The Portfolio may invest
in foreign securities and may also make use of various other investment
strategies, including securities lending. The Portfolio may use derivatives.
Among the principal risks of investing in the Portfolio are market risk,
management risk, credit risk, derivatives risk, liquidity risk and leveraging
risk. The Portfolio is subject to foreign investment risk and currency risk
through its investments in foreign securities.
YEARLY PERFORMANCE
- --------------------------------------------------------------------------------
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE
PURPOSE OF EDGAR FILING.]
[BAR GRAPH]
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
25.8 0.3 41.3 -2.8 12.3 -8.0 19.8 11.7 15.1
Calendar Year End
During the periods shown above, the highest quarterly return was for the
quarter ended , and the lowest was for the quarter ended . For the
quarter ended March 31, 1999, the Portfolio's return was %.
PERFORMANCE TABLE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL
RETURNS (FOR PERIODS
ENDING DECEMBER 31, PAST ONE PAST FIVE PAST TEN
1998) YEAR YEARS YEARS
- ------------------------------------------------------------
<S> <C> <C> <C>
CLASS IA SHARES
- ------------------------------------------------------------
LIPPER BALANCED
MUTUAL FUNDS
AVERAGE
- ------------------------------------------------------------
50% S&P 500/50%
LEHMAN GOV'T
CORP.
- ------------------------------------------------------------
S&P 500
- ------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
5 The Hudson River Trust
<PAGE>
ALLIANCE GROWTH INVESTORS PORTFOLIO
- --------------------------------------------------------------------------------
OBJECTIVE:
This Portfolio seeks to achieve the highest total return consistent with
Alliance's determination of reasonable risk.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS:
The Portfolio invests varying portions of its assets in equity and debt
securities. Over time, the Portfolio's holdings, on average, are expected to be
allocated 70% to equity securities and 30% to debt securities. The Portfolio's
equity securities may include foreign stocks as well as preferred stocks and
convertible securities and may include securities of intermediate and
small-sized companies. The Portfolio's debt securities may include foreign debt
securities as well as lower quality, higher yielding debt securities commonly
known as "junk bonds." The Portfolio may also make use of various other
investment strategies, including securities lending. The Portfolio may use
derivatives.
Among the principal risks of investing in the Portfolio are market risk,
management risk, leveraging risk, derivatives risk, liquidity risk foreign
investment risk and currency risk. The Portfolio is subject to heightened
credit risk through its investments in lower quality debt securities.
YEARLY PERFORMANCE
- --------------------------------------------------------------------------------
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE
PURPOSE OF EDGAR FILING.]
[BAR GRAPH]
1990 1991 1992 1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ---- ---- ---- ----
10.7 48.8 4.9 15.3 -3.2 26.4 12.6 16.9
Calendar Year End
During the periods shown above, the highest quarterly return was for the
quarter ended , and the lowest was for the quarter ended . For the
quarter ended March 31, 1999, the Portfolio's return was %.
PERFORMANCE TABLE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL SINCE
RETURNS (FOR PERIODS INCEPTION
ENDING DECEMBER 31, PAST ONE PAST FIVE (OCTOBER 2,
1998) YEAR YEARS 1989)
- ----------------------------------------------------------------
<S> <C> <C> <C>
CLASS IA SHARES
- ----------------------------------------------------------------
LIPPER FLEXIBLE
PORTFOLIO AVERAGE
- ----------------------------------------------------------------
70% S&P 500/30%
LEHMAN GOV'T
CORP.
- ----------------------------------------------------------------
S&P 500
- ----------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
The Hudson River Trust 6
<PAGE>
THE EQUITY SERIES
ALLIANCE GROWTH AND INCOME PORTFOLIO
- --------------------------------------------------------------------------------
OBJECTIVE:
This Portfolio seeks 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.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS:
The Portfolio invests primarily in stocks and securities convertible into
stocks, and may invest up to 30% of its total assets in high yield debt
securities that are convertible into stocks. The Portfolio may invest in
foreign securities and may also make use of various other investment
strategies. The Portfolio may use derivatives.
Among the principal risks of investing in the Portfolio are market risk,
management risk, leveraging risk, derivatives risk, foreign investment risk and
currency risk. The Portfolio is subject to heightened credit risk through its
investments in high yield debt securities.
YEARLY PERFORMANCE
- --------------------------------------------------------------------------------
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE
PURPOSE OF EDGAR FILING.]
[BAR GRAPH]
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
-0.6 24.0 20.1 26.9
Calendar Year End
During the periods shown above, the highest quarterly return was for the
quarter ended , and the lowest was for the quarter ended . For the
quarter ended March 31, 1999, the Portfolio's return was %.
PERFORMANCE TABLE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL SINCE
RETURNS (FOR PERIODS INCEPTION
ENDING DECEMBER 31, PAST ONE PAST FIVE (OCTOBER 1,
1998) YEAR YEARS 1993)
- ----------------------------------------------------------------
<S> <C> <C> <C>
CLASS IA SHARES
- ----------------------------------------------------------------
LIPPER GROWTH AND
INCOME FUNDS
AVERAGE
- ----------------------------------------------------------------
75% S&P
500/25%VALUE LINE
CONVERTIBLE
- ----------------------------------------------------------------
S&P 500
- ----------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
7 The Hudson River Trust
<PAGE>
ALLIANCE EQUITY INDEX PORTFOLIO
- --------------------------------------------------------------------------------
OBJECTIVE:
This Portfolio seeks 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.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS:
Through the use of proprietary models, the Portfolio attempts to track the
Index by investing in many of the Index's largest capitalization securities
while trying to maintain industry diversification by investing in some smaller
and medium-sized capitalization companies as well. The Portfolio may also make
use of various other investment strategies, including securities lending. The
Portfolio may use derivatives.
Among the principal risks of investing in the Portfolio are market risk, credit
risk, derivatives risk, foreign investment risk, currency risk, leveraging risk
and management risk. The Portfolio is subject to smaller company risk through
its investments in smaller capitalization companies.
YEARLY PERFORMANCE
- --------------------------------------------------------------------------------
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE
PURPOSE OF EDGAR FILING.]
[BAR GRAPH]
1995 1996 1997 1998
---- ---- ---- ----
36.5 22.4 32.6
Calendar Year End
During the periods shown above, the highest quarterly return was for the
quarter ended , and the lowest was for the quarter ended . For the
quarter ended March 31, 1999, the Portfolio's return was %.
PERFORMANCE TABLE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL
RETURNS (FOR PERIODS
ENDING DECEMBER 31, SINCE INCEPTION
1998) PAST ONE YEAR (MARCH 1, 1994)
- ----------------------------------------------------------
<S> <C> <C>
CLASS IA SHARES
- ----------------------------------------------------------
LIPPER S&P 500
INDEX FUNDS
AVERAGE
- ----------------------------------------------------------
S&P 500
- ----------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
The Hudson River Trust 8
<PAGE>
ALLIANCE COMMON STOCK PORTFOLIO
- --------------------------------------------------------------------------------
OBJECTIVE:
This Portfolio seeks to achieve long-term growth of its capital and increase
income.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS:
The Portfolio invests primarily in stock and other equity securities (such as
preferred stocks or convertible debt). The Portfolio may also make use of
various other investment strategies, including investment in foreign
securities, securities lending and investments in debt securities (including
high yield securities). The Portfolio may use derivatives.
Among the principal risks of investing in the Portfolio are market risk, credit
risk, foreign investment risk, currency risk, leveraging risk, derivatives
risk, smaller company risk and management risk. The Portfolio is subject to
foreign investment risk and currency risk through its investments in foreign
securities.
YEARLY PERFORMANCE
- --------------------------------------------------------------------------------
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE
PURPOSE OF EDGAR FILING.]
[BAR GRAPH]
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
25.6 -8.1 37.9 3.2 24.8 -2.1 32.5 24.3 29.4
Calendar Year End
During the periods shown above, the highest quarterly return was for the
quarter ended , and the lowest was for the quarter ended . For the
quarter ended March 31, 1999, the Portfolio's return was %.
PERFORMANCE TABLE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL
RETURNS (FOR PERIODS
ENDING DECEMBER 31, PAST ONE PAST FIVE PAST TEN
1998) YEAR YEARS YEARS
- ------------------------------------------------------------
<S> <C> <C> <C>
CLASS IA SHARES
- ------------------------------------------------------------
LIPPER GROWTH
EQUITY MUTUAL
FUNDS AVERAGE
- ------------------------------------------------------------
S&P 500
- ------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
9 The Hudson River Trust
<PAGE>
ALLIANCE GLOBAL PORTFOLIO
- --------------------------------------------------------------------------------
OBJECTIVE:
This Portfolio seeks long-term growth of capital.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS:
The Portfolio invests primarily in a diversified mix of equity securities of
U.S. and established foreign companies [(including companies in developing
countries or "emerging markets")]. The Portfolio may also make use of various
other investment strategies, including the purchase and sale of shares of other
mutual funds investing in foreign securities, investments in debt securities
and securities lending. The Portfolio may use derivatives.
Among the principal risks of investing in the Portfolio are foreign investment
risk, currency risk, market risk, credit risk, leveraging risk, derivatives
risk, liquidity risk and management risk.
YEARLY PERFORMANCE
- --------------------------------------------------------------------------------
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE
PURPOSE OF EDGAR FILING.]
[BAR GRAPH]
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
26.7 -6.1 30.5 -0.5 32.1 5.2 18.8 14.6 11.7
Calendar Year End
During the periods shown above, the highest quarterly return was for the
quarter ended , and the lowest was for the quarter ended . For the
quarter ended March 31, 1999, the Portfolio's return was %.
PERFORMANCE TABLE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL
RETURNS (FOR PERIODS
ENDING DECEMBER 31, PAST ONE PAST FIVE PAST TEN
1998) YEAR YEARS YEARS
- ------------------------------------------------------------
<S> <C> <C> <C>
CLASS IA SHARES
- ------------------------------------------------------------
LIPPER GLOBAL
MUTUAL FUNDS
AVERAGE
- ------------------------------------------------------------
MSCI WORLD
- ------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
The Hudson River Trust 10
<PAGE>
ALLIANCE INTERNATIONAL PORTFOLIO
- --------------------------------------------------------------------------------
OBJECTIVE:
This Portfolio seeks 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.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS:
The Portfolio may invest anywhere in the world (including developing countries
or "emerging markets"), although it will not generally invest in the United
States. [The Portfolio may purchase securities of developing countries, which
include, among others, Mexico, Brazil, Hong Kong, India, Poland, Turkey and
South Africa.] The Portfolio may also make use of various other investment
strategies, including the purchase and sale of shares of other mutual funds
investing in foreign securities, investments in debt securities and securities
lending. The Portfolio may use derivatives.
Among the principal risks of investing in the Portfolio are foreign investment
risk, currency risk, market risk, credit risk, leveraging risk, derivatives
risk, liquidity risk, smaller company risk and management risk.
YEARLY PERFORMANCE
- --------------------------------------------------------------------------------
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE
PURPOSE OF EDGAR FILING.]
[BAR GRAPH]
1996 1997 1998
---- ---- ----
9.8 -2.98
Calendar Year End
During the periods shown above, the highest quarterly return was for the
quarter ended , and the lowest was for the quarter ended . For the
quarter ended March 31, 1999, the Portfolio's return was %.
PERFORMANCE TABLE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL
RETURNS (FOR PERIODS
ENDING DECEMBER 31, SINCE INCEPTION
1998) PAST ONE YEAR (APRIL 3, 1995)
- ----------------------------------------------------------
<S> <C> <C>
CLASS IA SHARES
- ----------------------------------------------------------
LIPPER
INTERNATIONAL
MUTUAL FUNDS
AVERAGE
- ----------------------------------------------------------
MSCI EAFE
- ----------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
11 The Hudson River Trust
<PAGE>
ALLIANCE AGGRESSIVE STOCK PORTFOLIO
- --------------------------------------------------------------------------------
OBJECTIVE:
This Portfolio seeks to achieve long-term growth of capital.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS:
The Portfolio invests primarily in stocks and other equity securities of small
and medium-sized companies. The Portfolio may also invest in securities of
companies in cyclical industries, companies whose securities are temporarily
undervalued, companies in special situations and less widely known companies.
The Portfolio may invest in foreign securities and may also make use of various
other investment strategies, including investments in debt securities and
securities lending. The Portfolio may use derivatives.
Among the principal risks of investing in the Portfolio are smaller company
risk, market risk, credit risk, leveraging risk, derivatives risk, liquidity
risk and management risk. The Portfolio is subject to foreign investment risk
and currency risk through its investments in foreign securities.
YEARLY PERFORMANCE
- --------------------------------------------------------------------------------
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE
PURPOSE OF EDGAR FILING.]
[BAR GRAPH]
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
43.5 8.2 86.9 -3.2 16.8 -3.8 31.6 22.2 10.9
Calendar Year End
During the periods shown above, the highest quarterly return was for the
quarter ended , and the lowest was for the quarter ended . For the
quarter ended March 31, 1999, the Portfolio's return was %.
PERFORMANCE TABLE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL
RETURNS (FOR PERIODS
ENDING DECEMBER 31, PAST ONE PAST FIVE PAST TEN
1998) YEAR YEARS YEARS
- ------------------------------------------------------------
<S> <C> <C> <C>
CLASS IA SHARES
- ------------------------------------------------------------
LIPPER SMALL
COMPANY GROWTH
FUNDS AVERAGE
- ------------------------------------------------------------
50% S&P 400
MID-CAP/50%
RUSSELL 2000
- ------------------------------------------------------------
S&P 400 MID-CAP
- ------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
The Hudson River Trust 12
<PAGE>
ALLIANCE SMALL CAP GROWTH PORTFOLIO
- --------------------------------------------------------------------------------
OBJECTIVE:
This Portfolio seeks to achieve long-term growth of capital.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS:
The Portfolio invests primarily in stocks and other equity securities of
smaller companies. The Portfolio may at times invest in companies in cyclical
industries, companies whose securities are temporarily undervalued, companies
in special situations and less widely known companies. The Portfolio may invest
in foreign securities and may also make use of various other investment
strategies, including securities lending and investments in debt securities.
The Portfolio may use derivatives.
Among the principal risks of investing in the Portfolio are smaller company
risk, market risk, credit risk, leveraging risk, derivatives risk, liquidity
risk and management risk. The Portfolio is subject to foreign investment risk
and currency risk through its investments in foreign securities.
YEARLY PERFORMANCE
- --------------------------------------------------------------------------------
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE
PURPOSE OF EDGAR FILING.]
[BAR GRAPH]
1998
----
Calendar Year End
During the periods shown above, the highest quarterly return was for the
quarter ended , and the lowest was for the quarter ended . For the
quarter ended March 31, 1999, the Portfolio's return was %.
PERFORMANCE TABLE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL
RETURNS (FOR PERIODS
ENDING DECEMBER 31, SINCE INCEPTION
1998) PAST ONE YEAR (MAY 1, 1997)
- ----------------------------------------------------------
<S> <C> <C>
CLASS IA SHARES
- ----------------------------------------------------------
LIPPER SMALL
COMPANY GROWTH
FUNDS AVERAGE
- ----------------------------------------------------------
RUSSELL 2000
- ----------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
13 The Hudson River Trust
<PAGE>
THE FIXED INCOME SERIES
ALLIANCE MONEY MARKET PORTFOLIO
- --------------------------------------------------------------------------------
OBJECTIVE:
This Portfolio seeks to obtain a high level of current income, preserve its
assets and maintain liquidity.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS:
The Portfolio invests in high quality U.S. dollar denominated money market
instruments. Its investments are limited to those which, in the opinion of
Alliance, present minimal credit risk. The Portfolio will maintain a
dollar-weighted average portfolio maturity of 90 days or less. The Portfolio
may make use of various other investment strategies, including investments in
U.S. dollar denominated foreign money market instruments and securities
lending.
Among the principal risks of investing in the Portfolio are money market risk,
market risk, credit risk, leveraging risk and management risk. The Portfolio is
subject to foreign investment risk through its investments in foreign money
market instruments and is subject to credit risk through its involvement with
securities lending.
YEARLY PERFORMANCE
- --------------------------------------------------------------------------------
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE
PURPOSE OF EDGAR FILING.]
[BAR GRAPH]
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
9.2 8.2 6.2 3.6 3.0 4.0 5.7 5.3 5.4
Calendar Year End
During the periods shown above, the highest quarterly return was for the
quarter ended , and the lowest was for the quarter ended . For the
quarter ended March 31, 1999, the Portfolio's return was %. [The Portfolio's
7-day yield for the quarter ended December 31, 1998 was %.]
PERFORMANCE TABLE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL
RETURNS (FOR PERIODS
ENDING DECEMBER 31, PAST ONE PAST FIVE PAST TEN
1998) YEAR YEARS YEARS
- ------------------------------------------------------------
<S> <C> <C> <C>
CLASS IA SHARES
- ------------------------------------------------------------
LIPPER MONEY
MARKET MUTUAL
FUNDS AVERAGE
- ------------------------------------------------------------
3 MONTH TREASURY
BILL
- ------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
The Hudson River Trust 14
<PAGE>
ALLIANCE INTERMEDIATE GOVERNMENT SECURITIES PORTFOLIO
- --------------------------------------------------------------------------------
OBJECTIVE:
This Portfolio seeks 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 its
agencies or instrumentalities.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS:
The Portfolio invests primarily in U.S. Government securities, which for these
purposes includes repurchase agreements and forward commitments related to U.S.
Government securities. The Portfolio may also purchase debt securities of
non-government issuers that own mortgages. The Portfolio's investments will
generally have a final maturity of not more than ten years or a duration (a
measure of a debt instrument's sensitivity to interest rates) not exceeding
that of a 10-year Treasury note. The Portfolio may also make use of various
other investment strategies, including short sales, the purchase or sale of
securities on a when-issued, delayed delivery or forward commitment basis, and
repurchase agreements. The Portfolio uses derivatives.
Among the principal risks of investing in the Portfolio are market risk, credit
risk, leveraging risk, derivatives risk and management risk.
YEARLY PERFORMANCE
- --------------------------------------------------------------------------------
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE
PURPOSE OF EDGAR FILING.]
[BAR GRAPH]
1992 1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ---- ----
5.5 10.6 -4.4 13.3 3.8 7.3
Calendar Year End
During the periods shown above, the highest quarterly return was for the
quarter ended , and the lowest was for the quarter ended . For the
quarter ended March 31, 1999, the Portfolio's return was %.
PERFORMANCE TABLE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL SINCE
RETURNS (FOR PERIODS INCEPTION
ENDING DECEMBER 31, PAST ONE PAST FIVE (APRIL 1,
1998) YEAR YEARS 1991)
- --------------------------------------------------------------
<S> <C> <C> <C>
CLASS IA SHARES
- --------------------------------------------------------------
LIPPER
INTERMEDIATE
GOVERNMENT
FUNDS AVERAGE
- --------------------------------------------------------------
LEHMAN
INTERMEDIATE
GOVERNMENT BOND
- --------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
15 The Hudson River Trust
<PAGE>
ALLIANCE QUALITY BOND PORTFOLIO
- --------------------------------------------------------------------------------
OBJECTIVE:
This Portfolio seeks to achieve high current income consistent with
preservation of capital by investing primarily in investment grade fixed income
securities.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS:
In addition to investment grade debt securities (securities rated at least BBB
by S&P or determined by Alliance to be of comparable quality), the Portfolio
may at times invest in convertible debt securities, preferred stock and
dividend-paying common stocks. The Portfolio may invest in foreign securities
and also make use of various other investment strategies, including zero coupon
securities, securities lending, the purchase or sale of securities on a
when-issued, delayed delivery or forward commitment basis and repurchase
agreements. The Portfolio may use derivatives.
Among the principal risks of investing in the Portfolio are market risk,
management risk, leveraging risk, derivatives risk and credit risk. The
Portfolio is subject to foreign investment risk and currency risk through its
investments in foreign securities.
YEARLY PERFORMANCE
- --------------------------------------------------------------------------------
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE
PURPOSE OF EDGAR FILING.]
[BAR GRAPH]
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
-5.1 17.0 5.4 9.1
Calendar Year End
During the periods shown above, the highest quarterly return was for the
quarter ended , and the lowest was for the quarter ended . For the
quarter ended March 31, 1999, the Portfolio's return was %.
PERFORMANCE TABLE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL SINCE
RETURNS (FOR PERIODS INCEPTION
ENDING DECEMBER 31, PAST ONE PAST FIVE (OCTOBER 1,
1998) YEAR YEARS 1993)
- ----------------------------------------------------------------
<S> <C> <C> <C>
CLASS IA SHARES
- ----------------------------------------------------------------
LIPPER CORPORATE
DEBT FUNDS A
RATED AVERAGE
- ----------------------------------------------------------------
LEHMAN AGGREGATE
BOND
- ----------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
The Hudson River Trust 16
<PAGE>
ALLIANCE HIGH YIELD PORTFOLIO
- --------------------------------------------------------------------------------
OBJECTIVE:
This Portfolio seeks to achieve a high return by maximizing current income and,
to the extent consistent with that objective, capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS:
The Portfolio invests primarily in high yield debt securities (so-called "junk
bonds"). The Portfolio may also make use of various other investment
strategies, including investments in common stocks and other equity securities
and securities lending. The Portfolio may use derivatives.
Among the principal risks of investing in the Portfolio are credit risk, market
risk, leveraging risk, derivatives risk, liquidity risk, smaller company risk
and management risk. Credit risk is particularly high for the Portfolio because
of its extensive investment in high yield debt securities.
YEARLY PERFORMANCE
- --------------------------------------------------------------------------------
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE
PURPOSE OF EDGAR FILING.]
[BAR GRAPH]
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
5.1 -1.1 24.5 12.3 23.2 -2.8 19.9 22.9 18.5
Calendar Year End
During the periods shown above, the highest quarterly return was for the
quarter ended , and the lowest was for the quarter ended . For the
period ended March 31, 1999 the Portfolio's return was %.
PERFORMANCE TABLE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL
RETURNS (FOR PERIODS
ENDING DECEMBER 31, PAST ONE PAST FIVE PAST TEN
1998) YEAR YEARS YEARS
- ------------------------------------------------------------
<S> <C> <C> <C>
CLASS IA SHARES
- ------------------------------------------------------------
LIPPER HIGH
CURRENT YIELD
BOND FUNDS
AVERAGE
- ------------------------------------------------------------
ML MASTER
- ------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
17 The Hudson River Trust
<PAGE>
SUMMARY OF PRINCIPAL RISKS
The value of your investment in a Portfolio changes with the values of the
Portfolio's investments. Many factors can affect those values. This summary
describes the principal risks that may affect a particular Portfolio's
investments as a whole. The chart at the end of this section displays similar
information. Any Portfolio could be subject to additional principal risks
because the types of investments made by the Portfolios can change over time.
Investments mentioned in this summary and described in greater detail under
"Description of the Portfolios" or "Investment Techniques" appear in BOLD TYPE.
Those sections also include more information about the Portfolios, their
investments and the related risks.
o MARKET AND INTEREST RATE RISK. Each of the Portfolios is subject to market
risk, which is the general risk of unfavorable changes in the market value
of a Portfolio's securities. The Portfolios that invest in common stock,
preferred stock, convertible securities and other equity securities, are
exposed to the risks of changes in the value of those securities based on
market fluctuations and business variables. These include the risks of
broader market declines as well as more company-specific risks, such as
poor management performance, inappropriate financial leverage, industry
problems and reduced demand for a particular company's products.
Interest rate risk is the risk that interest rates will rise causing a
portfolio's investments to decline in value. Portfolios that invest in debt
securities such as bonds, notes and ASSET-BACKED SECURITIES are subject to
this type of market risk. Debt securities are obligations of an issuer to
make fixed payments of principal and/or interest on future dates. If the
interest rate paid by an issuer on a particular debt security is high
relative to market interest rates, that security is attractive to investors
and valuable. Accordingly, if market interest rates rise, your investment
in a Portfolio that holds debt securities is likely to become less valuable
because its debt securities are likely to drop in value.
Even the Alliance Intermediate Government Securities Portfolio is
subject to interest rate risk despite the fact that it generally invests a
substantial portion of its assets in the highest quality debt securities
such as U.S. Government Securities. Interest rate risk is generally
greater, however, for Portfolios, such as the Alliance Growth Investors
Portfolio and the Alliance High Yield Portfolio, that invest significant
assets in lower-rated securities or comparable unrated securities.
All the Portfolios, except the Alliance Equity Index Portfolio, may
invest in MORTGAGE-BACKED SECURITIES. Market risk generally is greater for
Portfolios that may invest to a material extent in MORTGAGE-RELATED or
other ASSET-BACKED SECURITIES that may be prepaid. These securities bear
greater market risk because they have variable maturities that tend to
lengthen when that is least desirable -- when interest rates are rising.
Increased market risk is also likely for Portfolios that invest to a
material extent in debt securities paying no interest, such as ZERO COUPON,
principal-only and interest-only securities, or paying non-cash interest in
the form of other debt securities (pay-in-kind securities).
o CREDIT RISK. Credit risk is the risk that the issuer or the guarantor of a
debt security or the counterparty to a Portfolio's transaction will be
unable or unwilling to make timely principal and/or interest payments, or
otherwise to honor its obligations. Each of the Portfolios may be subject
to credit risk to the extent that it invests in debt securities or engages
in transactions, such as SECURITIES LOANS, which involve a promise by a
third party to honor an obligation to the Portfolio. Varying degrees of
credit risk, often reflected in credit ratings, apply to different third
parties and related transactions.
Credit risk is particularly significant for Portfolios, such as the
Alliance Growth Investors Portfolio and the Alliance High Yield Portfolio,
that invest a material portion of their assets in LOWER-RATED SECURITIES.
These debt securities and similar unrated securities (commonly known as
"junk bonds") have speculative elements or are predominantly speculative
credit risks. Even debt securities that are "investment grade" may have
some speculative characteristics. Portfolios such as the Alliance Growth
Investors Portfolio and the Alliance High Yield Portfolio may also be
subject to greater credit risk because they may invest in debt securities
issued in connection with corporate restructurings by highly leveraged
issuers or in debt securities not current in the payment of interest
- --------------------------------------------------------------------------------
The Hudson River Trust 18
<PAGE>
or principal, or in default. Portfolios such as the Alliance Balanced
Portfolio, the Alliance Global Portfolio and the Alliance International
Portfolio that may invest significantly in FOREIGN SECURITIES are also
subject to increased credit risk because of the difficulties of requiring
foreign entities, including issuers of sovereign debt, to honor their
contractual commitments, and because a number of foreign governments and
other issuers are already in default.
o CURRENCY RISK. Portfolios such as the Alliance Global Portfolio, the
Alliance International Portfolio and the Alliance Growth and Income
Portfolio that invest in securities denominated in, and/or receiving
revenues in, FOREIGN CURRENCIES will be subject to currency risk. This is
the risk that those currencies will decline in value relative to the U.S.
Dollar, or, in the case of hedging positions, that the U.S. Dollar will
decline in value relative to the currency hedged. In either event, the
dollar value of such investments would be adversely affected.
o FOREIGN INVESTMENT RISK. Portfolios with foreign investments, such as the
Alliance Global Portfolio, the Alliance International Portfolio and the
Alliance Balanced Portfolio, may experience more rapid and extreme changes
in value than Portfolios with investments solely in securities of U.S.
companies. This is because the securities markets of many foreign countries
are relatively small, with a limited number of companies representing a
small number of industries.
Additionally, FOREIGN SECURITIES issuers are usually not subject to
the same degree of regulation as U.S. issuers. Reporting, accounting and
auditing standards of foreign countries differ, in some cases
significantly, from U.S. standards. Also, nationalization, expropriation or
confiscatory taxation, currency blockage, political changes or diplomatic
developments could adversely affect a Portfolio's investments in a foreign
country. In the event of nationalization, expropriation or other
confiscation, a Portfolio could lose its entire investment.
o LEVERAGING RISK. When a Portfolio is borrowing money or otherwise
leveraging its portfolio, the value of an investment in that Portfolio will
be more volatile and all other risks will tend to be compounded. All of the
Portfolios may take on leveraging risk by investing collateral from
SECURITIES LOANS and by borrowing money to meet redemption requests.
o DERIVATIVES RISK. All the Portfolios, except the Alliance Money Market
Portfolio, may use DERIVATIVES, which are financial contracts whose value
depends on, or is derived from, the value of an underlying asset, reference
rate or index. Alliance will sometimes use DERIVATIVES as part of a
strategy designed to reduce other risks and sometimes will use DERIVATIVES
for leverage, which increases opportunities for gain but also involves
greater risk. In addition to other risks such as the credit risk of the
counterparty, DERIVATIVES involve the risk of mispricing or improper
valuation and the risk that changes in the value of the derivative may not
correlate perfectly with relevant assets, rates and indices.
o LIQUIDITY RISK. Liquidity risk exists when particular investments are
difficult to purchase or sell, possibly preventing a Portfolio from selling
out of these illiquid securities at an advantageous price. Portfolios such
as the Alliance Global Portfolio, the Alliance International Portfolio, the
Alliance Growth Investors Portfolio, the Alliance Aggressive Stock
Portfolio, the Alliance Small Cap Growth Portfolio and the Alliance High
Yield Portfolio are subject to liquidity risk because foreign investments
and securities involving substantial market and/or credit risk tend to be
harder to sell. In addition, liquidity risk for the Alliance High Yield
Portfolio tends to increase to the extent that it invests in LOAN
PARTICIPATIONS AND ASSIGNMENTS, whose sale may be restricted by law or by
contract.
o SMALLER COMPANY RISK. Market risk and liquidity risk are particularly
pronounced for Portfolios, such as the Alliance Aggressive Stock Portfolio
and the Alliance Small Capital Growth Portfolio, that invest a significant
percentage of their assets in the stocks of companies with relatively small
market capitalizations. These companies may have limited product lines,
markets or financial resources or may depend on a few key employees.
o MONEY MARKET RISK. While money market funds are designed to be relatively
low risk investments, they are not entirely free of risk. Despite the short
maturities and high credit quality of the Alliance
- --------------------------------------------------------------------------------
19 The Hudson River Trust
<PAGE>
Money Market Portfolio's investments, increases in interest rates and
deteriorations in the credit quality of the instruments the Portfolio has
purchased may reduce the Portfolio's net asset value. In addition, the
Portfolio is still subject to the risk that the value of an investment may
be eroded over time by inflation.
o MANAGEMENT RISK. Each Portfolio is subject to management risk because it is
an actively managed investment portfolio. Alliance will apply its
investment techniques and risk analyses in making investment decisions for
the Portfolios, but there can be no guarantee that they will produce the
desired results. In some cases, certain investments may be unavailable or
Alliance may choose not to use them under market conditions when, in
retrospect, their use would have been beneficial to the Portfolios.
PRINCIPAL RISKS BY PORTFOLIO
The following chart summarizes the principal risks of each Portfolio. Risks
not marked for a particular Portfolio may, however, still apply to some extent
to that Portfolio at various times.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
MARKET
OR
INTEREST FOREIGN
ALLIANCE RATE CREDIT CURRENCY INVESTMENT LEVERAGING
PORTFOLIO RISK RISK RISK RISK RISK
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Conservative
Investors X X X X X
- ----------------------------------------------------------------------------
Balanced X X X X X
- ----------------------------------------------------------------------------
Growth Investors X X X X X
- ----------------------------------------------------------------------------
Growth and Income X X X X X
- ----------------------------------------------------------------------------
Equity Index X X X
- ----------------------------------------------------------------------------
Common Stock X X X X X
- ----------------------------------------------------------------------------
Global X X X X X
- ----------------------------------------------------------------------------
International X X X X X
- ----------------------------------------------------------------------------
Aggressive Stock X X X X X
- ----------------------------------------------------------------------------
Small Capital
Growth X X X X X
- ----------------------------------------------------------------------------
Money Market X X X X
- ----------------------------------------------------------------------------
Intermediate
Government
Securities X X X
- ----------------------------------------------------------------------------
Quality Bond X X X X X
- ----------------------------------------------------------------------------
High Yield X X X X X
- ----------------------------------------------------------------------------
<CAPTION>
SMALLER MONEY
ALLIANCE DERIVATIVES LIQUIDITY COMPANY MARKET MANAGEMENT
PORTFOLIO RISK RISK RISK RISK RISK
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Conservative
Investors X X
- -----------------------------------------------------------------------------
Balanced X X X
- -----------------------------------------------------------------------------
Growth Investors X X X
- -----------------------------------------------------------------------------
Growth and Income X X X
- -----------------------------------------------------------------------------
Equity Index X
- -----------------------------------------------------------------------------
Common Stock X X X
- -----------------------------------------------------------------------------
Global X X X
- -----------------------------------------------------------------------------
International X X X
- -----------------------------------------------------------------------------
Aggressive Stock X X X X
- -----------------------------------------------------------------------------
Small Capital
Growth X X X X
- -----------------------------------------------------------------------------
Money Market X X
- -----------------------------------------------------------------------------
Intermediate
Government
Securities X X
- -----------------------------------------------------------------------------
Quality Bond X X
- -----------------------------------------------------------------------------
High Yield X X X X
- -----------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
The Hudson River Trust 20
<PAGE>
DESCRIPTION OF THE PORTFOLIOS
This section of the Prospectus provides a more complete description of the
principal investment objectives, strategies, and risks of the Portfolios. Of
course, there can be no assurance that any portfolio will achieve its
investment objective.
Please note that:
o Additional discussion of the Portfolio's investments, including the
risks of the investments, can be found in the discussion under
"Investment Techniques" following this section.
o The description of the principal risks for a Portfolio may include
risks described in the "Summary of Risks" above. Additional
information about risks of investing in a Portfolio can be found in
the discussion below under "Investment Techniques."
o Additional descriptions of each Portfolio's strategies, investments
and risks can be found in the Portfolios' Statement of Additional
Information or SAI.
o Except as noted, (i) the Portfolios' investment objectives are
"fundamental" and cannot be changed without shareholder vote, and (ii)
the Portfolios' investment policies are not fundamental and thus can
be changed without a shareholder vote.
THE ASSET ALLOCATION SERIES
The Alliance Conservative Investors Portfolio, the Alliance Balanced Portfolio
and the Alliance Growth Investors Portfolio together are called the Asset
Allocation Series. These Portfolios invest in a variety of fixed income and
equity securities, each pursuant to a different asset allocation strategy, as
described below. The term "asset allocation" is used to describe the process of
shifting assets among discrete categories of investments in an effort to reduce
risk while producing desired return objectives. Portfolio management,
therefore, will consist not only of selecting specific securities but also of
setting, monitoring and changing, when necessary, the asset mix.
Each Portfolio has been designed with a view toward a different "investor
profile." The "conservative investor" has a relatively short-term investment
bias, either because of a limited tolerance for market volatility or a short
investment horizon. This investor is averse to taking risks that may result in
principal loss, even though such aversion may reduce the potential for higher
long-term gains and result in lower performance during periods of equity market
strength. Consequently, the asset mix for the Alliance Conservative Investors
Portfolio attempts to reduce volatility while providing modest upside
potential. The "growth investor" has a longer-term investment horizon and is
therefore willing to take more risks in an attempt to achieve long-term growth
of principal. This investor wishes, in effect, to be risk conscious without
being risk averse. The asset mix for the Alliance Growth Investors Portfolio
attempts to provide for upside potential without excessive volatility.
The "balanced investor" is somewhat less aggressive than the growth investor
and has a medium- to long-term investment horizon. This investor is sensitive
to risk, but is willing to take on some risk in seeking high total return.
Consequently, the asset mix for the Alliance Balanced Portfolio attempts to
capture a sizable portion of the market's upside while diversifying risk among
asset classes.
Alliance 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. 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.
- --------------------------------------------------------------------------------
21 The Hudson River Trust
<PAGE>
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 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, 1998, the duration of a 10-year Treasury bond was
considered by Alliance to be years.
The Portfolio is generally expected to hold approximately 70% of its assets in
fixed income securities (including the Fixed Income Core) and 30% in equity
securities. Actual asset mixes will be adjusted in response to economic and
credit market cycles. The fixed income asset class will always comprise at
least 50%, but never more than 90%, of the Portfolio's total assets. The equity
class will always comprise at least 10%, but never more than 50%, of the
Portfolio's total assets.
ALLIANCE BALANCED PORTFOLIO--INVESTMENT POLICIES
The Alliance Balanced Portfolio attempts to achieve its objective by investing
varying portions of its assets in publicly-traded equity and debt securities
and money market instruments. The Alliance Balanced Portfolio attempts to
achieve long-term growth of capital by investing in common stock and other
equity-type instruments. It will try to achieve a competitive level of current
income and capital appreciation through investments in publicly traded debt
securities and a high level of current income through investments in money
market instruments.
- --------------------------------------------------------------------------------
The Hudson River Trust 22
<PAGE>
The portion of the Alliance Balanced Portfolio's assets invested in each type
of security will vary in accordance with economic conditions, the general level
of common stock prices, interest rates and other relevant considerations,
including the risks associated with each investment medium. Although the
Alliance Balanced Portfolio will seek to reduce the risks associated with any
one investment medium by utilizing a variety of investments, performance will
depend upon Alliance's ability to assess accurately and react to changing
market conditions.
The Alliance Balanced Portfolio will at all times hold at least 25% of its
assets in fixed income securities (including, for these purposes, that portion
of the value of securities convertible into common stock which is attributable
to the fixed income characteristics of those securities, as well as money
market instruments). The Portfolio's equity securities will always comprise at
least 25%, but never more than 75%, of the Portfolio's total assets.
Consequently, the Portfolio will have "Core Holdings" of at least 25% fixed
income securities and 25% equity securities. Over time, holdings by the
Portfolio are currently expected to average approximately 50% in fixed income
securities and approximately 50% in equity securities. Actual asset mixes will
be adjusted in response to economic and credit market cycles.
The equity securities invested in by the Alliance Balanced Portfolio will
consist of the types of securities in which the Alliance Common Stock Portfolio
may invest. The money market securities will consist of the types of securities
and credit quality in which the Alliance Money Market Portfolio may invest. The
debt securities will consist principally of bonds, notes, debentures and
equipment trust certificates. The Portfolio may also buy debt securities with
equity features such as conversion or exchange rights or warrants for the
acquisition of stock or participations based on revenues, rates or profits.
These debt securities will principally be investment grade securities rated at
least Baa by Moody's or BBB by S&P, or will be issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. If such Baa or BBB debt
securities held by the Portfolio fall below those ratings, the Portfolio will
not be obligated to dispose of them and may continue to hold them if Alliance
considers them appropriate investments under the circumstances. In addition,
the Alliance Balanced Portfolio may at times hold some of its assets in cash.
The Portfolio may invest up to 20% of its total assets in foreign securities.
See "Investment Techniques--Foreign Securities and Currencies," below. The
Portfolio may make secured loans of up to 50% of its total portfolio
securities. See "Investment Techniques--Securities Lending," below. The
Alliance Balanced Portfolio may write covered call and put options and may
purchase call and put options on all the types of securities in which it may
invest, as well as securities indexes and foreign currencies. The Alliance
Balanced Portfolio may also purchase and sell stock index, interest rate and
foreign currency futures contracts and options thereon. See "Investment
Techniques--Options," "Investment Techniques--Futures" and "Investment
Techniques--Risk Factors in Options and Futures," below.
ALLIANCE GROWTH INVESTORS PORTFOLIO--INVESTMENT POLICIES
The Alliance Growth Investors Portfolio attempts to achieve its investment
objective by allocating varying portions of its assets to a number of asset
classes. Equity investments will include both exchange-traded and
over-the-counter common stocks and equity-type securities, which may include
preferred stock and convertible securities, and may include securities issued
by intermediate- and small-sized companies that, in the opinion of Alliance,
have favorable growth prospects. More risk is associated with investment in
intermediate and small-sized companies because they are often dependent on
limited product lines, financial resources or management groups. They may be
more vulnerable to competition from larger companies with greater resources and
to economic conditions affecting their market sector. Intermediate- and
small-sized companies may be new, without long business or management
histories, and perceived by the market as unproven. Their securities may be
held primarily by insiders or institutional investors, and may trade
infrequently or in limited volume. The prices of these stocks often fluctuate
more than those of larger, more established companies. Fixed income investments
will include investment grade fixed income securities (including cash and money
market instruments) as well as securities that have a high current yield and
that are either rated in the lower categories by nationally recognized
statistical rating organizations ("NRSROs") (i.e., Baa or lower by Moody's or
BBB or lower by S&P) or are unrated. For a discussion of the risks associated
with investment in these higher yielding securities, see "Investment
Techniques--Fixed Income Securities" and "Investment Techniques--
- --------------------------------------------------------------------------------
23 The Hudson River Trust
<PAGE>
Risk Factors of Lower Rated Fixed Income Securities," below. For the fiscal
year ended December 31, 1998, approximately [ ]% 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.
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.
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<PAGE>
ALLIANCE EQUITY INDEX PORTFOLIO--INVESTMENT POLICIES
The Alliance Equity Index Portfolio's investment objective is to seek a total
return before expenses that approximates the total return of the S&P 500
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 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.
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25 The Hudson River Trust
<PAGE>
Most of the time, the Alliance Common Stock Portfolio will invest primarily in
common stocks that are listed on national securities exchanges. Smaller amounts
will be invested in stocks that are traded over-the-counter and in other
equity-type securities (such as preferred stocks or convertible debt
instruments). Current income is an incidental consideration. The Alliance
Common Stock Portfolio generally will not invest more than 20% of its total
assets in foreign securities. See "Investment Techniques--Foreign Securities
and Currencies," below.
If, in light of economic conditions and the general level of common stock
prices, it appears that the Portfolio's investment objective will not be met by
using all its assets to buy equities, the Alliance Common Stock Portfolio may
also use part of its assets to make nonequity investments. These could include
buying securities such as nonparticipating and nonconvertible preferred stocks
and certain fixed income securities. Fixed income securities will include
investment grade bonds and debentures and money market instruments, as well as
securities that have a high current yield because they are either rated in the
lower categories by NRSROs (i.e., Baa or lower by Moody's or BBB or lower by
S&P) or are unrated. For a discussion of the risks associated with investment
in these higher yielding securities, see "Investment Techniques--Fixed Income
Securities" and "Investment Techniques--Risk Factors of Lower Rated Fixed
Income Securities," below. For the fiscal year ended December 31, 1998, 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 U.S.
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.
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The Hudson River Trust 26
<PAGE>
ALLIANCE INTERNATIONAL PORTFOLIO--INVESTMENT POLICIES
The Alliance International Portfolio attempts to achieve its objective by
investing primarily in a diversified portfolio of equity securities selected
principally to permit participation in non-U.S. companies or foreign
governmental enterprises that, in the opinion of Alliance, have prospects for
growth. These non-U.S. companies may have operations in the United States, in
their country of incorporation and/or in other countries. The Alliance
International Portfolio intends to have represented in the Portfolio business
activities in not less than three different countries and may invest anywhere
in the world, including Europe, Canada, Australia, Asia, Latin America and
Africa. The Alliance International Portfolio may purchase securities of
developing countries, which include, among others, Mexico, Brazil, Hong Kong,
India, Poland, Turkey and South Africa. The Alliance International Portfolio
intends to diversify investments among several countries, although for
temporary defensive purposes, the Alliance International Portfolio may at times
invest substantially all of its assets in securities issued by a single major
developed country (e.g., the United States) or in cash or cash equivalents,
including money market instruments issued by that country.
The Alliance International Portfolio may invest in any type of investment
grade, fixed income security including, but not limited to, preferred stock,
convertible securities, bonds, notes and other evidences of indebtedness of
foreign issuers, including obligations of foreign governments. The Alliance
International Portfolio may also establish and maintain temporary cash balances
in U.S. and foreign short-term high-grade money market instruments for
defensive purposes or to take advantage of buying opportunities. Although no
particular proportion of stocks, bonds or other securities is required to be
maintained, the Alliance International Portfolio intends under normal market
conditions to invest primarily in equity securities. The Alliance International
Portfolio may make loans of up to 50% of its portfolio securities. See
"Investment Techniques--Securities Lending," below. The Alliance International
Portfolio may write covered call and put options and may purchase call and put
options on individual equity securities, securities indexes, and foreign
currencies. See "Investment Techniques--Options," below. The Alliance
International Portfolio may also purchase and sell stock index, foreign
currency and interest rate futures contracts and options on such contracts, as
well as forward foreign currency exchange contracts. See "Investment
Techniques--Forward Foreign Currency Exchange Contracts," "Investment
Techniques--Futures," and "Investment Techniques--Risk Factors in Options and
Futures," below.
Risk Factors. For a discussion of the risks associated with investments in
foreign securities, see "Investment Techniques--Foreign Securities and
Currencies," below.
ALLIANCE AGGRESSIVE STOCK PORTFOLIO--INVESTMENT POLICIES
The Alliance Aggressive Stock Portfolio attempts to achieve its objective by
investing primarily in common stocks and other equity-type securities issued by
intermediate- and small-sized companies that, in the opinion of Alliance, have
favorable growth prospects. The Alliance Aggressive Stock Portfolio may also
invest a portion of its assets in securities of companies in cyclical
industries, companies whose securities are temporarily undervalued, companies
in special situations and less widely known companies.
If, in light of economic conditions, it appears that the Alliance Aggressive
Stock Portfolio's objective will not be achieved primarily through investments
in common stocks, the Portfolio may also invest in other equity-type securities
(such as preferred stocks and convertible debt instruments) and protective
options. Under certain market conditions, the Alliance Aggressive Stock
Portfolio may also invest in corporate fixed income securities, which will
generally be investment grade, or invest part of its assets in cash or cash
equivalents for liquidity or defensive purposes, including money market
instruments rated at least Prime-1 by Moody's or A-1 by S&P. The Alliance
Aggressive Stock Portfolio may invest no more than 20% of its total assets in
foreign securities. See "Investment Techniques--Foreign Securities and
Currencies," below. The Portfolio may make secured loans of up to 50% of its
total portfolio securities. See "Investment Techniques--Securities Lending,"
below. The Alliance Aggressive Stock Portfolio may write covered call options
and may purchase call and put options on individual equity securities,
securities indexes and foreign currencies. The Alliance Aggressive Stock
Portfolio may also purchase and sell stock index and foreign currency futures
contracts and options thereon. See "Investment Techniques--Options,"
"Investment Techniques--Futures" and "Risk Factors in Options and Futures,"
below.
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27 The Hudson River Trust
<PAGE>
Risk Factors. More risk is associated with investment in intermediate- and
small-sized companies, because they are often dependent on limited product
lines, financial resources or management groups. They may be more vulnerable to
competition from larger companies with greater resources and to economic
conditions affecting their market sector. Intermediate- and small-sized
companies may be new, without long business or management histories, and
perceived by the market as unproven. Their securities may be held primarily by
insiders or institutional investors, and may trade infrequently or in limited
volume. The prices of these stocks often fluctuate more than those of larger
more established companies.
ALLIANCE SMALL CAP GROWTH PORTFOLIO--INVESTMENT POLICIES
The Alliance Small Cap Growth Portfolio 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 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
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<PAGE>
guaranteed by (a) domestic banks (including their foreign branches) or savings
and loan associations having total assets of more than $1 billion and which are
members of the Federal Deposit Insurance Corporation ("FDIC") in the case of
banks, or insured by the FDIC, in the case of savings and loan associations or
(b) foreign banks (either by their foreign or U.S. branches) having total
assets of at least $5 billion and having an issue of either commercial paper
rated at least A-1 by S&P or Prime-1 by Moody's or long term debt rated at
least AA by S&P or Aa by Moody's; (3) commercial paper (rated at least A-1 by
S&P or Prime-1 by Moody's or, if not rated, issued by domestic or foreign
companies having outstanding debt securities rated at least AA by S&P or Aa by
Moody's) and participation interests in loans extended by banks to such
companies; (4) mortgage-backed securities and asset-backed securities; (5)
corporate debt obligations with remaining maturities of less than one year,
rated at least AA by S&P or Aa by Moody's, as well as corporate debt
obligations rated at least A by S&P or Moody's, provided the corporation also
has outstanding an issue of commercial paper rated at least A-1 by S&P or
Prime-1 by Moody's; (6) floating rate or master demand notes; and (7)
repurchase agreements covering securities issued or guaranteed by the U.S.
Government (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.
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29 The Hudson River Trust
<PAGE>
o "Ginnie Maes"--Ginnie Maes are debt securities issued by a mortgage
banker or other mortgagee and represent an interest in a pool of
mortgages insured by the Federal Housing Administration or the
Farmer's Home Administration or guaranteed by the Veteran's
Administration. The Government National Mortgage Association ("GNMA")
guarantees the timely payment of principal and interest. Ginnie Maes,
although not direct obligations of the U.S. Government, are guaranteed
by the U.S. Treasury.
o "Fannie Maes"--The Federal National Mortgage Association ("FNMA") is a
government-sponsored corporation owned entirely by private
stockholders that purchases residential mortgages from a list of
approved seller/servicers. Pass-through securities issued by FNMA are
guaranteed as to timely payment of principal and interest by FNMA and
supported by FNMA's right to borrow from the U.S. Treasury, at the
discretion of the U.S. Treasury. Fannie Maes are not backed by the
full faith and credit of the U.S. Government.
o "Freddie Macs"--The Federal Home Loan Mortgage Corporation ("FHLMC"),
a corporate instrumentality of the U.S. Government, issues
participation certificates ("PCs") which represent an interest in
residential mortgages from FHLMC's National Portfolio. FHLMC
guarantees the timely payment of interest and ultimate collection of
principal, but PCs are not backed by the full faith and credit of the
U.S. Government.
o Governmental Collateralized Mortgage Obligations--These are securities
issued by a U.S. Government instrumentality or agency which are backed
by a portfolio of mortgages or mortgage-backed securities held under
an indenture. See "Other Investments," below.
o "Sallie Maes"--The Student Loan Marketing Association ("SLMA") is a
government-sponsored corporation owned entirely by private
stockholders that provides liquidity for banks and other institutions
engaged in the Guaranteed Student Loan Program. These loans are either
directly guaranteed by the U.S. Treasury or guaranteed by state
agencies and reinsured by the U.S. Government. SLMA issues both short
term notes and longer term public bonds to finance its activities.
The Portfolio may also invest in "zero coupon" U.S. Government Securities which
have been stripped of their unmatured interest coupons and receipts or in
certificates representing undivided interests in such stripped U.S. Government
Securities and coupons. These securities tend to be more volatile than other
types of U.S. Government Securities.
Guarantees of the Portfolio's securities by the U.S. Government or its agencies
or instrumentalities guarantee only the payment of principal at maturity and
interest when due on the guaranteed securities, and do not guarantee the
securities' yield or value or the yield or value of the Alliance Intermediate
Government Securities Portfolio's shares.
The Portfolio buys and sells securities with a view to maximizing current
return without, in the view of Alliance, undue risk to principal. Potential
capital gains resulting from possible changes in interest rates will not be a
major consideration. The Portfolio may take full advantage of a wide range of
maturities of U.S. Government Securities and may adjust the dollar-weighted
average maturity of its portfolio from time to time, depending on Alliance's
assessment of relative yields on securities of different maturities and the
expected effect of future changes in interest rates on the market value of the
securities held by the Portfolio. However, at all times, each instrument held
by the Portfolio will have either a final maturity of not more than ten years
or a duration, as determined by Alliance, not exceeding that of a 10-year
Treasury note. Duration is a measure that relates the price volatility of a
security to changes in interest rates. The duration of a security is the
weighted average term to maturity, expressed in years, of the present value of
all future cash flows, including coupon payments and principal repayments.
Thus, by definition, duration is always less than or equal to full maturity. In
some cases, Alliance's calculation of duration will be based on certain
assumptions (including assumptions regarding prepayment rates, in the mortgage-
backed or asset-backed securities, and foreign and domestic interest rates). As
of December 31, 1998, the duration of a 10-year Treasury bond was considered by
Alliance to be years. The Portfolio may also invest a substantial portion of
its assets in money market instruments. See "Investment Techniques--Certain
Money Market Instruments," below.
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<PAGE>
It is a fundamental policy of the Alliance Intermediate Government Securities
Portfolio that under normal market conditions it will invest at least 65% of
its total assets in U.S. Government Securities and repurchase agreements and
forward commitments relating to U.S. Government Securities.
Other Investments. The Alliance Intermediate Government Securities Portfolio
may also purchase collateralized mortgage obligations ("CMOs") issued by
non-governmental issuers and securities issued by a real estate mortgage
investment conduits ("REMICs"). See "Investment Techniques--Mortgage-Backed and
Asset-Backed Securities," below. The Alliance Intermediate Government
Securities Portfolio will purchase only CMOs only if they collateralized by
U.S. Government Securities. However, CMOs issued by entities other than U.S.
Government agencies or instrumentalities and securities issued by REMICs are
not considered U.S. Government Securities for purposes of the investment
policies of the Alliance Intermediate Government Securities Portfolio even
though the CMOs may be collateralized by U.S. Government Securities. Such
securities will generally be investment grade. In the event such securities
fall below investment grade, the Portfolio will not be obligated to dispose of
such securities and may continue to hold such securities if, in the opinion of
Alliance, such investment is appropriate under the circumstances.
In order to enhance its current return and to reduce fluctuations in net asset
value, the Portfolio may write call and put options on U.S. Government
Securities which are "covered" as described herein and may purchase call and
put options on U.S. Government Securities. The Portfolio may also enter into
interest rate futures contracts with respect to U.S. Government Securities, and
may write and purchase options thereon. See "Investment Techniques--Options"
and "Investment Techniques--Futures," below.
The Portfolio may also enter into forward commitments for the purchase of U.S.
Government Securities, purchase such securities on a when-issued or delayed
delivery basis, make secured loans of its portfolio securities without
limitation and enter into repurchase agreements with respect to U.S. Government
Securities with commercial banks and registered broker-dealers. See "Investment
Techniques--Forward Commitments and When-Issued and Delayed Delivery
Securities," below.
The Portfolio may make short sales involving either securities retained in the
Portfolio's portfolio or securities which the Portfolio has the absolute right
to acquire without additional consideration.
Special Considerations. U.S. Government Securities are considered among the
safest of fixed income investments. As a result, however, their yields are
generally lower than the yields available from corporate debt securities. As
with other mutual funds, the value of the Portfolio's shares will fluctuate
with the value of its investments. The value of the Portfolio's investments
will change as the general level of interest rates fluctuates. During periods
of falling interest rates, the values of U.S. Government Securities generally
rise. Conversely, during periods of rising interest rates, the values of U.S.
Government Securities generally decline. In an effort to preserve the capital
of the Portfolio when interest rates are generally rising, the investment
adviser may shorten the average maturity of the U.S. Government Securities in
the Portfolio's portfolio. Because the principal values of U.S. Government
Securities with shorter maturities are less affected by rising interest rates,
a portfolio with a shorter average maturity will generally diminish less in
value during such periods than a portfolio of longer average maturity. Because
U.S. Government Securities with shorter maturities generally have a lower yield
to maturity, however, the Portfolio's current return based on its net asset
value will generally be lower as a result of such action than it would have
been had such action not been taken. Ginnie Maes and other mortgage-backed or
mortgage-related securities in which the Portfolio invests may not be an
effective means of "locking in" favorable long-term interest rates since the
Portfolio must reinvest scheduled and unscheduled principal payments relating
to such securities. At the time principal payments or prepayments are received
by the Portfolio and reinvested, prevailing interest rates may be higher or
lower than the Portfolio's current yield.
At times when the Portfolio has written call options, its ability to profit
from declining interest rates will be limited. Any resulting appreciation in
the value of the Portfolio would likely be partially or wholly offset by the
losses on call options written by the Portfolio. The termination of option
positions under such conditions would result in the realization of capital
losses, which would reduce the amounts available for distribution to
shareholders.
ALLIANCE QUALITY BOND PORTFOLIO--INVESTMENT POLICIES
The Alliance Quality Bond Portfolio expects to invest in readily marketable
securities with relatively attractive yields, but which do not, in the opinion
of Alliance, involve undue risk of loss of capital. The
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Alliance Quality Bond Portfolio will follow a policy of investing at least 65%
of its total assets in securities which are rated at the time of purchase at
least Baa by Moody's or BBB by S&P, or in unrated fixed income securities
determined by Alliance to be of comparable quality. In the event that the
credit rating of a security held by the Alliance Quality Bond Portfolio falls
below investment grade (or, in the case of unrated securities, Alliance
determines that the quality of such security has deteriorated below investment
grade), the Alliance Quality Bond Portfolio will not be obligated to dispose of
such security and may continue to hold the obligation if, in the opinion of
Alliance, such investment is appropriate in the circumstances. The Alliance
Quality Bond Portfolio will also seek to maintain an average aggregate quality
rating of its portfolio securities of at least A (Moody's and S&P). For more
information concerning the bond ratings assigned by Moody's and S&P, see
Appendix A.
The Alliance Quality Bond Portfolio has complete flexibility as to the types of
securities in which it will invest and the relative proportions thereof, and
the Alliance Quality Bond Portfolio plans to vary the proportions of its
holdings of long- and short-term fixed income securities (including debt
securities, convertible debt securities and U.S. Government obligations) and
preferred stocks in order to reflect Alliance's assessment of prospective
cyclical changes even if such action may adversely affect current income.
The Alliance Quality Bond Portfolio may invest in foreign securities. The
Alliance Quality Bond Portfolio will not invest more than 20% of its total
assets in securities denominated in currencies other than the U.S. dollar. See
"Investment Techniques--Foreign Securities and Currencies," below. The Alliance
Quality Bond Portfolio may enter into foreign currency futures contracts (and
related options), forward foreign currency exchange contracts and options on
foreign currencies for hedging purposes. See "Investment Techniques--Forward
Foreign Currency Exchange Contracts," below.
For temporary defensive purposes, the Alliance Quality Bond Portfolio may
invest in certain money market instruments. See "Investment Techniques--Certain
Money Market Instruments," below.
The Alliance Quality Bond Portfolio may purchase put and call options and write
covered put and call options on securities it may purchase. The Alliance
Quality Bond Portfolio also intends to write covered call options for
cross-hedging purposes. A call option is for cross-hedging purposes if it is
designed to provide a hedge against a decline in value of another security
which the Portfolio owns or has the right to acquire. See "Investment
Techniques--Options," below.
Interest Rate Transactions. The Alliance Quality Bond Portfolio may seek to
protect the value of its investments from interest rate fluctuations by
entering into various hedging transactions, such as interest rate swaps and the
purchase or sale of interest rate caps and floors. The Portfolio expects to
enter into these transactions primarily to preserve a return or spread on a
particular investment or portion of its portfolio. The Alliance Quality Bond
Portfolio may also enter into these transactions to protect against an increase
in the price of securities the Portfolio anticipates purchasing at a later
date. The Alliance Quality Bond Portfolio intends to use these transactions as
a hedge and not as a speculative investment. Interest rate swaps involve the
exchange by the Alliance Quality Bond Portfolio with another party of their
respective commitments to pay or receive interest, e.g., an exchange of
floating rate payments for fixed rate payments. The purchase of an interest
rate cap entitles the purchaser, to the extent that a specified index exceeds a
predetermined interest rate, to receive payments on a notional principal amount
from the party selling such interest rate cap. The purchase of an interest rate
floor entitles the purchaser, to the extent that a specified index falls below
a predetermined interest rate, to receive payments of interest on a notional
principal amount from the party selling such interest rate floor.
The Alliance Quality Bond Portfolio may enter into interest rate swaps, caps
and floors on either an asset-based or liability-based basis depending on
whether it is hedging its assets or its liabilities, and will only enter into
such swaps, caps and floors on a net basis, i.e., the two payment streams are
netted out, with the Alliance Quality Bond Portfolio receiving or paying, as
the case may be, only the net amount of the two payments. The net amount of the
excess, if any, of the Alliance Quality Bond Portfolio's obligations over its
entitlements with respect to each interest rate swap, cap or floor will be
accrued on a daily basis and an amount of cash or liquid securities having an
aggregate net asset value at least equal to the accrued excess will be
maintained in a segregated account by the custodian. The Alliance Quality
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<PAGE>
Bond Portfolio will not enter into any interest rate swap, cap or floor
transaction unless the unsecured senior debt or the claims-paying ability of
the other party thereto is rated in the highest rating category of at least one
NRSRO at the time of entering into such transaction. If there is a default by
the other party to such a transaction, the Alliance Quality Bond Portfolio will
have contractual remedies pursuant to the agreements related to the
transaction. Caps and floors are relatively recent innovations which may be
illiquid.
Zero Coupon Securities. To the extent consistent with its investment objective,
the Alliance Quality Bond Portfolio may invest in "zero coupon" securities,
which are debt securities that have been stripped of their unmatured interest
coupons, and receipts or certificates representing interests in such stripped
debt obligations and coupons. A zero coupon security pays no interest to its
holder during its life. Accordingly, such securities usually trade at a deep
discount from their face or par value and will be subject to greater
fluctuations in market value in response to changing interest rates than debt
obligations of comparable maturities that make current distributions of
interest. The Alliance Quality Bond Portfolio may also invest in "pay-in-kind"
debentures (i.e., debt obligations the interest on which may be paid in the
form of additional obligations of the same type rather than cash) which have
characteristics similar to zero coupon securities.
The Alliance Quality Bond Portfolio may invest in collateralized mortgage
obligations or CMOs. See "Investment Techniques--Mortgage-Backed and
Asset-Backed Securities," below. The Portfolio may purchase and sell interest
rate futures contracts and options thereon and may make loans of securities
with a value of up to 50% of its total assets. See "Investment
Techniques--Futures," "Investment Techniques--Risk Factors in Options and
Futures" and "Investment Techniques--Securities Lending," below.
ALLIANCE HIGH YIELD PORTFOLIO--INVESTMENT POLICIES
The Alliance High Yield Portfolio attempts to achieve its objective by
investing primarily in a diversified mix of high yield, fixed income
securities, which generally involve greater volatility of price and risk of
principal and income than high quality fixed income securities.
Ordinarily, the Portfolio will invest a portion of its assets in fixed income
securities which have a high current yield and that are either rated in the
lower categories of NRSROs (i.e., rated Baa or lower by Moody's or BBB or lower
by S&P) or are unrated. The Portfolio may also make temporary investments in
money market instruments of the same type as the Alliance Money Market
Portfolio. The Portfolio will not invest more than 10% of its total assets in
(i) fixed income securities which are rated lower than B3 or B- or their
equivalents by one NRSRO or if unrated are of equivalent quality as determined
by Alliance, and (ii) money market instruments of any entity which has an
outstanding issue of unsecured debt that is rated lower than B3 or B- or their
equivalents by an NRSRO or if unrated is of equivalent quality as determined by
Alliance; however, this restriction will not apply to (i) fixed income
securities which, in the opinion of Alliance, have similar characteristics to
securities which are rated B3 or higher by Moody's or B- or higher by S&P, or
(ii) money market instruments of any entity that has an unsecured issue of
outstanding debt which, in the opinion of Alliance, has similar characteristics
to securities which are so rated. See Appendix 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, 1998, 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: % in securities rated
AAA or its equivalent, % in securities rated BB or its equivalent, % in
securities rated B or its equivalent and % in securities rated CCC or its
equivalent. Of these securities, % were rated by an NRSRO and % 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.
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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
Balanced, Alliance Common Stock, Alliance Aggressive Stock, Alliance Small Cap
Growth, Alliance High Yield, Alliance Global, Alliance International, Alliance
Conservative Investors, Alliance Growth Investors, Alliance Intermediate
Government Securities, Alliance Quality Bond, Alliance Growth and Income and
Alliance Equity Index Portfolios may buy and sell exchange-traded financial
futures contracts, and options thereon. A brief description of certain of these
investment instruments and their risks appears below. More detailed information
is to be found in the SAI.
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.
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<PAGE>
DERIVATIVES
o Futures
The Alliance High Yield, Alliance Global, Alliance International, Alliance
Conservative Investors, Alliance Growth Investors, Alliance Intermediate
Government Securities, Alliance Balanced and Alliance Quality Bond Portfolios
may each purchase and sell futures contracts and related options on debt
securities and on indexes of debt securities to hedge against anticipated
changes in interest rates that might otherwise have an adverse effect on the
value of their assets or assets they intend to acquire. In addition, each
Portfolio listed above (except the Alliance Intermediate Government Securities
and Alliance Quality Bond Portfolios) as well as the Alliance Common Stock,
Alliance Aggressive Stock, Alliance Small Cap Growth and Alliance Growth and
Income Portfolios may purchase and sell stock index futures contracts and
related options to hedge the equity portion of its assets or equity assets it
intends to acquire with regard to market risk (as distinguished from
stock-specific risk). In the case of the Alliance Equity Index Portfolio,
futures contracts and related options on the S&P 500 Index may be purchased in
order to reduce brokerage costs, maintain liquidity to meet shareholder
redemptions or minimize tracking error. As described below under "Foreign
Securities and Currencies," the Alliance High Yield, Alliance Global, Alliance
International, Alliance Conservative Investors, Alliance Growth Investors,
Alliance Balanced, Alliance Common Stock, Alliance Aggressive Stock, Alliance
Small Cap Growth, Alliance Quality Bond and Alliance Growth and Income
Portfolios may each enter into futures contracts and related options on foreign
currencies in order to limit its exchange rate risk. All futures contracts and
related options will be traded on exchanges that are licensed and regulated by
the Commodity Futures Trading Commission ("CFTC"). All of the Portfolios,
except the Alliance Money Market Portfolio, may enter into futures contracts
and buy and sell related options without limitation, except as noted below.
Pursuant to regulations of the CFTC which provide an exemption from
registration as a commodity pool operator, a Portfolio will not purchase or
sell futures contracts or options on futures contracts unless either (i) the
futures contracts or options thereon are for "bona fide hedging" purposes (as
that term is defined under the CFTC regulations) or (ii) the sum of amounts of
initial margin deposits and premiums required to establish non-hedging
positions would not exceed 5% of the Portfolio's liquidation value. In
addition, the contract value of futures contracts purchased by the Alliance
Equity Index Portfolio plus the contract value of futures contracts underlying
call options purchased by the Alliance Equity Index Portfolio will not exceed
20% of the Alliance Equity Index Portfolio's total assets. When a Portfolio
purchases or sells a futures contract or writes a put or call option on a
futures contract, the Portfolio will segregate with its custodian liquid assets
(less any related margin deposits) equal to the cost of the futures contract it
intends to sell or purchase to insure that such futures positions are not
leveraged, or may otherwise cover such positions.
o 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
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<PAGE>
underlying security at a price below the current market price. If a Portfolio
writes an option which expires unexercised or is closed out by the Portfolio at
a profit, it will retain all or part of the premium received for the option,
which will increase its gross income. If the option is exercised, the Portfolio
will be required to sell or purchase the underlying security at a
disadvantageous price, or, in the case of index options, deliver an amount of
cash, which loss may only be partially offset by the amount of premium
received. Each of the Portfolios noted above may also purchase put or call
options on securities and securities indexes in order to hedge against changes
in interest rates or stock prices which may adversely affect the prices of
securities that the Portfolio wants to purchase at a later date, to hedge its
existing investments against a decline in value, or to attempt to reduce the
risk of missing a market or industry segment advance. In the event that the
expected changes in interest rates or stock prices occur, the Portfolio may be
able to offset the resulting adverse effect on the Portfolio by exercising or
selling the options purchased. The premium paid for a put or call option plus
any transaction costs will reduce the benefit, if any, realized by the
Portfolio upon exercise or liquidation of the option. Unless the price of the
underlying security or level of the securities index changes by an amount in
excess of the premium paid, the option may expire without value to the
Portfolio. See "Risk Factors in Options and Futures," below.
Options purchased or written by the Portfolios may be traded on the national
securities exchanges or negotiated with a dealer. Options traded in the
over-the-counter market may not be as actively traded as those on an exchange,
so it may be more difficult to value such options. In addition, 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.
o 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
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<PAGE>
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.
FIXED INCOME SECURITIES
Fixed income securities include preferred and preference stocks and all types
of debt obligations of both domestic and foreign issuers (such as bonds,
debentures, notes, equipment lease certificates, equipment trust certificates,
conditional sales contracts, commercial paper, mortgage-backed securities and
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities).
Corporate debt securities may bear fixed, contingent or variable rates of
interest and may involve equity features, such as conversion or exchange rights
or warrants for the acquisition of stock of the same or a different issuer or
participation based on revenues, sales or profits or the purchase of common
stock in a unit transaction (where corporate debt securities and common stock
are offered as a unit).
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 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.
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,
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37 The Hudson River Trust
<PAGE>
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.
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.
LOAN ASSIGNMENTS AND PARTICIPATIONS
The Alliance High Yield Portfolio may invest in participations and assignments
of loans to corporate, governmental, or other borrowers originally made by
institutional lenders or lending syndicates. These investments are subject to
the same risks associated with fixed income securities generally. For example,
loans to foreign governments will involve a risk that the governmental entities
responsible for the repayment of the loan may be unable, or unwilling, to pay
interest and repay principal when due. In addition, loan participations and
assignments are often not rated and may also be less liquid than other debt
interests.
Even if the loans are secured, there is no assurance that the liquidation of
collateral from a secured loan would satisfy the borrower's obligation, or that
the collateral can be liquidated. Also, if a loan is foreclosed, the Portfolio
could become part owner of any collateral, and would bear the costs and
liabilities associated with owning and disposing of the collateral. In
addition, it is conceivable that under emerging legal theories of lender
liability, the Portfolio could be held liable as a co-lender.
A loan is often administered by a bank or other financial institution that acts
as agent for all holders. The agent administers the terms of the loan, as
specified in the loan agreement, and the Portfolio will generally have to rely
on the agent to apply appropriate credit remedies against a borrower.
Consequently, loan participations may also be adversely affected by the
insolvency of the lending bank or other intermediary.
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES
The Portfolios, other than the Alliance Equity Index Portfolio, may invest in
mortgage-backed securities, which are mortgage loans made by banks, savings and
loan institutions and other lenders that are assembled into pools, that are (i)
issued by an agency of the U.S. Government (such as GNMA) whose securities are
guaranteed by the U.S. Treasury, (ii) issued by an instrumentality of the U.S.
Government (such as FNMA) whose securities are supported by the
instrumentality's right to borrow from the U.S. Treasury, at the discretion of
the U.S. Treasury, though not backed by the full faith and credit of the U.S.
Government itself, or (iii) collateralized by U.S. Treasury obligations or U.S.
Government agency securities. Interests in such pools are described in this
prospectus as mortgage-backed securities. The Portfolios, other than the Equity
Index Portfolio, may invest in (i) mortgage-backed securities, including GNMA,
FNMA and FHLMC certificates, (ii) CMOs that are issued by non-governmental
entities and collateralized by U.S. Treasury obligations or by U.S. Government
agency or instrumentality securities, (iii) REMICs and (iv) other asset-backed
securities. Other asset-backed securities (unrelated to mortgage loans) may
include securities such as certificates for automobile receivables ("CARS") and
credit card receivable securities ("CARDS") as well as other asset-backed
securities that may be developed in the future.
- --------------------------------------------------------------------------------
The Hudson River Trust 38
<PAGE>
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."
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.
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."
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
- --------------------------------------------------------------------------------
39 The Hudson River Trust
<PAGE>
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.
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.
MANAGEMENT OF THE TRUST
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 40
<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 Balanced ............................... 0.450% 0.400% 0.350% 0.325% 0.300%
Alliance Conservative Investors ................. 0.475% 0.425% 0.375% 0.350% 0.325%
Alliance High Yield ............................. 0.600% 0.575% 0.550% 0.530% 0.520%
Alliance Quality Bond ........................... 0.525% 0.500% 0.475% 0.455% 0.445%
Alliance Intermediate Government Securities ..... 0.500% 0.475% 0.450% 0.430% 0.420%
Alliance Equity Index ........................... 0.325% 0.300% 0.275% 0.255% 0.245%
Alliance Money Market ........................... 0.350% 0.325% 0.300% 0.280% 0.270%
</TABLE>
* On assets in excess of $10 billion, the management fee for the Alliance
Common Stock Portfolio is reduced to 0.335% of average daily net assets.
For 1998, the Portfolios paid the following advisory fees (as a percentage of
each Portfolio's average daily net assets):
<TABLE>
<S> <C>
Alliance International ..............................
Alliance Global .....................................
Alliance Aggressive Stock ...........................
Alliance Common Stock ...............................
Alliance Growth and Income ..........................
Alliance Small Cap Growth ...........................
Alliance Growth Investors ...........................
Alliance Balanced ...................................
Alliance Conservative Investors .....................
Alliance High Yield .................................
Alliance Quality Bond ...............................
Alliance Intermediate Government Securities .........
Alliance Equity Index ...............................
Alliance Money Market ...............................
</TABLE>
THE PORTFOLIO MANAGERS
THE ASSET ALLOCATION SERIES
ALLIANCE CONSERVATIVE INVESTORS, ALLIANCE BALANCED AND ALLIANCE GROWTH
INVESTORS PORTFOLIOS
Robert G. Heisterberg has been the person principally responsible for the
Alliance Conservative Investors, Alliance Balanced and Alliance Growth
Investors Portfolios' investment programs since February 12, 1996. Mr.
Heisterberg, a Senior Vice President of Alliance and Global Economic Policy
Analysis, has been associated with Alliance since 1977.
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
- --------------------------------------------------------------------------------
41 The Hudson River Trust
<PAGE>
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
Sandra L. Yeager has been the person principally responsible for the Alliance
Global Portfolio's investment program since 1998. Ms. Yeager has also been the
person principally responsible for the Alliance International Portfolio's
investment program since January 1999. Ms. Yeager, a Senior Vice President of
Alliance Capital Management L.P. ("Alliance"), has been associated with
Alliance since 1990.
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
Mark J. Cunneen has been the person principally responsible for the Alliance
Small Cap Growth Portfolio's investment program since January 1999. Mr.
Cunneen, a Senior Vice President of Alliance, has been associated with Alliance
since January 1999. Prior to joining Alliance, Mr. Cunneen had been associated
with INVESCO since May 1998, and before that with Chancellor LGT Asset
Management, Inc. ("Chancellor") since 1992. Mr. Cunneen had been the head of
Chancellor's Small Cap Equity Group since 1997.
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
Jeffrey S. Phlegar has been the person principally responsible for the Alliance
Intermediate Government Securities Portfolio's investment program since January
1999. Mr. Phlegar, a Senior Vice President of Alliance, has been associated
with Alliance since 1998.
ALLIANCE QUALITY BOND PORTFOLIO
Matthew Bloom has been the person principally responsible for the Alliance
Quality Bond Portfolio's investment program since 1995. Mr. Bloom, a Senior
Vice President of Alliance, has been associated with Alliance since 1989.
- --------------------------------------------------------------------------------
The Hudson River Trust 42
<PAGE>
ALLIANCE HIGH YIELD PORTFOLIO
Wayne C. Tappe has been the person principally responsible for the Alliance
High Yield Portfolio's investment program since 1995. Mr. Tappe, a 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.
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
PURCHASE AND REDEMPTION
EQ Financial Consultants, Inc., formerly Equico Securities, Inc. ("EQ
Financial"), a wholly-owned subsidiary of Equitable, is the principal
underwriter of the Class IA shares of the Trust. EQ Financial's address is 1755
Broadway, New York, New York 10019. The Trust will offer and sell its shares
without a sales charge, at each Portfolio's net asset value per share. The
price at which a purchase is effected is based on the next calculation of net
asset value after an order is placed by an insurance company investing in the
Trust. Net asset value per share is calculated for purchases and redemption of
shares of each Portfolio by dividing the value of total Portfolio assets, less
liabilities (including Trust expenses, which are accrued daily), by the total
number of shares of that Portfolio outstanding. The net asset value per share
of each Portfolio is determined each business day at 4:00 p.m. Eastern time.
Values are not calculated on national business holidays.
All shares may be redeemed in accordance with the Trust's Agreement and
Declaration of Trust and By-Laws. Shares will be redeemed at their net asset
value. Sales and redemptions of shares of the same class by the same
shareholder on the same day will be netted. All redemption requests will be
processed and payment with respect thereto will be made within seven days after
tenders.
The Trust may also suspend redemption, if permitted by the Investment Company
Act, for any period during which the New York Stock Exchange is closed or
during which trading is restricted by the SEC or the SEC declares that an
emergency exists. Redemption may also be suspended during other periods
permitted by the SEC for the protection of the Trust's shareholders.
HOW ASSETS ARE VALUED
Values are determined according to accepted accounting practices and all laws
and regulations that apply. The assets of each Portfolio are generally valued
at the close of regular trading on the New York Stock Exchange 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.
- --------------------------------------------------------------------------------
43 The Hudson River Trust
<PAGE>
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. Because
foreign markets may be open at different times than the New York Stock
Exchange, the value of a Portfolio's shares may change on days when
shareholders are not able to buy or sell them. If events materially
affecting the values of the Portfolio's foreign investments occur
between the close of foreign markets and the close of regular trading
on the New York Stock Exchange, these investments may be valued at
their fair value.
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
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 order for investors to receive the favorable tax treatment generally
available to holders of variable annuity and variable life contracts, the
separate accounts underlying such contracts, as well as the Portfolios in which
such accounts invest, must meet certain diversification requirements. Each
Portfolio intends to comply with these requirements. If a Portfolio does not
meet such requirements, income allocable to the variable annuity and variable
life contracts (other than "pension plan contracts"), including accumulated
investment earnings, would be immediately taxable to the holders of such
contracts.
A more complete discussion of this and other issues appears in the SAI.
For more information regarding the tax implications for owners of Contracts
investing in the Trust, refer to the prospectuses for those products.
- --------------------------------------------------------------------------------
The Hudson River Trust 44
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for the past 5 years (or, if shorter, the period of the
Fund's operations). Certain information reflects financial results for a single
Fund share. The total returns in the table represent the rate that an investor
would have earned (or lost) on an investment in the Fund (assuming reinvestment
of all dividends and distributions). This information has been audited by
, whose report, along with the Fund's financial statements, is
included in the SAI. Additional unaudited performance information is contained
in the Trust's Annual Report, which is available upon request.
FINANCIAL HIGHLIGHTS
PER SHARE INCOME AND CAPITAL CHANGES
(FOR A CLASS IA SHARE OUTSTANDING THROUGHOUT EACH PERIOD)(A)
ASSET ALLOCATION SERIES
ALLIANCE CONSERVATIVE INVESTORS PORTFOLIO:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year (b) ................... $ 11.29 $ 11.52 $ 10.15 $ 11.12
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ................................... 0.49 0.50 0.60 0.55
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions ........................................... 0.97 0.07 1.43 (1.00)
------- ------- ------- ------- -------
Total from investment operations ........................ 1.46 0.57 2.03 (0.45)
------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income .................... (0.49) (0.51) (0.59) (0.52)
Distributions from realized gains ....................... (0.37) (0.27) (0.07) --
Distributions in excess of realized gains ............... -- (0.02) -- --
------- ------- ------- ------- -------
Total dividends and distributions ....................... (0.86) (0.80) (0.66) (0.52)
------- ------- ------- ------- -------
Net asset value, end of year ............................. $ 11.89 $ 11.29 $ 11.52 $ 10.15
======= ======== ======== ======== =======
Total return (c) ......................................... 13.25% 5.21% 20.40% (4.10)%
======= ======== ======== ======== =======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000's) .......................... $307,847 $282,402 $252,101 $173,691
Ratio of expenses to average net assets .................. 0.57% 0.61% 0.59% 0.59%
Ratio of net investment income to average net assets ..... 4.17% 4.48% 5.48% 5.22%
Portfolio turnover rate .................................. 206% 181% 287% 228%
</TABLE>
- ---------
Footnotes appear on page 10.
- --------------------------------------------------------------------------------
45 The Hudson River Trust
<PAGE>
ALLIANCE BALANCED PORTFOLIO:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year (b) ....................... $ 16.64 $ 16.76 $ 14.87 $ 16.67
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ....................................... 0.58 0.53 0.54 0.45
Net realized and unrealized gain (loss) on investments
and foreign currency transactions .......................... 1.86 1.31 2.36 (1.78)
------- ------- ------- ------- -------
Total from investment operations ............................ 2.44 1.84 2.90 (1.33)
------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income ........................ (0.59) (0.53) (0.54) (0.44)
Dividends in excess of net investment income ................ -- -- -- (0.03)
Distributions from realized gains ........................... (0.91) (1.40) (0.47) --
Distributions in excess of realized gains ................... -- (0.03) -- --
Tax return of capital distributions ......................... -- -- -- (0.00)
------- ------- ------- ------- -------
Total dividends and distributions ........................... (1.50) (1.96) (1.01) (0.47)
------- ------- ------- ------- -------
Net asset value, end of year ................................. $ 17.58 $ 16.64 $ 16.76 $ 14.87
======= ======= ======= ======= =======
Total return (c) ............................................. 15.06% 11.68% 19.75% (8.02)%
======= ======= ======= ======= =======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000's) .............................. $ 1,724,089 $1,637,856 $1,523,142 $1,329,820
Ratio of expenses to average net assets ...................... 0.45% 0.41% 0.40% 0.39%
Ratio of net investment income to average net assets ......... 3.30% 3.15% 3.33% 2.87%
Portfolio turnover rate (d) .................................. 146% 177% 186% 115%
</TABLE>
- ---------
Footnotes appear on page 10.
- --------------------------------------------------------------------------------
The Hudson River Trust 46
<PAGE>
ALLIANCE GROWTH INVESTORS PORTFOLIO:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year (b) ....................... $ 17.20 $ 17.68 $ 14.66 $ 15.61
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ....................................... 0.41 0.40 0.57 0.50
Net realized and unrealized gain (loss) on investments
and foreign currency transactions .......................... 2.43 1.66 3.24 (0.98)
------- ------- ------- ------- -------
Total from investment operations ............................ 2.84 2.06 3.81 (0.48)
------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income ........................ (0.46) (0.40) (0.54) (0.46)
Dividends in excess of net investment income ................ -- (0.03) (0.01) (0.01)
Distributions from realized gains ........................... (1.03) (2.10) (0.24) --
Distributions in excess of realized gains ................... -- (0.01) -- --
------- ------- ------- ------- -------
Total dividends and distributions ........................... (1.49) (2.54) (0.79) (0.47)
------- ------- ------- ------- -------
Net asset value, end of year ................................. $ 18.55 $ 17.20 $ 17.68 $ 14.66
======= ======= ======= ======= =======
Total return (c) ............................................. 16.87% 12.61% 26.37% (3.15)%
======= ======= ======= ======= =======
RATIOS/SUPPLEMENTAL DATA:
Net asset, end of year (000's) ............................... $1,630,389 $1,301,643 $896,134 $492,478
Ratio of expenses to average net assets ...................... 0.57% 0.57% 0.56% 0.59%
Ratio of net investment income to average net assets ......... 2.18% 2.31% 3.43% 3.32%
Portfolio turnover rate ...................................... 121% 190% 107% 131%
</TABLE>
EQUITY SERIES
ALLIANCE GROWTH AND INCOME PORTFOLIO:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year (b) ..................... $ 13.01 $ 11.70 $ 9.70 $ 9.95
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ..................................... 0.15 0.24 0.33 0.31
Net realized and unrealized gain (loss) on investments..... 3.30 2.05 1.97 (0.36)
------- ------- ------- ------- -------
Total from investment operations .......................... 3.45 2.29 2.30 (0.05)
------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income ...................... (0.15) (0.23) (0.30) (0.20)
Dividends in excess of net investment income .............. -- -- -- --
Distributions from realized gains ......................... (0.93) (0.75) -- --
------- ------- ------- ------- -------
Total dividends and distributions ......................... (1.08) (0.98) (0.30) (0.20)
------- ------- ------- ------- -------
Net asset value, end of year ............................... $ 15.38 $ 13.01 $ 11.70 $ 9.70
======= ======= ======= ======= =======
Total return (c) ........................................... 26.90% 20.09% 24.07% (0.58)%
======= ======= ======= ======= =======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000's) ............................ $555,059 $232,080 $98,053 $31,522
Ratio of expenses to average net assets .................... 0.58% 0.58% 0.60% 0.78%
Ratio of net investment income to average net assets ....... 0.99% 1.94% 3.11% 3.13%
Portfolio turnover rate .................................... 79% 88% 65% 52%
</TABLE>
- ---------
Footnotes appear on page 10.
- --------------------------------------------------------------------------------
47 The Hudson River Trust
<PAGE>
ALLIANCE EQUITY INDEX PORTFOLIO:
<TABLE>
<CAPTION>
MARCH 1, 1994
YEAR ENDED TO
DECEMBER 31, DECEMBER 31, 1994
--------------------------------------------- -------------------
1998 1997 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period (b) ................. $ 15.16 $ 13.13 $ 9.87 $ 10.00
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ................................... 0.26 0.27 0.26 0.20
Net realized and unrealized gain (loss) on investments
and foreign currency transactions ....................... 4.64 2.65 3.32 (0.09)
------- ------- ------- ------- -------
Total from investment operations ........................ 4.90 2.92 3.58 0.11
------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income .................... (0.25) (0.25) (0.22) (0.20)
Distributions of realized gains ......................... (0.07) (0.64) (0.09) (0.03)
Distributions in excess of realized gains ............... -- -- (0.01) (0.01)
------- ------- ------- ------- -------
Total dividends and distributions ....................... (0.32) (0.89) (0.32) (0.24)
------- ------- ------- ------- -------
Net asset value, end of period ........................... $ 19.74 $ 15.16 $ 13.13 $ 9.87
======= ======= ======= ======= =======
Total return (c) ......................................... 32.58% 22.39% 36.48% 1.08%
======= ======= ======= ======= =======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) ........................ $943,631 $386,249 $165,785 $36,748
Ratio of expenses to average net assets .................. 0.37% 0.39% 0.48%
0.49%(e)
Ratio of net investment income to average net assets ..... 1.46% 1.91% 2.16%
2.42%(e)
Portfolio turnover rate .................................. 3% 15% 9% 7%
</TABLE>
ALLIANCE COMMON STOCK PORTFOLIO:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year (b) ....................... $ 18.23 $ 16.48 $ 13.36 $ 14.65
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ....................................... 0.14 0.15 0.20 0.20
Net realized and unrealized gain (loss) on investments
and foreign currency transactions .......................... 5.12 3.73 4.12 (0.51)
------- ------- ------- ------- -------
Total from investment operations ............................ 5.26 3.88 4.32 (0.31)
------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income ........................ (0.11) (0.15) (0.20) (0.19)
Dividends in excess of net investment income ................ -- -- (0.02) (0.01)
Distributions from realized gains ........................... (1.77) (1.76) (0.95) (0.77)
Distributions in excess of realized gains ................... -- (0.22) (0.03) --
Tax return of capital distributions ......................... -- -- -- (0.01)
------- ------- ------- ------- -------
Total dividends and distributions ........................... (1.88) (2.13) (1.20) (0.98)
------- ------- ------- ------- -------
Net asset value, end of year ................................. $ 21.61 $ 18.23 $ 16.48 $ 13.36
======= ======= ======= ======= =======
Total return (c) ............................................. 29.40% 24.28% 32.45% (2.14)%
======= ======= ======= ======= =======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000's) .............................. $9,331,994 $6,625,390 $4,879,677 $3,466,245
Ratio of expenses to average net assets ...................... 0.39% 0.38% 0.38% 0.38%
Ratio of net investment income to average net assets ......... 0.69% 0.85% 1.27% 1.40%
Portfolio turnover rate ...................................... 52% 55% 61% 52%
</TABLE>
- ---------
Footnotes appear on page 10.
- --------------------------------------------------------------------------------
The Hudson River Trust 48
<PAGE>
ALLIANCE GLOBAL PORTFOLIO (G):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
1998 1997 1996 1995 1994
------ -------------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year (b) ....................... $ 16.92 $ 15.74 $ 13.87 $ 13.62
------ --------- ------- ------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ....................................... 0.17 0.21 0.26 0.20
Net realized and unrealized gain (loss) on investments
and foreign currency transactions .......................... 1.75 2.05 2.32 0.52
--------- ------- ------- --------
Total from investment operations ............................ 1.92 2.26 2.58 0.72
--------- ------- ------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income ........................ ( 0.36) ( 0.21) ( 0.25) ( 0.17)
Dividends in excess of net investment income ................ -- ( 0.08) -- --
Distributions from realized gains ........................... ( 1.19) ( 0.79) ( 0.42) ( 0.28)
Distributions in excess of realized gains ................... -- -- ( 0.03) ( 0.00)
Tax return of capital distributions ......................... -- ( 0.00) ( 0.01) ( 0.02)
---------- -------- -------- --------
Total dividends and distributions ........................... ( 1.55) ( 1.08) ( 0.71) ( 0.47)
---------- -------- -------- --------
Net asset value, end of year ................................. $ 17.29 $ 16.92 $ 15.74 $ 13.87
========== ======== ======== ========
Total return (c) ............................................. 11.66% 14.60% 18.81% 5.23%
========== ======== ======== ========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000's) .............................. $1,203,867 $997,041 $686,140 $421,698
Ratio of expenses to average net assets ...................... 0.69% 0.60% 0.61% 0.69%
Ratio of net investment income to average net assets ......... 0.97% 1.28% 1.76% 1.41%
Portfolio turnover rate ...................................... 57% 59% 67% 71%
</TABLE>
ALLIANCE INTERNATIONAL PORTFOLIO:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, APRIL 3, 1995
------------------------------ TO
1998 1997 1996 DECEMBER 31, 1995
------ ------ ------ -----------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period (b).................. $11.50 $10.87 $10.00
------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................................... 0.10 0.13 0.14
Net realized and unrealized gain (loss) on investments
and foreign currency transactions....................... (0.45) 0.94 0.98
------ ------ ------ ------
Total from investment operations......................... (0.35) 1.07 1.12
------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net investment income..................... (0.32) (0.10) (0.07)
Dividends in excess of net investment income............. -- (0.09) (0.13)
Distributions from realized gains........................ (0.56) (0.25) (0.05)
------ ------ ------ ------
Total dividends and distributions........................ (0.88) (0.44) (0.25)
------ ------ ------ ------
Net asset value, end of period............................ $10.27 $11.50 $10.87
====== ====== ====== ======
Total return (c).......................................... (2.98)% 9.82% 11.29%
====== ====== ====== ======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's)......................... $190,611 $151,907 $28,684
Ratio of expenses to average net assets................... 1.08% 1.06% 1.03%(e)
Ratio of net investment income to average net assets ..... 0.83% 1.10% 1.71%(e)
Portfolio turnover rate................................... 59% 48% 56%
</TABLE>
- ------------
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- --------------------------------------------------------------------------------
49 The Hudson River Trust
<PAGE>
ALLIANCE AGGRESSIVE STOCK PORTFOLIO (G):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year (b) ............... $35.85 $35.68 $30.63 $31.89
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ............................... 0.04 0.09 0.10 0.04
Net realized and unrealized gain (loss) on
investments........................................ 3.71 7.52 9.54 (1.26)
------ ------ ------ ------ ------
Total from investment operations ................... 3.75 7.61 9.64 (1.22)
------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net investment income ................ (0.05) (0.09) (0.10) (0.04)
Dividends in excess of net investment income ........ -- (0.00) -- --
Distributions from realized gains ................... (3.33) (7.33) (4.49) --
Distributions in excess of realized gains ........... -- (0.02) -- --
Tax return of capital distributions ................. -- -- -- (0.00)
------ ------ ------ ------ ------
Total dividends and distributions ................... (3.38) (7.44) (4.59) (0.04)
------ ------ ------ ------ ------
Net asset value, end of year ......................... $36.22 $35.85 $35.68 $30.63
====== ====== ====== ====== ======
Total return (c)...................................... 10.94% 22.20% 31.63% (3.81)%
====== ====== ====== ====== ======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000's)....................... $4,589,771 $3,865,256 $2,700,515 $1,832,164
Ratio of expenses to average net assets............... 0.54% 0.48% 0.49% 0.49%
Ratio of net investment income to average net assets . 0.11% 0.24% 0.28% 0.12%
Portfolio turnover rate .............................. 123% 108% 127% 92%
</TABLE>
ALLIANCE SMALL CAP GROWTH PORTFOLIO:
<TABLE>
<CAPTION>
MAY 1, 1997
YEAR ENDED TO
DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- -----------------
<S> <C> <C>
Net asset value, beginning of period (b) ............. $ 10.00
-------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ............................... 0.01
Net realized and unrealized gain on investments ..... 2.65
-------- --------
Total from investment operations .................... 2.66
-------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income ................ (0.01)
Distributions from realized gains ................... (0.30)
-------- --------
Total dividends and distributions ................... (0.31)
-------- --------
Net asset value, end of period........................ $ 12.35
========
Total return (c) ..................................... 26.74%
========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) .................... $94,676
Ratio of expenses to average net assets .............. 0.95%(e)
Ratio of net investment income to average net assets 0.10%(e)
Portfolio turnover rate .............................. 96%
</TABLE>
- ------------
Footnotes appear on page 10.
- --------------------------------------------------------------------------------
The Hudson River Trust 50
<PAGE>
FIXED INCOME SERIES
ALLIANCE MONEY MARKET PORTFOLIO (G):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year (b) .............. $10.17 $10.16 $10.14 $10.12
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .............................. 0.54 0.54 0.57 0.41
Net realized and unrealized gain (loss) on
investments........................................ (0.01) -- --
------ ------ ------ ------ ------
Total from investment operations ................... 0.54 0.53 0.57 0.41
------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net investment income ............... (0.53) (0.52) (0.55) (0.39)
Distributions from realized gains .................. (0.00) -- -- --
Total dividends and distributions ................... (0.53) (0.52) (0.55) (0.39)
------ ------ ------ ------ ------
Net asset value, end of year ....................... $10.18 $10.17 $10.16 $10.14
====== ====== ====== ====== ======
Total return (c) .................................... 5.42% 5.33% 5.74% 4.02%
====== ====== ====== ====== ======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000's) $449,960 $463,422 $386,691 $325,391
Ratio of expenses to average net assets ............. 0.39% 0.43% 0.44% 0.42%
Ratio of net investment income to average net
assets............................................. 5.28% 5.17% 5.53% 4.01%
</TABLE>
ALLIANCE INTERMEDIATE GOVERNMENT SECURITIES PORTFOLIO (F):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year (b) .............. $ 9.29 $ 9.47 $ 8.87 $10.08
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .............................. 0.53 0.54 0.58 0.65
Net realized and unrealized gain (loss) on
investments........................................ 0.13 (0.19) 0.57 (1.08)
------ ------ ------ ------ ------
Total from investment operations ................... 0.66 0.35 1.15 (0.43)
------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net investment income ............... (0.51) (0.53) (0.55) (0.78)
------ ------ ------ ------ ------
Total dividends and distributions .................. (0.51) (0.53) (0.55) (0.78)
------ ------ ------ ------ ------
Net asset value, end of year ....................... $ 9.44 $ 9.29 $ 9.47 $ 8.87
====== ====== ====== ====== ======
Total return (c) .................................... 7.29% 3.78% 13.33% (4.37)%
====== ====== ====== ====== ======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000's) ..................... $115,114 $88,384 $71,780 $48,518
Ratio of expenses to average net assets ............. 0.55% 0.56% 0.57% 0.56%
Ratio of net investment income to average net
assets............................................. 5.61% 5.73% 6.15% 6.75%
Portfolio turnover rate ............................. 285% 318% 255% 133%
</TABLE>
- ------------
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- --------------------------------------------------------------------------------
51 The Hudson River Trust
<PAGE>
ALLIANCE QUALITY BOND PORTFOLIO:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year (b) ............... $ 9.49 $ 9.61 $ 8.72 $ 9.82
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ............................... 0.60 0.57 0.57 0.66
Net realized and unrealized gain (loss) on
investments and foreign currency transactions....... 0.24 (0.07) 0.88 (1.16)
------ ------ ------ ------ ------
Total from investment operations .................... 0.84 0.50 1.45 (0.50)
------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net investment income ................ (0.59) (0.60) (0.56) (0.55)
Dividends in excess of net investment income ........ -- (0.02) -- --
Tax return of capital distributions ................. -- -- -- (0.05)
------ ------ ------ ------ ------
Total dividends and distributions ................... (0.59) (0.62) (0.56) (0.60)
------ ------ ------ ------ ------
Net asset value, end of year ......................... $9.74 $9.49 $9.61 $8.72
====== ====== ====== ====== ======
Total return (c) ..................................... 9.14% 5.36% 17.02% (5.10)%
====== ====== ====== ====== ======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000's) ...................... $203,233 $155,023 $157,443 $127,575
Ratio of expenses to average net assets .............. 0.57% 0.59% 0.59% 0.59%
Ratio of net investment income to average net assets . 6.19% 6.06% 6.13% 7.17%
Portfolio turnover rate .............................. 374% 431% 411% 222%
</TABLE>
ALLIANCE HIGH YIELD PORTFOLIO:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year (b) ................. $10.02 $ 9.64 $ 8.91 $10.08
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ................................. 1.04 1.02 0.98 0.89
Net realized and unrealized gain (loss) on investments 0.75 1.07 0.73 (1.17)
------ ------ ------ ------ ------
Total from investment operations ...................... 1.79 2.09 1.71 (0.28)
------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net investment income ................. (0.97) (0.98) (0.94) (0.88)
Dividends in excess of net investment income .......... -- (0.03) (0.04) (0.01)
Distributions from realized gains ..................... (0.43) (0.70) -- --
------ ------ ------ ------ ------
Total dividends and distributions ..................... (1.40) (1.71) (0.98) (0.89)
------ ------ ------ ------ ------
Net asset value, end of year............................ $10.41 $10.02 $ 9.64 $ 8.91
====== ====== ====== ====== ======
Total return (c)........................................ 18.48% 22.89% 19.92% (2.79)%
====== ====== ====== ====== ======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000's)......................... $355,473 $199,360 $118,129 $73,895
Ratio of expenses to average net assets................. 0.62% 0.59% 0.60% 0.61%
Ratio of net investment income to average net assets ... 9.82% 9.93% 10.34% 9.23%
Portfolio turnover rate ................................ 390% 485% 350% 248%
</TABLE>
- ------------
Footnotes appear on page 10.
- --------------------------------------------------------------------------------
The Hudson River Trust 52
<PAGE>
FOOTNOTES TO FINANCIAL HIGHLIGHTS
(a) Net investment income and capital changes per share are based upon
monthly average shares outstanding.
(b) Date as of which funds were first allocated to the Portfolios are as
follows:
[Alliance Common Stock Portfolio -- June 16, 1975
Alliance Money Market Portfolio -- July 13, 1981
Alliance Balanced Portfolio -- January 27, 1986
Alliance Aggressive Stock Portfolio -- January 27, 1986
Alliance High Yield Portfolio -- January 2, 1987
Alliance Global Portfolio -- August 27, 1987
Alliance Conservative Investors Portfolio -- October 2, 1989
Alliance Growth Investors Portfolio -- October 2, 1989
Alliance Intermediate Government Securities Portfolio -- April 1, 1991
Alliance Quality Bond Portfolio -- October 1, 1993
Alliance Growth and Income Portfolio -- October 1, 1993]
Alliance Equity Index Portfolio -- March 1, 1994
Alliance International Portfolio -- April 3, 1995
Alliance Small Cap Growth Portfolio -- May 1, 1997
(c) Total return is calculated assuming an initial investment made at net
asset value at the beginning of the period, reinvestment of all
dividends and distributions at net asset value during the period, and
redemption on the last day of the period. Total return calculated for a
period of less than one year is not annualized.
(d) The Alliance Balanced Portfolio's portfolio turnover rates in 1998 and
1997 were and 95%, respectively, for the equity component and were
% and 192%, respectively, for the fixed income component.
(e) Annualized.
(f) On February 22, 1994 shares of the Alliance Intermediate Government
Securities Portfolio of the Trust were substituted for shares of the
Trust's Alliance Short-Term World Income Portfolio.
- --------------------------------------------------------------------------------
53 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.
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
- --------------------------------------------------------------------------------
A-1 The Hudson River Trust
<PAGE>
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 (except for the Alliance Small Cap Growth Portfolio), net of
investment management fees and direct operating expenses of the Trust, together
with comparative benchmarks, including both unmanaged market indexes and
universes of managed portfolios. The unmanaged market indexes do not reflect
any asset-based charges for investment management or other expenses, which are
inapplicable to these benchmarks. The rates of return shown for the Portfolios
are not an estimate or guarantee of future investment performance and do not
take into account charges applicable to the Contracts or imposed at the
separate account level. The ultimate change in Contract values will depend not
only on the performance of the Portfolios at the underlying Trust level, but
also on the insurance and administrative charges, applicable sales charges, and
the mortality and expense risk charge applicable under such Contracts. These
Contract charges effectively reduce the dollar amount of any net gains and
increase the dollar amount of any net losses.
The Lipper averages are contained in Lipper's survey of the performance of a
large number of mutual funds. This survey is published by Lipper Analytical
Services, Inc., a firm recognized for its reporting of performance of actively
managed funds. According to Lipper, performance data are presented net of
investment management fees, direct operating expenses and, for funds with Rule
12b-1 plans, asset-based sales charges. Performance data for funds which assess
sales charges in other ways do not reflect deductions for sales charges.
Performance data shown for the Portfolios does not reflect deduction for sales
charges (which are assessed at the policy level). This means that to the extent
that asset-based sales charges deducted by some funds have lowered the Lipper
averages, the performance data shown for the Portfolios appears relatively more
favorable than the performance data for the Lipper averages.
The performance results presented below are based on Portfolio percent changes
in net asset values with dividends and capital gains reinvested. Similarly, the
market indexes have been adjusted, where necessary, to reflect the benefit of
reinvestment of income, dividends and capital gains. Cumulative rates of return
reflect performance over a stated period of time. Annualized rates of return
represent the rate of growth that would have produced the corresponding
cumulative return had performance been constant over the entire period.
From time to time the Trust and/or its shareholders may include in reports or
in advertising material descriptions of general economic and market conditions
affecting the Trust and/or its shareholders and may compare the performance of
the Trust's Portfolios with (1) that of other insurance company separate
accounts, if appropriate, or mutual funds included in the rankings prepared by
Lipper or similar investment services that monitor the performance of insurance
company separate accounts or mutual funds, (2) other appropriate indices of
investment securities and averages for peer universes of funds which are
described in this prospectus, or (3) data developed by the Trust and/or its
shareholders derived from such indices or averages.
Each Portfolio's performance may also be compared to the performance of other
mutual funds by Morningstar, Inc. which ranks mutual funds on the basis of
historical risk and total return. Morningstar rankings are calculated using the
mutual fund's average annual return for certain periods and a risk factor that
reflects the mutual fund's performance relative to three-month Treasury bill
monthly returns. Morningstar's rankings range from five stars (highest) to one
star (lowest) and represent Morningstar's assessment of the historical risk
level and total return of a mutual fund as a weighted average for 3-, 5- and
10-year periods. 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.
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.
- --------------------------------------------------------------------------------
B-1 The Hudson River Trust
<PAGE>
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") 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
Russell 2000 Growth Index ("Russell 2000 Growth") consists of that half of the
2,000 smallest of the 3,000 largest capitalization U.S. companies that has
higher price-to-book ratios and higher forecasted growth.
The Lehman Intermediate Government Bond Index represents an unmanaged group of
securities consisting of all United States Treasury and agency securities with
remaining maturities of from one to ten years and issue amounts of at least
$100 million outstanding.
The Lehman Aggregate Bond Index is an index comprised of investment grade fixed
income securities, including U.S. Treasury, mortgage-backed, corporate and
"Yankee" bonds (U.S. dollar-denominated bonds issued outside the United
States).
The Merrill Lynch High Yield Master Index ("ML Master") represents an unmanaged
group of securities widely regarded by investors as representative of the high
yield bond market.
The "blended" performance numbers (e.g., 50% S&P 400/50% Russell 2000) in all
cases assume a static mix of the two indices.
The dates as of which funds were first allocated to the Portfolios are as
follows: the Alliance Common Stock Portfolio on June 16, 1975; the Alliance
Money Market Portfolio on July 13, 1981; the Alliance Balanced and Alliance
Aggressive Stock Portfolios on January 27, 1986; the Alliance High Yield
Portfolio on January 2, 1987; the Alliance Global Portfolio on August 27, 1987;
the Alliance Conservative Investors and Alliance Growth Investors Portfolios on
October 2, 1989; the Alliance Intermediate Government Securities Portfolio on
April 1, 1991; the Alliance Quality Bond and Alliance Growth and Income
Portfolios on October 1, 1993; the Alliance Equity Index Portfolio on March 1,
1994; 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 Balanced Funds
and Small Company Growth Funds Averages, from January 1, 1986; and for the
Lipper Global Funds Average, from August 28, 1987.
The Trust's Portfolios serve as the underlying investment vehicles for
Contracts. Shares of these Portfolios cannot be purchased directly. Shares of
the Portfolios of the Trust are purchased by corresponding investment divisions
of insurance company separate accounts. Refer to the attached Contract
prospectus for further information about your Contract including a description
of all charges and expenses.
- --------------------------------------------------------------------------------
The Hudson River Trust B-2
<PAGE>
TABLE I
[TO BE UPDATED]
ANNUALIZED RATES OF RETURN
PERIODS ENDING DECEMBER 31, 1998
<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 ................. 13.25% 12.79% 8.79% -- -- -- 9.53%
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 BALANCED ............................... 15.06 15.45 9.71 12.04% -- -- 12.30
Lipper Balanced Mutual Funds Average ............ 19.00 19.44 13.20 12.92 -- -- 12.33
50% S&P 500/50% Lehman Gov't Corp. .............. 21.56 21.68 14.63 21.19 -- -- 13.97
- -------------------------------------------------------------------------------------------------------------------------------
ALLIANCE GROWTH INVESTORS ....................... 16.87 18.48 13.17 -- -- -- 15.73
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 ...................... 26.90 23.65 -- -- -- -- 15.94
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 ........................... 32.58 30.35 -- -- -- -- 23.35
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 ........................... 29.40 28.66 21.08 18.00 17.25% 17.56% 15.83
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 ................................. 11.66 14.99 16.15 13.74 -- -- 11.70
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 .......................... (2.98) -- -- -- -- -- 6.39
Lipper International Mutual Funds Average ....... 5.44 -- -- -- -- -- 9.87
MSCI EAFE ....................................... 1.78 -- -- -- -- -- 6.15
- -------------------------------------------------------------------------------------------------------------------------------
ALLIANCE AGGRESSIVE STOCK ....................... 10.94 21.29 14.92 19.00 -- -- 19.41
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 ....................... -- -- -- -- -- -- 26.74*
Lipper Small Company Growth Funds
Average ........................................ -- -- -- -- -- -- 29.36*
Russell 2000 Growth ............................. -- -- -- -- -- -- 27.66*
- -------------------------------------------------------------------------------------------------------------------------------
THE FIXED INCOME SERIES
ALLIANCE MONEY MARKET ........................... 5.42 5.50 4.69 5.78 6.59 -- 7.17
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 ..... 7.29 8.06 5.94 -- -- -- 7.00
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 QUALITY BOND ........................... 9.14 10.40 -- -- -- -- 5.80
Lipper Corporate Debt Funds A Rated
Average ........................................ 9.17 10.01 -- -- -- -- 5.82
Lehman Aggregate Bond ........................... 9.65 10.42 -- -- -- -- 6.51
- -------------------------------------------------------------------------------------------------------------------------------
ALLIANCE HIGH YIELD ............................. 18.48 20.42 15.89 12.80 -- -- 12.04
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
- -------------------------------------------------------------------------------------------------------------------------------
* Unannualized
B-3 The Hudson River Trust
</TABLE>
<PAGE>
TABLE II
[TO BE UPDATED]
CUMULATIVE RATES OF RETURN
PERIODS ENDING DECEMBER 31, 1998
<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 .............. 13.25% 43.47% 52.41% -- -- -- 111.92%
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 BALANCED ............................ 15.06 53.88 58.90 211.70% -- -- 298.86
Lipper Balanced Mutual Funds Average ......... 19.00 70.61 86.33 239.04 -- -- 302.62
50% S&P 500/50% Lehman Gov't Corp. ........... 21.56 80.14 97.96 583.14 -- -- 376.27
- -----------------------------------------------------------------------------------------------------------------------------------
ALLIANCE GROWTH INVESTORS .................... 16.87 66.31 85.66 -- -- -- 233.71
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 ................... 26.90 89.07 -- -- -- -- 87.52
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 ........................ 32.58 121.46 -- -- -- -- 123.85
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 ........................ 29.40 113.00 160.20 423.28 988.51% 2440.13% 2,422.45
Lipper Growth Equity Mutual Funds Average 25.30 97.08 117.56 356.18 710.84 2037.84 2,757.78
S&P 500 ...................................... 33.36 125.60 151.62 425.67 1,026.40 2080.13 2,248.74
- -----------------------------------------------------------------------------------------------------------------------------------
ALLIANCE GLOBAL .............................. 11.66 52.06 111.38 262.34 -- -- 214.27
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 ....................... (2.98) -- -- -- -- -- 18.57
Lipper International Mutual Funds Average .... 5.44 -- -- -- -- -- 30.12
MSCI EAFE .................................... 1.78 -- -- -- -- -- 17.83
- -----------------------------------------------------------------------------------------------------------------------------------
ALLIANCE AGGRESSIVE STOCK .................... 10.94 78.45 100.42 469.28 -- -- 730.05
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 PORTFOLIO .......... -- -- -- -- -- -- 26.74
Lipper Small Company Growth Funds
Average ..................................... -- -- -- -- -- -- 29.36
Russell 2000 ................................. -- -- -- -- -- -- 27.66
- -----------------------------------------------------------------------------------------------------------------------------------
THE FIXED INCOME SERIES
ALLIANCE MONEY MARKET ........................ 5.42 17.42 25.77 75.34 160.40 -- 212.76
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... 7.29 26.18 33.44 -- -- -- 57.92
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 QUALITY BOND ........................ 9.14 34.57 -- -- -- -- 27.07
Lipper Corporate Debt Funds A
Rated Average ............................... 9.17 33.20 -- -- -- -- 27.23
Lehman Aggregate Bond ........................ 9.65 34.63 -- -- -- -- 30.78
- -----------------------------------------------------------------------------------------------------------------------------------
ALLIANCE HIGH YIELD .......................... 18.48 74.60 109.05 233.48 -- -- 249.07
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
- -----------------------------------------------------------------------------------------------------------------------------------
The Hudson River Trust B-4
</TABLE>
<PAGE>
TABLE III
ANNUAL RATES OF RETURN
<TABLE>
<CAPTION>
ALLIANCE ALLIANCE ALLIANCE ALLIANCE ALLIANCE
YEAR ENDING COMMON MONEY AGGRESSIVE ALLIANCE HIGH ALLIANCE CONSERV.
DECEMBER 31 STOCK MARKET STOCK BALANCED YIELD GLOBAL INVESTORS
- ----------- ----- ------ ----- -------- ----- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1976 .......... 9.2%*
1977 .......... -9.2
1978 .......... 8.2
1979 .......... 29.8
1980 .......... 50.1
1981 .......... -5.8 7.1%*
1982 .......... 17.6 13.0
1983 .......... 26.1 8.9
1984 .......... -2.0 10.9
1985 .......... 33.4 8.2
1986 .......... 17.3 6.6 35.9%* 29.1%*
1987 .......... 7.5 6.6 7.3 -0.9 4.7%* -13.3%*
1988 .......... 22.4 7.3 1.1 13.3 9.7 10.9
1989 .......... 25.6 9.2 43.5 25.8 5.1 26.7 3.1%*
1990 .......... -8.1 8.2 8.2 0.3 -1.1 -6.1 6.3
1991 .......... 37.9 6.2 86.9 41.3 24.5 30.5 19.8
1992 .......... 3.2 3.6 -3.2 -2.8 12.3 -0.5 5.6
1993 .......... 24.8 3.0 16.8 12.3 23.2 32.1 10.8
1994 .......... -2.1 4.0 -3.8 -8.0 -2.8 5.2 -4.1
1995 .......... 32.5 5.7 31.6 19.8 19.9 18.8 20.4
1996 .......... 24.3 5.3 22.2 11.7 22.9 14.6 5.2
1997 .......... 29.40 5.4 10.9 15.1 18.5 11.7 13.3
1998 ..........
<CAPTION>
ALLIANCE
ALLIANCE ALLIANCE ALLIANCE GROWTH ALLIANCE ALLIANCE
YEAR ENDING GROWTH INTERMEDIATE QUALITY AND EQUITY ALLIANCE SMALL CAP
DECEMBER 31 INVESTORS GOVT. SECURITIES BOND INCOME INDEX INTERNATIONAL GROWTH
- ----------- --------- ---------------- ---- ------ ----- ------------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
1976 ..........
1977 ..........
1978 ..........
1979 ..........
1980 ..........
1981 ..........
1982 ..........
1983 ..........
1984 ..........
1985 ..........
1986 ..........
1987 ..........
1988 ..........
1989 .......... 4.0%*
1990 .......... 10.7
1991 .......... 48.8 12.1%*
1992 .......... 4.9 5.5
1993 .......... 15.3 10.6 -0.5%* -0.3%*
1994 .......... -3.2 -4.4 -5.1 -0.6 1.1*
1995 .......... 26.4 13.3 17.0 24.0 36.5 11%*
1996 .......... 12.6 3.8 5.4 20.1 22.4 9.8
1997 .......... 16.9 7.3 9.1 26.9 32.6 -2.98 26.7%*
1998 ..........
- ----------------
</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, 1998, the
assets in the Historical Portfolios totaled approximately $ million and
the average size of a Historical Portfolio was $ 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, 1998*
<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, 1998 .........
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>
- ----------
* 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, 1998, assume a steady compounded rate of return
and are not year-by-year results, which fluctuated over the periods as shown.
<TABLE>
<CAPTION>
[TO BE UPDATED]
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% 12.74% 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>
- --------------------------------------------------------------------------------
B-7 The Hudson River Trust
<PAGE>
THE HUDSON RIVER TRUST
THE ASSET ALLOCATION SERIES
---------------------------
Alliance Conservative Investors Portfolio
Alliance Balanced Portfolio
Alliance Growth Investors Portfolio
THE EQUITY SERIES THE FIXED INCOME SERIES
----------------- -----------------------
Alliance Growth and Income Portfolio Alliance Money Market Portfolio
Alliance Equity Index Portfolio Alliance Intermediate Government
Alliance Common Stock Portfolio Securities Portfolio
Alliance Global Portfolio Alliance Quality Bond Portfolio
Alliance International Portfolio Alliance High Yield Portfolio
Alliance Aggressive Stock Portfolio
Alliance Small Cap Growth Portfolio
This Prospectus describes the Portfolios that are available as underlying
investments through your variable [life insurance contract/annuity certificate
or contract.] For information about your variable [life insurance
contract/annuity certificate or contract], including information about
insurance-related expenses, see the prospectus for your variable [life insurance
contract/annuity certificate or contract], which accompanies this Prospectus.
The Securities and Exchange Commission has not approved or
disapproved these securities or passed upon the adequacy of this
prospectus. Any representation to the contrary is a crime.
PROSPECTUS
, 1999
<PAGE>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Page
RISK/RETURN SUMMARY .......................................................
DESCRIPTION OF THE PORTFOLIOS .............................................
The Asset Allocation Series ...............................................
The Equity Series .........................................................
The Fixed Income Series ...................................................
INVESTMENT TECHNIQUES .....................................................
CERTAIN INVESTMENT RESTRICTIONS ...........................................
MANAGEMENT OF THE TRUST ...................................................
DESCRIPTION OF THE TRUST'S SHARES .........................................
DIVIDENDS, DISTRIBUTIONS AND TAXES ........................................
APPENDIX A--DESCRIPTION OF BOND RATINGS ...................................
APPENDIX B--PERFORMANCE INFORMATION .......................................
RISK/RETURN SUMMARY
The following is a summary of certain key information about the Hudson River
Trust Portfolios. You will find additional information about each Portfolio,
including a detailed description of the risks of an investment in each
Portfolio, after this Summary.
This Summary identifies each Portfolio's investment objective, principal
investment strategies and principal risks. The summary of each Portfolio's
principal investment strategies is accompanied by a short discussion of some of
the Portfolio's principal risks. The principal risks of each Portfolio are
identified and more fully discussed beginning on page 18.
You can find more detailed descriptions of the Portfolios, including the risks
associated with investing in the Portfolios, further back in this Prospectus.
Please be sure to read this additional information BEFORE you invest. Each of
the Portfolios (except for the Alliance Money Market Portfolio) may at times
use certain types of investment derivatives such as options, futures, forwards
and swaps. The use of these techniques involves special risks that are
discussed in this Prospectus. The Risk/Return Summary includes a table for each
Portfolio showing its average annual returns and a bar chart showing its annual
returns. The table and bar chart provide an indication of the historical risk
of an investment in each Portfolio by showing:
o how the Portfolio's average annual returns for one, five, and 10 years
(or over the life of the Portfolio if the Portfolio is less than 10
years old) compare to those of a broad based securities market index
(you will find more information on each referenced index in Appendix B)
[and to the average performance for mutual funds in each Portfolio's
broad investment category in the Lipper Investment Averages]; and
o changes in the Portfolio's performance from year to year over 10 years
(or over the life of the Portfolio if the Portfolio is less than 10
years old).
A Portfolio's past performance, of course, does not necessarily indicate how it
will perform in the future.
Other important things for you to note:
o You may lose money by investing in the Portfolios.
o An investment in the Portfolios is not a deposit in a bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation or
any other government agency.
- --------------------------------------------------------------------------------
3 The Hudson River Trust
<PAGE>
THE ASSET ALLOCATION SERIES
ALLIANCE CONSERVATIVE INVESTORS PORTFOLIO
- --------------------------------------------------------------------------------
OBJECTIVE:
This Portfolio seeks to achieve a high total return without, in the opinion of
Alliance Capital Management L.P., the Portfolio's investment adviser
("Alliance"), undue risk to principal.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS:
The Portfolio invests varying portions of its assets in debt and equity
securities. Investment grade debt securities generally represent between 50%
and 90% of the Portfolio's holdings, with equity securities comprising the
remainder of the Portfolio's assets. The Portfolio may invest in foreign
securities and may also make use of various other investment strategies,
including securities lending. The Portfolio may use derivatives.
Among the principal risks of investing in the Portfolio are market risk,
management risk, credit risk, derivatives risk and leveraging risk. The
Portfolio is subject to credit risk through its investments in debt securities
and to foreign investment risk and currency risk through its investments in
foreign securities.
YEARLY PERFORMANCE
- --------------------------------------------------------------------------------
[To be updated]
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE
PURPOSE OF EDGAR FILING.]
[BAR GRAPH]
1990 1991 1992 1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ---- ---- ---- ----
6.3 19.8 5.6 10.8 -4.1 20.4 5.2 13.3
Calendar Year End
During the periods shown above, the highest quarterly return was for the
quarter ended , and the lowest was for the quarter ended . For the
quarter ended March 31, 1999, the Portfolio's return was %.
PERFORMANCE TABLE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL SINCE
RETURNS (FOR PERIODS INCEPTION
ENDING DECEMBER 31, PAST ONE PAST FIVE (OCTOBER 10,
1998) YEAR YEARS 1989)
- -----------------------------------------------------------------
<S> <C> <C> <C>
CLASS IB SHARES
- -----------------------------------------------------------------
LIPPER FLEXIBLE
PORTFOLIO AVERAGE
- -----------------------------------------------------------------
70% LEHMAN
TREASURY/30% S&P
500
- -----------------------------------------------------------------
S&P 500
- -----------------------------------------------------------------
</TABLE>
The average annual total returns in the performance table for the periods ended
December 31, 1998 reflect imposition of the maximum front-end or contingent
deferred sales charges and conversion of Class IB shares to Class IA shares
after the applicable period. Index returns are from month-end of the inception
of Class IA shares.
For periods prior to the inception of Class IB shares ( / / ), performance
information shown is the performance of Class IA adjusted to reflect the
appropriate sales charge and the higher 12b-1 fees paid by Class IB. The
average annual total return for Class IB since its actual inception date was
%. Index return for the comparable period (which dates from month-end of
Class IB inception date) was %.
- --------------------------------------------------------------------------------
The Hudson River Trust 4
<PAGE>
ALLIANCE BALANCED PORTFOLIO
- --------------------------------------------------------------------------------
OBJECTIVE:
This Portfolio seeks to achieve a high return through both appreciation of
capital and current income.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS:
The Portfolio invests varying portions of its assets in debt and equity
securities. The Portfolio's debt securities may have equity features such as
conversion or exchange rights, stock warrants or participations based on
revenues, rates or profits. There will be times when the Portfolio places
significantly greater emphasis on equity securities or debt securities, but
over time the Portfolio's holdings are expected, on average, to be equally
divided between debt securities and equity securities. The Portfolio may invest
in foreign securities and may also make use of various other investment
strategies, including securities lending. The Portfolio may use derivatives.
Among the principal risks of investing in the Portfolio are market risk,
management risk, credit risk, derivatives risk, liquidity risk and leveraging
risk. The Portfolio is subject to foreign investment risk and currency risk
through its investments in foreign securities.
YEARLY PERFORMANCE
- --------------------------------------------------------------------------------
[To be updated]
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE
PURPOSE OF EDGAR FILING.]
[BAR GRAPH]
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
25.8 0.3 41.3 -2.8 12.3 -8.0 19.8 11.7 15.1
Calendar Year End
During the periods shown above, the highest quarterly return was for the
quarter ended , and the lowest was for the quarter ended . For the
quarter ended March 31, 1999, the Portfolio's return was %.
PERFORMANCE TABLE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL
RETURNS (FOR PERIODS
ENDING DECEMBER 31, PAST ONE PAST FIVE PAST TEN
1998) YEAR YEARS YEARS
- ------------------------------------------------------------
<S> <C> <C> <C>
CLASS IB SHARES
- ------------------------------------------------------------
LIPPER BALANCED
MUTUAL FUNDS
AVERAGE
- ------------------------------------------------------------
50% S&P 500/50%
LEHMAN GOV'T
CORP.
- ------------------------------------------------------------
S&P 500
- ------------------------------------------------------------
</TABLE>
The average annual total returns in the performance table for the periods ended
December 31, 1998 reflect imposition of the maximum front-end or contingent
deferred sales charges and conversion of Class IB shares to Class IA shares
after the applicable period. Index returns are from 12/31/88.
For periods prior to the inception of Class IB shares ( / / ), performance
information shown is the performance of Class IA adjusted to reflect the
appropriate sales charge and the higher 12b-1 fees paid by Class IB. The
average annual total return for Class IB since its actual inception date was
%. Index return for the comparable period (which dates from month-end of the
Class IB inception date) was %.
- --------------------------------------------------------------------------------
5 The Hudson River Trust
<PAGE>
ALLIANCE GROWTH INVESTORS PORTFOLIO
- --------------------------------------------------------------------------------
OBJECTIVE:
This Portfolio seeks to achieve the highest total return consistent with
Alliance's determination of reasonable risk.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS:
The Portfolio invests varying portions of its assets in equity and debt
securities. Over time, the Portfolio's holdings, on average, are expected to be
allocated 70% to equity securities and 30% to debt securities. The Portfolio's
equity securities may include foreign stocks as well as preferred stocks and
convertible securities and may include securities of intermediate and
small-sized companies. The Portfolio's debt securities may include foreign debt
securities as well as lower quality, higher yielding debt securities commonly
known as "junk bonds." The Portfolio may also make use of various other
investment strategies, including securities lending. The Portfolio may use
derivatives.
Among the principal risks of investing in the Portfolio are market risk,
management risk, leveraging risk, derivatives risk, liquidity risk foreign
investment risk and currency risk. The Portfolio is subject to heightened
credit risk through its investments in lower quality debt securities.
YEARLY PERFORMANCE
- --------------------------------------------------------------------------------
[To be updated]
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE
PURPOSE OF EDGAR FILING.]
[BAR GRAPH]
1990 1991 1992 1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ---- ---- ---- ----
10.7 48.8 4.9 15.3 -3.2 26.4 12.6 16.9
Calendar Year End
During the periods shown above, the highest quarterly return was for the
quarter ended , and the lowest was for the quarter ended . For the
quarter ended March 31, 1999, the Portfolio's return was %.
PERFORMANCE TABLE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL SINCE
RETURNS (FOR PERIODS INCEPTION
ENDING DECEMBER 31, PAST ONE PAST FIVE (OCTOBER 2,
1998) YEAR YEARS 1989)
- ----------------------------------------------------------------
<S> <C> <C> <C>
CLASS IB SHARES
- ----------------------------------------------------------------
LIPPER FLEXIBLE
PORTFOLIO AVERAGE
- ----------------------------------------------------------------
70% S&P 500/30%
LEHMAN GOV'T
CORP.
- ----------------------------------------------------------------
S&P 500
- ----------------------------------------------------------------
</TABLE>
The average annual total returns in the performance table for the periods ended
December 31, 1998 reflect imposition of the maximum front-end or contingent
deferred sales charges and conversion of Class IB shares to Class IA shares
after the applicable period. Index returns are from month-end of the inception
of Class IA shares.
For periods prior to the inception of Class IB shares ( / / ), performance
information shown is the performance of Class IA adjusted to reflect the
appropriate sales charge and the higher 12b-1 fees paid by Class IB. The
average annual total return for Class IB since its actual inception date was
%. Index return for the comparable period (which dates from month-end of
Class IB inception date) was %.
- --------------------------------------------------------------------------------
The Hudson River Trust 6
<PAGE>
THE EQUITY SERIES
ALLIANCE GROWTH AND INCOME PORTFOLIO
- --------------------------------------------------------------------------------
OBJECTIVE:
This Portfolio seeks 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.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS:
The Portfolio invests primarily in stocks and securities convertible into
stocks, and may invest up to 30% of its total assets in high yield debt
securities that are convertible into stocks. The Portfolio may invest in
foreign securities and may also make use of various other investment
strategies. The Portfolio may use derivatives.
Among the principal risks of investing in the Portfolio are market risk,
management risk, leveraging risk, derivatives risk, foreign investment risk and
currency risk. The Portfolio is subject to heightened credit risk through its
investments in high yield debt securities.
YEARLY PERFORMANCE
- --------------------------------------------------------------------------------
[To be updated]
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE
PURPOSE OF EDGAR FILING.]
[BAR GRAPH]
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
-0.6 24.0 20.1 26.9
Calendar Year End
During the periods shown above, the highest quarterly return was for the
quarter ended , and the lowest was for the quarter ended . For the
quarter ended March 31, 1999, the Portfolio's return was %.
PERFORMANCE TABLE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL SINCE
RETURNS (FOR PERIODS INCEPTION
ENDING DECEMBER 31, PAST ONE PAST FIVE (OCTOBER 1,
1998) YEAR YEARS 1993)
- ----------------------------------------------------------------
<S> <C> <C> <C>
CLASS IB SHARES
- ----------------------------------------------------------------
LIPPER GROWTH AND
INCOME FUNDS
AVERAGE
- ----------------------------------------------------------------
75% S&P
500/25%VALUE LINE
CONVERTIBLE
- ----------------------------------------------------------------
S&P 500
- ----------------------------------------------------------------
</TABLE>
The average annual total returns in the performance table for the periods ended
December 31, 1998 reflect imposition of the maximum front-end or contingent
deferred sales charges and conversion of Class IB shares to Class IA shares
after the applicable period. Index returns are from month-end of the inception
of Class IA shares.
For periods prior to the inception of Class IB shares ( / / ), performance
information shown is the performance of Class IA adjusted to reflect the
appropriate sales charge and the higher 12b-1 fees paid by Class IB. The
average annual total return for Class IB since its actual inception date was
%. Index return for the comparable period (which dates from month-end of
Class IB inception date) was %.
- --------------------------------------------------------------------------------
7 The Hudson River Trust
<PAGE>
ALLIANCE EQUITY INDEX PORTFOLIO
- --------------------------------------------------------------------------------
OBJECTIVE:
This Portfolio seeks 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.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS:
Through the use of proprietary models, the Portfolio attempts to track the
Index by investing in many of the Index's largest capitalization securities
while trying to maintain industry diversification by investing in some smaller
and medium-sized capitalization companies as well. The Portfolio may also make
use of various other investment strategies, including securities lending. The
Portfolio may use derivatives.
Among the principal risks of investing in the Portfolio are market risk, credit
risk, derivatives risk, foreign investment risk, currency risk, leveraging risk
and management risk. The Portfolio is subject to smaller company risk through
its investments in smaller capitalization companies.
YEARLY PERFORMANCE
- --------------------------------------------------------------------------------
[To be updated]
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE
PURPOSE OF EDGAR FILING.]
[BAR GRAPH]
1995 1996 1997 1998
---- ---- ---- ----
36.5 22.4 32.6
Calendar Year End
During the periods shown above, the highest quarterly return was for the
quarter ended , and the lowest was for the quarter ended . For the
quarter ended March 31, 1999, the Portfolio's return was %.
PERFORMANCE TABLE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL
RETURNS (FOR PERIODS
ENDING DECEMBER 31, SINCE INCEPTION
1998) PAST ONE YEAR (MARCH 1, 1994)
- ----------------------------------------------------------
<S> <C> <C>
CLASS IB SHARES
- ----------------------------------------------------------
LIPPER S&P 500
INDEX FUNDS
AVERAGE
- ----------------------------------------------------------
S&P 500
- ----------------------------------------------------------
</TABLE>
The average annual total returns in the performance table for the periods ended
December 31, 1998 reflect imposition of the maximum front-end or contingent
deferred sales charges and conversion of Class IB shares to Class IA shares
after the applicable period. Index returns are from month-end of the inception
of Class IA shares.
For periods prior to the inception of Class IB shares ( / / ), performance
information shown is the performance of Class IA adjusted to reflect the
appropriate sales charge and the higher 12b-1 fees paid by Class IB. The
average annual total return for Class IB since its actual inception date was
%. Index return for the comparable period (which dates from month-end of
Class IB inception date) was %.
- --------------------------------------------------------------------------------
The Hudson River Trust 8
<PAGE>
ALLIANCE COMMON STOCK PORTFOLIO
- --------------------------------------------------------------------------------
OBJECTIVE:
This Portfolio seeks to achieve long-term growth of its capital and increase
income.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS:
The Portfolio invests primarily in stock and other equity securities (such as
preferred stocks or convertible debt). The Portfolio may also make use of
various other investment strategies, including investment in foreign
securities, securities lending and investments in debt securities (including
high yield securities). The Portfolio may use derivatives.
Among the principal risks of investing in the Portfolio are market risk, credit
risk, foreign investment risk, currency risk, leveraging risk, derivatives
risk, smaller company risk and management risk. The Portfolio is subject to
foreign investment risk and currency risk through its investments in foreign
securities.
YEARLY PERFORMANCE
- --------------------------------------------------------------------------------
[To be updated]
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE
PURPOSE OF EDGAR FILING.]
[BAR GRAPH]
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
25.6 -8.1 37.9 3.2 24.8 -2.1 32.5 24.3 29.4
Calendar Year End
During the periods shown above, the highest quarterly return was for the
quarter ended , and the lowest was for the quarter ended . For the
quarter ended March 31, 1999, the Portfolio's return was %.
PERFORMANCE TABLE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL
RETURNS (FOR PERIODS
ENDING DECEMBER 31, PAST ONE PAST FIVE PAST TEN
1998) YEAR YEARS YEARS
- ------------------------------------------------------------
<S> <C> <C> <C>
CLASS IB SHARES
- ------------------------------------------------------------
LIPPER GROWTH
EQUITY MUTUAL
FUNDS AVERAGE
- ------------------------------------------------------------
S&P 500
- ------------------------------------------------------------
</TABLE>
The average annual total returns in the performance table for the periods ended
December 31, 1998 reflect imposition of the maximum front-end or contingent
deferred sales charges and conversion of Class IB shares to Class IA shares
after the applicable period. Index returns are from 12/31/88.
For periods prior to the inception of Class IB shares ( / / ), performance
information shown is the performance of Class IA adjusted to reflect the
appropriate sales charge and the higher 12b-1 fees paid by Class IB. The
average annual total return for Class IB since its actual inception date was
%. Index return for the comparable period (which dates from month-end of the
Class IB inception date) was %.
- --------------------------------------------------------------------------------
9 The Hudson River Trust
<PAGE>
ALLIANCE GLOBAL PORTFOLIO
- --------------------------------------------------------------------------------
OBJECTIVE:
This Portfolio seeks long-term growth of capital.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS:
The Portfolio invests primarily in a diversified mix of equity securities of
U.S. and established foreign companies [(including companies in developing
countries or "emerging markets")]. The Portfolio may also make use of various
other investment strategies, including the purchase and sale of shares of other
mutual funds investing in foreign securities, investments in debt securities
and securities lending. The Portfolio may use derivatives.
Among the principal risks of investing in the Portfolio are foreign investment
risk, currency risk, market risk, credit risk, leveraging risk, derivatives
risk, liquidity risk and management risk.
YEARLY PERFORMANCE
- --------------------------------------------------------------------------------
[To be updated]
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE
PURPOSE OF EDGAR FILING.]
[BAR GRAPH]
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
26.7 -6.1 30.5 -0.5 32.1 5.2 18.8 14.6 11.7
Calendar Year End
During the periods shown above, the highest quarterly return was for the
quarter ended , and the lowest was for the quarter ended . For the
quarter ended March 31, 1999, the Portfolio's return was %.
PERFORMANCE TABLE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL
RETURNS (FOR PERIODS
ENDING DECEMBER 31, PAST ONE PAST FIVE PAST TEN
1998) YEAR YEARS YEARS
- ------------------------------------------------------------
<S> <C> <C> <C>
CLASS IB SHARES
- ------------------------------------------------------------
LIPPER GLOBAL
MUTUAL FUNDS
AVERAGE
- ------------------------------------------------------------
MSCI WORLD
- ------------------------------------------------------------
</TABLE>
The average annual total returns in the performance table for the periods ended
December 31, 1998 reflect imposition of the maximum front-end or contingent
deferred sales charges and conversion of Class IB shares to Class IA shares
after the applicable period. Index returns are from 12/31/88.
For periods prior to the inception of Class IB shares ( / / ), performance
information shown is the performance of Class IA adjusted to reflect the
appropriate sales charge and the higher 12b-1 fees paid by Class IB. The
average annual total return for Class IB since its actual inception date was
%. Index return for the comparable period (which dates from month-end of the
Class IB inception date) was %.
- --------------------------------------------------------------------------------
The Hudson River Trust 10
<PAGE>
ALLIANCE INTERNATIONAL PORTFOLIO
- --------------------------------------------------------------------------------
OBJECTIVE:
This Portfolio seeks 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.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS:
The Portfolio may invest anywhere in the world (including developing countries
or "emerging markets"), although it will not generally invest in the United
States. [The Portfolio may purchase securities of developing countries, which
include, among others, Mexico, Brazil, Hong Kong, India, Poland, Turkey and
South Africa.] The Portfolio may also make use of various other investment
strategies, including the purchase and sale of shares of other mutual funds
investing in foreign securities, investments in debt securities and securities
lending. The Portfolio may use derivatives.
Among the principal risks of investing in the Portfolio are foreign investment
risk, currency risk, market risk, credit risk, leveraging risk, derivatives
risk, liquidity risk, smaller company risk and management risk.
YEARLY PERFORMANCE
- --------------------------------------------------------------------------------
[To be updated]
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE
PURPOSE OF EDGAR FILING.]
[BAR GRAPH]
1996 1997 1998
---- ---- ----
9.8 -2.98
Calendar Year End
During the periods shown above, the highest quarterly return was for the
quarter ended , and the lowest was for the quarter ended . For the
quarter ended March 31, 1999, the Portfolio's return was %.
PERFORMANCE TABLE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL
RETURNS (FOR PERIODS
ENDING DECEMBER 31, SINCE INCEPTION
1998) PAST ONE YEAR (APRIL 3, 1995)
- ----------------------------------------------------------
<S> <C> <C>
CLASS IB SHARES
- ----------------------------------------------------------
LIPPER
INTERNATIONAL
MUTUAL FUNDS
AVERAGE
- ----------------------------------------------------------
MSCI EAFE
- ----------------------------------------------------------
</TABLE>
The average annual total returns in the performance table for the periods ended
December 31, 1998 reflect imposition of the maximum front-end or contingent
deferred sales charges and conversion of Class IB shares to Class IA shares
after the applicable period. Index returns are from month-end of the inception
of Class IA shares.
For periods prior to the inception of Class IB shares ( / / ), performance
information shown is the performance of Class IA adjusted to reflect the
appropriate sales charge and the higher 12b-1 fees paid by Class IB. The
average annual total return for Class IB since its actual inception date was
%. Index return for the comparable period (which dates from month-end of
Class IB inception date) was %.
- --------------------------------------------------------------------------------
11 The Hudson River Trust
<PAGE>
ALLIANCE AGGRESSIVE STOCK PORTFOLIO
- --------------------------------------------------------------------------------
OBJECTIVE:
This Portfolio seeks to achieve long-term growth of capital.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS:
The Portfolio invests primarily in stocks and other equity securities of small
and medium-sized companies. The Portfolio may also invest in securities of
companies in cyclical industries, companies whose securities are temporarily
undervalued, companies in special situations and less widely known companies.
The Portfolio may invest in foreign securities and may also make use of various
other investment strategies, including investments in debt securities and
securities lending. The Portfolio may use derivatives.
Among the principal risks of investing in the Portfolio are smaller company
risk, market risk, credit risk, leveraging risk, derivatives risk, liquidity
risk and management risk. The Portfolio is subject to foreign investment risk
and currency risk through its investments in foreign securities.
YEARLY PERFORMANCE
- --------------------------------------------------------------------------------
[To be updated]
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE
PURPOSE OF EDGAR FILING.]
[BAR GRAPH]
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
43.5 8.2 86.9 -3.2 16.8 -3.8 31.6 22.2 10.9
Calendar Year End
During the periods shown above, the highest quarterly return was for the
quarter ended , and the lowest was for the quarter ended . For the
quarter ended March 31, 1999, the Portfolio's return was %.
PERFORMANCE TABLE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL
RETURNS (FOR PERIODS
ENDING DECEMBER 31, PAST ONE PAST FIVE PAST TEN
1998) YEAR YEARS YEARS
- ------------------------------------------------------------
<S> <C> <C> <C>
CLASS IB SHARES
- ------------------------------------------------------------
LIPPER SMALL
COMPANY GROWTH
FUNDS AVERAGE
- ------------------------------------------------------------
50% S&P 400
MID-CAP/50%
RUSSELL 2000
- ------------------------------------------------------------
S&P 400 MID-CAP
- ------------------------------------------------------------
</TABLE>
The average annual total returns in the performance table for the periods ended
December 31, 1998 reflect imposition of the maximum front-end or contingent
deferred sales charges and conversion of Class IB shares to Class IA shares
after the applicable period. Index returns are from 12/31/88.
For periods prior to the inception of Class IB shares ( / / ), performance
information shown is the performance of Class IA adjusted to reflect the
appropriate sales charge and the higher 12b-1 fees paid by Class IB. The
average annual total return for Class IB since its actual inception date was
%. Index return for the comparable period (which dates from month-end of the
Class IB inception date) was %.
- --------------------------------------------------------------------------------
The Hudson River Trust 12
<PAGE>
ALLIANCE SMALL CAP GROWTH PORTFOLIO
- --------------------------------------------------------------------------------
OBJECTIVE:
This Portfolio seeks to achieve long-term growth of capital.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS:
The Portfolio invests primarily in stocks and other equity securities of
smaller companies. The Portfolio may at times invest in companies in cyclical
industries, companies whose securities are temporarily undervalued, companies
in special situations and less widely known companies. The Portfolio may invest
in foreign securities and may also make use of various other investment
strategies, including securities lending and investments in debt securities.
The Portfolio may use derivatives.
Among the principal risks of investing in the Portfolio are smaller company
risk, market risk, credit risk, leveraging risk, derivatives risk, liquidity
risk and management risk. The Portfolio is subject to foreign investment risk
and currency risk through its investments in foreign securities.
YEARLY PERFORMANCE
- --------------------------------------------------------------------------------
[To be updated]
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE
PURPOSE OF EDGAR FILING.]
[BAR GRAPH]
1998
----
Calendar Year End
During the periods shown above, the highest quarterly return was for the
quarter ended , and the lowest was for the quarter ended . For the
quarter ended March 31, 1999, the Portfolio's return was %.
PERFORMANCE TABLE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL
RETURNS (FOR PERIODS
ENDING DECEMBER 31, SINCE INCEPTION
1998) PAST ONE YEAR (MAY 1, 1997)
- ----------------------------------------------------------
<S> <C> <C>
CLASS IB SHARES
- ----------------------------------------------------------
LIPPER SMALL
COMPANY GROWTH
FUNDS AVERAGE
- ----------------------------------------------------------
RUSSELL 2000
- ----------------------------------------------------------
</TABLE>
The average annual total returns in the performance table for the periods ended
December 31, 1998 reflect imposition of the maximum front-end or contingent
deferred sales charges and conversion of Class IB shares to Class IA shares
after the applicable period. Index returns are from month-end of the inception
of Class IA shares.
For periods prior to the inception of Class IB shares ( / / ), performance
information shown is the performance of Class IA adjusted to reflect the
appropriate sales charge and the higher 12b-1 fees paid by Class IB. The
average annual total return for Class IB since its actual inception date was
%. Index return for the comparable period (which dates from month-end of
Class IB inception date) was %.
- --------------------------------------------------------------------------------
13 The Hudson River Trust
<PAGE>
THE FIXED INCOME SERIES
ALLIANCE MONEY MARKET PORTFOLIO
- --------------------------------------------------------------------------------
OBJECTIVE:
This Portfolio seeks to obtain a high level of current income, preserve its
assets and maintain liquidity.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS:
The Portfolio invests in high quality U.S. dollar denominated money market
instruments. Its investments are limited to those which, in the opinion of
Alliance, present minimal credit risk. The Portfolio will maintain a
dollar-weighted average portfolio maturity of 90 days or less. The Portfolio
may make use of various other investment strategies, including investments in
U.S. dollar denominated foreign money market instruments and securities
lending.
Among the principal risks of investing in the Portfolio are money market risk,
market risk, credit risk, leveraging risk and management risk. The Portfolio is
subject to foreign investment risk through its investments in foreign money
market instruments and is subject to credit risk through its involvement with
securities lending.
YEARLY PERFORMANCE
- --------------------------------------------------------------------------------
[To be updated]
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE
PURPOSE OF EDGAR FILING.]
[BAR GRAPH]
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
9.2 8.2 6.2 3.6 3.0 4.0 5.7 5.3 5.4
Calendar Year End
During the periods shown above, the highest quarterly return was for the
quarter ended , and the lowest was for the quarter ended . For the
quarter ended March 31, 1999, the Portfolio's return was %. [The Portfolio's
7-day yield for the quarter ended December 31, 1998 was %.]
PERFORMANCE TABLE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL
RETURNS (FOR PERIODS
ENDING DECEMBER 31, PAST ONE PAST FIVE PAST TEN
1998) YEAR YEARS YEARS
- ------------------------------------------------------------
<S> <C> <C> <C>
CLASS IB SHARES
- ------------------------------------------------------------
LIPPER MONEY
MARKET MUTUAL
FUNDS AVERAGE
- ------------------------------------------------------------
3 MONTH TREASURY
BILL
- ------------------------------------------------------------
</TABLE>
The average annual total returns in the performance table for the periods ended
December 31, 1998 reflect imposition of the maximum front-end or contingent
deferred sales charges and conversion of Class IB shares to Class IA shares
after the applicable period. Index returns are from 12/31/88.
For periods prior to the inception of Class IB shares ( / / ), performance
information shown is the performance of Class IA adjusted to reflect the
appropriate sales charge and the higher 12b-1 fees paid by Class IB. The
average annual total return for Class IB since its actual inception date was
%. Index return for the comparable period (which dates from month-end of the
Class IB inception date) was %.
- --------------------------------------------------------------------------------
The Hudson River Trust 14
<PAGE>
ALLIANCE INTERMEDIATE GOVERNMENT SECURITIES PORTFOLIO
- --------------------------------------------------------------------------------
OBJECTIVE:
This Portfolio seeks 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 its
agencies or instrumentalities.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS:
The Portfolio invests primarily in U.S. Government securities, which for these
purposes includes repurchase agreements and forward commitments related to U.S.
Government securities. The Portfolio may also purchase debt securities of
non-government issuers that own mortgages. The Portfolio's investments will
generally have a final maturity of not more than ten years or a duration (a
measure of a debt instrument's sensitivity to interest rates) not exceeding
that of a 10-year Treasury note. The Portfolio may also make use of various
other investment strategies, including short sales, the purchase or sale of
securities on a when-issued, delayed delivery or forward commitment basis, and
repurchase agreements. The Portfolio uses derivatives.
Among the principal risks of investing in the Portfolio are market risk, credit
risk, leveraging risk, derivatives risk and management risk.
YEARLY PERFORMANCE
- --------------------------------------------------------------------------------
[To be updated]
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE
PURPOSE OF EDGAR FILING.]
[BAR GRAPH]
1992 1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ---- ----
5.5 10.6 -4.4 13.3 3.8 7.3
Calendar Year End
During the periods shown above, the highest quarterly return was for the
quarter ended , and the lowest was for the quarter ended . For the
quarter ended March 31, 1999, the Portfolio's return was %.
PERFORMANCE TABLE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL SINCE
RETURNS (FOR PERIODS INCEPTION
ENDING DECEMBER 31, PAST ONE PAST FIVE (APRIL 1,
1998) YEAR YEARS 1991)
- --------------------------------------------------------------
<S> <C> <C> <C>
CLASS IB SHARES
- --------------------------------------------------------------
LIPPER
INTERMEDIATE
GOVERNMENT
FUNDS AVERAGE
- --------------------------------------------------------------
LEHMAN
INTERMEDIATE
GOVERNMENT BOND
- --------------------------------------------------------------
</TABLE>
The average annual total returns in the performance table for the periods ended
December 31, 1998 reflect imposition of the maximum front-end or contingent
deferred sales charges and conversion of Class IB shares to Class IA shares
after the applicable period. Index returns are from month-end of the inception
of Class IA shares.
For periods prior to the inception of Class IB shares ( / / ), performance
information shown is the performance of Class IA adjusted to reflect the
appropriate sales charge and the higher 12b-1 fees paid by Class IB. The
average annual total return for Class IB since its actual inception date was
%. Index return for the comparable period (which dates from month-end of
Class IB inception date) was %.
- --------------------------------------------------------------------------------
15 The Hudson River Trust
<PAGE>
ALLIANCE QUALITY BOND PORTFOLIO
- --------------------------------------------------------------------------------
OBJECTIVE:
This Portfolio seeks to achieve high current income consistent with
preservation of capital by investing primarily in investment grade fixed income
securities.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS:
In addition to investment grade debt securities (securities rated at least BBB
by S&P or determined by Alliance to be of comparable quality), the Portfolio
may at times invest in convertible debt securities, preferred stock and
dividend-paying common stocks. The Portfolio may invest in foreign securities
and also make use of various other investment strategies, including zero coupon
securities, securities lending, the purchase or sale of securities on a
when-issued, delayed delivery or forward commitment basis and repurchase
agreements. The Portfolio may use derivatives.
Among the principal risks of investing in the Portfolio are market risk,
management risk, leveraging risk, derivatives risk and credit risk. The
Portfolio is subject to foreign investment risk and currency risk through its
investments in foreign securities.
YEARLY PERFORMANCE
- --------------------------------------------------------------------------------
[To be updated]
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE
PURPOSE OF EDGAR FILING.]
[BAR GRAPH]
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
-5.1 17.0 5.4 9.1
Calendar Year End
During the periods shown above, the highest quarterly return was for the
quarter ended , and the lowest was for the quarter ended . For the
quarter ended March 31, 1999, the Portfolio's return was %.
PERFORMANCE TABLE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL SINCE
RETURNS (FOR PERIODS INCEPTION
ENDING DECEMBER 31, PAST ONE PAST FIVE (OCTOBER 1,
1998) YEAR YEARS 1993)
- ----------------------------------------------------------------
<S> <C> <C> <C>
CLASS IB SHARES
- ----------------------------------------------------------------
LIPPER CORPORATE
DEBT FUNDS A
RATED AVERAGE
- ----------------------------------------------------------------
LEHMAN AGGREGATE
BOND
- ----------------------------------------------------------------
</TABLE>
The average annual total returns in the performance table for the periods ended
December 31, 1998 reflect imposition of the maximum front-end or contingent
deferred sales charges and conversion of Class IB shares to Class IA shares
after the applicable period. Index returns are from month-end of the inception
of Class IA shares.
For periods prior to the inception of Class IB shares ( / / ), performance
information shown is the performance of Class IA adjusted to reflect the
appropriate sales charge and the higher 12b-1 fees paid by Class IB. The
average annual total return for Class IB since its actual inception date was
%. Index return for the comparable period (which dates from month-end of
Class IB inception date) was %.
- --------------------------------------------------------------------------------
The Hudson River Trust 16
<PAGE>
ALLIANCE HIGH YIELD PORTFOLIO
- --------------------------------------------------------------------------------
OBJECTIVE:
This Portfolio seeks to achieve a high return by maximizing current income and,
to the extent consistent with that objective, capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS:
The Portfolio invests primarily in high yield debt securities (so-called "junk
bonds"). The Portfolio may also make use of various other investment
strategies, including investments in common stocks and other equity securities
and securities lending. The Portfolio may use derivatives.
Among the principal risks of investing in the Portfolio are credit risk, market
risk, leveraging risk, derivatives risk, liquidity risk, smaller company risk
and management risk. Credit risk is particularly high for the Portfolio because
of its extensive investment in high yield debt securities.
YEARLY PERFORMANCE
- --------------------------------------------------------------------------------
[To be updated]
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE
PURPOSE OF EDGAR FILING.]
[BAR GRAPH]
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
5.1 -1.1 24.5 12.3 23.2 -2.8 19.9 22.9 18.5
Calendar Year End
During the periods shown above, the highest quarterly return was for the
quarter ended , and the lowest was for the quarter ended . For the
period ended March 31, 1999 the Portfolio's return was %.
PERFORMANCE TABLE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL
RETURNS (FOR PERIODS
ENDING DECEMBER 31, PAST ONE PAST FIVE PAST TEN
1998) YEAR YEARS YEARS
- ------------------------------------------------------------
<S> <C> <C> <C>
CLASS IB SHARES
- ------------------------------------------------------------
LIPPER HIGH
CURRENT YIELD
BOND FUNDS
AVERAGE
- ------------------------------------------------------------
ML MASTER
- ------------------------------------------------------------
</TABLE>
The average annual total returns in the performance table for the periods ended
December 31, 1998 reflect imposition of the maximum front-end or contingent
deferred sales charges and conversion of Class IB shares to Class IA shares
after the applicable period. Index returns are from 12/31/88.
For periods prior to the inception of Class IB shares ( / / ), performance
information shown is the performance of Class IA adjusted to reflect the
appropriate sales charge and the higher 12b-1 fees paid by Class IB. The
average annual total return for Class IB since its actual inception date was
%. Index return for the comparable period (which dates from month-end of the
Class IB inception date) was %.
- --------------------------------------------------------------------------------
17 The Hudson River Trust
<PAGE>
SUMMARY OF PRINCIPAL RISKS
The value of your investment in a Portfolio changes with the values of the
Portfolio's investments. Many factors can affect those values. This summary
describes the principal risks that may affect a particular Portfolio's
investments as a whole. The chart at the end of this section displays similar
information. Any Portfolio could be subject to additional principal risks
because the types of investments made by the Portfolios can change over time.
Investments mentioned in this summary and described in greater detail under
"Description of the Portfolios" or "Investment Techniques" appear in BOLD TYPE.
Those sections also include more information about the Portfolios, their
investments and the related risks.
o MARKET AND INTEREST RATE RISK. Each of the Portfolios is subject to market
risk, which is the general risk of unfavorable changes in the market value
of a Portfolio's securities. The Portfolios that invest in common stock,
preferred stock, convertible securities and other equity securities, are
exposed to the risks of changes in the value of those securities based on
market fluctuations and business variables. These include the risks of
broader market declines as well as more company-specific risks, such as
poor management performance, inappropriate financial leverage, industry
problems and reduced demand for a particular company's products.
Interest rate risk is the risk that interest rates will rise causing a
portfolio's investments to decline in value. Portfolios that invest in debt
securities such as bonds, notes and ASSET-BACKED SECURITIES are subject to
this type of market risk. Debt securities are obligations of an issuer to
make fixed payments of principal and/or interest on future dates. If the
interest rate paid by an issuer on a particular debt security is high
relative to market interest rates, that security is attractive to investors
and valuable. Accordingly, if market interest rates rise, your investment
in a Portfolio that holds debt securities is likely to become less valuable
because its debt securities are likely to drop in value.
Even the Alliance Intermediate Government Securities Portfolio is
subject to interest rate risk despite the fact that it generally invests a
substantial portion of its assets in the highest quality debt securities
such as U.S. Government Securities. Interest rate risk is generally
greater, however, for Portfolios, such as the Alliance Growth Investors
Portfolio and the Alliance High Yield Portfolio, that invest significant
assets in lower-rated securities or comparable unrated securities.
All the Portfolios, except the Alliance Equity Index Portfolio, may
invest in MORTGAGE-BACKED SECURITIES. Market risk generally is greater for
Portfolios that may invest to a material extent in MORTGAGE-RELATED or
other ASSET-BACKED SECURITIES that may be prepaid. These securities bear
greater market risk because they have variable maturities that tend to
lengthen when that is least desirable -- when interest rates are rising.
Increased market risk is also likely for Portfolios that invest to a
material extent in debt securities paying no interest, such as ZERO COUPON,
principal-only and interest-only securities, or paying non-cash interest in
the form of other debt securities (pay-in-kind securities).
o CREDIT RISK. Credit risk is the risk that the issuer or the guarantor of a
debt security or the counterparty to a Portfolio's transaction will be
unable or unwilling to make timely principal and/or interest payments, or
otherwise to honor its obligations. Each of the Portfolios may be subject
to credit risk to the extent that it invests in debt securities or engages
in transactions, such as SECURITIES LOANS, which involve a promise by a
third party to honor an obligation to the Portfolio. Varying degrees of
credit risk, often reflected in credit ratings, apply to different third
parties and related transactions.
Credit risk is particularly significant for Portfolios, such as the
Alliance Growth Investors Portfolio and the Alliance High Yield Portfolio,
that invest a material portion of their assets in LOWER-RATED SECURITIES.
These debt securities and similar unrated securities (commonly known as
"junk bonds") have speculative elements or are predominantly speculative
credit risks. Even debt securities that are "investment grade" may have
some speculative characteristics. Portfolios such as the Alliance Growth
Investors Portfolio and the Alliance High Yield Portfolio may also be
subject to greater credit risk because they may invest in debt securities
issued in connection with corporate restructurings by highly leveraged
issuers or in debt securities not current in the payment of interest
- --------------------------------------------------------------------------------
The Hudson River Trust 18
<PAGE>
or principal, or in default. Portfolios such as the Alliance Balanced
Portfolio, the Alliance Global Portfolio and the Alliance International
Portfolio that may invest significantly in FOREIGN SECURITIES are also
subject to increased credit risk because of the difficulties of requiring
foreign entities, including issuers of sovereign debt, to honor their
contractual commitments, and because a number of foreign governments and
other issuers are already in default.
o CURRENCY RISK. Portfolios such as the Alliance Global Portfolio, the
Alliance International Portfolio and the Alliance Growth and Income
Portfolio that invest in securities denominated in, and/or receiving
revenues in, FOREIGN CURRENCIES will be subject to currency risk. This is
the risk that those currencies will decline in value relative to the U.S.
Dollar, or, in the case of hedging positions, that the U.S. Dollar will
decline in value relative to the currency hedged. In either event, the
dollar value of such investments would be adversely affected.
o FOREIGN INVESTMENT RISK. Portfolios with foreign investments, such as the
Alliance Global Portfolio, the Alliance International Portfolio and the
Alliance Balanced Portfolio, may experience more rapid and extreme changes
in value than Portfolios with investments solely in securities of U.S.
companies. This is because the securities markets of many foreign countries
are relatively small, with a limited number of companies representing a
small number of industries.
Additionally, FOREIGN SECURITIES issuers are usually not subject to
the same degree of regulation as U.S. issuers. Reporting, accounting and
auditing standards of foreign countries differ, in some cases
significantly, from U.S. standards. Also, nationalization, expropriation or
confiscatory taxation, currency blockage, political changes or diplomatic
developments could adversely affect a Portfolio's investments in a foreign
country. In the event of nationalization, expropriation or other
confiscation, a Portfolio could lose its entire investment.
o LEVERAGING RISK. When a Portfolio is borrowing money or otherwise
leveraging its portfolio, the value of an investment in that Portfolio will
be more volatile and all other risks will tend to be compounded. All of the
Portfolios may take on leveraging risk by investing collateral from
SECURITIES LOANS and by borrowing money to meet redemption requests.
o DERIVATIVES RISK. All the Portfolios, except the Alliance Money Market
Portfolio, may use DERIVATIVES, which are financial contracts whose value
depends on, or is derived from, the value of an underlying asset, reference
rate or index. Alliance will sometimes use DERIVATIVES as part of a
strategy designed to reduce other risks and sometimes will use DERIVATIVES
for leverage, which increases opportunities for gain but also involves
greater risk. In addition to other risks such as the credit risk of the
counterparty, DERIVATIVES involve the risk of mispricing or improper
valuation and the risk that changes in the value of the derivative may not
correlate perfectly with relevant assets, rates and indices.
o LIQUIDITY RISK. Liquidity risk exists when particular investments are
difficult to purchase or sell, possibly preventing a Portfolio from selling
out of these illiquid securities at an advantageous price. Portfolios such
as the Alliance Global Portfolio, the Alliance International Portfolio, the
Alliance Growth Investors Portfolio, the Alliance Aggressive Stock
Portfolio, the Alliance Small Cap Growth Portfolio and the Alliance High
Yield Portfolio are subject to liquidity risk because foreign investments
and securities involving substantial market and/or credit risk tend to be
harder to sell. In addition, liquidity risk for the Alliance High Yield
Portfolio tends to increase to the extent that it invests in LOAN
PARTICIPATIONS AND ASSIGNMENTS, whose sale may be restricted by law or by
contract.
o SMALLER COMPANY RISK. Market risk and liquidity risk are particularly
pronounced for Portfolios, such as the Alliance Aggressive Stock Portfolio
and the Alliance Small Capital Growth Portfolio, that invest a significant
percentage of their assets in the stocks of companies with relatively small
market capitalizations. These companies may have limited product lines,
markets or financial resources or may depend on a few key employees.
o MONEY MARKET RISK. While money market funds are designed to be relatively
low risk investments, they are not entirely free of risk. Despite the short
maturities and high credit quality of the Alliance
- --------------------------------------------------------------------------------
19 The Hudson River Trust
<PAGE>
Money Market Portfolio's investments, increases in interest rates and
deteriorations in the credit quality of the instruments the Portfolio has
purchased may reduce the Portfolio's net asset value. In addition, the
Portfolio is still subject to the risk that the value of an investment may
be eroded over time by inflation.
o MANAGEMENT RISK. Each Portfolio is subject to management risk because it is
an actively managed investment portfolio. Alliance will apply its
investment techniques and risk analyses in making investment decisions for
the Portfolios, but there can be no guarantee that they will produce the
desired results. In some cases, certain investments may be unavailable or
Alliance may choose not to use them under market conditions when, in
retrospect, their use would have been beneficial to the Portfolios.
PRINCIPAL RISKS BY PORTFOLIO
The following chart summarizes the principal risks of each Portfolio.
Risks not marked for a particular Portfolio may, however, still apply to some
extent to that Portfolio at various times.
<TABLE>
<CAPTION>
MARKET
OR
INTEREST FOREIGN
ALLIANCE RATE CREDIT CURRENCY INVESTMENT LEVERAGING
PORTFOLIO RISK RISK RISK RISK RISK
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Conservative
Investors X X X X X
- -----------------------------------------------------------------------------
Balanced X X X X X
- -----------------------------------------------------------------------------
Growth Investors X X X X X
- -----------------------------------------------------------------------------
Growth and Income X X X X X
- -----------------------------------------------------------------------------
Equity Index X X X
- -----------------------------------------------------------------------------
Common Stock X X X X X
- -----------------------------------------------------------------------------
Global X X X X X
- -----------------------------------------------------------------------------
International X X X X X
- -----------------------------------------------------------------------------
Aggressive Stock X X X X X
- -----------------------------------------------------------------------------
Small Capital
Growth X X X X X
- -----------------------------------------------------------------------------
Money Market X X X X
- -----------------------------------------------------------------------------
Intermediate
Government
Securities X X X
- -----------------------------------------------------------------------------
Quality Bond X X X X X
- -----------------------------------------------------------------------------
High Yield X X X X X
- -----------------------------------------------------------------------------
<CAPTION>
SMALLER MONEY
ALLIANCE DERIVATIVES LIQUIDITY COMPANY MARKET MANAGEMENT
PORTFOLIO RISK RISK RISK RISK RISK
<S> <C> <C> <C> <C> <C>
Conservative
Investors X X
- -----------------------------------------------------------------------------
Balanced X X X
- -----------------------------------------------------------------------------
Growth Investors X X X
- -----------------------------------------------------------------------------
Growth and Income X X X
- -----------------------------------------------------------------------------
Equity Index X
- -----------------------------------------------------------------------------
Common Stock X X X
- -----------------------------------------------------------------------------
Global X X X
- -----------------------------------------------------------------------------
International X X X
- -----------------------------------------------------------------------------
Aggressive Stock X X X X
- -----------------------------------------------------------------------------
Small Capital
Growth X X X X
- -----------------------------------------------------------------------------
Money Market X X
- -----------------------------------------------------------------------------
Intermediate
Government
Securities X X
- -----------------------------------------------------------------------------
Quality Bond X X
- -----------------------------------------------------------------------------
High Yield X X X X
- -----------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
The Hudson River Trust 20
<PAGE>
DESCRIPTION OF THE PORTFOLIOS
This section of the Prospectus provides a more complete description of the
principal investment objectives, strategies, and risks of the Portfolios. Of
course, there can be no assurance that any portfolio will achieve its
investment objective.
Please note that:
o Additional discussion of the Portfolio's investments, including the
risks of the investments, can be found in the discussion under
"Investment Techniques" following this section.
o The description of the principal risks for a Portfolio may include risks
described in the "Summary of Risks" above. Additional information about
risks of investing in a Portfolio can be found in the discussion below
under "Investment Techniques."
o Additional descriptions of each Portfolio's strategies, investments and
risks can be found in the Portfolios' Statement of Additional
Information or SAI.
o Except as noted, (i) the Portfolios' investment objectives are
"fundamental" and cannot be changed without shareholder vote, and (ii)
the Portfolios' investment policies are not fundamental and thus can be
changed without a shareholder vote.
THE ASSET ALLOCATION SERIES
The Alliance Conservative Investors Portfolio, the Alliance Balanced Portfolio
and the Alliance Growth Investors Portfolio together are called the Asset
Allocation Series. These Portfolios invest in a variety of fixed income and
equity securities, each pursuant to a different asset allocation strategy, as
described below. The term "asset allocation" is used to describe the process of
shifting assets among discrete categories of investments in an effort to reduce
risk while producing desired return objectives. Portfolio management,
therefore, will consist not only of selecting specific securities but also of
setting, monitoring and changing, when necessary, the asset mix.
Each Portfolio has been designed with a view toward a different "investor
profile." The "conservative investor" has a relatively short-term investment
bias, either because of a limited tolerance for market volatility or a short
investment horizon. This investor is averse to taking risks that may result in
principal loss, even though such aversion may reduce the potential for higher
long-term gains and result in lower performance during periods of equity market
strength. Consequently, the asset mix for the Alliance Conservative Investors
Portfolio attempts to reduce volatility while providing modest upside
potential. The "growth investor" has a longer-term investment horizon and is
therefore willing to take more risks in an attempt to achieve long-term growth
of principal. This investor wishes, in effect, to be risk conscious without
being risk averse. The asset mix for the Alliance Growth Investors Portfolio
attempts to provide for upside potential without excessive volatility.
The "balanced investor" is somewhat less aggressive than the growth investor
and has a medium- to long-term investment horizon. This investor is sensitive
to risk, but is willing to take on some risk in seeking high total return.
Consequently, the asset mix for the Alliance Balanced Portfolio attempts to
capture a sizable portion of the market's upside while diversifying risk among
asset classes.
Alliance 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. 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.
- --------------------------------------------------------------------------------
21 The Hudson River Trust
<PAGE>
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 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, 1998, the duration of a 10-year Treasury bond was
considered by Alliance to be years.
The Portfolio is generally expected to hold approximately 70% of its assets in
fixed income securities (including the Fixed Income Core) and 30% in equity
securities. Actual asset mixes will be adjusted in response to economic and
credit market cycles. The fixed income asset class will always comprise at
least 50%, but never more than 90%, of the Portfolio's total assets. The equity
class will always comprise at least 10%, but never more than 50%, of the
Portfolio's total assets.
ALLIANCE BALANCED PORTFOLIO--INVESTMENT POLICIES
The Alliance Balanced Portfolio attempts to achieve its objective by investing
varying portions of its assets in publicly-traded equity and debt securities
and money market instruments. The Alliance Balanced Portfolio attempts to
achieve long-term growth of capital by investing in common stock and other
equity-type instruments. It will try to achieve a competitive level of current
income and capital appreciation through investments in publicly traded debt
securities and a high level of current income through investments in money
market instruments.
- --------------------------------------------------------------------------------
The Hudson River Trust 22
<PAGE>
The portion of the Alliance Balanced Portfolio's assets invested in each type
of security will vary in accordance with economic conditions, the general level
of common stock prices, interest rates and other relevant considerations,
including the risks associated with each investment medium. Although the
Alliance Balanced Portfolio will seek to reduce the risks associated with any
one investment medium by utilizing a variety of investments, performance will
depend upon Alliance's ability to assess accurately and react to changing
market conditions.
The Alliance Balanced Portfolio will at all times hold at least 25% of its
assets in fixed income securities (including, for these purposes, that portion
of the value of securities convertible into common stock which is attributable
to the fixed income characteristics of those securities, as well as money
market instruments). The Portfolio's equity securities will always comprise at
least 25%, but never more than 75%, of the Portfolio's total assets.
Consequently, the Portfolio will have "Core Holdings" of at least 25% fixed
income securities and 25% equity securities. Over time, holdings by the
Portfolio are currently expected to average approximately 50% in fixed income
securities and approximately 50% in equity securities. Actual asset mixes will
be adjusted in response to economic and credit market cycles.
The equity securities invested in by the Alliance Balanced Portfolio will
consist of the types of securities in which the Alliance Common Stock Portfolio
may invest. The money market securities will consist of the types of securities
and credit quality in which the Alliance Money Market Portfolio may invest. The
debt securities will consist principally of bonds, notes, debentures and
equipment trust certificates. The Portfolio may also buy debt securities with
equity features such as conversion or exchange rights or warrants for the
acquisition of stock or participations based on revenues, rates or profits.
These debt securities will principally be investment grade securities rated at
least Baa by Moody's or BBB by S&P, or will be issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. If such Baa or BBB debt
securities held by the Portfolio fall below those ratings, the Portfolio will
not be obligated to dispose of them and may continue to hold them if Alliance
considers them appropriate investments under the circumstances. In addition,
the Alliance Balanced Portfolio may at times hold some of its assets in cash.
The Portfolio may invest up to 20% of its total assets in foreign securities.
See "Investment Techniques--Foreign Securities and Currencies," below. The
Portfolio may make secured loans of up to 50% of its total portfolio
securities. See "Investment Techniques--Securities Lending," below. The
Alliance Balanced Portfolio may write covered call and put options and may
purchase call and put options on all the types of securities in which it may
invest, as well as securities indexes and foreign currencies. The Alliance
Balanced Portfolio may also purchase and sell stock index, interest rate and
foreign currency futures contracts and options thereon. See "Investment
Techniques--Options," "Investment Techniques--Futures" and "Investment
Techniques--Risk Factors in Options and Futures," below.
ALLIANCE GROWTH INVESTORS PORTFOLIO--INVESTMENT POLICIES
The Alliance Growth Investors Portfolio attempts to achieve its investment
objective by allocating varying portions of its assets to a number of asset
classes. Equity investments will include both exchange-traded and
over-the-counter common stocks and equity-type securities, which may include
preferred stock and convertible securities, and may include securities issued
by intermediate- and small-sized companies that, in the opinion of Alliance,
have favorable growth prospects. More risk is associated with investment in
intermediate and small-sized companies because they are often dependent on
limited product lines, financial resources or management groups. They may be
more vulnerable to competition from larger companies with greater resources and
to economic conditions affecting their market sector. Intermediate- and
small-sized companies may be new, without long business or management
histories, and perceived by the market as unproven. Their securities may be
held primarily by insiders or institutional investors, and may trade
infrequently or in limited volume. The prices of these stocks often fluctuate
more than those of larger, more established companies. Fixed income investments
will include investment grade fixed income securities (including cash and money
market instruments) as well as securities that have a high current yield and
that are either rated in the lower categories by nationally recognized
statistical rating organizations ("NRSROs") (i.e., Baa or lower by Moody's or
BBB or lower by S&P) or are unrated. For a discussion of the risks associated
with investment in these higher yielding securities, see "Investment
Techniques--Fixed Income Securities" and "Investment Techniques--
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23 The Hudson River Trust
<PAGE>
Risk Factors of Lower Rated Fixed Income Securities," below. For the fiscal
year ended December 31, 1998, approximately [ ]% 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.
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.
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<PAGE>
ALLIANCE EQUITY INDEX PORTFOLIO--INVESTMENT POLICIES
The Alliance Equity Index Portfolio's investment objective is to seek a total
return before expenses that approximates the total return of the S&P 500
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 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.
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25 The Hudson River Trust
<PAGE>
Most of the time, the Alliance Common Stock Portfolio will invest primarily in
common stocks that are listed on national securities exchanges. Smaller amounts
will be invested in stocks that are traded over-the-counter and in other
equity-type securities (such as preferred stocks or convertible debt
instruments). Current income is an incidental consideration. The Alliance
Common Stock Portfolio generally will not invest more than 20% of its total
assets in foreign securities. See "Investment Techniques--Foreign Securities
and Currencies," below.
If, in light of economic conditions and the general level of common stock
prices, it appears that the Portfolio's investment objective will not be met by
using all its assets to buy equities, the Alliance Common Stock Portfolio may
also use part of its assets to make nonequity investments. These could include
buying securities such as nonparticipating and nonconvertible preferred stocks
and certain fixed income securities. Fixed income securities will include
investment grade bonds and debentures and money market instruments, as well as
securities that have a high current yield because they are either rated in the
lower categories by NRSROs (i.e., Baa or lower by Moody's or BBB or lower by
S&P) or are unrated. For a discussion of the risks associated with investment
in these higher yielding securities, see "Investment Techniques--Fixed Income
Securities" and "Investment Techniques--Risk Factors of Lower Rated Fixed
Income Securities," below. For the fiscal year ended December 31, 1998, 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 U.S.
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.
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The Hudson River Trust 26
<PAGE>
ALLIANCE INTERNATIONAL PORTFOLIO--INVESTMENT POLICIES
The Alliance International Portfolio attempts to achieve its objective by
investing primarily in a diversified portfolio of equity securities selected
principally to permit participation in non-U.S. companies or foreign
governmental enterprises that, in the opinion of Alliance, have prospects for
growth. These non-U.S. companies may have operations in the United States, in
their country of incorporation and/or in other countries. The Alliance
International Portfolio intends to have represented in the Portfolio business
activities in not less than three different countries and may invest anywhere
in the world, including Europe, Canada, Australia, Asia, Latin America and
Africa. The Alliance International Portfolio may purchase securities of
developing countries, which include, among others, Mexico, Brazil, Hong Kong,
India, Poland, Turkey and South Africa. The Alliance International Portfolio
intends to diversify investments among several countries, although for
temporary defensive purposes, the Alliance International Portfolio may at times
invest substantially all of its assets in securities issued by a single major
developed country (e.g., the United States) or in cash or cash equivalents,
including money market instruments issued by that country.
The Alliance International Portfolio may invest in any type of investment
grade, fixed income security including, but not limited to, preferred stock,
convertible securities, bonds, notes and other evidences of indebtedness of
foreign issuers, including obligations of foreign governments. The Alliance
International Portfolio may also establish and maintain temporary cash balances
in U.S. and foreign short-term high-grade money market instruments for
defensive purposes or to take advantage of buying opportunities. Although no
particular proportion of stocks, bonds or other securities is required to be
maintained, the Alliance International Portfolio intends under normal market
conditions to invest primarily in equity securities. The Alliance International
Portfolio may make loans of up to 50% of its portfolio securities. See
"Investment Techniques--Securities Lending," below. The Alliance International
Portfolio may write covered call and put options and may purchase call and put
options on individual equity securities, securities indexes, and foreign
currencies. See "Investment Techniques--Options," below. The Alliance
International Portfolio may also purchase and sell stock index, foreign
currency and interest rate futures contracts and options on such contracts, as
well as forward foreign currency exchange contracts. See "Investment
Techniques--Forward Foreign Currency Exchange Contracts," "Investment
Techniques--Futures," and "Investment Techniques--Risk Factors in Options and
Futures," below.
Risk Factors. For a discussion of the risks associated with investments in
foreign securities, see "Investment Techniques--Foreign Securities and
Currencies," below.
ALLIANCE AGGRESSIVE STOCK PORTFOLIO--INVESTMENT POLICIES
The Alliance Aggressive Stock Portfolio attempts to achieve its objective by
investing primarily in common stocks and other equity-type securities issued by
intermediate- and small-sized companies that, in the opinion of Alliance, have
favorable growth prospects. The Alliance Aggressive Stock Portfolio may also
invest a portion of its assets in securities of companies in cyclical
industries, companies whose securities are temporarily undervalued, companies
in special situations and less widely known companies.
If, in light of economic conditions, it appears that the Alliance Aggressive
Stock Portfolio's objective will not be achieved primarily through investments
in common stocks, the Portfolio may also invest in other equity-type securities
(such as preferred stocks and convertible debt instruments) and protective
options. Under certain market conditions, the Alliance Aggressive Stock
Portfolio may also invest in corporate fixed income securities, which will
generally be investment grade, or invest part of its assets in cash or cash
equivalents for liquidity or defensive purposes, including money market
instruments rated at least Prime-1 by Moody's or A-1 by S&P. The Alliance
Aggressive Stock Portfolio may invest no more than 20% of its total assets in
foreign securities. See "Investment Techniques--Foreign Securities and
Currencies," below. The Portfolio may make secured loans of up to 50% of its
total portfolio securities. See "Investment Techniques--Securities Lending,"
below. The Alliance Aggressive Stock Portfolio may write covered call options
and may purchase call and put options on individual equity securities,
securities indexes and foreign currencies. The Alliance Aggressive Stock
Portfolio may also purchase and sell stock index and foreign currency futures
contracts and options thereon. See "Investment Techniques--Options,"
"Investment Techniques--Futures" and "Risk Factors in Options and Futures,"
below.
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27 The Hudson River Trust
<PAGE>
Risk Factors. More risk is associated with investment in intermediate- and
small-sized companies, because they are often dependent on limited product
lines, financial resources or management groups. They may be more vulnerable to
competition from larger companies with greater resources and to economic
conditions affecting their market sector. Intermediate- and small-sized
companies may be new, without long business or management histories, and
perceived by the market as unproven. Their securities may be held primarily by
insiders or institutional investors, and may trade infrequently or in limited
volume. The prices of these stocks often fluctuate more than those of larger
more established companies.
ALLIANCE SMALL CAP GROWTH PORTFOLIO--INVESTMENT POLICIES
The Alliance Small Cap Growth Portfolio 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 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
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<PAGE>
guaranteed by (a) domestic banks (including their foreign branches) or savings
and loan associations having total assets of more than $1 billion and which are
members of the Federal Deposit Insurance Corporation ("FDIC") in the case of
banks, or insured by the FDIC, in the case of savings and loan associations or
(b) foreign banks (either by their foreign or U.S. branches) having total
assets of at least $5 billion and having an issue of either commercial paper
rated at least A-1 by S&P or Prime-1 by Moody's or long term debt rated at
least AA by S&P or Aa by Moody's; (3) commercial paper (rated at least A-1 by
S&P or Prime-1 by Moody's or, if not rated, issued by domestic or foreign
companies having outstanding debt securities rated at least AA by S&P or Aa by
Moody's) and participation interests in loans extended by banks to such
companies; (4) mortgage-backed securities and asset-backed securities; (5)
corporate debt obligations with remaining maturities of less than one year,
rated at least AA by S&P or Aa by Moody's, as well as corporate debt
obligations rated at least A by S&P or Moody's, provided the corporation also
has outstanding an issue of commercial paper rated at least A-1 by S&P or
Prime-1 by Moody's; (6) floating rate or master demand notes; and (7)
repurchase agreements covering securities issued or guaranteed by the U.S.
Government (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.
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<PAGE>
o "Ginnie Maes"--Ginnie Maes are debt securities issued by a mortgage
banker or other mortgagee and represent an interest in a pool of
mortgages insured by the Federal Housing Administration or the Farmer's
Home Administration or guaranteed by the Veteran's Administration. The
Government National Mortgage Association ("GNMA") guarantees the timely
payment of principal and interest. Ginnie Maes, although not direct
obligations of the U.S. Government, are guaranteed by the U.S. Treasury.
o "Fannie Maes"--The Federal National Mortgage Association ("FNMA") is a
government-sponsored corporation owned entirely by private stockholders
that purchases residential mortgages from a list of approved
seller/servicers. Pass-through securities issued by FNMA are guaranteed
as to timely payment of principal and interest by FNMA and supported by
FNMA's right to borrow from the U.S. Treasury, at the discretion of the
U.S. Treasury. Fannie Maes are not backed by the full faith and credit
of the U.S. Government.
o "Freddie Macs"--The Federal Home Loan Mortgage Corporation ("FHLMC"), a
corporate instrumentality of the U.S. Government, issues participation
certificates ("PCs") which represent an interest in residential
mortgages from FHLMC's National Portfolio. FHLMC guarantees the timely
payment of interest and ultimate collection of principal, but PCs are
not backed by the full faith and credit of the U.S. Government.
o Governmental Collateralized Mortgage Obligations--These are securities
issued by a U.S. Government instrumentality or agency which are backed
by a portfolio of mortgages or mortgage-backed securities held under an
indenture. See "Other Investments," below.
o "Sallie Maes"--The Student Loan Marketing Association ("SLMA") is a
government-sponsored corporation owned entirely by private stockholders
that provides liquidity for banks and other institutions engaged in the
Guaranteed Student Loan Program. These loans are either directly
guaranteed by the U.S. Treasury or guaranteed by state agencies and
reinsured by the U.S. Government. SLMA issues both short term notes and
longer term public bonds to finance its activities.
The Portfolio may also invest in "zero coupon" U.S. Government Securities which
have been stripped of their unmatured interest coupons and receipts or in
certificates representing undivided interests in such stripped U.S. Government
Securities and coupons. These securities tend to be more volatile than other
types of U.S. Government Securities.
Guarantees of the Portfolio's securities by the U.S. Government or its agencies
or instrumentalities guarantee only the payment of principal at maturity and
interest when due on the guaranteed securities, and do not guarantee the
securities' yield or value or the yield or value of the Alliance Intermediate
Government Securities Portfolio's shares.
The Portfolio buys and sells securities with a view to maximizing current
return without, in the view of Alliance, undue risk to principal. Potential
capital gains resulting from possible changes in interest rates will not be a
major consideration. The Portfolio may take full advantage of a wide range of
maturities of U.S. Government Securities and may adjust the dollar-weighted
average maturity of its portfolio from time to time, depending on Alliance's
assessment of relative yields on securities of different maturities and the
expected effect of future changes in interest rates on the market value of the
securities held by the Portfolio. However, at all times, each instrument held
by the Portfolio will have either a final maturity of not more than ten years
or a duration, as determined by Alliance, not exceeding that of a 10-year
Treasury note. Duration is a measure that relates the price volatility of a
security to changes in interest rates. The duration of a security is the
weighted average term to maturity, expressed in years, of the present value of
all future cash flows, including coupon payments and principal repayments.
Thus, by definition, duration is always less than or equal to full maturity. In
some cases, Alliance's calculation of duration will be based on certain
assumptions (including assumptions regarding prepayment rates, in the mortgage-
backed or asset-backed securities, and foreign and domestic interest rates). As
of December 31, 1998, the duration of a 10-year Treasury bond was considered by
Alliance to be years. The Portfolio may also invest a substantial portion of
its assets in money market instruments. See "Investment Techniques--Certain
Money Market Instruments," below.
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<PAGE>
It is a fundamental policy of the Alliance Intermediate Government Securities
Portfolio that under normal market conditions it will invest at least 65% of
its total assets in U.S. Government Securities and repurchase agreements and
forward commitments relating to U.S. Government Securities.
Other Investments. The Alliance Intermediate Government Securities Portfolio
may also purchase collateralized mortgage obligations ("CMOs") issued by
non-governmental issuers and securities issued by a real estate mortgage
investment conduits ("REMICs"). See "Investment Techniques--Mortgage-Backed and
Asset-Backed Securities," below. The Alliance Intermediate Government
Securities Portfolio will purchase only CMOs only if they collateralized by
U.S. Government Securities. However, CMOs issued by entities other than U.S.
Government agencies or instrumentalities and securities issued by REMICs are
not considered U.S. Government Securities for purposes of the investment
policies of the Alliance Intermediate Government Securities Portfolio even
though the CMOs may be collateralized by U.S. Government Securities. Such
securities will generally be investment grade. In the event such securities
fall below investment grade, the Portfolio will not be obligated to dispose of
such securities and may continue to hold such securities if, in the opinion of
Alliance, such investment is appropriate under the circumstances.
In order to enhance its current return and to reduce fluctuations in net asset
value, the Portfolio may write call and put options on U.S. Government
Securities which are "covered" as described herein and may purchase call and
put options on U.S. Government Securities. The Portfolio may also enter into
interest rate futures contracts with respect to U.S. Government Securities, and
may write and purchase options thereon. See "Investment Techniques--Options"
and "Investment Techniques--Futures," below.
The Portfolio may also enter into forward commitments for the purchase of U.S.
Government Securities, purchase such securities on a when-issued or delayed
delivery basis, make secured loans of its portfolio securities without
limitation and enter into repurchase agreements with respect to U.S. Government
Securities with commercial banks and registered broker-dealers. See "Investment
Techniques--Forward Commitments and When-Issued and Delayed Delivery
Securities," below.
The Portfolio may make short sales involving either securities retained in the
Portfolio's portfolio or securities which the Portfolio has the absolute right
to acquire without additional consideration.
Special Considerations. U.S. Government Securities are considered among the
safest of fixed income investments. As a result, however, their yields are
generally lower than the yields available from corporate debt securities. As
with other mutual funds, the value of the Portfolio's shares will fluctuate
with the value of its investments. The value of the Portfolio's investments
will change as the general level of interest rates fluctuates. During periods
of falling interest rates, the values of U.S. Government Securities generally
rise. Conversely, during periods of rising interest rates, the values of U.S.
Government Securities generally decline. In an effort to preserve the capital
of the Portfolio when interest rates are generally rising, the investment
adviser may shorten the average maturity of the U.S. Government Securities in
the Portfolio's portfolio. Because the principal values of U.S. Government
Securities with shorter maturities are less affected by rising interest rates,
a portfolio with a shorter average maturity will generally diminish less in
value during such periods than a portfolio of longer average maturity. Because
U.S. Government Securities with shorter maturities generally have a lower yield
to maturity, however, the Portfolio's current return based on its net asset
value will generally be lower as a result of such action than it would have
been had such action not been taken. Ginnie Maes and other mortgage-backed or
mortgage-related securities in which the Portfolio invests may not be an
effective means of "locking in" favorable long-term interest rates since the
Portfolio must reinvest scheduled and unscheduled principal payments relating
to such securities. At the time principal payments or prepayments are received
by the Portfolio and reinvested, prevailing interest rates may be higher or
lower than the Portfolio's current yield.
At times when the Portfolio has written call options, its ability to profit
from declining interest rates will be limited. Any resulting appreciation in
the value of the Portfolio would likely be partially or wholly offset by the
losses on call options written by the Portfolio. The termination of option
positions under such conditions would result in the realization of capital
losses, which would reduce the amounts available for distribution to
shareholders.
ALLIANCE QUALITY BOND PORTFOLIO--INVESTMENT POLICIES
The Alliance Quality Bond Portfolio expects to invest in readily marketable
securities with relatively attractive yields, but which do not, in the opinion
of Alliance, involve undue risk of loss of capital. The
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Alliance Quality Bond Portfolio will follow a policy of investing at least 65%
of its total assets in securities which are rated at the time of purchase at
least Baa by Moody's or BBB by S&P, or in unrated fixed income securities
determined by Alliance to be of comparable quality. In the event that the
credit rating of a security held by the Alliance Quality Bond Portfolio falls
below investment grade (or, in the case of unrated securities, Alliance
determines that the quality of such security has deteriorated below investment
grade), the Alliance Quality Bond Portfolio will not be obligated to dispose of
such security and may continue to hold the obligation if, in the opinion of
Alliance, such investment is appropriate in the circumstances. The Alliance
Quality Bond Portfolio will also seek to maintain an average aggregate quality
rating of its portfolio securities of at least A (Moody's and S&P). For more
information concerning the bond ratings assigned by Moody's and S&P, see
Appendix A.
The Alliance Quality Bond Portfolio has complete flexibility as to the types of
securities in which it will invest and the relative proportions thereof, and
the Alliance Quality Bond Portfolio plans to vary the proportions of its
holdings of long- and short-term fixed income securities (including debt
securities, convertible debt securities and U.S. Government obligations) and
preferred stocks in order to reflect Alliance's assessment of prospective
cyclical changes even if such action may adversely affect current income.
The Alliance Quality Bond Portfolio may invest in foreign securities. The
Alliance Quality Bond Portfolio will not invest more than 20% of its total
assets in securities denominated in currencies other than the U.S. dollar. See
"Investment Techniques--Foreign Securities and Currencies," below. The Alliance
Quality Bond Portfolio may enter into foreign currency futures contracts (and
related options), forward foreign currency exchange contracts and options on
foreign currencies for hedging purposes. See "Investment Techniques--Forward
Foreign Currency Exchange Contracts," below.
For temporary defensive purposes, the Alliance Quality Bond Portfolio may
invest in certain money market instruments. See "Investment Techniques--Certain
Money Market Instruments," below.
The Alliance Quality Bond Portfolio may purchase put and call options and write
covered put and call options on securities it may purchase. The Alliance
Quality Bond Portfolio also intends to write covered call options for
cross-hedging purposes. A call option is for cross-hedging purposes if it is
designed to provide a hedge against a decline in value of another security
which the Portfolio owns or has the right to acquire. See "Investment
Techniques--Options," below.
Interest Rate Transactions. The Alliance Quality Bond Portfolio may seek to
protect the value of its investments from interest rate fluctuations by
entering into various hedging transactions, such as interest rate swaps and the
purchase or sale of interest rate caps and floors. The Portfolio expects to
enter into these transactions primarily to preserve a return or spread on a
particular investment or portion of its portfolio. The Alliance Quality Bond
Portfolio may also enter into these transactions to protect against an increase
in the price of securities the Portfolio anticipates purchasing at a later
date. The Alliance Quality Bond Portfolio intends to use these transactions as
a hedge and not as a speculative investment. Interest rate swaps involve the
exchange by the Alliance Quality Bond Portfolio with another party of their
respective commitments to pay or receive interest, e.g., an exchange of
floating rate payments for fixed rate payments. The purchase of an interest
rate cap entitles the purchaser, to the extent that a specified index exceeds a
predetermined interest rate, to receive payments on a notional principal amount
from the party selling such interest rate cap. The purchase of an interest rate
floor entitles the purchaser, to the extent that a specified index falls below
a predetermined interest rate, to receive payments of interest on a notional
principal amount from the party selling such interest rate floor.
The Alliance Quality Bond Portfolio may enter into interest rate swaps, caps
and floors on either an asset-based or liability-based basis depending on
whether it is hedging its assets or its liabilities, and will only enter into
such swaps, caps and floors on a net basis, i.e., the two payment streams are
netted out, with the Alliance Quality Bond Portfolio receiving or paying, as
the case may be, only the net amount of the two payments. The net amount of the
excess, if any, of the Alliance Quality Bond Portfolio's obligations over its
entitlements with respect to each interest rate swap, cap or floor will be
accrued on a daily basis and an amount of cash or liquid securities having an
aggregate net asset value at least equal to the accrued excess will be
maintained in a segregated account by the custodian. The Alliance Quality
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<PAGE>
Bond Portfolio will not enter into any interest rate swap, cap or floor
transaction unless the unsecured senior debt or the claims-paying ability of
the other party thereto is rated in the highest rating category of at least one
NRSRO at the time of entering into such transaction. If there is a default by
the other party to such a transaction, the Alliance Quality Bond Portfolio will
have contractual remedies pursuant to the agreements related to the
transaction. Caps and floors are relatively recent innovations which may be
illiquid.
Zero Coupon Securities. To the extent consistent with its investment objective,
the Alliance Quality Bond Portfolio may invest in "zero coupon" securities,
which are debt securities that have been stripped of their unmatured interest
coupons, and receipts or certificates representing interests in such stripped
debt obligations and coupons. A zero coupon security pays no interest to its
holder during its life. Accordingly, such securities usually trade at a deep
discount from their face or par value and will be subject to greater
fluctuations in market value in response to changing interest rates than debt
obligations of comparable maturities that make current distributions of
interest. The Alliance Quality Bond Portfolio may also invest in "pay-in-kind"
debentures (i.e., debt obligations the interest on which may be paid in the
form of additional obligations of the same type rather than cash) which have
characteristics similar to zero coupon securities.
The Alliance Quality Bond Portfolio may invest in collateralized mortgage
obligations or CMOs. See "Investment Techniques--Mortgage-Backed and
Asset-Backed Securities," below. The Portfolio may purchase and sell interest
rate futures contracts and options thereon and may make loans of securities
with a value of up to 50% of its total assets. See "Investment
Techniques--Futures," "Investment Techniques--Risk Factors in Options and
Futures" and "Investment Techniques--Securities Lending," below.
ALLIANCE HIGH YIELD PORTFOLIO--INVESTMENT POLICIES
The Alliance High Yield Portfolio attempts to achieve its objective by
investing primarily in a diversified mix of high yield, fixed income
securities, which generally involve greater volatility of price and risk of
principal and income than high quality fixed income securities.
Ordinarily, the Portfolio will invest a portion of its assets in fixed income
securities which have a high current yield and that are either rated in the
lower categories of NRSROs (i.e., rated Baa or lower by Moody's or BBB or lower
by S&P) or are unrated. The Portfolio may also make temporary investments in
money market instruments of the same type as the Alliance Money Market
Portfolio. The Portfolio will not invest more than 10% of its total assets in
(i) fixed income securities which are rated lower than B3 or B- or their
equivalents by one NRSRO or if unrated are of equivalent quality as determined
by Alliance, and (ii) money market instruments of any entity which has an
outstanding issue of unsecured debt that is rated lower than B3 or B- or their
equivalents by an NRSRO or if unrated is of equivalent quality as determined by
Alliance; however, this restriction will not apply to (i) fixed income
securities which, in the opinion of Alliance, have similar characteristics to
securities which are rated B3 or higher by Moody's or B- or higher by S&P, or
(ii) money market instruments of any entity that has an unsecured issue of
outstanding debt which, in the opinion of Alliance, has similar characteristics
to securities which are so rated. See Appendix 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, 1998, 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: % in securities rated
AAA or its equivalent, % in securities rated BB or its equivalent, % in
securities rated B or its equivalent and % in securities rated CCC or its
equivalent. Of these securities, % were rated by an NRSRO and % 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.
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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
Balanced, Alliance Common Stock, Alliance Aggressive Stock, Alliance Small Cap
Growth, Alliance High Yield, Alliance Global, Alliance International, Alliance
Conservative Investors, Alliance Growth Investors, Alliance Intermediate
Government Securities, Alliance Quality Bond, Alliance Growth and Income and
Alliance Equity Index Portfolios may buy and sell exchange-traded financial
futures contracts, and options thereon. A brief description of certain of these
investment instruments and their risks appears below. More detailed information
is to be found in the SAI.
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.
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<PAGE>
DERIVATIVES
o Futures
The Alliance High Yield, Alliance Global, Alliance International, Alliance
Conservative Investors, Alliance Growth Investors, Alliance Intermediate
Government Securities, Alliance Balanced and Alliance Quality Bond Portfolios
may each purchase and sell futures contracts and related options on debt
securities and on indexes of debt securities to hedge against anticipated
changes in interest rates that might otherwise have an adverse effect on the
value of their assets or assets they intend to acquire. In addition, each
Portfolio listed above (except the Alliance Intermediate Government Securities
and Alliance Quality Bond Portfolios) as well as the Alliance Common Stock,
Alliance Aggressive Stock, Alliance Small Cap Growth and Alliance Growth and
Income Portfolios may purchase and sell stock index futures contracts and
related options to hedge the equity portion of its assets or equity assets it
intends to acquire with regard to market risk (as distinguished from
stock-specific risk). In the case of the Alliance Equity Index Portfolio,
futures contracts and related options on the S&P 500 Index may be purchased in
order to reduce brokerage costs, maintain liquidity to meet shareholder
redemptions or minimize tracking error. As described below under "Foreign
Securities and Currencies," the Alliance High Yield, Alliance Global, Alliance
International, Alliance Conservative Investors, Alliance Growth Investors,
Alliance Balanced, Alliance Common Stock, Alliance Aggressive Stock, Alliance
Small Cap Growth, Alliance Quality Bond and Alliance Growth and Income
Portfolios may each enter into futures contracts and related options on foreign
currencies in order to limit its exchange rate risk. All futures contracts and
related options will be traded on exchanges that are licensed and regulated by
the Commodity Futures Trading Commission ("CFTC"). All of the Portfolios,
except the Alliance Money Market Portfolio, may enter into futures contracts
and buy and sell related options without limitation, except as noted below.
Pursuant to regulations of the CFTC which provide an exemption from
registration as a commodity pool operator, a Portfolio will not purchase or
sell futures contracts or options on futures contracts unless either (i) the
futures contracts or options thereon are for "bona fide hedging" purposes (as
that term is defined under the CFTC regulations) or (ii) the sum of amounts of
initial margin deposits and premiums required to establish non-hedging
positions would not exceed 5% of the Portfolio's liquidation value. In
addition, the contract value of futures contracts purchased by the Alliance
Equity Index Portfolio plus the contract value of futures contracts underlying
call options purchased by the Alliance Equity Index Portfolio will not exceed
20% of the Alliance Equity Index Portfolio's total assets. When a Portfolio
purchases or sells a futures contract or writes a put or call option on a
futures contract, the Portfolio will segregate with its custodian liquid assets
(less any related margin deposits) equal to the cost of the futures contract it
intends to sell or purchase to insure that such futures positions are not
leveraged, or may otherwise cover such positions.
o 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
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<PAGE>
underlying security at a price below the current market price. If a Portfolio
writes an option which expires unexercised or is closed out by the Portfolio at
a profit, it will retain all or part of the premium received for the option,
which will increase its gross income. If the option is exercised, the Portfolio
will be required to sell or purchase the underlying security at a
disadvantageous price, or, in the case of index options, deliver an amount of
cash, which loss may only be partially offset by the amount of premium
received. Each of the Portfolios noted above may also purchase put or call
options on securities and securities indexes in order to hedge against changes
in interest rates or stock prices which may adversely affect the prices of
securities that the Portfolio wants to purchase at a later date, to hedge its
existing investments against a decline in value, or to attempt to reduce the
risk of missing a market or industry segment advance. In the event that the
expected changes in interest rates or stock prices occur, the Portfolio may be
able to offset the resulting adverse effect on the Portfolio by exercising or
selling the options purchased. The premium paid for a put or call option plus
any transaction costs will reduce the benefit, if any, realized by the
Portfolio upon exercise or liquidation of the option. Unless the price of the
underlying security or level of the securities index changes by an amount in
excess of the premium paid, the option may expire without value to the
Portfolio. See "Risk Factors in Options and Futures," below.
Options purchased or written by the Portfolios may be traded on the national
securities exchanges or negotiated with a dealer. Options traded in the
over-the-counter market may not be as actively traded as those on an exchange,
so it may be more difficult to value such options. In addition, 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.
o 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
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<PAGE>
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.
FIXED INCOME SECURITIES
Fixed income securities include preferred and preference stocks and all types
of debt obligations of both domestic and foreign issuers (such as bonds,
debentures, notes, equipment lease certificates, equipment trust certificates,
conditional sales contracts, commercial paper, mortgage-backed securities and
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities).
Corporate debt securities may bear fixed, contingent or variable rates of
interest and may involve equity features, such as conversion or exchange rights
or warrants for the acquisition of stock of the same or a different issuer or
participation based on revenues, sales or profits or the purchase of common
stock in a unit transaction (where corporate debt securities and common stock
are offered as a unit).
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 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.
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,
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<PAGE>
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.
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.
LOAN ASSIGNMENTS AND PARTICIPATIONS
The Alliance High Yield Portfolio may invest in participations and assignments
of loans to corporate, governmental, or other borrowers originally made by
institutional lenders or lending syndicates. These investments are subject to
the same risks associated with fixed income securities generally. For example,
loans to foreign governments will involve a risk that the governmental entities
responsible for the repayment of the loan may be unable, or unwilling, to pay
interest and repay principal when due. In addition, loan participations and
assignments are often not rated and may also be less liquid than other debt
interests.
Even if the loans are secured, there is no assurance that the liquidation of
collateral from a secured loan would satisfy the borrower's obligation, or that
the collateral can be liquidated. Also, if a loan is foreclosed, the Portfolio
could become part owner of any collateral, and would bear the costs and
liabilities associated with owning and disposing of the collateral. In
addition, it is conceivable that under emerging legal theories of lender
liability, the Portfolio could be held liable as a co-lender.
A loan is often administered by a bank or other financial institution that acts
as agent for all holders. The agent administers the terms of the loan, as
specified in the loan agreement, and the Portfolio will generally have to rely
on the agent to apply appropriate credit remedies against a borrower.
Consequently, loan participations may also be adversely affected by the
insolvency of the lending bank or other intermediary.
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES
The Portfolios, other than the Alliance Equity Index Portfolio, may invest in
mortgage-backed securities, which are mortgage loans made by banks, savings and
loan institutions and other lenders that are assembled into pools, that are (i)
issued by an agency of the U.S. Government (such as GNMA) whose securities are
guaranteed by the U.S. Treasury, (ii) issued by an instrumentality of the U.S.
Government (such as FNMA) whose securities are supported by the
instrumentality's right to borrow from the U.S. Treasury, at the discretion of
the U.S. Treasury, though not backed by the full faith and credit of the U.S.
Government itself, or (iii) collateralized by U.S. Treasury obligations or U.S.
Government agency securities. Interests in such pools are described in this
prospectus as mortgage-backed securities. The Portfolios, other than the Equity
Index Portfolio, may invest in (i) mortgage-backed securities, including GNMA,
FNMA and FHLMC certificates, (ii) CMOs that are issued by non-governmental
entities and collateralized by U.S. Treasury obligations or by U.S. Government
agency or instrumentality securities, (iii) REMICs and (iv) other asset-backed
securities. Other asset-backed securities (unrelated to mortgage loans) may
include securities such as certificates for automobile receivables ("CARS") and
credit card receivable securities ("CARDS") as well as other asset-backed
securities that may be developed in the future.
- --------------------------------------------------------------------------------
The Hudson River Trust 38
<PAGE>
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."
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.
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."
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
- --------------------------------------------------------------------------------
39 The Hudson River Trust
<PAGE>
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.
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.
MANAGEMENT OF THE TRUST
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 40
<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 Balanced ............................... 0.450% 0.400% 0.350% 0.325% 0.300%
Alliance Conservative Investors ................. 0.475% 0.425% 0.375% 0.350% 0.325%
Alliance High Yield ............................. 0.600% 0.575% 0.550% 0.530% 0.520%
Alliance Quality Bond ........................... 0.525% 0.500% 0.475% 0.455% 0.445%
Alliance Intermediate Government Securities ..... 0.500% 0.475% 0.450% 0.430% 0.420%
Alliance Equity Index ........................... 0.325% 0.300% 0.275% 0.255% 0.245%
Alliance Money Market ........................... 0.350% 0.325% 0.300% 0.280% 0.270%
</TABLE>
* On assets in excess of $10 billion, the management fee for the Alliance
Common Stock Portfolio is reduced to 0.335% of average daily net assets.
For 1998, the Portfolios paid the following advisory fees (as a percentage of
each Portfolio's average daily net assets):
<TABLE>
<S> <C>
Alliance International ..............................
Alliance Global .....................................
Alliance Aggressive Stock ...........................
Alliance Common Stock ...............................
Alliance Growth and Income ..........................
Alliance Small Cap Growth ...........................
Alliance Growth Investors ...........................
Alliance Balanced ...................................
Alliance Conservative Investors .....................
Alliance High Yield .................................
Alliance Quality Bond ...............................
Alliance Intermediate Government Securities .........
Alliance Equity Index ...............................
Alliance Money Market ...............................
</TABLE>
THE PORTFOLIO MANAGERS
THE ASSET ALLOCATION SERIES
ALLIANCE CONSERVATIVE INVESTORS, ALLIANCE BALANCED AND ALLIANCE GROWTH
INVESTORS PORTFOLIOS
Robert G. Heisterberg has been the person principally responsible for the
Alliance Conservative Investors, Alliance Balanced and Alliance Growth
Investors Portfolios' investment programs since February 12, 1996. Mr.
Heisterberg, a Senior Vice President of Alliance and Global Economic Policy
Analysis, has been associated with Alliance since 1977.
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
- --------------------------------------------------------------------------------
41 The Hudson River Trust
<PAGE>
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
Sandra L. Yeager has been the person principally responsible for the Alliance
Global Portfolio's investment program since 1998. Ms. Yeager has also been the
person principally responsible for the Alliance International Portfolio's
investment program since January 1999. Ms. Yeager, a Senior Vice President of
Alliance Capital Management L.P. ("Alliance"), has been associated with
Alliance since 1990.
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
Mark J. Cunneen has been the person principally responsible for the Alliance
Small Cap Growth Portfolio's investment program since January 1999. Mr.
Cunneen, a Senior Vice President of Alliance, has been associated with Alliance
since January 1999. Prior to joining Alliance, Mr. Cunneen had been associated
with INVESCO since May 1998, and before that with Chancellor LGT Asset
Management, Inc. ("Chancellor") since 1992. Mr. Cunneen had been the head of
Chancellor's Small Cap Equity Group since 1997.
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
Jeffrey S. Phlegar has been the person principally responsible for the Alliance
Intermediate Government Securities Portfolio's investment program since January
1999. Mr. Phlegar, a Senior Vice President of Alliance, has been associated
with Alliance since 1998.
ALLIANCE QUALITY BOND PORTFOLIO
Matthew Bloom has been the person principally responsible for the Alliance
Quality Bond Portfolio's investment program since 1995. Mr. Bloom, a Senior
Vice President of Alliance, has been associated with Alliance since 1989.
- --------------------------------------------------------------------------------
The Hudson River Trust 42
<PAGE>
ALLIANCE HIGH YIELD PORTFOLIO
Wayne C. Tappe has been the person principally responsible for the Alliance
High Yield Portfolio's investment program since 1995. Mr. Tappe, a 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.
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
PURCHASE AND REDEMPTION
The Trust will offer and sell its shares without a sales charge, at each
Portfolio's net asset value per share. The price at which a purchase is
effected is based on the next calculation of net asset value after an order is
placed by an insurance company investing in the Trust. Net asset value per
share is calculated for purchases and redemption of shares of each Portfolio by
dividing the value of total Portfolio assets, less liabilities (including Trust
expenses, which are accrued daily), by the total number of shares of that
Portfolio outstanding. The net asset value per share of each Portfolio is
determined each business day at 4:00 p.m. Eastern time. Values are not
calculated on national business holidays.
All shares may be redeemed in accordance with the Trust's Agreement and
Declaration of Trust and By-Laws. Shares will be redeemed at their net asset
value. Sales and redemptions of shares of the same class by the same
shareholder on the same day will be netted. All redemption requests will be
processed and payment with respect thereto will be made within seven days after
tenders.
The Trust may also suspend redemption, if permitted by the Investment Company
Act, for any period during which the New York Stock Exchange is closed or
during which trading is restricted by the SEC or the SEC declares that an
emergency exists. Redemption may also be suspended during other periods
permitted by the SEC for the protection of the Trust's shareholders.
HOW ASSETS ARE VALUED
Values are determined according to accepted accounting practices and all laws
and regulations that apply. The assets of each Portfolio are generally valued
at the close of regular trading on the New York Stock Exchange 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
- --------------------------------------------------------------------------------
43 The Hudson River Trust
<PAGE>
composite list of major U.S. banks. Because foreign markets may be open
at different times than the New York Stock Exchange, the value of a
Portfolio's shares may change on days when shareholders are not able to
buy or sell them. If events materially affecting the values of the
Portfolio's foreign investments occur between the close of foreign
markets and the close of regular trading on the New York Stock Exchange,
these investments may be valued at their fair value.
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.
DISTRIBUTION PLAN
As explained in the SAI, the Trust has distribution agreements with each of
Equitable Distributors, Inc. ("EDI") and EQ Financial Consultants, Inc. ("EQ
Financial") (each a "Distributor" and, collectively, the "Distributors") with
respect to the Class IB shares. Both EDI and EQ Financial are indirect, wholly
owned subsidiaries of Equitable and affiliates of Alliance. The address for EDI
is 787 Seventh Avenue, New York, New York 10019. The address for EQ Financial
is 1290 Avenue of the Americas, New York, New York 10104.
The Trust has adopted a distribution plan (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 each
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 Class IB shares. It is anticipated that a portion of the
amounts received by the Distributors will be used to defray various costs
incurred or paid by the Distributors 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 Distributors 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. Under the distribution agreement,
however, payments to the Distributors 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 each 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 Distributors 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
equaling 1.20%. Under the terms of the Distribution Plan and the distribution
agreement, each Portfolio is authorized to make payments monthly to the
Distributors 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 Distributors. 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 Distributors have indicated
that they expect their 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
- --------------------------------------------------------------------------------
The Hudson River Trust 44
<PAGE>
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's 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 a Distributor determines is primarily intended to result in
the sale of Class IB shares.
Because these fees are paid out of the Fund's assets on an on-going basis, over
time these fees will increase the cost of your investment and may cost you more
than paying other types of sales charges.
DIVIDENDS, DISTRIBUTIONS AND TAXES
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 order for investors to receive the favorable tax treatment generally
available to holders of variable annuity and variable life contracts, the
separate accounts underlying such contracts, as well as the Portfolios in which
such accounts invest, must meet certain diversification requirements. Each
Portfolio intends to comply with these requirements. If a Portfolio does not
meet such requirements, income allocable to the variable annuity and variable
life contracts (other than "pension plan contracts"), including accumulated
investment earnings, would be immediately taxable to the holders of such
contracts.
A more complete discussion of this and other issues appears in the SAI.
For more information regarding the tax implications for owners of Contracts
investing in the Trust, refer to the prospectuses for those products.
- --------------------------------------------------------------------------------
45 The Hudson River Trust
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for the past 5 years (or, if shorter, the period of the
Fund's operations). Certain information reflects financial results for a
single Fund share. The total returns in the table represent the rate that an
investor would have earned (or lost) on an investment in the Fund (assuming
reinvestment of all dividends and distributions). This information has been
audited by , whose report, along with the Fund's financial
statements, is included in the SAI. Additional unaudited performance
information is contained in the Trust's Annual Report, which is available
upon request.
FINANCIAL HIGHLIGHTS
PER SHARE INCOME AND CAPITAL CHANGES
(FOR A CLASS IA SHARE OUTSTANDING THROUGHOUT EACH PERIOD)(A)
ASSET ALLOCATION SERIES
ALLIANCE CONSERVATIVE INVESTORS PORTFOLIO:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year (b)............... $11.29 $11.52 $10.15 $11.12
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .............................. 0.49 0.50 0.60 0.55
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions...................................... 0.97 0.07 1.43 (1.00)
------ ------ ------ ------ ------
Total from investment operations ................... 1.46 0.57 2.03 (0.45)
------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net investment income ............... (0.49) (0.51) (0.59) (0.52)
Distributions from realized gains ................. (0.37) (0.27) (0.07) --
Distributions in excess of realized gains .......... -- (0.02) -- --
------ ------ ------ ------ ------
Total dividends and distributions ................. (0.86) (0.80) (0.66) (0.52)
------ ------ ------ ------ ------
Net asset value, end of year......................... $11.89 $11.29 $11.52 $10.15
====== ====== ====== ====== ======
Total return (c)..................................... 13.25% 5.21% 20.40% (4.10)%
====== ====== ====== ====== ======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000's)...................... $307,847 $282,402 $252,101 $173,691
Ratio of expenses to average net assets ............. 0.57% 0.61% 0.59% 0.59%
Ratio of net investment income to average net
assets ............................................. 4.17% 4.48% 5.48% 5.22%
Portfolio turnover rate.............................. 206% 181% 287% 228%
</TABLE>
- ------------
Footnotes appear on page 10.
- --------------------------------------------------------------------------------
The Hudson River Trust 46
<PAGE>
ALLIANCE BALANCED PORTFOLIO:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year (b) ............... $16.64 $16.76 $14.87 $16.67
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ............................... 0.58 0.53 0.54 0.45
Net realized and unrealized gain (loss) on
investments
and foreign currency transactions.................. 1.86 1.31 2.36 (1.78)
------ ------ ------ ------ ------
Total from investment operations .................... 2.44 1.84 2.90 (1.33)
------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net investment income ................ (0.59) (0.53) (0.54) (0.44)
Dividends in excess of net investment income ........ -- -- -- (0.03)
Distributions from realized gains ................... (0.91) (1.40) (0.47) --
Distributions in excess of realized gains ........... -- (0.03) -- --
Tax return of capital distributions ................. -- -- -- (0.00)
------ ------ ------ ------ ------
Total dividends and distributions ................... (1.50) (1.96) (1.01) (0.47)
------ ------ ------ ------ ------
Net asset value, end of year ......................... $17.58 $16.64 $16.76 $14.87
====== ====== ====== ====== ======
Total return (c) ..................................... 15.06% 11.68% 19.75% (8.02)%
====== ====== ====== ====== ======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000's) ...................... $1,724,089 $1,637,856 $1,523,142 $1,329,820
Ratio of expenses to average net assets .............. 0.45% 0.41% 0.40% 0.39%
Ratio of net investment income to average net assets . 3.30% 3.15% 3.33% 2.87%
Portfolio turnover rate (d) .......................... 146% 177% 186% 115%
</TABLE>
- ------------
Footnotes appear on page 10.
- --------------------------------------------------------------------------------
47 The Hudson River Trust
<PAGE>
ALLIANCE GROWTH INVESTORS PORTFOLIO:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year (b)................. $17.20 $17.68 $14.66 $15.61
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ............................... 0.41 0.40 0.57 0.50
Net realized and unrealized gain (loss) on
investments and foreign currency transactions ...... 2.43 1.66 3.24 (0.98)
------ ------ ------ ------ ------
Total from investment operations ..................... 2.84 2.06 3.81 (0.48)
------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net investment income ................. (0.46) (0.40) (0.54) (0.46)
Dividends in excess of net investment income ......... -- (0.03) (0.01) (0.01)
Distributions from realized gains ................... (1.03) (2.10) (0.24) --
Distributions in excess of realized gains ............ -- (0.01) -- --
------ ------ ------ ------ ------
Total dividends and distributions ................... (1.49) (2.54) (0.79) (0.47)
------ ------ ------ ------ ------
Net asset value, end of year........................... $18.55 $17.20 $17.68 $14.66
====== ====== ====== ====== ======
Total return (c) ...................................... 16.87% 12.61% 26.37% (3.15)%
====== ====== ====== ====== ======
RATIOS/SUPPLEMENTAL DATA:
Net asset, end of year (000's)......................... $1,630,389 $1,301,643 $896,134 $492,478
Ratio of expenses to average net assets ............... 0.57% 0.57% 0.56% 0.59%
Ratio of net investment income to average net assets .. 2.18% 2.31% 3.43% 3.32%
Portfolio turnover rate................................ 121% 190% 107% 131%
</TABLE>
EQUITY SERIES
ALLIANCE GROWTH AND INCOME PORTFOLIO:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year (b) ................ $13.01 $11.70 $ 9.70 $ 9.95
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ................................ 0.15 0.24 0.33 0.31
Net realized and unrealized gain (loss) on
investments.......................................... 3.30 2.05 1.97 (0.36)
------ ------ ------ ------ ------
Total from investment operations ..................... 3.45 2.29 2.30 (0.05)
------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net investment income ................. (0.15) (0.23) (0.30) (0.20)
Dividends in excess of net investment income ......... -- -- -- --
Distributions from realized gains ................... (0.93) (0.75) -- --
------ ------ ------ ------ ------
Total dividends and distributions .................... (1.08) (0.98) (0.30) (0.20)
------ ------ ------ ------ ------
Net asset value, end of year .......................... $15.38 $13.01 $11.70 $ 9.70
====== ====== ====== ====== ======
Total return (c) ...................................... 26.90% 20.09% 24.07% (0.58)%
====== ====== ====== ====== ======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000's) ....................... $555,059 $232,080 $98,053 $31,522
Ratio of expenses to average net assets ............... 0.58% 0.58% 0.60% 0.78%
Ratio of net investment income to average net assets .. 0.99% 1.94% 3.11% 3.13%
Portfolio turnover rate ............................... 79% 88% 65% 52%
</TABLE>
- ------------
Footnotes appear on page 10.
- --------------------------------------------------------------------------------
The Hudson River Trust 48
<PAGE>
ALLIANCE EQUITY INDEX PORTFOLIO:
<TABLE>
<CAPTION>
MARCH 1, 1994
YEAR ENDED TO
DECEMBER 31, DECEMBER 31, 1994
----------------------------------------- -------------------
1998 1997 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period (b) ............ $15.16 $13.13 $ 9.87 $10.00
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ............................. 0.26 0.27 0.26 0.20
Net realized and unrealized gain (loss) on
investments and foreign currency transactions ..... 4.64 2.65 3.32 (0.09)
------ ------ ------ ------ ------
Total from investment operations .................. 4.90 2.92 3.58 0.11
------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net investment income .............. (0.25) (0.25) (0.22) (0.20)
Distributions of realized gains .................... (0.07) (0.64) (0.09) (0.03)
Distributions in excess of realized gains .......... -- -- (0.01) (0.01)
------ ------ ------ ------ ------
Total dividends and distributions .................. (0.32) (0.89) (0.32) (0.24)
------ ------ ------ ------ ------
Net asset value, end of period ..................... $19.74 $15.16 $13.13 $ 9.87
====== ====== ====== ====== ======
Total return (c) ................................... 32.58% 22.39% 36.48% 1.08%
====== ====== ====== ====== ======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) .................. $943,631 $386,249 $165,785 $36,748
Ratio of expenses to average net assets ............. 0.37% 0.39% 0.48% 0.49%(e)
Ratio of net investment income to average net
assets............................................. 1.46% 1.91% 2.16% 2.42%(e)
Portfolio turnover rate ............................ 3% 15% 9% 7%
</TABLE>
ALLIANCE COMMON STOCK PORTFOLIO:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year (b) .............. $18.23 $16.48 $13.36 $14.65
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income............................... 0.14 0.15 0.20 0.20
Net realized and unrealized gain (loss) on
investments and foreign currency transactions ..... 5.12 3.73 4.12 (0.51)
------ ------ ------ ------ ------
Total from investment operations ................... 5.26 3.88 4.32 (0.31)
------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net investment income ............... (0.11) (0.15) (0.20) (0.19)
Dividends in excess of net investment income ....... -- -- (0.02) (0.01)
Distributions from realized gains .................. (1.77) (1.76) (0.95) (0.77)
Distributions in excess of realized gains .......... -- (0.22) (0.03) --
Tax return of capital distributions ................ -- -- -- (0.01)
------ ------ ------ ------ ------
Total dividends and distributions .................. (1.88) (2.13) (1.20) (0.98)
------ ------ ------ ------ ------
Net asset value, end of year ........................ $21.61 $18.23 $16.48 $13.36
====== ====== ====== ====== ======
Total return (c) .................................... 29.40% 24.28% 32.45% (2.14)%
====== ====== ====== ====== ======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000's) ..................... $9,331,994 $6,625,390 $4,879,677 $3,466,245
Ratio of expenses to average net assets ............. 0.39% 0.38% 0.38% 0.38%
Ratio of net investment income to average net
assets............................................. 0.69% 0.85% 1.27% 1.40%
Portfolio turnover rate ............................ 52% 55% 61% 52%
</TABLE>
- ------------
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- --------------------------------------------------------------------------------
49 The Hudson River Trust
<PAGE>
ALLIANCE GLOBAL PORTFOLIO (G):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year (b)................. $16.92 $15.74 $13.87 $13.62
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ................................ 0.17 0.21 0.26 0.20
Net realized and unrealized gain (loss) on
investments and foreign currency transactions....... 1.75 2.05 2.32 0.52
------ ------ ------ ------ ------
Total from investment operations ..................... 1.92 2.26 2.58 0.72
------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net investment income ................. (0.36) (0.21) (0.25) (0.17)
Dividends in excess of net investment income ......... -- (0.08) -- --
Distributions from realized gains .................... (1.19) (0.79) (0.42) (0.28)
Distributions in excess of realized gains ............ -- -- (0.03) (0.00)
Tax return of capital distributions ................. -- (0.00) (0.01) (0.02)
------ ------ ------ ------ ------
Total dividends and distributions .................... (1.55) (1.08) (0.71) (0.47)
------ ------ ------ ------ ------
Net asset value, end of year........................... $17.29 $16.92 $15.74 $13.87
====== ====== ====== ====== ======
Total return (c) ...................................... 11.66% 14.60% 18.81% 5.23%
====== ====== ====== ====== ======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000's)........................ $1,203,867 $997,041 $686,140 $421,698
Ratio of expenses to average net assets................ 0.69% 0.60% 0.61% 0.69%
Ratio of net investment income to average net assets .. 0.97% 1.28% 1.76% 1.41%
Portfolio turnover rate................................ 57% 59% 67% 71%
</TABLE>
ALLIANCE INTERNATIONAL PORTFOLIO:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, APRIL 3, 1995
--------------------------- TO
1998 1997 1996 DECEMBER 31, 1995
------ ------ ------ -----------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period (b).................. $11.50 $10.87 $10.00
------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................................... 0.10 0.13 0.14
Net realized and unrealized gain (loss) on investments
and foreign currency transactions....................... (0.45) 0.94 0.98
------ ------ ------ ------
Total from investment operations......................... (0.35) 1.07 1.12
------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net investment income..................... (0.32) (0.10) (0.07)
Dividends in excess of net investment income............. -- (0.09) (0.13)
Distributions from realized gains........................ (0.56) (0.25) (0.05)
------ ------ ------ ------
Total dividends and distributions........................ (0.88) (0.44) (0.25)
------ ------ ------ ------
Net asset value, end of period............................ $10.27 $11.50 $10.87
====== ====== ====== ======
Total return (c).......................................... (2.98)% 9.82% 11.29%
====== ====== ====== ======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's)......................... $190,611 $151,907 $28,684
Ratio of expenses to average net assets................... 1.08% 1.06% 1.03%(e)
Ratio of net investment income to average net assets ..... 0.83% 1.10% 1.71%(e)
Portfolio turnover rate................................... 59% 48% 56%
</TABLE>
- ------------
Footnotes appear on page 10.
- --------------------------------------------------------------------------------
The Hudson River Trust 50
<PAGE>
ALLIANCE AGGRESSIVE STOCK PORTFOLIO (G):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year (b) ............... $35.85 $35.68 $30.63 $31.89
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ............................... 0.04 0.09 0.10 0.04
Net realized and unrealized gain (loss) on
investments........................................ 3.71 7.52 9.54 (1.26)
------ ------ ------ ------ ------
Total from investment operations ................... 3.75 7.61 9.64 (1.22)
------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net investment income ................ (0.05) (0.09) (0.10) (0.04)
Dividends in excess of net investment income ........ -- (0.00) -- --
Distributions from realized gains ................... (3.33) (7.33) (4.49) --
Distributions in excess of realized gains ........... -- (0.02) -- --
Tax return of capital distributions ................. -- -- -- (0.00)
------ ------ ------ ------ ------
Total dividends and distributions ................... (3.38) (7.44) (4.59) (0.04)
------ ------ ------ ------ ------
Net asset value, end of year ......................... $36.22 $35.85 $35.68 $30.63
====== ====== ====== ====== ======
Total return (c)...................................... 10.94% 22.20% 31.63% (3.81)%
====== ====== ====== ====== ======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000's)....................... $4,589,771 $3,865,256 $2,700,515 $1,832,164
Ratio of expenses to average net assets............... 0.54% 0.48% 0.49% 0.49%
Ratio of net investment income to average net assets . 0.11% 0.24% 0.28% 0.12%
Portfolio turnover rate .............................. 123% 108% 127% 92%
</TABLE>
ALLIANCE SMALL CAP GROWTH PORTFOLIO:
<TABLE>
<CAPTION>
MAY 1, 1997
YEAR ENDED TO
DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- -----------------
<S> <C> <C>
Net asset value, beginning of period (b) ............. $ 10.00
------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ............................... 0.01
Net realized and unrealized gain on investments ..... 2.65
------- -------
Total from investment operations .................... 2.66
------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income ................ (0.01)
Distributions from realized gains ................... (0.30)
------- -------
Total dividends and distributions ................... (0.31)
------- -------
Net asset value, end of period........................ $ 12.35
=======
Total return (c) ..................................... 26.74%
=======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) .................... $94,676
Ratio of expenses to average net assets .............. 0.95%(e)
Ratio of net investment income to average net assets 0.10%(e)
Portfolio turnover rate .............................. 96%
</TABLE>
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- --------------------------------------------------------------------------------
51 The Hudson River Trust
<PAGE>
FIXED INCOME SERIES
ALLIANCE MONEY MARKET PORTFOLIO (G):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
<S> <C> <C> <C> <C>
Net asset value, beginning of year (b) ................ $10.17 $10.16 $10.14 $10.12
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ................................ 0.54 0.54 0.57 0.41
Net realized and unrealized gain (loss) on
investments.......................................... (0.01) -- --
------ ------ ------ ------ ------
Total from investment operations ..................... 0.54 0.53 0.57 0.41
------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net investment income ................. (0.53) (0.52) (0.55) (0.39)
Distributions from realized gains .................... (0.00) -- -- --
Total dividends and distributions ..................... (0.53) (0.52) (0.55) (0.39)
------ ------ ------ ------ ------
Net asset value, end of year ......................... $10.18 $10.17 $10.16 $10.14
====== ====== ====== ====== ======
Total return (c) ...................................... 5.42% 5.33% 5.74% 4.02%
====== ====== ====== ====== ======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000's) $449,960 $463,422 $386,691 $325,391
Ratio of expenses to average net assets ............... 0.39% 0.43% 0.44% 0.42%
Ratio of net investment income to average net assets .. 5.28% 5.17% 5.53% 4.01%
</TABLE>
ALLIANCE INTERMEDIATE GOVERNMENT SECURITIES PORTFOLIO (F):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year (b) .............. $ 9.29 $ 9.47 $ 8.87 $10.08
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .............................. 0.53 0.54 0.58 0.65
Net realized and unrealized gain (loss) on
investments........................................ 0.13 (0.19) 0.57 (1.08)
------ ------ ------ ------ ------
Total from investment operations ................... 0.66 0.35 1.15 (0.43)
------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net investment income ............... (0.51) (0.53) (0.55) (0.78)
------ ------ ------ ------ ------
Total dividends and distributions .................. (0.51) (0.53) (0.55) (0.78)
------ ------ ------ ------ ------
Net asset value, end of year ....................... $ 9.44 $ 9.29 $ 9.47 $ 8.87
====== ====== ====== ====== ======
Total return (c) .................................... 7.29% 3.78% 13.33% (4.37)%
====== ====== ====== ====== ======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000's) ..................... $115,114 $88,384 $71,780 $48,518
Ratio of expenses to average net assets ............. 0.55% 0.56% 0.57% 0.56%
Ratio of net investment income to average net
assets............................................. 5.61% 5.73% 6.15% 6.75%
Portfolio turnover rate ............................. 285% 318% 255% 133%
</TABLE>
- ------------
Footnotes appear on page 10.
- --------------------------------------------------------------------------------
The Hudson River Trust 52
<PAGE>
ALLIANCE QUALITY BOND PORTFOLIO:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year (b) ............... $ 9.49 $ 9.61 $ 8.72 $ 9.82
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ............................... 0.60 0.57 0.57 0.66
Net realized and unrealized gain (loss) on
investments and foreign currency transactions....... 0.24 (0.07) 0.88 (1.16)
------ ------ ------ ------ ------
Total from investment operations .................... 0.84 0.50 1.45 (0.50)
------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net investment income ................ (0.59) (0.60) (0.56) (0.55)
Dividends in excess of net investment income ........ -- (0.02) -- --
Tax return of capital distributions ................. -- -- -- (0.05)
------ ------ ------ ------ ------
Total dividends and distributions ................... (0.59) (0.62) (0.56) (0.60)
------ ------ ------ ------ ------
Net asset value, end of year ......................... $ 9.74 $ 9.49 $ 9.61 $ 8.72
====== ====== ====== ====== ======
Total return (c) ..................................... 9.14% 5.36% 17.02% (5.10)%
====== ====== ====== ====== ======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000's) ...................... $203,233 $155,023 $157,443 $127,575
Ratio of expenses to average net assets .............. 0.57% 0.59% 0.59% 0.59%
Ratio of net investment income to average net assets . 6.19% 6.06% 6.13% 7.17%
Portfolio turnover rate .............................. 374% 431% 411% 222%
</TABLE>
ALLIANCE HIGH YIELD PORTFOLIO:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year (b) ................. $10.02 $ 9.64 $ 8.91 $10.08
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ................................. 1.04 1.02 0.98 0.89
Net realized and unrealized gain (loss) on investments 0.75 1.07 0.73 (1.17)
------ ------ ------ ------ ------
Total from investment operations ...................... 1.79 2.09 1.71 (0.28)
------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net investment income ................. (0.97) (0.98) (0.94) (0.88)
Dividends in excess of net investment income .......... -- (0.03) (0.04) (0.01)
Distributions from realized gains ..................... (0.43) (0.70) -- --
------ ------ ------ ------ ------
Total dividends and distributions ..................... (1.40) (1.71) (0.98) (0.89)
------ ------ ------ ------ ------
Net asset value, end of year............................ $10.41 $10.02 $ 9.64 $ 8.91
====== ====== ====== ====== ======
Total return (c)........................................ 18.48% 22.89% 19.92% (2.79)%
====== ====== ====== ====== ======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000's)......................... $355,473 $199,360 $118,129 $73,895
Ratio of expenses to average net assets................. 0.62% 0.59% 0.60% 0.61%
Ratio of net investment income to average net assets ... 9.82% 9.93% 10.34% 9.23%
Portfolio turnover rate ................................ 390% 485% 350% 248%
</TABLE>
- ------------
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- --------------------------------------------------------------------------------
53 The Hudson River Trust
<PAGE>
FOOTNOTES TO FINANCIAL HIGHLIGHTS
(a) Net investment income and capital changes per share are based upon
monthly average shares outstanding.
(b) Date as of which funds were first allocated to the Portfolios are as
follows:
[Alliance Common Stock Portfolio -- June 16, 1975
Alliance Money Market Portfolio -- July 13, 1981
Alliance Balanced Portfolio -- January 27, 1986
Alliance Aggressive Stock Portfolio -- January 27, 1986
Alliance High Yield Portfolio -- January 2, 1987
Alliance Global Portfolio -- August 27, 1987
Alliance Conservative Investors Portfolio -- October 2, 1989
Alliance Growth Investors Portfolio -- October 2, 1989
Alliance Intermediate Government Securities Portfolio -- April 1, 1991
Alliance Quality Bond Portfolio -- October 1, 1993
Alliance Growth and Income Portfolio -- October 1, 1993]
Alliance Equity Index Portfolio -- March 1, 1994
Alliance International Portfolio -- April 3, 1995
Alliance Small Cap Growth Portfolio -- May 1, 1997
(c) Total return is calculated assuming an initial investment made at net
asset value at the beginning of the period, reinvestment of all
dividends and distributions at net asset value during the period, and
redemption on the last day of the period. Total return calculated for a
period of less than one year is not annualized.
(d) The Alliance Balanced Portfolio's portfolio turnover rates in 1998 and
1997 were and 95%, respectively, for the equity component and were
% and 192%, respectively, for the fixed income component.
(e) Annualized.
(f) On February 22, 1994 shares of the Alliance Intermediate Government
Securities Portfolio of the Trust were substituted for shares of the
Trust's Alliance Short-Term World Income Portfolio.
- --------------------------------------------------------------------------------
The Hudson River Trust 54
<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.
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
- --------------------------------------------------------------------------------
A-1 The Hudson River Trust
<PAGE>
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 (except for the Alliance Small Cap Growth Portfolio), net of
investment management fees and direct operating expenses of the Trust, together
with comparative benchmarks, including both unmanaged market indexes and
universes of managed portfolios. The unmanaged market indexes do not reflect
any asset-based charges for investment management or other expenses, which are
inapplicable to these benchmarks. The rates of return shown for the Portfolios
are not an estimate or guarantee of future investment performance and do not
take into account charges applicable to the Contracts or imposed at the
separate account level. The ultimate change in Contract values will depend not
only on the performance of the Portfolios at the underlying Trust level, but
also on the insurance and administrative charges, applicable sales charges, and
the mortality and expense risk charge applicable under such Contracts. These
Contract charges effectively reduce the dollar amount of any net gains and
increase the dollar amount of any net losses.
The Lipper averages are contained in Lipper's survey of the performance of a
large number of mutual funds. This survey is published by Lipper Analytical
Services, Inc., a firm recognized for its reporting of performance of actively
managed funds. According to Lipper, performance data are presented net of
investment management fees, direct operating expenses and, for funds with Rule
12b-1 plans, asset-based sales charges. Performance data for funds which assess
sales charges in other ways do not reflect deductions for sales charges.
Performance data shown for the Portfolios does not reflect deduction for sales
charges (which are assessed at the policy level). This means that to the extent
that asset-based sales charges deducted by some funds have lowered the Lipper
averages, the performance data shown for the Portfolios appears relatively more
favorable than the performance data for the Lipper averages.
The performance results presented below are based on Portfolio percent changes
in net asset values with dividends and capital gains reinvested. Similarly, the
market indexes have been adjusted, where necessary, to reflect the benefit of
reinvestment of income, dividends and capital gains. Cumulative rates of return
reflect performance over a stated period of time. Annualized rates of return
represent the rate of growth that would have produced the corresponding
cumulative return had performance been constant over the entire period.
From time to time the Trust and/or its shareholders may include in reports or
in advertising material descriptions of general economic and market conditions
affecting the Trust and/or its shareholders and may compare the performance of
the Trust's Portfolios with (1) that of other insurance company separate
accounts, if appropriate, or mutual funds included in the rankings prepared by
Lipper or similar investment services that monitor the performance of insurance
company separate accounts or mutual funds, (2) other appropriate indices of
investment securities and averages for peer universes of funds which are
described in this prospectus, or (3) data developed by the Trust and/or its
shareholders derived from such indices or averages.
Each Portfolio's performance may also be compared to the performance of other
mutual funds by Morningstar, Inc. which ranks mutual funds on the basis of
historical risk and total return. Morningstar rankings are calculated using the
mutual fund's average annual return for certain periods and a risk factor that
reflects the mutual fund's performance relative to three-month Treasury bill
monthly returns. Morningstar's rankings range from five stars (highest) to one
star (lowest) and represent Morningstar's assessment of the historical risk
level and total return of a mutual fund as a weighted average for 3-, 5- and
10-year periods. 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.
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.
- --------------------------------------------------------------------------------
B-1 The Hudson River Trust
<PAGE>
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") 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
Russell 2000 Growth Index ("Russell 2000 Growth") consists of that half of the
2,000 smallest of the 3,000 largest capitalization U.S. companies that has
higher price-to-book ratios and higher forecasted growth.
The Lehman Intermediate Government Bond Index represents an unmanaged group of
securities consisting of all United States Treasury and agency securities with
remaining maturities of from one to ten years and issue amounts of at least
$100 million outstanding.
The Lehman Aggregate Bond Index is an index comprised of investment grade fixed
income securities, including U.S. Treasury, mortgage-backed, corporate and
"Yankee" bonds (U.S. dollar-denominated bonds issued outside the United
States).
The Merrill Lynch High Yield Master Index ("ML Master") represents an unmanaged
group of securities widely regarded by investors as representative of the high
yield bond market.
The "blended" performance numbers (e.g., 50% S&P 400/50% Russell 2000) in all
cases assume a static mix of the two indices.
The dates as of which funds were first allocated to the Portfolios are as
follows: the Alliance Common Stock Portfolio on June 16, 1975; the Alliance
Money Market Portfolio on July 13, 1981; the Alliance Balanced and Alliance
Aggressive Stock Portfolios on January 27, 1986; the Alliance High Yield
Portfolio on January 2, 1987; the Alliance Global Portfolio on August 27, 1987;
the Alliance Conservative Investors and Alliance Growth Investors Portfolios on
October 2, 1989; the Alliance Intermediate Government Securities Portfolio on
April 1, 1991; the Alliance Quality Bond and Alliance Growth and Income
Portfolios on October 1, 1993; the Alliance Equity Index Portfolio on March 1,
1994; 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 Balanced Funds
and Small Company Growth Funds Averages, from January 1, 1986; and for the
Lipper Global Funds Average, from August 28, 1987.
The Trust's Portfolios serve as the underlying investment vehicles for
Contracts. Shares of these Portfolios cannot be purchased directly. Shares of
the Portfolios of the Trust are purchased by corresponding investment divisions
of insurance company separate accounts. Refer to the attached Contract
prospectus for further information about your Contract including a description
of all charges and expenses.
- --------------------------------------------------------------------------------
The Hudson River Trust B-2
<PAGE>
TABLE I
[TO BE UPDATED]
ANNUALIZED RATES OF RETURN
PERIODS ENDING DECEMBER 31, 1998
<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 ................. 13.25% 12.79% 8.79% -- -- -- 9.53%
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 BALANCED ............................... 15.06 15.45 9.71 12.04% -- -- 12.30
Lipper Balanced Mutual Funds Average ............ 19.00 19.44 13.20 12.92 -- -- 12.33
50% S&P 500/50% Lehman Gov't Corp. .............. 21.56 21.68 14.63 21.19 -- -- 13.97
- -------------------------------------------------------------------------------------------------------------------------------
ALLIANCE GROWTH INVESTORS ....................... 16.87 18.48 13.17 -- -- -- 15.73
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 ...................... 26.90 23.65 -- -- -- -- 15.94
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 ........................... 32.58 30.35 -- -- -- -- 23.35
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 ........................... 29.40 28.66 21.08 18.00 17.25% 17.56% 15.83
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 ................................. 11.66 14.99 16.15 13.74 -- -- 11.70
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 .......................... (2.98) -- -- -- -- -- 6.39
Lipper International Mutual Funds Average ....... 5.44 -- -- -- -- -- 9.87
MSCI EAFE ....................................... 1.78 -- -- -- -- -- 6.15
- -------------------------------------------------------------------------------------------------------------------------------
ALLIANCE AGGRESSIVE STOCK ....................... 10.94 21.29 14.92 19.00 -- -- 19.41
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 ....................... -- -- -- -- -- -- 26.74*
Lipper Small Company Growth Funds
Average ........................................ -- -- -- -- -- -- 29.36*
Russell 2000 Growth ............................. -- -- -- -- -- -- 27.66*
- -------------------------------------------------------------------------------------------------------------------------------
THE FIXED INCOME SERIES
ALLIANCE MONEY MARKET ........................... 5.42 5.50 4.69 5.78 6.59 -- 7.17
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 ..... 7.29 8.06 5.94 -- -- -- 7.00
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 QUALITY BOND ........................... 9.14 10.40 -- -- -- -- 5.80
Lipper Corporate Debt Funds A Rated
Average ........................................ 9.17 10.01 -- -- -- -- 5.82
Lehman Aggregate Bond ........................... 9.65 10.42 -- -- -- -- 6.51
- -------------------------------------------------------------------------------------------------------------------------------
ALLIANCE HIGH YIELD ............................. 18.48 20.42 15.89 12.80 -- -- 12.04
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
- -------------------------------------------------------------------------------------------------------------------------------
* Unannualized
- -------------------------------------------------------------------------------------------------------------------------------
B-3 The Hudson River Trust
</TABLE>
<PAGE>
TABLE II
[TO BE UPDATED]
CUMULATIVE RATES OF RETURN
PERIODS ENDING DECEMBER 31, 1998
<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 ................ 13.25% 43.47% 52.41% -- -- -- 111.92%
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 BALANCED .............................. 15.06 53.88 58.90 211.70% -- -- 298.86
Lipper Balanced Mutual Funds Average ........... 19.00 70.61 86.33 239.04 -- -- 302.62
50% S&P 500/50% Lehman Gov't Corp. ............. 21.56 80.14 97.96 583.14 -- -- 376.27
- ------------------------------------------------------------------------------------------------------------------------------------
ALLIANCE GROWTH INVESTORS ...................... 16.87 66.31 85.66 -- -- -- 233.71
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 ..................... 26.90 89.07 -- -- -- -- 87.52
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 .......................... 32.58 121.46 -- -- -- -- 123.85
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 .......................... 29.40 113.00 160.20 423.28 988.51% 2440.13% 2,422.45
Lipper Growth Equity Mutual Funds Average 25.30 97.08 117.56 356.18 710.84 2037.84 2,757.78
S&P 500 ........................................ 33.36 125.60 151.62 425.67 1,026.40 2080.13 2,248.74
- ------------------------------------------------------------------------------------------------------------------------------------
ALLIANCE GLOBAL ................................ 11.66 52.06 111.38 262.34 -- -- 214.27
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 ......................... (2.98) -- -- -- -- -- 18.57
Lipper International Mutual Funds Average ...... 5.44 -- -- -- -- -- 30.12
MSCI EAFE ...................................... 1.78 -- -- -- -- -- 17.83
- ------------------------------------------------------------------------------------------------------------------------------------
ALLIANCE AGGRESSIVE STOCK ...................... 10.94 78.45 100.42 469.28 -- -- 730.05
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 PORTFOLIO ............ -- -- -- -- -- -- 26.74
Lipper Small Company Growth Funds
Average ....................................... -- -- -- -- -- -- 29.36
Russell 2000 ................................... -- -- -- -- -- -- 27.66
- ------------------------------------------------------------------------------------------------------------------------------------
THE FIXED INCOME SERIES
ALLIANCE MONEY MARKET .......................... 5.42 17.42 25.77 75.34 160.40 -- 212.76
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..... 7.29 26.18 33.44 -- -- -- 57.92
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 QUALITY BOND .......................... 9.14 34.57 -- -- -- -- 27.07
Lipper Corporate Debt Funds A
Rated Average ................................. 9.17 33.20 -- -- -- -- 27.23
Lehman Aggregate Bond .......................... 9.65 34.63 -- -- -- -- 30.78
- ------------------------------------------------------------------------------------------------------------------------------------
ALLIANCE HIGH YIELD ............................ 18.48 74.60 109.05 233.48 -- -- 249.07
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
- ------------------------------------------------------------------------------------------------------------------------------------
The Hudson River Trust B-4
</TABLE>
<PAGE>
TABLE III
ANNUAL RATES OF RETURN
<TABLE>
<CAPTION>
ALLIANCE ALLIANCE ALLIANCE ALLIANCE ALLIANCE
YEAR ENDING COMMON MONEY AGGRESSIVE ALLIANCE HIGH ALLIANCE CONSERV.
DECEMBER 31 STOCK MARKET STOCK BALANCED YIELD GLOBAL INVESTORS
- ----------- ----- ------ ----- -------- ----- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1976 .......... 9.2%*
1977 .......... -9.2
1978 .......... 8.2
1979 .......... 29.8
1980 .......... 50.1
1981 .......... -5.8 7.1%*
1982 .......... 17.6 13.0
1983 .......... 26.1 8.9
1984 .......... -2.0 10.9
1985 .......... 33.4 8.2
1986 .......... 17.3 6.6 35.9%* 29.1%*
1987 .......... 7.5 6.6 7.3 -0.9 4.7%* -13.3%*
1988 .......... 22.4 7.3 1.1 13.3 9.7 10.9
1989 .......... 25.6 9.2 43.5 25.8 5.1 26.7 3.1%*
1990 .......... -8.1 8.2 8.2 0.3 -1.1 -6.1 6.3
1991 .......... 37.9 6.2 86.9 41.3 24.5 30.5 19.8
1992 .......... 3.2 3.6 -3.2 -2.8 12.3 -0.5 5.6
1993 .......... 24.8 3.0 16.8 12.3 23.2 32.1 10.8
1994 .......... -2.1 4.0 -3.8 -8.0 -2.8 5.2 -4.1
1995 .......... 32.5 5.7 31.6 19.8 19.9 18.8 20.4
1996 .......... 24.3 5.3 22.2 11.7 22.9 14.6 5.2
1997 .......... 29.40 5.4 10.9 15.1 18.5 11.7 13.3
1998 ..........
<CAPTION>
ALLIANCE
ALLIANCE ALLIANCE ALLIANCE GROWTH ALLIANCE ALLIANCE
YEAR ENDING GROWTH INTERMEDIATE QUALITY AND EQUITY ALLIANCE SMALL CAP
DECEMBER 31 INVESTORS GOVT. SECURITIES BOND INCOME INDEX INTERNATIONAL GROWTH
- ----------- --------- ---------------- ---- ------ ----- ------------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
1976 ..........
1977 ..........
1978 ..........
1979 ..........
1980 ..........
1981 ..........
1982 ..........
1983 ..........
1984 ..........
1985 ..........
1986 ..........
1987 ..........
1988 ..........
1989 .......... 4.0%*
1990 .......... 10.7
1991 .......... 48.8 12.1%*
1992 .......... 4.9 5.5
1993 .......... 15.3 10.6 -0.5%* -0.3%*
1994 .......... -3.2 -4.4 -5.1 -0.6 1.1*
1995 .......... 26.4 13.3 17.0 24.0 36.5 11%*
1996 .......... 12.6 3.8 5.4 20.1 22.4 9.8
1997 .......... 16.9 7.3 9.1 26.9 32.6 -2.98 26.7%*
1998 ..........
</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, 1998, the
assets in the Historical Portfolios totaled approximately $ million and
the average size of a Historical Portfolio was $ 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, 1998*
<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, 1998 .........
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>
- ----------
* 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, 1998, assume a steady compounded rate of return
and are not year-by-year results, which fluctuated over the periods as shown.
<TABLE>
<CAPTION>
[TO BE UPDATED]
AVERAGE ANNUAL TOTAL RETURNS
---------------------------------------------------------------
RUSSELL LIPPER SMALL CO.
HISTORICAL RUSSELL 2000 GROWTH GROWTH
PORTFOLIOS 2000 INDEX INDEX FUND INDEX
------------ ------------ ------------- -----------------
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Three years ................... 35.51% 22.34% 18.09% 20.09%
Five years .................... 22.40% 16.41% 12.74% 15.05%
Ten years ..................... 17.25% 15.77% 13.49% 15.38%
Since January 1, 1983 ......... 15.53% 13.34% 10.30% 13.04%
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B-7 The Hudson River Trust
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THE HUDSON RIVER TRUST
1345 Avenue of the Americas -- New York, New York 10105
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1999
This Statement of Additional Information is not a prospectus. It should be read
in conjunction with The Hudson River Trust ("Trust") Prospectus dated May 1,
1999 relating to Class IA shares and retained for future reference. This
Statement of Additional Information relates to the Trust's Class IA shares. A
separate Statement of Additional Information relates to the Trust's Class IB
shares.
A copy of the Prospectus to which this Statement of Additional Information
relates is available at no charge by writing the Trust at the above address.
TABLE OF CONTENTS
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PAGE
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General Information and History ..................................... 2
Investment Restrictions of the Portfolios ........................... 4
Description of Certain Securities in Which the Portfolios May Invest 7
Management of the Trust ............................................. 21
Investment Advisory and Other Services .............................. 25
Brokerage Allocation ................................................ 28
Trust Expenses and Other Charges .................................... 29
Purchase and Pricing of Securities .................................. 30
Certain Tax Considerations .......................................... 32
Portfolio Performance ............................................... 33
Other Services ...................................................... 36
Financial Statements ................................................ 37
Appendix A--Description of Commercial Paper Ratings ................. A-1
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HRT-SAI (2/99) Copyright 1998. The Hudson River Trust. All Catalog No. 127665
rights reserved.
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GENERAL INFORMATION AND HISTORY
THE TRUST
The Hudson River Trust is an open-end management investment company--a type of
company commonly known as a "mutual fund." It is registered as such under the
Investment Company Act of 1940, as amended ("Investment Company Act").
Originally organized as a Maryland corporation, the Trust's operations
commenced on March 22, 1985. On July 10, 1987, the Trust was reorganized as a
Massachusetts business trust. Shares of each Portfolio are divided into two
classes: Class IA shares and Class IB shares. Class IA shares are offered at
net asset value pursuant to this Statement of Additional Information and a
related prospectus and are not subject to fees imposed under any distribution
plan. Class IB shares are offered at net asset value pursuant to a separate
Statement of Additional Information and related prospectus and are subject to
distribution fees imposed under a distribution plan (the "Distribution Plan")
adopted pursuant to Rule 12b-1 under the Investment Company Act. Prior to
October 1, 1996, the Trust offered only Class IA shares.
The two classes of shares are offered under the Trust's multiple class
distribution system approved by the Trust's Board of Trustees on June 7, 1996
and are designed to allow promotion of insurance products that invest in the
Trust through alternative distribution channels. Under the Trust's multi-class
system, shares of each class of a Portfolio represent an equal pro rata
interest in the assets of that Portfolio and, generally, have identical voting,
dividend, liquidation, and other rights, other than with respect to the payment
of distribution fees under the Distribution Plan.
The Trust continuously offers its shares exclusively to separate accounts of
insurance companies in connection with variable life insurance contracts and
variable annuity certificates and contracts (collectively, "Contracts").
Currently, the Trust's shareholders of Class IA shares are a separate account
of Equitable, separate accounts of The Equitable Life Assurance Society of the
United States ("Equitable"), a separate account of Integrity Life Insurance
Company, a separate account of American Franklin Life Insurance Company, a
separate account of Transamerica Occidental Life Insurance Company and a
separate account of SAFECO Life Insurance Company, all of which are insurance
companies unaffiliated with Equitable. The Trust may offer its shares to
separate accounts of other insurance companies, regardless of whether they are
affiliated with Equitable. As of March 31, 1999, Equitable owned approximately
[99.7]% of the Trust's outstanding Class IA shares and all of the Trust's
outstanding Class IB shares and, as a result, may be deemed to control the
Trust.
As a "series" investment company, the Trust issues separate series of shares of
beneficial interest, each of which represents a separate portfolio
("Portfolio") of investments. Each Portfolio resembles a separate fund issuing
a separate class of stock. The Alliance Common Stock and Alliance Money Market
Portfolios are the successors to Separate Accounts I and II of Equitable
Variable Life Insurance Company, formerly a wholly owned subsidiary of
Equitable that was merged into Equitable as of January 1, 1997 ("Equitable
Variable"). (See "Description of Reorganization and Other Matters".) The
Alliance Balanced and Alliance Aggressive Stock Portfolios received their
initial funding on January 27, 1986 from Equitable Variable. The Alliance High
Yield Portfolio received its initial funding on January 2, 1987. The Alliance
Global Portfolio received its initial funding on August 27, 1987. The Alliance
Conservative Investors and Alliance Growth Investors Portfolios received their
initial funding on October 2, 1989. The Alliance Intermediate Government
Securities Portfolio received its initial funding on April 1, 1991. The
Alliance Quality Bond and Alliance Growth and Income Portfolios received their
initial funding on October 1, 1993. The Alliance Equity Index Portfolio
received its initial funding on March 1, 1994. The Alliance International
Portfolio received its initial funding on April 3, 1995. The Alliance Small Cap
Growth Portfolio received its initial funding on May 1, 1997.
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.
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Because of current Federal securities law requirements, the Trust expects that
its shareholders will offer to owners of the Contracts ("Contractowners") the
opportunity to instruct them as to how shares allocable to their Contracts will
be voted with respect to certain matters, such as approval of investment
advisory agreements. As of March 31, 1999, to the Trust's knowledge, no
Contractowners other than those set forth below owned Contracts entitling such
persons to give voting instructions regarding more than 5% of either class of
the outstanding shares of a Portfolio.
[UPDATE]
CLASS IA
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ALLIANCE INTERMEDIATE
ALLIANCE QUALITY ALLIANCE GLOBAL GOVERNMENT SECURITIES
BOND PORTFOLIO PORTFOLIO PORTFOLIO
--------------------- --------------------- --------------------
UNITS % OF UNITS % OF UNITS % OF
OWNED PORTFOLIO OWNED PORTFOLIO OWNED PORTFOLIO
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Boston Safe Deposit and Trust Co.* .........
Equitable Realty Assets Corp. ..............
PNC Bank, N.A.** ...........................
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* Boston Safe Deposit and Trust Co., successor Trustee and Master Trust
Agreement for SBC Communications, Inc.'s Deferred Compensation Plans and
Other Executive Benefit Plans.
** PNC Bank, N.A. under Ashland Inc. Executive and Director Retirement Benefit
Security Trust.
The principal addresses of Boston Safe Deposit and Trust Co., Equitable Realty
Assets Corp. and PNC Bank, N.A. are 175 East Houston Street, San Antonio,
Texas, 9000 Central Park Avenue, Atlanta, Georgia, and 1000 Ashland Drive,
Ashland, Kentucky, respectively.
Were such a substantial Contractowner's funds withdrawn from the Trust or
transferred to a different Portfolio at the Contractowner's request, the Trust
could be forced to sell portfolio securities at disadvantageous prices.
LEGAL CONSIDERATIONS
Under Massachusetts law, annual election of Trustees is not required, and, in
the normal course, the Trust does not expect to hold annual meetings of
shareholders. There will normally be no meetings of shareholders for the
purpose of electing Trustees unless and until such time as less than a majority
of the Trustees holding office have been elected by shareholders, at which time
the Trustees then in office will call a shareholders' meeting for the election
of Trustees. The Trust has agreed to be bound by the procedures set forth in
Section 16(c) of the Investment Company Act, and accordingly, shareholders of
record of not less than two-thirds of the outstanding shares of the Trust may
remove a Trustee by a vote cast in person or by proxy at a meeting called for
that purpose.
Except as set forth above, the Trustees shall continue to hold office and may
appoint successor Trustees. Voting rights are not cumulative, so that the
holders of more than 50% of the shares voting in the election of Trustees can,
if they choose to do so, elect all the Trustees of the Trust, in which event
the holders of the remaining shares will be unable to elect any person as a
Trustee. Amendments to the Declaration of Trust of the Trust generally require
the affirmative vote of a majority of the outstanding shares of the Trust.
The shares of each Portfolio, when issued, will be fully paid and
non-assessable by the Trust and will have no preference, preemptive,
conversion, exchange or similar rights.
Under Massachusetts law, in certain circumstances shareholders may be held
personally liable as partners for the obligations of a business trust such as
the Trust. The shareholders of the Trust are the insurance companies whose
separate accounts invest in it. The Trust's Declaration of Trust contains
provisions designed to protect shareholders from such liability to the extent
of the Trust's assets. As a result, the risk of personal liability for the
insurance company shareholders is remote.
The Declaration of Trust further provides that the Trustees will not be liable
for errors of judgment or mistakes of fact or law, but nothing in the
Declaration of Trust protects a Trustee against any liability to
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which he or she would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of his or her office. The Declaration of Trust permits the Trust to
purchase and maintain on behalf of the Trustees insurance against certain
liabilities.
DESCRIPTION OF REORGANIZATION AND OTHER MATTERS
The following transactions, referred to as the Reorganization, were effected
simultaneously on March 22, 1985, pursuant to an Agreement and Plan of
Reorganization dated November 20, 1984, entered into by Equitable Variable,
Separate Accounts I and II, and The Hudson River Fund, Inc. (the "Fund"), the
predecessor of the Trust.
Equitable Variable divided Separate Account I into two divisions, a Common
Stock Division and a Money Market Division. Separate Account II was combined
with Separate Account I (the "Continuing Separate Account"). Rather than
investing directly, the Common Stock Division and the Money Market Division of
the Continuing Separate Account invested in shares of the Fund, which, in turn,
invested in diversified portfolios of common stock or money market investments.
In order for the Fund to commence operations, all the investment assets of
Separate Accounts I and II (together with any related liabilities) were
transferred to the Common Stock and Money Market Portfolios of the Fund,
respectively, in exchange for shares in those Portfolios having an equivalent
aggregate net asset value.
On September 30, 1987, all of the Fund's assets and liabilities were
transferred to the Trust, pursuant to an Agreement and Plan of Reorganization
(the "Plan") between the Fund and the Trust. The Plan was proposed to
shareholders in order to permit greater operating flexibility and efficiencies.
The Plan provided for changes of domicile (from Maryland to Massachusetts) and
of form of organization (from a corporation to a business trust). However, in
all other material respects the Trust was identical to the Fund immediately
prior to the execution of the Plan.
At a meeting held on April 9, 1997, the shareholders of the Trust approved the
amendment and restatement of the Trust's Agreement and Declaration of Trust. On
April 16, 1997 the Agreement and Declaration of Trust was amended and restated,
and filed with the office of the Secretary of the Commonwealth of
Massachusetts.
INVESTMENT RESTRICTIONS OF THE PORTFOLIOS
FUNDAMENTAL RESTRICTIONS
The following restrictions apply to all of the Portfolios and are fundamental.
Unless permitted by law, they will not be changed for any Portfolio without a
vote of that Portfolio's shareholders.
None of the Portfolios will:
o underwrite securities issued by other persons except to the extent that,
in connection with the disposition of its portfolio investments, it may
be deemed to be an underwriter under certain Federal securities laws;
o make short sales of securities, except when it has, by reason of
ownership of other securities, the right to obtain securities of
equivalent kind and amount that will be held so long as it is in a short
position;
o issue senior securities;
o purchase real estate or mortgages; however, the Portfolios may, as
appropriate and consistent with their investment policies and other
investment restrictions, buy securities of issuers which engage in real
estate operations and securities which are secured by interests in real
estate (including partnership interests and shares of real estate
investment trusts), and may hold and sell real estate acquired as a
result of ownership of such securities;
o purchase any security on margin or borrow money, except that this
restriction shall not apply to borrowing from banks for temporary
purposes, to the pledging of assets to banks in order to
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transfer funds for various purposes as required without interfering with
the orderly liquidation of securities in a Portfolio (but not for
leveraging purposes), to margin payments or pledges in connection with
options, futures contracts, options on futures contracts, forward
contracts or options on foreign currencies or, with respect to the
Alliance Quality Bond Portfolio, to transactions in interest rate swaps,
caps and floors; or
o make loans (including lending cash or securities), except that this
restriction shall not apply to the Alliance High Yield and Alliance
Intermediate Government Securities Portfolios. Additionally, each of the
other Portfolios may make loans of portfolio securities not exceeding 50%
of the value of that Portfolio's total assets. This restriction does not
prevent a Portfolio from purchasing debt obligations in which a Portfolio
may invest consistent with its investment policies, or from buying
government obligations, short-term commercial paper, or publicly-traded
debt, including bonds, notes, debentures, certificates of deposit, and
equipment trust certificates, nor does this restriction apply to loans
made under insurance policies or through entry into repurchase agreements
to the extent they may be viewed as loans.
Each Portfolio, except as noted below, elects not to "concentrate" investments
in an industry, as that concept is defined under applicable Federal securities
laws. In general, this means that no Portfolio will make an investment in an
industry if that investment would make the Portfolio's holdings in that
industry exceed 25% of the Portfolio's assets. However, this restriction does
not apply to investments by the Alliance Money Market Portfolio in certificates
of deposit or securities issued and guaranteed by domestic banks. Furthermore,
the U.S. Government, its agencies and instrumentalities are not considered
members of any industry.
Each Portfolio intends to be "diversified," as that term is defined under the
Investment Company Act. In general, this means that no Portfolio will make an
investment unless, when considering all its other investments, 75% of the value
of the Portfolio's assets would consist of cash, cash items, U.S. Government
securities, securities of other investment companies and other securities. For
the purposes of this restriction, "other securities" are limited for any one
issuer to not more than 5% of the value of the Portfolio's total assets and to
not more than 10% of the issuer's outstanding voting securities. As a matter of
operating policy, each Portfolio will not consider repurchase agreements to be
subject to the above-stated 5% limitation if the collateral underlying the
repurchase agreements consists exclusively of U.S. Government securities and
such repurchase agreements are fully collateralized.
Further, as a matter of operating policy, the Alliance Money Market Portfolio
will invest no more than 5% of the value of its total assets in securities of
any one issuer, other than U.S. Government securities, except that the Alliance
Money Market Portfolio may invest up to 25% of its total assets in First Tier
Securities (as defined in Rule 2a-7 under the Investment Company Act) of a
single issuer for a period of up to three business days after the purchase of
such security. Further, as a matter of operating policy, the Alliance Money
Market Portfolio will not invest more than (i) the greater of 1% of its total
assets or $1,000,000 in Second Tier Securities (as defined in Rule 2a-7 under
the Investment Company Act) of a single issuer and (ii) 5% of its total assets,
at the time a Second Tier Security is acquired, in Second Tier Securities.
These policies of the Portfolios with respect to concentration and
diversification will not be changed for any Portfolio without a vote of that
Portfolio's shareholders, unless permitted by law.
NON-FUNDAMENTAL RESTRICTIONS
The following investment restrictions apply to all of the Portfolios, but are
not fundamental. They may be changed for any Portfolio without a vote of that
Portfolio's shareholders.
None of the Portfolios will:
o invest more than 15% of its net assets in securities restricted as to
disposition under Federal securities laws, or securities otherwise
considered illiquid or not readily marketable, including
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repurchase agreements having a maturity of more than seven days; however,
this restriction will not apply to securities sold pursuant to Rule 144A
under the Securities Act of 1933, so long as such securities meet
liquidity guidelines to be established by the Trust's Board of Trustees;
o trade in foreign exchange (except transactions incidental to the
settlement of purchases or sales of securities for a Portfolio); however,
the Alliance Global and Alliance International Portfolios may trade in
foreign exchange without limitation in connection with their foreign
currency hedging strategies; and the Alliance High Yield, Alliance
Quality Bond, Alliance Growth and Income, Alliance Conservative
Investors, Alliance Balanced, Alliance Common Stock, Alliance Aggressive
Stock, Alliance Growth Investors and Alliance Small Cap Growth Portfolios
may trade in foreign exchange in connection with their foreign currency
hedging strategies, provided the amount of foreign exchange underlying
such a Portfolio's currency hedging transactions does not exceed 10% of
such Portfolio's assets;
o acquire securities of any company that is a securities broker or dealer,
a securities underwriter, an investment adviser of an investment company,
or an investment adviser registered under the Investment Advisers Act of
1940 (other than any such company that derives no more than 15% of its
gross revenues from securities related activities), except that the
Portfolios (other than the Alliance Money Market Portfolio) may purchase
bank, trust company, and bank holding company stock, and except that each
of the Portfolios may invest, in accordance with Rule 12d3-1 under the
Investment Company Act, up to 5% of its total assets in any such company
provided that it owns no more than 5% of the outstanding equity
securities of any class plus 10% of the outstanding debt securities of
such company; or
o make an investment in order to exercise control or management over a
company.
In addition, none of the Portfolios will invest more than 5% of its assets in
the securities of any one investment company, own more than 3% of any one
investment company's outstanding voting securities, or have total holdings of
investment company securities in excess of 10% of the value of the Portfolio's
assets.
ADDITIONAL INVESTMENT RESTRICTION APPLICABLE TO THE ALLIANCE COMMON STOCK,
ALLIANCE BALANCED, ALLIANCE AGGRESSIVE STOCK AND ALLIANCE CONSERVATIVE INVESTORS
PORTFOLIOS
The Alliance Common Stock, Alliance Balanced, Alliance Aggressive Stock and
Alliance Conservative Investors Portfolios will operate under the general
investment restrictions described above. In addition, they will not:
o acquire securities of investment companies not registered under the
Investment Company Act.
ADDITIONAL INVESTMENT RESTRICTIONS APPLICABLE TO THE ALLIANCE MONEY MARKET
PORTFOLIO
The Alliance Money Market Portfolio will operate under the general investment
restrictions described above. In addition, it will not:
o invest more than 10% of its assets in securities restricted as to
disposition under Federal securities laws, or securities otherwise
considered illiquid or not readily marketable, including repurchase
agreements having a maturity of more than seven days; however, this
restriction will not apply to securities sold pursuant to Rule 144A under
the Securities Act of 1933, so long as such securities meet liquidity
guidelines to be established by the Trust's Board of Trustees;
o purchase oil and gas interests;
o purchase or write puts or calls (options); or
o purchase equity securities, voting securities other than securities of
registered investment companies with investment policies not
substantially broader than those of the Portfolio (subject to the above
percentage limitations) or local or state government securities.
The Alliance Money Market Portfolio will invest only in funds whose investment
policies are similar to or narrower than those of the Portfolio. It is expected
that such investments would be made in funds
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designed for institutional investors such as the Portfolio and would be used
for amounts which might otherwise be left uninvested because they do not meet
the minimums necessary for other permitted investments or to take advantage of
higher yields available at that time in such funds.
ADDITIONAL INVESTMENT RESTRICTION APPLICABLE TO THE ALLIANCE HIGH YIELD AND
ALLIANCE GROWTH INVESTORS PORTFOLIOS
The Alliance High Yield and Alliance Growth Investors Portfolios will operate
under the general investment restrictions described above. In addition, each
will not:
o invest more than 10% of its total assets in (i) fixed income securities
which are rated lower than B3 by Moody's Investors Service, Inc.
("Moody's") or B- by Standard & Poor's ("S&P") or are unrated, and (ii)
money market instruments of any entity which has an outstanding issue of
unsecured debt that is rated lower than B3 by Moody's or B- by S&P, or is
unrated; however this restriction will not apply to (A) fixed income
securities which, in the opinion of the Trust's investment adviser, have
similar characteristics to securities which are rated B3 or higher by
Moody's or B- or higher by S&P, or (B) money market instruments of any
entity that has an unsecured issue of outstanding debt which, in the
opinion of the Trust's investment adviser, has similar characteristics to
securities which are so rated.
DESCRIPTION OF CERTAIN SECURITIES IN WHICH THE PORTFOLIOS MAY INVEST
REPURCHASE AGREEMENTS
All of the Portfolios, except the Alliance Equity Index Portfolio, may enter
into repurchase agreements. Under a repurchase agreement, underlying debt
instruments are acquired for a relatively short period (usually not more than
one week and never more than a year) subject to an obligation of the seller to
repurchase and the Portfolio to resell the debt instruments at a fixed price
and time, thereby determining the yield during the Portfolio's holding period.
Repurchase agreements may exhibit the characteristics of loans by the
Portfolio. During the term of the repurchase agreement, the Portfolio retains
the security subject to the repurchase agreement as collateral securing the
seller's repurchase obligation, continually monitors on a daily basis the
market value of the security subject to the agreement and requires the seller
to deposit with the Portfolio collateral equal to any amount by which the
market value of the security subject to the repurchase agreement falls below
the resale amount provided under the repurchase agreement. A Portfolio enters
into repurchase agreements with respect to U.S. Government obligations,
certificates of deposit, or bankers' acceptances with registered
broker-dealers, U.S. Government securities dealers or domestic banks whose
creditworthiness is determined to be satisfactory by the Trust's investment
adviser, Alliance Capital Management L.P. ("Alliance"), pursuant to guidelines
adopted by the Board of Trustees. Generally, a Portfolio does not invest in
repurchase agreements maturing in more than seven days. The staff of the
Securities and Exchange Commission ("SEC") currently takes the position that
repurchase agreements maturing in more than seven days are illiquid securities.
No Portfolio will enter into a repurchase agreement maturing in more than seven
days if as a result more than 15% (10%, in the case of the Alliance Money
Market Portfolio) of the Portfolio's net assets would be invested in "illiquid
securities."
If a seller under a repurchase agreement were to default on the agreement and
be unable to repurchase the security subject to the agreement, the Portfolio
would look to the collateral underlying the seller's repurchase agreement,
including the security subject to the repurchase agreement, for satisfaction of
the seller's obligation to the Portfolio. In the event a repurchase agreement
is considered a loan and the seller defaults, the Portfolio might incur a loss
if the value of the collateral declines and may incur disposition costs in
liquidating the collateral. In addition, if bankruptcy proceedings are
commenced with respect to the seller, realization on the collateral may be
delayed or limited and a loss may be incurred.
FORWARD COMMITMENTS AND WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
The Portfolios may enter into forward commitments for the purchase or sale of
securities and may purchase or sell securities on a "when-issued" or "delayed
delivery" basis. Forward commitments and
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when-issued or delayed delivery transactions arise when securities are
purchased by a Portfolio with payment and delivery taking place in the future
in order to secure what Alliance considers to be an advantageous price or yield
to the Portfolio at the time of entering into the transaction. However, the
price of or yield on a comparable security available when delivery takes place
may vary from the price of or yield on the security at the time that the
forward commitment or when-issued or delayed delivery transaction was entered
into. Agreements for such purchases might be entered into, for example, when a
Portfolio anticipates a decline in interest rates and is able to obtain a more
advantageous price or yield by committing currently to purchase securities to
be issued later. When a Portfolio purchases securities on a forward commitment,
when-issued or delayed delivery basis, it does not pay for the securities until
they are received, and the Portfolio is required to create a segregated account
with the Trust's custodian and to maintain in that account liquid assets in an
amount equal to or greater than, on a daily basis, the amount of the
Portfolio's forward commitments, when-issued or delayed delivery commitments.
A Portfolio will only enter into forward commitments and make commitments to
purchase securities on a when-issued or delayed delivery basis with the
intention of actually acquiring the securities. However, the Portfolio may sell
these securities before the settlement date if it is deemed advisable as a
matter of investment strategy. Forward commitments and when-issued and delayed
delivery transactions are generally expected to settle within three months from
the date the transactions are entered into, although a Portfolio may close out
its position prior to the settlement date by entering into a matching sale
transaction.
Although none of the Portfolios intends to make such purchases for speculative
purposes, purchases of securities on such bases may involve more risk than
other types of purchases. For example, by committing to purchase securities in
the future, a Portfolio subjects itself to a risk of loss on such commitments
as well as on its portfolio securities. Also, a Portfolio may have to sell
assets that have been set aside in order to meet redemptions. In addition, if a
Portfolio determines it is advisable as a matter of investment strategy to sell
the forward commitment or when-issued or delayed delivery securities before
delivery, that Portfolio may incur a gain or loss because of market
fluctuations since the time the commitment to purchase such securities was
made. Any such gain or loss would be treated as a capital gain or loss and
would be treated for tax purposes as such. When the time comes to pay for the
securities to be purchased under a forward commitment or on a when-issued or
delayed delivery basis, a Portfolio will meet its obligations from the then
available cash flow or the sale of securities, or, although it would not
normally expect to do so, from the sale of the forward commitment or
when-issued or delayed delivery securities themselves (which may have a value
greater or less than a Portfolio's payment obligation).
WARRANTS
All the Portfolios, except the Alliance Money Market Portfolio, may purchase
warrants and similar rights, which are rights to purchase securities at
specific prices valid for a specific period of time. Their prices do not
necessarily move in parallel with the prices of the underlying securities, and
warrantholders receive no dividends and have no voting rights or rights with
respect to the assets of an issuer. Warrants cease to have value if not
exercised prior to the expiration date.
FOREIGN SECURITIES
Each Portfolio, except the Alliance Intermediate Government Securities and
Alliance Equity Index Portfolios, may invest in foreign securities. Each of the
Alliance Common Stock, Alliance Balanced, Alliance Quality Bond, Alliance
Aggressive Stock and Alliance Small Cap Growth Portfolios has the discretion to
invest a portion of its assets in foreign securities. Generally, this amount
will not exceed 20% of each Portfolio's total assets. The Alliance Money Market
Portfolio may invest up to 20% of its assets in foreign money market
instruments denominated in U.S. dollars. The Alliance Conservative Investors
Portfolio may invest up to 15% of its assets in foreign securities, the
Alliance Growth Investors Portfolio may invest up to 30% of its assets in
foreign securities, and the Alliance Growth and Income Portfolio may invest up
to 25% of its assets in foreign securities. The Alliance High Yield Portfolio
may purchase foreign securities, provided the value of issues denominated in
foreign currencies shall not exceed 20% of the Portfolio's total assets and the
value of issues denominated in U.S. dollars shall not exceed 25% of the
Portfolio's total assets.
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No percentage limitation applies to investments in foreign securities by the
Alliance Global Portfolio or the Alliance International Portfolio.
Foreign securities involve currency risks. The value of a foreign security
denominated in a foreign currency changes with fluctuations in exchange rates.
Fluctuations in exchange rates may also affect the earning power and asset
value of the foreign entity issuing a security, even one denominated in U.S.
dollars. Dividend and interest payments will be repatriated based on the
exchange rate at the time of disbursement, and restrictions on capital flows
may be imposed.
Foreign securities may be subject to foreign government taxes which reduce
their attractiveness. Other risks of investing in such securities include
political or economic instability in the country involved, the difficulty of
predicting international trade patterns and the possibility of imposition of
exchange controls. The prices of such securities may be more volatile than
those of domestic securities. In addition, there may be less publicly available
information about a foreign issuer than about a domestic issuer. Foreign
issuers generally are not subject to uniform accounting, auditing and financial
reporting standards comparable to those applicable to domestic issuers. There
is generally less regulation of stock exchanges, brokers, banks and listed
companies abroad than in the United States, and settlements may be slower and
may be subject to failure. With respect to certain foreign countries, there is
a possibility of expropriation of assets or nationalization, imposition of
withholding taxes on dividend or interest payments, difficulty in obtaining and
enforcing judgments against foreign entities or diplomatic developments which
could affect investment in these countries. Losses and other expenses may be
incurred in converting between various currencies in connection with purchases
and sales of foreign securities.
For many foreign securities, there are U.S. dollar-denominated American
Depository Receipts (ADRs) which are traded in the United States on exchanges
or over-the-counter, are issued by domestic banks or trust companies and for
which market quotations are readily available. ADRs do not lessen the foreign
exchange risk inherent in investing in the securities of foreign issuers.
However, by investing in ADRs rather than directly in stock of foreign issuers,
the Portfolios will avoid currency risks which might occur during the
settlement period for either purchases or sales. A Portfolio may purchase
foreign securities directly, as well as through ADRs.
MORTGAGE-BACKED SECURITIES
Government National Mortgage Association ("GNMA") certificates are
mortgage-backed securities representing part ownership of a pool of mortgage
loans. These loans, issued by lenders such as mortgage bankers, commercial
banks and savings and loan associations, are either insured by the Federal
Housing Administration or the Farmer's Home Administration or guaranteed by the
Veterans Administration. A "pool" or group of such mortgages is assembled and
after being approved by GNMA, is offered to investors through securities
dealers. Once approved by GNMA, the timely payment of interest and principal on
each mortgage is guaranteed by GNMA and backed by the full faith and credit of
the U.S. Treasury. GNMA certificates differ from bonds in that principal is
paid back monthly by the borrower over the term of the loan rather than
returned in a lump sum at maturity. GNMA certificates are called "pass-through"
securities because both interest and principal payments (including prepayments)
are passed through to the holder of the certificate.
In addition to GNMA certificates, a Portfolio (other than the Alliance Equity
Index Portfolio) may invest in mortgage-backed securities issued by the Federal
National Mortgage Association ("FNMA") and by the Federal Home Loan Mortgage
Corporation ("FHLMC"). FNMA, a federally chartered and privately-owned
corporation, issues mortgage-backed pass-through securities which are
guaranteed as to timely payment of principal and interest by FNMA. FHLMC, a
corporate instrumentality of the United States whose stock is owned by the
Federal Home Loan Banks, issues participation certificates which represent an
interest in mortgages from FHLMC's portfolio. FHLMC guarantees the timely
payment of interest and the ultimate collection of principal. Securities
guaranteed by FNMA and FHLMC are not backed by the full faith and credit of the
United States. If other fixed or variable rate pass-through mortgage-backed
securities issued by the U.S. Government or its agencies or instrumentalities
are developed in the future, the Portfolios reserve the right to invest in
them.
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The Portfolios (other than the Alliance Equity Index Portfolio) may also invest
in other types of mortgage-backed securities issued by governmental or
non-governmental entities, such as banks and other mortgage lenders. These
other instruments include collateralized mortgage obligations ("CMOs"),
mortgage pass-through bonds and mortgage-backed bonds. Non-governmental
securities may offer a higher yield but may also be subject to greater price
fluctuation and risk than governmental securities.
CMOs are obligations fully collateralized directly or indirectly by a pool of
mortgages on which payments of principal and interest are passed through to the
holders of the CMOs on the same schedule as they are received, although not
necessarily on a pro rata basis. In reliance on an SEC interpretation,
investments in certain qualifying CMOs, including CMOs that have elected to be
treated as Real Estate Mortgage Investment Conduits ("REMICs"), are not subject
to the Investment Company Act's limitation on acquiring interests in other
investment companies. In order to be able to rely on the SEC's interpretation,
the CMOs and REMICs must be unmanaged, fixed-asset issuers that (i) invest
primarily in mortgage-backed securities, (ii) do not issue redeemable
securities, (iii) operate under general exemptive orders exempting them from
all provisions of the Investment Company Act, and (iv) are not registered or
regulated under the Investment Company Act as investment companies. To the
extent that a Portfolio selects CMOs or REMICs that do not meet the above
requirements, the Portfolio may not invest more than 10% of its assets in all
such entities and may not acquire more than 3% of the voting securities of any
single such entity. Mortgage-backed bonds are general obligations of the issuer
fully collateralized directly or indirectly by a pool of mortgages. The
mortgages serve as collateral for the issuer's payment obligations on the
mortgage-backed bonds but interest and principal payments on the mortgages are
not passed through directly (as with GNMA, FNMA and FHLMC pass-through
securities) or on a modified basis (as with CMOs). Accordingly, a change in the
rate of prepayments on the pool of mortgages could change the effective
maturity of a CMO but not the effective maturity of a mortgage-backed bond
(although, like many bonds, mortgage-backed bonds may be callable by the issuer
prior to maturity). It is expected that governmental, government-related, or
private entities may create mortgage loan pools and other mortgage-backed
securities offering mortgage pass-through and mortgage-collateralized
investments in addition to those described above.
Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers, and other secondary market issuers also create
pass-through pools of conventional residential mortgage loans. In addition,
such issuers may be the originators and/or servicers of the underlying mortgage
loans as well as the guarantors of the mortgage-backed securities. Pools
created by non-governmental issuers generally offer a higher rate of interest
than government and government-related pools because of the absence of direct
or indirect government or agency guarantors. Timely payment of interest and
principal with respect to these pools may be supported by various forms of
insurance or guarantees, including individual loan, title, pool and hazard
insurance, and letters of credit. The insurance, guarantees, and
creditworthiness of the issuers thereof will be considered in determining
whether a mortgage-backed security meets a Portfolio's investment quality
standards. There is no assurance that the private insurers or guarantors can
meet their obligations under the insurance policies or guarantee arrangements.
Each Portfolio (other than the Alliance Equity Index Portfolio) may buy
mortgage-backed securities without insurance or guarantees, if the investment
adviser determines that the securities meet the Portfolio's quality standards.
Alliance will, consistent with each Portfolio's investment objectives,
policies, and quality standards, consider making investments in new types of
mortgage-backed securities as such securities are developed and offered to
investors.
Prepayment of mortgages underlying mortgage-backed securities may reduce their
current yield and total return. During periods of declining interest rates,
such prepayments can be expected to accelerate and the Portfolios would be
required to reinvest the proceeds at the lower interest rates then available.
In addition, prepayments of mortgages which underlie securities purchased at a
premium could result in capital losses because the premium may not have been
fully amortized at the time the obligation is repaid. The Portfolios do not
intend to invest in these securities unless the Trust's adviser believes that
the potential benefits outweigh the risks.
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ASSET-BACKED SECURITIES
The Portfolios (other than the Alliance Equity Index Portfolio) may purchase
asset-backed securities (unrelated to first mortgage loans) that represent
fractional interests in pools of retail installment loans, both secured (such
as Certificates for Automobile Receivables) and unsecured, leases or revolving
credit receivables, both secured and unsecured (such as Credit Card Receivable
Securities). These assets are generally held by a special purpose trust and
payments of principal and interest or interest only are passed through or paid
through monthly or quarterly to certificate holders and may be guaranteed up to
certain amounts by letters of credit issued by a financial institution
affiliated or unaffiliated with the trustee or originator of the trust.
Underlying retail installment loans, leases or revolving credit receivables are
subject to prepayment, which may reduce the overall return to certificate
holders. Certificate holders may also experience delays in payment on the
certificates if the full amounts due on underlying retail installment loans,
leases or revolving credit receivables are not realized by the Trust because of
unanticipated legal or administrative costs of enforcing the contracts, retail
installment loans, leases or revolving credit receivables, or because of
depreciation or damage to the collateral (usually automobiles) securing certain
contracts, retail installment loans, leases or revolving credit receivables, or
other factors. If consistent with its investment objective and policies, a
Portfolio may invest in other asset-backed securities that may be developed in
the future.
SECURITIES ISSUED OR GUARANTEED BY THE U.S. GOVERNMENT OR ITS AGENCIES OR
INSTRUMENTALITIES
These securities include issues of the U.S. Treasury, such as bills,
certificates of indebtedness, notes and bonds, and issues of agencies and
instrumentalities established under the authority of an act of Congress.
Such agencies and instrumentalities include, but are not limited to, the
National Bank for Cooperatives, each of the Federal Financing Banks, FHLMC, the
Farm Credit Banks, Federal Land Banks, FNMA, Tennessee Valley Authority, Farm
Credit System, Farm Credit System Financial Assistance Corporation,
Inter-American Development Bank, Maritime Administration, Resolution Trust
Corporation, Federal Agricultural Mortgage Corporation, Small Business
Administration, U.S. Postal Service and Washington Metropolitan Transit
Authority.
Issues of the U.S. Treasury are direct obligations of the U.S. Government and
are backed by the full faith and credit of the United States. Issues of
agencies, such as GNMA, are guaranteed by the U.S. Treasury, and issues of
other agencies and instrumentalities, such as FNMA, are supported by the
issuing agency's or instrumentality's right to borrow from the U.S. Treasury,
at the discretion of the U.S. Treasury, or are supported by the issuing
agency's or instrumentality's own credit.
CERTIFICATES OF DEPOSIT, BANKERS' ACCEPTANCES AND BANK TIME DEPOSITS
Certificates of deposit are receipts issued by a bank in exchange for the
deposit of funds. The issuer agrees to pay the amount deposited plus interest
to the bearer of the receipt on the date specified on the certificate. The
certificate usually can be traded in the secondary market prior to maturity.
Bankers' acceptances typically arise from short-term credit arrangements
designed to enable businesses to obtain funds to finance commercial
transactions. Generally, an acceptance is a time draft drawn on a bank by an
exporter or an importer to obtain a stated amount of funds to pay for specific
merchandise. The draft is then "accepted" by a bank that, in effect,
unconditionally guarantees to pay the face value of the instrument on its
maturity date. The acceptance may then be held by the accepting bank as an
earning asset or it may be sold in the secondary market at the going rate of
discount for a specific maturity. Although maturities for acceptances can be as
long as 270 days, most maturities are six months or less.
Bank time deposits are funds kept on deposit with a bank for a stated period of
time in an interest bearing account. At present, bank time deposits maturing in
more than seven days are not considered by management of the Trust to be
readily marketable and therefore are subject to the 15% limit on illiquid
securities.
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COMMERCIAL PAPER, MASTER DEMAND NOTES AND FLOATING RATE NOTES
Commercial paper consists of short-term (usually from 1 to 270 days) unsecured
promissory notes issued by corporations in order to finance their current
operations.
Variable amount master demand notes are obligations that permit the investment
of fluctuating amounts by a Portfolio at varying rates of interest pursuant to
direct arrangements between the Portfolio, as lender, and the borrower. These
notes permit daily changes in the amounts borrowed. The Portfolio has the right
to increase the amount under the note at any time up to the full amount
provided by the note agreement, or to decrease the amount, and the borrower may
repay up to the full amount of the note without penalty. Because variable
amount master notes are direct lending arrangements between the lender and
borrower, and not generally backed by bank letters of credit, it is not
generally contemplated that such instruments will be traded, and there is no
secondary market for these notes, although they are redeemable (and thus
immediately repayable by the borrower) at face value, plus accrued interest, at
any time. Therefore, the Portfolio's right to redeem depends on the ability of
the borrower to pay principal and interest on demand. Variable amount master
demand notes are valued at their face amount (par) because of their one-day
demand feature. In connection with master demand note arrangements, the
Portfolio considers earning power, cash flow, and other liquidity ratios of the
issuer. Master demand notes, as such, are not typically rated by credit rating
agencies.
Floating or variable rate notes are generally medium- to long-term debt
securities, but may include short-term debt securities, issued by entities such
as commercial banks, corporations or sovereign borrowers. They are interest
bearing securities on which the coupon is adjusted periodically to reflect
money market conditions. The period at the end of which the adjustment occurs
is often called the interest reset period. The Portfolios will buy only notes
with an interest reset period of six months or less. There is an active
secondary market for floating or variable rate notes.
EURODOLLAR SECURITIES
Negotiable certificates of deposit and time deposits of foreign branches of
U.S. or foreign banks payable in U.S. dollars are known as Eurodollar deposits.
Eurodollar securities also include bonds underwritten by an international
syndicate and sold "at issue" to non-U.S. investors. Such securities are not
registered with the SEC or issued domestically and are primarily traded in
foreign markets. Certain risks applicable to foreign securities apply to
Eurodollar instruments. Investment risks from these securities include future
political and economic developments, possible foreign withholding taxes on
interest, possible seizure of foreign deposits, or the possible establishment
of exchange controls affecting payment on these securities. See "Foreign
Securities," above, for additional information about foreign securities. In
addition to those risks, foreign branches of U.S. and foreign banks are subject
to extensive government regulation which may limit both the amount and type of
loans and interest rates. In addition, the banking industry's profitability is
closely linked to prevailing money market conditions for financing lending
operations. Both general economic conditions and credit risks play an important
part in the operations of the industry. U.S. banks are required to maintain
reserves, are limited in how much they can loan a single borrower and are
subject to other regulations to promote financial soundness. Not all of these
laws and regulations apply to foreign branches of U.S. and foreign banks. In
addition, foreign countries have accounting and reporting principles that
differ from those in the United States.
HIGH YIELD DEBT SECURITIES
The Alliance High Yield Portfolio, as described in the Prospectus, intends to
invest primarily in debt securities offering high current income. The Alliance
Growth Investors Portfolio may invest up to 15% of its total assets in such
high yield debt securities, and the Alliance Growth and Income Portfolio may
invest up to 30% of its total assets in high yield convertible securities. High
yield securities may be medium and lower quality securities rated, for example,
BB or B by one of the nationally recognized statistical rating organizations
("NRSROs") or may be unrated but of similar investment quality as determined by
Alliance. These securities are also known as "junk bonds." The market values of
such high yield securities tend to reflect individual corporate developments to
a greater extent than higher rated securities, which
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react primarily to fluctuations in the general level of interest rates. Such
medium and lower rated securities also tend to be more sensitive to real or
perceived adverse economic conditions than higher rated securities.
Companies that issue high yield securities are often highly leveraged and may
not have available to them more traditional methods of financing. Therefore,
the risks associated with acquiring the securities of such issuers generally
are greater than is the case with higher rated securities. For example, during
an economic downturn or a sustained period of rising interest rates, highly
leveraged issuers of high yield securities may experience "financial stress"
and may not have sufficient revenues to meet their payment obligations. Such an
issuer's ability to service its obligations may also be adversely affected by
specific corporate developments, the issuer's inability to meet specific
projected business forecasts, or the unavailability of additional financing.
Risk of loss due to default by the issuer is also significantly greater for the
holders of high yield securities because such securities are generally
unsecured and are generally subordinated to the debts of other creditors of the
issuer.
The Alliance High Yield, Alliance Growth and Income and Alliance Growth
Investors Portfolios may have difficulty disposing of certain high yield
securities, particularly those perceived to have a high credit risk, because
there may be a thin trading market for such securities. Because not all dealers
maintain markets in all high yield securities, there is no established retail
secondary market for certain of these securities, and the Portfolios anticipate
that such securities could be sold only to a limited number of dealers or
institutional investors. Moreover, to the extent a secondary trading market for
high yield securities exists, it may be less liquid than the secondary market
for higher rated securities. The lack of a highly liquid secondary market for
certain high yield securities may have an adverse impact on the market price
for such securities and each Portfolio's ability to dispose of particular
issues when necessary to meet the Portfolio's liquidity needs or in response to
a specific economic event such as a deterioration in the creditworthiness of
the issuer. Adverse publicity and investor perceptions, whether or not based on
fundamental analysis, may decrease the values and liquidity of high yield
securities, especially in a thinly traded market. The lack of a liquid
secondary market for certain securities may also make it more difficult for the
Portfolios to obtain accurate market quotations for purposes of valuing certain
of its high yield portfolio securities. Market quotations are generally
available on many high yield issues only from a limited number of dealers and
may not necessarily represent firm bids of such dealers or prices for actual
sales.
In addition, the market for high yield securities, at its current size, has not
weathered a major economic recession, and one cannot be certain what effect
such a recession might have on such securities. It is possible that a recession
could severely disrupt the market for such medium and lower quality securities
and may have an adverse impact on the value of such securities. In addition, it
is possible that an economic downturn could adversely affect the ability of the
issuers of such securities to repay principal and pay interest on such
securities.
From time to time, proposals have been discussed regarding new legislation
designed to limit the use of certain high yield securities by issuers in
connection with leveraged buy-outs, mergers and acquisitions, or to limit the
deductibility of interest payments on such securities. Such proposals if
enacted into law could: (i) reduce the market for such securities generally;
(ii) negatively affect the financial condition of issuers of high yield
securities by removing or reducing a source of future financing; and (iii)
negatively affect the value of specific high yield securities and the high
yield market in general.
Factors adversely impacting the market value of high yield securities may
adversely impact each Portfolio's net asset value. In addition, each Portfolio
may incur additional expenses to the extent it is required to seek recovery
upon a default in the payment of principal or interest on its portfolio
securities. The Portfolios will not rely primarily on ratings of NRSROs, but
rather will rely on judgment, analysis and experience in evaluating the
creditworthiness of an issuer. In evaluating such securities, Alliance will
take into consideration, among other things, the issuer's financial resources
and quality of management, its sensitivity to economic conditions and trends,
its operating history and regulatory matters.
TRANSACTIONS IN OPTIONS, FUTURES AND FORWARD CONTRACTS
To the extent provided below, the Portfolios may enter into transactions in
options, futures and forward contracts on a variety of instruments and indexes,
in order to protect against declines in the value of
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portfolio securities and increases in the cost of securities to be acquired
and, in the case of options written on securities or indexes of securities, to
increase a Portfolio's return. All the Portfolios, except the Alliance Money
Market Portfolio, are authorized to engage in futures transactions. In general,
the Portfolios will limit their use of futures contracts and options on futures
contracts so that either (i) the contracts or options thereon are for "bona
fide hedging" purposes as defined under regulations of the Commodity Futures
Trading Commission ("CFTC") or (2) if for other purposes, no more than 5% of
the liquidation value of each Portfolio's total assets will be used for initial
margin or option premiums required to establish non-hedging positions. These
instruments will be used for hedging purposes and not for speculation or to
leverage the Portfolios.
OPTIONS ON SECURITIES
Writing Call Options. Each Portfolio, other than the Alliance Money Market and
Alliance Equity Index Portfolios, may write (sell) covered call options on its
portfolio securities in an attempt to enhance investment performance. A call
option is a contract which gives the purchaser of the option (in return for a
premium paid) the right to buy, and the writer of the option (in return for a
premium received) the obligation to sell, the underlying security at the
exercise price at any time prior to the expiration of the option, regardless of
the market price of the security during the option period. A covered call
option is, for example, a call option written on a security that is owned by
the writer (or on a security convertible into such a security without
additional consideration) throughout the option period.
A Portfolio will write covered call options both to reduce the risks associated
with certain of its investments and to increase total investment return through
the receipt of premiums. In return for the premium income, the Portfolio will
give up the opportunity to profit from an increase in the market price of the
underlying security above the exercise price so long as its obligations under
the contract continue, except insofar as the premium represents a profit.
Moreover, in writing the call option, the Portfolio will retain the risk of
loss should the price of the security decline. The premium is intended to
offset that loss in whole or in part. Unlike the situation in which the
Portfolio owns securities not subject to a call option, the Portfolio, in
writing call options, must assume that the call may be exercised at any time
prior to the expiration of its obligation as a writer, and that in such
circumstances the net proceeds realized from the sale of the underlying
securities pursuant to the call may be substantially below the prevailing
market price.
A Portfolio may terminate its obligation under an option it has written by
buying an identical option. Such a transaction is called a "closing purchase
transaction." The Portfolio will realize a gain or loss from a closing purchase
transaction if the amount paid to purchase a call option is less or more than
the amount received from the sale of the corresponding call option. When an
underlying security is sold from the Portfolio's securities portfolio, the
Portfolio will effect a closing purchase transaction so as to close out any
existing covered call option on that underlying security. A closing purchase
transaction for exchange-traded options may be made only on a national
securities exchange (exchange). There is no assurance that a liquid secondary
market on an exchange will exist for any particular option, or at any
particular time, and for some options, such as over-the-counter options, no
secondary market on an exchange may exist. If the Portfolio is unable to effect
a closing purchase transaction, the Portfolio will not sell the underlying
security until the option expires or the Portfolio delivers the underlying
security upon exercise.
Writing Put Options. The writer of a put option becomes obligated to purchase
the underlying security at a specified price during the option period if the
buyer elects to exercise the option before its expiration date. A Portfolio
which writes a put option will be required to "cover" it, for example, by
depositing and maintaining in a segregated account with its custodian liquid
securities having a value equal to or greater than the exercise price of the
option.
The Portfolios, except the Alliance Money Market and Alliance Equity Index
Portfolios, may write put options either to earn additional income in the form
of option premiums (anticipating that the price of the underlying security will
remain stable or rise during the option period and the option will therefore
not be exercised) or to acquire the underlying security at a net cost below the
current value (e.g., the option is exercised because of a decline in the price
of the underlying security, but the amount paid by the Portfolio, offset by the
option premium, is less than the current price). The risk of either strategy is
that
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the price of the underlying security may decline by an amount greater than the
premium received. The premium which a Portfolio receives from writing a put
option will reflect, among other things, the current market price of the
underlying security, the relationship of the exercise price to that market
price, the historical price volatility of the underlying security, the option
period, supply and demand and interest rates.
A Portfolio may effect a closing purchase transaction to realize a profit on an
outstanding put option or to prevent an outstanding put option from being
exercised. If a Portfolio is able to enter into a closing purchase transaction,
the Portfolio will realize a profit (or loss) from that transaction if the cost
of the transaction is less (or more) than the premium received from the writing
of the option. After writing a put option, a Portfolio may incur a loss equal
to the difference between the exercise price of the option and the sum of the
market value of the underlying security plus the premiums received from the
sale of the option.
Purchasing Options. The Portfolios, except the Alliance Money Market and
Alliance Equity Index Portfolios, may purchase put options and call options.
The Portfolios may purchase put options on securities to protect their holdings
against a substantial decline in market value. The Portfolio will continue to
receive interest or dividend income on the security. The Portfolios may also
purchase call options on securities to protect against substantial increases in
prices of securities the Portfolios intend to purchase pending their ability to
invest in an orderly manner in those securities. The Portfolios may sell put or
call options they have previously purchased, which could result in a net gain
or loss depending on whether the amount received on the sale is more or less
than the premium and other transaction costs paid on the put or call option
which was purchased.
SECURITIES INDEX OPTIONS
The Portfolios, except the Alliance Money Market and Alliance Equity Index
Portfolios, may write covered put and call options and purchase call and put
options on securities indexes for the purpose of hedging against the risk of
unfavorable price movements adversely affecting the value of a Portfolio's
securities or securities it intends to purchase. Each Portfolio writes only
"covered" options. A call option on a securities index is considered covered,
for example, if, so long as the Portfolio is obligated as the writer of the
call, it holds securities the price changes of which are, in the opinion of
Alliance, expected to replicate substantially the movement of the index or
indexes upon which the options written by the Portfolio are based. A put on a
securities index written by a Portfolio will be considered covered if, so long
as it is obligated as the writer of the put, the Portfolio segregates with its
custodian liquid assets having a value equal to or greater than the exercise
price of the option. Unlike a stock option, which gives the holder the right to
purchase or sell a specified stock at a specified price, an option on a
securities index gives the holder the right to receive a cash "exercise
settlement amount" equal to (i) the difference between the exercise price of
the option and the value of the underlying stock index on the exercise date,
multiplied by (ii) a fixed "index multiplier."
A securities index fluctuates with changes in the market values of the
securities included in the index. For example, some securities index options
are based on a broad market index such as the S&P 500 or the New York Stock
Exchange ("NYSE") Composite Index, or a narrower market index such as the S&P
100. Indexes may also be based on an industry or market segment such as the
AMEX Oil and Gas Index or the Computer and Business Equipment Index. Options on
stock indexes are currently traded on the following exchanges among others: The
Chicago Board Options Exchange; NYSE; and American Stock Exchange.
The effectiveness of hedging through the purchase of securities index options
will depend upon the extent to which price movements in the portion of the
securities portfolio being hedged correlate with price movements in the
selected securities index. Perfect correlation is not possible because the
securities held or to be acquired by a Portfolio will not exactly match the
composition of the securities indexes on which options are written. The
principal risk of purchasing securities index options is that the premium and
transaction costs paid by a Portfolio in purchasing an option will be lost if
the changes (increase in the case of a call, decrease in the case of a put) in
the level of the index do not exceed the cost of the option.
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The principal risk of writing securities index options is that price changes in
the hedged securities will not correlate with price changes in the options, and
thus the Portfolio could bear a loss on the options that would be only
partially offset (or not offset at all) by the increased value or reduced cost
of the hedged securities. Moreover, in the event the Portfolio were unable to
close an option it had written, it might be unable to sell the securities used
as cover.
OVER-THE-COUNTER OPTIONS
Options traded in the over-the-counter market may not be as actively traded as
those traded on an exchange. Accordingly, it may be more difficult to value
such options. In addition, it may be difficult to enter into closing
transactions with respect to options traded over-the-counter. The Portfolios
will engage in such transactions only with firms of sufficient credit, in the
opinion of Alliance, so as to minimize these risks. Such options and the
securities used as "cover" for such options may be considered illiquid
securities.
The Portfolios may enter into contracts (or amend existing contracts) with
primary dealer(s) with whom they write over-the-counter options. The contracts
will provide that each Portfolio has the absolute right to repurchase an option
it writes at any time at a repurchase price which represents the fair market
value, as determined in good faith through negotiation between the parties, but
which in no event will exceed a price determined pursuant to a formula
contained in the contract. Although the specific details of the formula may
vary between contracts with different primary dealers, the formula will
generally be based on a multiple of the premium received by each Portfolio for
writing the option, plus the amount, if any, of the option's intrinsic value
(i.e., the amount the option is "in-the-money"). The formula will also include
a factor to account for the difference between the price of the security and
the strike price of the option if the option is written "out-of-the-money."
Although the Portfolios have established standards of creditworthiness for
these primary dealers, the Portfolios may still be subject to the risk that
firms participating in such transactions will fail to meet their obligations.
With respect to agreements concerning the over-the-counter options a Portfolio
has written, the Portfolio will treat as illiquid only securities equal in
amount to the formula price described above less the amount by which the option
is "in-the-money," i.e., the amount by which the price of the option exceeds
the exercise price.
FUTURES TRANSACTIONS
All the Portfolios, except the Alliance Money Market Portfolio, may trade in
certain futures contracts. A futures contract is a bilateral agreement to buy
or sell a security (or deliver a cash settlement price, in the case of a
contract relating to an index or otherwise not calling for physical delivery at
the end of trading in the contracts) for a set price in the future. No purchase
price is paid or received when the contract is entered into. Instead, a good
faith deposit known as initial margin is made with the broker and subsequent
daily payments known as variation margin are made to and by the broker
reflecting changes in the value of the security or level of the index. Futures
contracts are designated by boards of trade which have been designated
"contracts markets" by the CFTC.
Purchases or sales of securities index futures contracts may be used to attempt
to protect a Portfolio's current or intended investments from broad
fluctuations in securities prices, and interest rate and foreign currency
futures contracts may be purchased or sold to attempt to hedge against the
effects of interest or exchange rate changes on a Portfolio's current or
intended investments in fixed income or foreign securities. All the Portfolios,
except the Alliance Money Market, Alliance Equity Index and Alliance
Intermediate Government Securities Portfolios, may trade in foreign currency
futures contracts. In the event that an anticipated decrease in the value of
portfolio securities occurs as a result of a general stock market decline, a
general increase in interest rates or a decline in the dollar value of foreign
currencies in which portfolio securities are denominated, the adverse effects
of such changes may be offset, in whole or in part, by gains on the sale of
futures contracts. In addition, the increased cost of portfolio securities to
be acquired, caused by a general rise in the dollar value of foreign currencies
or by a rise in stock prices or a decline in interest rates, may be offset, in
whole or in part, by gains on futures contracts purchased by a Portfolio. In
order to achieve desired asset mix parameters, the Alliance Conservative
Investors and Alliance Growth Investors Portfolios may use futures contracts
and related options transactions to
16
<PAGE>
establish a position in an asset class as a temporary substitute for purchasing
individual securities, which may be subsequently purchased in orderly fashion.
Similarly, these transactions may enable the Alliance Conservative Investors
and Alliance Growth Investors Portfolios to reduce a position in an asset class
as a temporary substitute for selling individual securities, in order to effect
an orderly sale. In the case of the Alliance Equity Index Portfolio, futures
contracts and related options on the S&P 500 Index may be purchased in order to
reduce brokerage costs, maintain liquidity to meet shareholder redemptions or
minimize tracking error. A Portfolio will incur brokerage fees when it
purchases and sells futures contracts, and it will be required to maintain
margin deposits. (See "Risks of Transactions in Options, Futures Contracts and
Forward Currency Contracts," below.) Positions taken in the futures markets are
not normally held until delivery or cash settlement is required, but are
instead liquidated through offsetting transactions which may result in a gain
or a loss. While futures positions taken by a Portfolio will usually be
liquidated in this manner, the Portfolio may instead make or take delivery of
underlying securities whenever it appears economically advantageous to the
Portfolio to do so. A clearing organization associated with the exchange on
which futures are traded assumes responsibility for closing out transactions
and guarantees that, as between the clearing members of an exchange, the sale
and purchase obligations will be performed with regard to all positions that
remain open at the termination of the contract.
SECURITIES INDEX FUTURES CONTRACTS
A securities index futures contract does not require the physical delivery of
securities, but merely provides for profits and losses resulting from changes
in the market value of the contract to be credited or debited at the close of
each trading day to the respective accounts of the parties to the contract. On
the contract's expiration date a final cash settlement occurs and the futures
positions are simply closed out. Changes in the market value of a particular
index futures contract reflect changes in the specified index of securities on
which the futures contract is based.
By establishing an appropriate "short" position in index futures, a Portfolio
may seek to protect the value of its portfolio against an overall decline in
the market for such securities. Alternatively, in anticipation of a generally
rising market, a Portfolio can seek to avoid losing the benefit of apparently
low current prices by establishing a "long" position in securities index
futures and later liquidating that position as particular securities are
acquired. To the extent that these hedging strategies are successful, the
Portfolio will be affected to a lesser degree by adverse overall market price
movements than would otherwise be the case.
OPTIONS ON FUTURES CONTRACTS
Each of the Portfolios, other than the Alliance Money Market Portfolio, may
also purchase and write exchange-traded call and put options on futures
contracts it is authorized to enter into. These options are traded on exchanges
that are licensed and regulated by the CFTC for the purpose of options trading.
A call option on a futures contract gives the purchaser the right, in return
for the premium paid, to purchase a futures contract (assume a "long" position)
at a specified exercise price at any time before the option expires. A put
option gives the purchaser the right, in return for the premium paid, to sell a
futures contract (assume a "short" position), for a specified exercise price,
at any time before the option expires. The Portfolios will write only options
on futures contracts which are "covered." A Portfolio will be considered
"covered" with respect to a put option it has written if, so long as it is
obligated as a writer of the put, the Portfolio segregates with its custodian
liquid assets at all times equal to or greater than the aggregate exercise
price of the puts it has written (less any related margin deposited with the
futures broker). A Portfolio will be considered "covered" with respect to a
call option it has written on a debt security future if, so long as it is
obligated as a writer of the call, the Portfolio owns the security deliverable
under the futures contract. A Portfolio will be considered "covered" with
respect to a call it has written on a securities index future if so long as the
Portfolio is obligated as the writer of the call, the Portfolio owns a
portfolio of securities the price changes of which are, in the opinion of
Alliance, expected to replicate substantially the movement of the index upon
which the futures contract is based.
Upon the exercise of a call, the writer of the option is obligated to sell the
futures contract (to deliver a "long" position to the option holder) at the
option exercise price, which will presumably be lower than
17
<PAGE>
the current market price of the contract in the futures market. Upon exercise
of a put, the writer of the option is obligated to purchase the futures
contract (deliver a "short" position to the option holder) at the option
exercise price which will presumably be higher than the current market price of
the contract in the futures market. When the holder of an option exercises it
and assumes a long futures position, in the case of a call, or a short futures
position, in the case of a put, its gain will be credited to its futures margin
account, while the loss suffered by the writer of the option will be debited to
its futures margin account and must be immediately paid by the writer. However,
as with the trading of futures, most participants in the options markets do not
seek to realize their gains or losses by exercise of their option rights.
Instead, the holder of an option will usually realize a gain or loss by buying
or selling an offsetting option at a market price that will reflect an increase
or a decrease from the premium originally paid.
Options on futures contracts can be used by a Portfolio to hedge substantially
the same risks as might be addressed by the direct purchase or sale of the
underlying futures contracts. If the Portfolio purchases an option on a futures
contract, it may obtain benefits similar to those that would result if it held
the futures position itself. Purchases of options on futures contracts may
present less risk in hedging than the purchase and sale of the underlying
futures contracts since the potential loss is limited to the amount of the
premium plus related transaction costs.
The purchase of put options on futures contracts is a means of hedging a
portfolio of securities against a general decline in market prices. The
purchase of a call option on a futures contract represents a means of hedging
against a market advance when a Portfolio is not fully invested.
If a Portfolio writes options on futures contracts, the Portfolio will receive
a premium but will assume a risk of adverse movement in the price of the
underlying futures contract comparable to that involved in holding a futures
position. If the option is not exercised, the Portfolio will realize a gain in
the amount of the premium, which may partially offset unfavorable changes in
the value of securities held in or to be acquired for the Portfolio. If the
option is exercised, the Portfolio will incur a loss in the option transaction,
which will be reduced by the amount of the premium it has received, but which
will offset any favorable changes in the value of its portfolio securities or,
in the case of a put, lower prices of securities it intends to acquire.
The writing of a call option on a futures contract constitutes a partial hedge
against declining prices of the underlying securities. If the futures price at
expiration is below the exercise price, the Portfolio will retain the full
amount of the option premium, which provides a partial hedge against any
decline that may have occurred in the value of the Portfolio's holdings of
securities. The writing of a put option on a futures contract is analogous to
the purchase of a futures contract in that it hedges against an increase in the
price of securities the Portfolio intends to acquire. However, the hedge is
limited to the amount of premium received for writing the put.
While the holder or writer of an option on a futures contract may normally
terminate its position by selling or purchasing an offsetting option of the
same series, a Portfolio's ability to establish and close out options positions
at fairly established prices will be subject to the existence of a liquid
market. The Portfolios will not purchase or write options on futures contracts
unless, in Alliance's opinion, the market for such options has sufficient
liquidity that the risks associated with such options transactions are not at
unacceptable levels.
LIMITATIONS ON PURCHASE AND SALE OF FUTURES CONTRACTS AND OPTIONS ON FUTURES
CONTRACTS
The Portfolios will not engage in transactions in futures contracts and related
options for speculation. All the Portfolios, except the Alliance Money Market
Portfolio, may enter into futures contracts and buy and sell related options as
described above. The Portfolios will not purchase or sell futures contracts or
related options unless either (1) the futures contracts or options thereon are
purchased for "bona fide hedging" purposes (as that term is defined under the
CFTC regulations) or (2) if purchased for other purposes, the sum of the
amounts of initial margin deposits on a Portfolio's existing futures and
premiums required to establish non-hedging positions would not exceed 5% of the
liquidation value of the Portfolio's total assets. In instances involving the
purchase of futures contracts or the writing of put options thereon by a
Portfolio, an amount of liquid assets equal to the cost of such futures
contracts or options written (less any
18
<PAGE>
related margin deposits) will be deposited in a segregated account with its
custodian, thereby insuring that the use of such futures contracts and options
is unleveraged. In instances involving the sale of futures contracts or the
writing of call options thereon by a Portfolio, the securities underlying such
futures contracts or options will at all times be maintained by the Portfolio
or, in the case of index futures and related options, the Portfolio will own
securities the price changes of which are, in the opinion of Alliance, expected
to replicate substantially the movement of the index upon which the futures
contract or option is based.
Positions in futures contracts may be closed out only on an exchange or a board
of trade which provides the market for such futures. Although the Portfolios
intend to purchase or sell futures only on exchanges or boards of trade where
there appears to be an active market, there is no guarantee that such will
exist for any particular contract or at any particular time. If there is not a
liquid market at a particular time, it may not be possible to close a futures
position at such time, and, in the event of adverse price movements, a
Portfolio would continue to be required to make daily cash payments of
maintenance margin. However, in the event futures positions are used to hedge
portfolio securities, the securities will not be sold until the futures
positions can be liquidated. In such circumstances, an increase in the price of
securities, if any, may partially or completely offset losses on the futures
contracts.
FOREIGN CURRENCY OPTIONS, FOREIGN CURRENCY FUTURES CONTRACTS AND OPTIONS ON
FUTURES
The Portfolios, other than the Alliance Money Market, Alliance Intermediate
Government Securities and Alliance Equity Index Portfolios, may purchase or
sell exchange-traded or over-the-counter foreign currency options, foreign
currency futures contracts and related options on foreign currency futures
contracts as a hedge against possible variations in foreign exchange rates. The
Portfolios will write options on foreign currencies or on foreign currency
futures contracts only if they are "covered." A put option on a foreign
currency or on a foreign currency futures contract written by a Portfolio will
be considered "covered" if, so long as the Portfolio is obligated as the writer
of the put, it segregates with the Portfolio's custodian liquid assets equal at
all times to the aggregate exercise price of the put. A call option on a
foreign currency or on a foreign currency futures contract written by the
Portfolio will be considered "covered" only if the Portfolio owns short term
debt securities with a value equal to the face amount of the option contract
and denominated in the currency upon which the call is written. Option
transactions may be effected to hedge the currency risk on non-U.S.
dollar-denominated securities owned by a Portfolio, sold by a Portfolio but not
yet delivered, or anticipated to be purchased by a Portfolio. As an
illustration, a Portfolio may use such techniques to hedge the stated value in
U.S. dollars of an investment in a Japanese yen-denominated security. In these
circumstances, a Portfolio may purchase a foreign currency put option enabling
it to sell a specified amount of yen for dollars at a specified price by a
future date. To the extent the hedge is successful, a loss in the value of the
dollar relative to the yen will tend to be offset by an increase in the value
of the put option. As in the case of other types of options, however, the
writing of an option on foreign currency will constitute only a partial hedge,
up to the amount of the premium received, and the Portfolio could be required
to purchase or sell foreign currencies at disadvantageous exchange rates,
thereby incurring losses. Although the purchase of an option on foreign
currency may constitute an effective hedge against fluctuations in exchange
rates in the event of exchange rate movements adverse to the Portfolio's
position it may forfeit the entire amount of the premium plus related
transaction costs.
Certain differences exist between foreign currency hedging instruments. Foreign
currency options provide the holder the right to buy or to sell a currency at a
fixed price on or before a future date. Listed options are third-party
contracts (performance is guaranteed by an exchange or clearing corporation)
which are issued by a clearing corporation, traded on an exchange and have
standardized prices and expiration dates. Over-the-counter options are
two-party contracts and have negotiated prices and expiration dates. See
"Over-the-Counter Options," above. A futures contract on a foreign currency is
an agreement between two parties to buy and sell a specified amount of the
currency for a set price on a future date. Futures contracts and listed options
on futures contracts are traded on boards of trade or futures exchanges.
Options traded in the over-the-counter market may not be as actively traded as
those on an exchange, thus it may be more difficult to value such options. In
addition, it may be difficult to enter into closing transactions with respect
to options traded over-the-counter.
19
<PAGE>
A Portfolio will not speculate in foreign currency options, futures or related
options. Accordingly, a Portfolio will not hedge a currency substantially in
excess of the market value of the securities denominated in that currency which
it owns or the expected acquisition price of securities which it anticipates
purchasing.
Hedging against a decline in the value of a currency does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. These hedging transactions also preclude the
opportunity for gain if the value of the hedged currency should rise. Whether a
currency hedge benefits a Portfolio will depend on Alliance's ability to
predict future foreign currency exchange rates.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
When a Portfolio invests in foreign securities, the securities are usually
denominated in a foreign currency, and the Portfolio may temporarily hold
foreign currency in connection with such investments. As a result, the value of
the Portfolio's assets will be subject to fluctuations based on changes in the
relative value of the foreign currency and the U.S. dollar. To control the
effects of this exchange risk, all of the Portfolios, except the Alliance Money
Market, Alliance Equity Index and Alliance Intermediate Government Securities
Portfolios, may enter into forward foreign currency exchange contracts
("forward currency contracts"), which are agreements to purchase or sell
foreign currencies at a specified future date and price. Forward currency
contracts are usually used to fix the U.S. dollar value of securities a
Portfolio has agreed to buy or sell ("transaction hedging"). The Portfolios may
also use forward currency contracts to hedge the U.S. dollar value of
securities it already owns ("position hedging"). The Portfolios will not
speculate in forward currency contracts.
In general, forward currency contracts are not regulated by any governmental
authority guaranteed by a third party or traded on an exchange. Accordingly,
each party to a forward currency contract is dependent upon the
creditworthiness and good faith of the other. The Portfolios will only enter
forward currency contracts with counterparties that, in the opinion of
Alliance, do not present undue credit risk.
RISKS OF TRANSACTIONS IN OPTIONS, FUTURES CONTRACTS AND FORWARD CURRENCY
CONTRACTS
Although the Portfolios will enter into transactions in futures contracts,
options on securities and securities indexes, options on futures contracts,
forward currency contracts and certain currency options as described above for
hedging purposes, and transactions in options on securities and securities
indexes to generate option premium income, their use involves certain risks. A
lack of correlation between the index or instrument underlying an option or
futures contract and the assets or liabilities being hedged, or unexpected
adverse price movements, could render a Portfolio's hedging strategy
unsuccessful and could result in losses. Moreover, when an option has been
written, in the event of a decline, the underlying position is only hedged to
the extent of the amount of premium received. Over-the-counter transactions in
options on foreign currencies and options on securities and securities indexes
also involve a lack of an organized exchange trading environment, making them
less liquid and making it more difficult to value than if they were exchange
traded.
In addition, there can be no assurance that a liquid secondary market will
exist for any futures contract or option purchased or sold. Accordingly a
Portfolio may be required to maintain a position until exercise or expiration,
which could result in losses. If in the event of an adverse movement the
Portfolio could not close a futures position, it would be required to continue
to make daily cash payments of variation margin. If a Portfolio could not close
an option position, an option holder would be able to realize profits or limit
losses only by exercising the option, and an option writer would remain
obligated until exercise or expiration. Finally, if a broker or clearing member
of an options or futures clearing corporation were to become insolvent, the
Portfolios could experience delays and might not be able to trade or exercise
options or futures purchased through that broker. In addition, the Portfolios
could have some or all of their positions closed out without their consent. If
substantial and widespread, these insolvencies could ultimately impair the
ability of the clearing corporations themselves. While the principal purpose of
hedging is to limit or offset the effects of adverse market movements, the
attendant expense may cause
20
<PAGE>
the Portfolios' returns to be less than if hedging had not taken place. The
overall effectiveness of hedging therefore depends on Alliance's accuracy in
predicting future changes in interest rate levels and/or securities price
movements, as well as on the expense of hedging.
MANAGEMENT OF THE TRUST
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.
[As of March 31, 1999, the Trustees and officers of the Trust owned Contracts
entitling them to provide voting instructions in the aggregate with respect to
less than one percent of the Trust's shares of beneficial interest.]
THE TRUSTEES
<TABLE>
<CAPTION>
NAME, ADDRESS AND AGE PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- --------------------- -------------------------------------------
<S> <C>
*John D. Carifa (54) ................... President, Chief Operating Officer and a Director of
Alliance Capital Management L.P. Alliance Capital Management Corporation ("ACMC");
1345 Avenue of the Americas Chairman and Chief Executive Officer of Alliance's
New York, NY 10105 Mutual Fund Division. Currently a Director and Trustee
of all other registered investment companies (the
"Alliance Mutual Funds") sponsored by Alliance, and
Director of Frontier Trust Company, a subsidiary of
Equitable.
William H. Foulk, Jr. (66) ............ Investment adviser and independent consultant. Former
2 Hekma Road Senior Manager of Barrett Associates, Inc. (investment
Greenwich, CT 06831 adviser), from May 1986 to November 1994.
Brenton W. Harries (71) ............... Director of Enhance Reinsurance Co. since December
14 Point Road 1986. Mr. Harries was also President and Chief Executive
Wilton Point, Officer, Global Electronic Markets Company from August
South Norwalk, CT 06854 1985 to October 1986.
Howard E. Hassler (Chairman) (69)...... Currently a consultant specializing in retailing, finance and
P.O. Box 967 real estate. Former Chairman and Chief Executive Officer
New York, NY 10150 of Brooks Fashion Stores, Inc. (specialty clothing stores);
Former Chairman, President and Chief Operating Officer
of Allied Stores Corporation (department and specialty
stores), 1987; Executive Vice President and Director,
Allied Stores Corporation from June 1984 to June 1987.
William L. Mannion (68) ............... Retired. Former Group Senior Vice President of Opera-
45 Bonnie Way tions of American Ultramar Limited until December 1986;
Allendale, NJ 07401 President and Chief Executive Officer of Tittston Petro-
leum, Inc., from January 1978 to July 1985; Director of the
East Jersey Railroad and the Bayonne Terminal Ware-
house from July 1978 to May 1983.
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
NAME, ADDRESS AND AGE PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- --------------------- -------------------------------------------
<S> <C>
Clifford L. Michel (59) ......... Partner of the law firm of Cahill Gordon & Reindel since
St. Bernard's Road January 1972. President, Chief Executive Officer and Di-
Gladstone, NJ 07934 rector of Wenonah Development Company (investment
holding company) since 1976. Director since 1987 and
Member of the Human Resources, Environmental and
Safety, and Executive Committees since 1987 of Placer
Dome Inc. (mining). Director, Faber-Castell Corporation
from 1988-1994 (writing instruments). President of Board
of Trustees of St. Mark's School from 1988 to 1993. Chair-
man of the Board of Trustees of Morristown Memorial
Hospital (and Memorial Health Foundation) from 1991 to
1996. Director, Vice Chairman and Treasurer of Atlantic
Health Systems, Inc. and Atlantic Hospital since 1996.
*Peter D. Noris (43) ............. Executive Vice President (since May 1995) and Chief Invest-
The Equitable Life Assurance ment Officer of Equitable (since July 1995); Executive Vice
Society of the United States President, The Equitable Companies Incorporated ("Equi-
787 Seventh Avenue table Companies") (since May 1995); Director of ACMC,
New York, NY 10019 the general partner of Alliance, since July 1995. Prior
thereto, Vice President of Salomon Brothers Inc., from
1992 to 1995. Principal of Morgan Stanley & Co. Inc., from
1984 to 1992.
Donald J. Robinson (64) ......... Senior Partner of the law firm of Orrick, Herrington &
666 Fifth Avenue Sutcliffe from July 1987 to December 1994; Member of the
New York, NY 10022 Executive Committee of the firm from January to Decem-
ber 1994; Senior Counsel of the firm since January 1995.
Trustee of the Museum of the City of New York from 1977
to 1995.
</TABLE>
*Trustees Carifa and Noris are "interested persons" (as defined in the
Investment Company Act) of the Trust. Mr. Carifa is deemed an "interested
person" of the Trust by virtue of his positions as a director and officer and
director of ACMC and Alliance, respectively. Mr. Noris is deemed an "interested
person" of the Trust by virtue of his positions as an officer of Equitable and
a director of ACMC.
Trustees Harries and Robinson are trustees (but not "interested persons") of
The Alliance Portfolios, a mutual fund advised by Alliance. Trustee Robinson is
also a director or trustee (but not an "interested person") of 37 other mutual
funds advised by Alliance. Trustee Michel is a director or trustee (but not an
"interested person") of 40 other mutual funds advised by Alliance. Trustee
Hassler is a director (but not an "interested person") of Alliance Real Estate
Investment Fund, Inc, a mutual fund advised by Alliance.
COMMITTEES OF THE BOARD
The Trust has a standing audit committee consisting of Trustees Mannion,
Dobkin, Foulk, Harries, Hassler, Michel and Robinson. The audit committee's
function is to recommend to the Board of Trustees a firm of independent
auditors to conduct the annual audit of the Trust's financial statements;
review with such firm the outline, scope and results of this annual audit; and
review the performance and fees charged by the independent auditors for
professional services. In addition, the committee meets with the independent
auditors and representatives of management to review accounting activities and
areas of financial reporting and control.
The Trust has a nominating committee consisting of Trustees Hassler, Harries
and Robinson. This committee considers individuals for nomination as Trustees
of the Trust.
The Trust has a valuation committee consisting of Trustees Harries, Mannion and
Noris. This committee determines the value of any of the Trust's securities and
assets for which market quotations are not readily available or for which
valuation cannot otherwise be provided.
22
<PAGE>
The Trust has a compensation committee consisting of Trustees Robinson, Hassler
and Mannion. The compensation committee's function is to review the Trustees'
compensation arrangements.
The Trust has a conflicts committee consisting of Trustees Hassler, Michel and
Robinson. The conflicts committee's function is to take any action necessary to
resolve conflicts among shareholders.
COMPENSATION TABLE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
(1) (2) (3) (4) (5)
- ------------------------------------------------------------------------------------------------------------
PENSION OR TOTAL
RETIREMENT COMPENSATION
AGGREGATE BENEFITS ACCRUED ESTIMATED ANNUAL FROM FUND AND
COMPENSATION AS PART OF FUND BENEFITS UPON FUND COMPLEX
NAME OF PERSON, POSITION FROM FUND EXPENSES RETIREMENT PAID TO DIRECTORS(1)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
John D. Carifa
Trustee $ -0- $-0- $-0- $ -0-
- ------------------------------------------------------------------------------------------------------------
John H. Dobkin(2)
Trustee $ -0- $-0- $-0- $ 185,362.50
- ------------------------------------------------------------------------------------------------------------
William H. Foulk, Jr.
Trustee $ 28,850.00 $-0- $-0- $ 241,002.50
- ------------------------------------------------------------------------------------------------------------
Brenton W. Harries
Trustee $ 65,000.00 $-0- $-0- $ 92,000.00
- ------------------------------------------------------------------------------------------------------------
Howard E. Hassler
Trustee $ 82,000.00 $-0- $-0- $ 85,500.00
- ------------------------------------------------------------------------------------------------------------
Michael Hegarty
Trustee $ -0- $-0- $-0- $ -0-
- ------------------------------------------------------------------------------------------------------------
William L. Mannion
Trustee $ 69,000.00(3) $-0- $-0- $ 69,000.00
- ------------------------------------------------------------------------------------------------------------
Clifford L. Michel
Trustee $ 25,850.00 $-0- $-0- $ 187,762.50
- ------------------------------------------------------------------------------------------------------------
Peter D. Noris
Trustee $ -0- $-0- $-0- $ -0-
- ------------------------------------------------------------------------------------------------------------
Donald J. Robinson
Trustee $ 21,450.00(3) $-0- $-0- $ 193,708.50
- ------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------
1 As of December 31, 1998 there were 118 investment companies in the Alliance
Fund Complex.
2 Appointed as Trustee on December 11, 1998.
3 Completely deferred. The total amounts of deferred compensation (including
interest) payable by the Trust to Messrs. Mannion and Robinson as of
December 31, 1998 were $389,769 and $276,523, respectively.
COMPENSATION OF TRUSTEES
Each Trustee, other than those who are "interested persons" of the Trust (as
defined in the Investment Company Act), receives from the Trust an annual fee
of $29,000, plus an additional fee of $4,000 per board meeting and $2,000 per
committee meeting attended. The meeting fee paid to the Trustee acting as
chairman of the meeting is increased by 50%. The Chairman of the Board receives
an additional annual retainer of $7,000. Trustees receive $1,000 for each day
spent performing special services requested by the Chairman or the President of
the Trust, and reimbursement for expenses in connection with the performance of
regular and special services.
During the year ended December 31, 1997, the Trust paid total retainer and
meeting fees of $496,000 (including deferrals of $210,000).
A deferred compensation plan for the benefit of the Trustees has been adopted
by the Trust. Under the plan each Trustee may defer payment of all or part of
the fees payable for such Trustee's services. Each
23
<PAGE>
Trustee may defer payment of such fees until his retirement as a Trustee or
until the earlier attainment of a specified age. Fees deferred under the plan,
together with accrued interest thereon, will be disbursed to a participating
Trustee in monthly installments over a five- to twenty-year period elected by
such Trustee.
THE TRUST'S OFFICERS
No officer of the Trust receives any compensation paid by the Trust. Each
officer of the Trust is an employee of Alliance or Equitable. The Trust's
principal executive officers are:
<TABLE>
<CAPTION>
NAME AND AGE POSITION WITH TRUST PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- ------------ ------------------- -------------------------------------------
<S> <C> <C>
John D. Carifa (53) President and Chief Executive President, Chief Operating Officer
Officer and a Director of ACMC, with which
he has been associated since prior to
1993.
Mark D. Gersten (48) Treasurer and Chief Financial Senior Vice President, Alliance Fund
Officer Services, Inc. ("AFS"), with which he
has been associated since prior to
1992.
Thomas R. Manley (46) Controller and Chief Vice President, ACMC (May 1996 to
Accounting Officer present); Assistant Vice President,
ACMC (July 1993 to May 1996);
Assistant Vice President, Equitable
Capital Management Corporation
("ECMC") (March 1991 to July
1993).
Bruce W. Calvert (52) Vice President Vice Chairman and Chief Investment
Officer of ACMC, with which he has
been associated since prior to 1992.
Kathleen A. Corbet (38) Vice President Executive Vice President, ACMC
(February 1997 to present); Senior
Vice President, ACMC (July 1993 to
February 1997); Executive Vice
President, ECMC (June 1992 to July
1993).
Jerome S. Golden (53) Vice President Executive Vice President of
Equitable (January 1998 to present);
rejoined Equitable in 1994 as
President of the Income Management
Group; previously President of
Golden Financial Group, which he
founded in 1987.
Nelson R. Jantzen (53) Vice President Senior Vice President, ACMC (July
1993 to present); Executive Vice
President, ECMC (June 1992 to July
1993).
Wayne D. Lyski (57) Vice President Executive Vice President, ACMC,
with which he has been associated
since prior to 1992.
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
NAME AND AGE POSITION WITH TRUST PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- ------------ ------------------- -------------------------------------------
<S> <C> <C>
Robin K. Murray (42) Vice President Vice President, Equitable (April 1994
to present); associated with Equitable
since prior to 1992.
Alden M. Stewart (52) Vice President Executive Vice President, ACMC
(July 1993 to present); associated
with ECMC since prior to 1992.
Edmund P. Bergan, Jr. (48) Secretary Senior Vice President and General
Counsel, Alliance Fund Distributors,
Inc. ("AFD"), with which he has
been associated since prior to 1992.
</TABLE>
INVESTMENT ADVISORY AND OTHER SERVICES
GENERAL INFORMATION
Alliance Capital Management L.P., a Delaware limited partnership with principal
offices at 1345 Avenue of the Americas, New York, New York 10105, has been
retained under an investment advisory agreement (the "Investment Advisory
Contract") to provide investment advice and, in general, to conduct the
management and investment program of the Trust under the supervision of the
Trust's Board of Trustees (see "Management of the Fund" in the Prospectus).
The Adviser is a leading international investment manager supervising client
accounts with assets as of September 30, 1998, totaling more than $241 billion
(of which more than $99 billion represented the assets of investment
companies). The Adviser's clients are primarily major corporate employee
benefit funds, public employee retirement systems, investment companies,
foundations and endowment funds. The 54 registered investment companies managed
by the Adviser, comprising 119 separate investment portfolios, currently have
more than 3.5 million shareholders. As of December 31, 1998, the Adviser and
its subsidiaries employed approximately 2,000 employees who operate out of
domestic offices and the offices of subsidiaries in Bahrain, Bangalore, Cairo,
Chennai, Hong Kong, Istanbul, Johannesburg, London, Luxembourg, Madrid, Moscow,
Mumbai, New Delhi, Paris, Pune, Sao Paolo, Seoul, Singapore, Sydney, Tokyo,
Toronto, Vienna and Warsaw. As of September 30, 1998, the Adviser was retained
as an investment manager for employee benefit plan assets of 34 of the FORTUNE
100 companies.
Alliance Capital Management Corporation ("ACMC"), the sole general partner of,
and the owner of a 1% general partnership interest in the Adviser, is an
indirect wholly owned subsidiary of the Equitable Life Assurance Society of the
United States ("Equitable"), one of the largest life insurance companies in the
United States and a wholly owned subsidiary of the Equitable Companies
Incorporated ("ECI"). ECI is a holding company controlled by AXA-UAP ("AXA") a
French insurance holding company which at March 1, 1998, beneficially owned
approximately 59% of the outstanding voting shares of ECI. As of June 30, 1998,
ACMC and Equitable Capital Management Corporation, each a wholly owned direct
or indirect subsidiary of Equitable, together with Equitable, owned in the
aggregate approximately 57% of the issued and outstanding units representing
assignments of beneficial ownership of limited partnership interests in the
Adviser.
AXA is a holding company for an international group of insurance and related
financial services companies. AXA's insurance operations include activities in
life insurance, property and casualty insurance and reinsurance. The insurance
operations are diverse geographically, with activities principally in Western
Europe, North America and the Asia/Pacific area. AXA is also engaged in asset
management, investment banking, securities trading, brokerage, real estate and
other financial services activities principally in the United States, as well
as in Western Europe and the Asia/Pacific area.
Based on information privided by AXA, as of March 31, 1998, more than 30% of
the voting power of AXA was controlled directly and indirectly by FINAXA, a
French holding Company. As of March 31, 1998 approximately 74% of the voting
power of FINAXA was controlled directly and indirectly by four French mutual
insurance companies (the "Mutuelles AXA"), one of which, AXA Assurances
I.A.R.D.
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<PAGE>
Mutuelle itself controlled directly and indirectly more than 42% of the voting
power of FINAXA. Acting as a group, the Mutuelles AXA control both AXA and
FINAXA. Mutuelle, itself controlled directly and indirectly more than 42% of
the voting power of FINAXA. Acting as a group, the Mutuelles AXA control both
AXA and FINAXA.
ADVISORY AGREEMENT
The Investment Advisory Agreement terminates automatically in the event of its
assignment or, with respect to any Portfolio, upon 60 days' notice given by the
Trust's Board of Trustees, by Alliance or by majority vote (as defined in the
Investment Company Act and the rules thereunder) of the Portfolio's shares.
Otherwise, the term of the Investment Advisory Agreement on behalf of each
Portfolio is two years, but the Agreement will remain in effect from year to
year with respect to any Portfolio so long as its continuance is approved at
least annually by a majority of the non-interested members of the Board of
Trustees, and by (i) a majority vote (as defined in the Investment Company Act
and the rules thereunder) of the Portfolio's shareholders or (ii) the Board of
Trustees.
The advisory fee payable by the Trust is at the following annual percentages of
the value of each Portfolio's daily average net assets:
<TABLE>
<CAPTION>
DAILY AVERAGE NET ASSETS
-----------------------------------------------------------------------------
FIRST NEXT NEXT NEXT
$750 MILLION $750 MILLION $1 BILLION $2.5 BILLION THEREAFTER
------------ ------------ ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Alliance Conservative Investors ......... .475% .425% .375% .350% .325%
Alliance Balanced ....................... .450% .400% .350% .325% .300%
Alliance Growth Investors ............... .550% .500% .450% .425% .400%
Alliance Common Stock ................... .475% .425% .375% .355% .345%*
Alliance Global ......................... .675% .600% .550% .530% .520%
Alliance Aggressive Stock ............... .625% .575% .525% .500% .475%
Alliance Small Cap Growth ............... .900% .850% .825% .800% .775%
Alliance Money Market ................... .350% .325% .300% .280% .270%
Alliance Intermediate Government
Securities ............................. .500% .475% .450% .430% .420%
Alliance High Yield ..................... .600% .575% .550% .530% .520%
Alliance Growth and Income .............. .550% .525% .500% .480% .470%
Alliance Quality Bond ................... .525% .500% .475% .455% .445%
Alliance Equity Index ................... .325% .300% .275% .255% .245%
Alliance International .................. .900% .825% .800% .780% .770%
</TABLE>
- ----------
* On assets in excess of $10 billion, the management fee for the Alliance
Common Stock Portfolio is reduced to 0.335% of average daily net assets.
Because of undertakings made by Equitable Variable in connection with the
Reorganization, Equitable reimburses the Alliance Common Stock and Alliance
Money Market Divisions of its Continuing Separate Account to offset completely
the effect on such divisions of the portion of the Trust's advisory fees
applicable to such divisions which exceed a .25% effective annual rate. In
addition, Equitable reimburses the Alliance High Yield, Alliance Aggressive
Stock and Alliance Balanced Divisions of its Separate Account I for the portion
of the Trust's advisory fees applicable to those divisions which exceeds a .25%
effective annual rate. Because of expense limits in the variable annuity
contracts funded by its Separate Account A, Equitable reimburses the Alliance
Common Stock, Alliance Money Market and Alliance Balanced Division of that
separate account for the portion of the Trust's advisory fees applicable to
those divisions which exceeds a .26% effective rate, and the Alliance
Aggressive Stock Division for the portion that exceeds a .41% effective rate.
Policies sold by insurers other than Equitable and newer policy designs of
Equitable bear the advisory fees without adjustment. For a discussion of the
Reorganization, see "General Information," above.
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<PAGE>
In 1998, the Trust paid advisory fees of $ to Alliance. In 1997, the
Trust paid advisory fees of $83,421,824 to Alliance. In 1996, the Trust paid
advisory fees of $59,901,466 to Alliance.
SPECIFIC SERVICES PERFORMED
Alliance performs the following services for or on behalf of the Trust pursuant
to the Investment Advisory Agreement.
Subject to the approval and supervision of the Board of Trustees, Alliance
exercises overall responsibility for the investment and reinvestment of the
Trust's assets. Alliance manages each Portfolio and is responsible for the
investment operations of the Trust and the composition of each Portfolio,
including the purchase, retention and disposition of the investments,
securities and cash contained therein, in accordance with each Portfolio's
investment objectives and policies as stated in the Trust's Agreement and
Declaration of Trust, By-laws, Prospectus and Statement of Additional
Information as from time to time in effect. In connection therewith, Alliance
provides investment research and supervision of the Trust's investments and
conducts a continuous program of investment evaluation and, if appropriate,
sales and reinvestment of the Trust's assets. Alliance furnishes to the Trust
such statistical information, with respect to the investments which the Trust
may hold or contemplate purchasing, as the Trust may reasonably request. On
Alliance's own initiative, it apprises the Trust of important developments
materially affecting each Portfolio and furnishes the Trust from time to time
such information as it may believe appropriate for this purpose. In addition,
Alliance furnishes to the Board of Trustees such periodic and special reports
as the Board may reasonably request. Alliance also implements all purchases and
sales of investments for each Portfolio in a manner consistent with such
investment policies, as from time to time amended.
Alliance, on behalf of the Trust, arranges for the placement of orders and
other execution of transactions for each Portfolio.
At the Trust's request, Alliance provides, without charge, personnel, who may
be the Trust's officers, to render such clerical, administrative and other
services, other than investor services or accounting services, to the Trust and
also furnishes to the Trust, without charge, such office facilities, which may
be Alliance's own offices, as may be required to perform its investment
advisory and portfolio management services. The Trust may also hire its own
employees and contract for services to be performed by third parties.
Pursuant to the terms of the Investment Advisory Agreement, Alliance has
contracted with Equitable for the provision of certain administrative services
to the Trust.
Alliance also performs investment advisory services for certain of Equitable's
separate and advisory accounts and for other clients, including mutual funds
registered as investment companies under the Investment Company Act, some of
which fund Contracts issued by Equitable and certain other unaffiliated
insurance companies. There are occasions on which transactions for the Trust
may be executed as part of concurrent authorizations to purchase or sell the
same security for Equitable's general account or for other accounts or
investment companies managed by Equitable or Alliance. These concurrent
authorizations potentially can be either advantageous or disadvantageous to the
Trust. When these concurrent authorizations occur, the objective is to allocate
the executions and related brokerage charges among the accounts or mutual funds
in an equitable manner.
ACCOUNTING SERVICES
Under an Accounting Services Agreement dated as of June 30, 1997, Alliance has
agreed to provide, or arrange for the provision of, certain investment
accounting services, including calculation of net asset values, preparation of
financial statements for each Portfolio, and such other accounting services as
the Trust may from time to time reasonably request, in exchange for
reimbursement by the Trust of costs and expenses incurred in providing, or
arranging for the provision of, such services. For 1998, Alliance was
reimbursed for $ of costs and expenses incurred in arranging for the
provision of accounting services.
27
<PAGE>
BROKERAGE ALLOCATION
SELECTION OF BROKERS
Pursuant to the Investment Advisory Agreement, Alliance, on behalf of the
Trust, arranges for the placement of orders and other transactions for each
Portfolio.
BROKERAGE COMMISSIONS
The Portfolios are charged for securities brokers' commissions, transfer taxes
and similar fees relating to securities transactions. Alliance seeks to obtain
the best price and execution on all orders placed for the Portfolios,
considering all the circumstances except to the extent it may be permitted to
pay higher commissions as described below.
It is expected that securities will ordinarily be purchased in the primary
markets, whether over-the-counter or listed, and that listed securities may be
purchased in the over-the-counter market if that market is deemed the primary
market.
Transactions on stock exchanges involve the payment of brokerage commissions.
In transactions on stock exchanges in the United States, these commissions are
negotiated, whereas on many foreign stock exchanges these commissions are
fixed. However, brokerage commission rates in certain countries in which the
Portfolios may invest may be discounted for certain large domestic and foreign
investors such as the Portfolios. A number of foreign banks and brokers will be
used for execution of each Portfolio's portfolio transactions. In the case of
securities traded in the foreign and domestic over-the-counter markets, there
is generally no stated commission, but the price usually includes an
undisclosed com-mission or mark-up. In underwritten offerings, the price
generally includes a disclosed fixed commission or discount.
Alliance may, in the allocation of brokerage business, take into consideration
research and other brokerage services provided by brokers and dealers to
Equitable or Alliance. The research services include economic, market, industry
and company research material. Based upon an assessment of the value of
research and other brokerage services provided, proposed allocations of
brokerage for commission transactions are periodically prepared internally. In
limited cases, certain brokers have been advised informally that, although the
Trust is under no legal obligation, an attempt will be made to meet the
internally proposed level of allocated brokerage business to the broker for
brokerage and research services over a period of time.
Commissions charged by brokers which provide research services may be somewhat
higher than commissions charged by brokers which do not provide them. As
permitted by Section 28(e) of the Securities Exchange Act of 1934 and by
policies adopted by the Trustees, Alliance may cause the Trust to pay a
broker-dealer which provides brokerage and research services to Alliance an
amount of commission for effecting a securities transaction for the Trust in
excess of the commission another broker-dealer would have charged for effecting
that transaction.
Alliance does not engage brokers whose commissions it believes to be
unreasonable in relation to services provided. The overall reasonableness of
commissions paid will be evaluated by rating brokers on such general factors as
execution capabilities, quality of research (that is, quantity and quality of
information provided, diversity of sources utilized, nature and frequency of
communication, professional experience, analytical ability and professional
stature of the broker) and financial standing, as well as the net results of
specific transactions, taking into account such factors as price, promptness,
size of order and difficulty of execution. The research services obtained will,
in general, be used by Alliance for the benefit of all accounts for which it
makes investment decisions. The receipt of research services from brokers will
tend to reduce Alliance's expenses in managing the Portfolios other than the
Alliance Money Market Portfolio. This has been taken into account when setting
the amount paid for managing those Portfolios. Although orders may be given by
the Alliance Money Market Portfolio to brokers or dealers which provide
research services to Alliance, the fact that the investment adviser may benefit
from such research has not been considered when setting the amount paid for
managing that Portfolio. This is because
28
<PAGE>
Alliance Money Market Portfolio transactions will generally be with issuers or
market makers where no commissions are charged. In 1996 the Trust paid an
aggregate of $27,895,553 in brokerage commissions of which $25,576,822 was paid
to brokers relating to transactions aggregating $12,956,909,742 which were
directed to them in part for research services provided by them. In 1997 the
Trust paid an aggregate of $30,333,516 in brokerage commissions of which
$14,164,169 was paid to brokers relating to transactions aggregating
$15,241,230,017 which were directed to them in part for research services
provided by them. In 1998 the Trust paid an aggregate of $ in
brokerage commissions of which $ was paid to brokers relating to
transactions aggregating $ which were directed to them in part
for research services provided by them.
BROKERAGE TRANSACTIONS WITH AFFILIATES
To the extent permitted by law, the Trust may engage in brokerage transactions
with its affiliate, Donaldson, Lufkin & Jenrette, Inc. ("DLJ"), with brokers
who are DLJ affiliates, or with unaffiliated brokers who trade or clear through
DLJ. The Investment Company Act generally prohibits the Trust from engaging in
securities transactions with DLJ or its affiliates, as principal, unless
pursuant to an exemptive order from the SEC. The Trust may apply for such
exemptive relief. The Trust has adopted procedures, prescribed by the
Investment Company Act, which are reasonably designed to provide that any
commissions or other remuneration it pays to DLJ or its affiliates do not
exceed the usual and customary broker's commission. In addition, the Trust will
adhere to the requirements under the Securities Exchange Act of 1934 governing
floor trading. Also, due to securities law limitations, the Trust will limit
purchases of securities in a public offering, if such securities are
underwritten by DLJ or its affiliates. During the year ended December 31, 1996,
the Trust paid $2,500 to Autranet, Inc., an affiliate of DLJ, and during the
fiscal year ended December 31, 1997, the Trust paid $29,805 to DLJ, and during
the year ended December 31, 1998, the Trust paid $ to , in
accordance with the procedures described above.
TRUST EXPENSES AND OTHER CHARGES
Pursuant to the Trust's Investment Advisory Agreement, the Trust is obligated
to pay all of its operating expenses not specifically assumed by Alliance. In
addition, as principal underwriter of the Trust's Class IA shares, EQ Financial
Consultants, Inc. ("EQ Financial") will bear the Trust's marketing expenses. A
daily adjustment will be made in the values under certain Contracts outstanding
and offered by Equitable and Equitable Variable when the management separate
accounts of Equitable and Equitable Variable were reorganized into unit
investment trust form to offset completely the impact of any such expense on
values under such Contracts. Contracts sold by insurers other than Equitable
and Equitable Variable and new policy designs of Equitable bear such expenses
without adjustment. Although Equitable does not expect the Trust to incur any
federal income or excise tax liability (see "Dividends, Distributions and
Taxes" in the Prospectus), Equitable reserves the right to exclude any such
taxes from such adjustments.
The expenses borne by the Trust include or could include taxes; brokerage
commissions; interest charges; securities lending fees; fees and expenses of
the registration or qualification of a Portfolio's securities under federal or
state securities laws; fees of the Portfolio's custodian, transfer agent,
independent accountants, and legal counsel; all expenses of shareholders' and
trustees' meetings; all expenses of the preparation, typesetting, printing and
mailing to existing shareholders of prospectuses, prospectus supplements,
statements of additional information, proxy statements, and annual and
semi-annual reports; any proxy solicitor's fees and expenses; costs of fidelity
bonds and Trustees; liability insurance premiums as well as extraordinary
expenses such as indemnification payments or damages awarded in litigation or
settlements made; any membership fees of the Investment Company Institute and
similar organizations; costs of maintaining the Trust's corporate existence and
the compensation of Trustees who are not directors, officers, or employees of
Alliance or its affiliates.
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.
29
<PAGE>
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 has 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 of shares shall have a
different designation; (2) each class 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 Plans for Class IB
shares.
PURCHASE AND PRICING OF SECURITIES
As stated in the Prospectus, the Trust will offer and sell its shares at each
Portfolio's per share net asset value, which will be determined in the manner
set forth below.
The net asset value of the shares of each Portfolio of the Trust will be
determined once daily, immediately after the declaration of dividends, if any,
at the close of business on each business day. The net asset value per share of
each Portfolio will be computed by dividing the sum of the investments held by
that Portfolio, plus any cash or other assets, minus all liabilities, by the
total number of outstanding shares of that Portfolio at such time. All expenses
borne by the Trust, including the investment advisory fee payable to Alliance,
will be accrued daily.
The net asset value per share of any series (i.e., Portfolio) will be
determined and computed as follows, in accordance with generally accepted
accounting principles, and consistent with the Investment Company Act:
o The assets belonging to each series will include (a) all consideration
received by the Trust for the issue or sale of shares of that particular
series, together with all assets in which such consideration is invested
or reinvested, (b) all income, earnings, profits, and proceeds thereof,
including any proceeds derived from the sale, exchange or liquidation of
such assets, (c) any funds or payments derived from any reinvestment of
such proceeds in whatever form the same may be and (d) General Items, if
any, allocated to that series. General Items includes any assets, income,
earnings, profits, and proceeds thereof, funds, or payments which are not
readily identifiable as belonging to any particular series. General Items
will be allocated as the Trust's Board of Trustees considers fair and
equitable.
o The liabilities belonging to each series will include (a) the liabilities
of the Trust in respect of that series, (b) all expenses, costs, charges
and reserves attributable to that series, and (c) any general
liabilities, expenses, costs, charges or reserves of the Trust which are
not readily identifiable as belonging to any particular series which have
been allocated as the Trust's Board of Trustees considers fair and
equitable.
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<PAGE>
The value of each Portfolio will be determined at the close of business on each
"business day," i.e., each day in which the degree of trading in the Portfolio
might materially affect the net asset value of such Portfolio. Normally, this
would be each day that the NYSE is open and would include some Federal
holidays. For stocks and options, the close of trading is the 4:00 p.m. and
4:15 p.m. (Eastern time) close respectively of the NYSE and the Options Price
Reporting Authority; for bonds the close of trading is the close of business in
New York City, and for foreign securities it is the close of business in the
applicable foreign country with exchange rates determined at 2:00 p.m. New York
City time.
Values are determined according to generally accepted accounting practices and
all laws and regulations that apply. The assets of each Portfolio are valued as
follows:
o Stocks listed on national securities exchanges and certain
over-the-counter issues traded on the NASDAQ national market system are
valued at the last sale price, or, if there is no sale, at the latest
available bid price. Other unlisted stocks are valued at their last sale
price or, if there is no reported sale during the day, at a bid price
estimated by a broker.
o Foreign securities not traded directly, or in American Depositary Receipt
or similar form in the United States, are valued at representative quoted
prices in the currency of the country of origin. Foreign currency is
converted into its U.S. dollar equivalent at current exchange rates.
o U.S. Treasury securities and other obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities, are valued at
representative quoted prices.
o Long-term corporate bonds may be valued on the basis of prices provided
by a pricing service when such prices are believed to reflect the fair
market value of such securities. The prices provided by a pricing service
take into account many factors, including institutional size, trading in
similar groups of securities and any developments related to specific
securities; however, when such prices are not available, such bonds are
valued at a bid price estimated by a broker.
o Short-term debt securities held by the Portfolios other than the Money
Market Portfolio which mature in 60 days or less are valued at amortized
cost, which approximates market value. Short-term debt securities held by
such Portfolios which mature in more than 60 days are valued at
representative quoted prices. Securities held by the Money Market
Portfolio are valued at prices based on equivalent yields or yield
spreads.
o Convertible preferred stocks listed on national securities exchanges are
valued as of their last sale price or, if there is no sale, at the latest
available bid price.
o Convertible bonds, and unlisted convertible preferred stocks, are valued
at bid prices obtained from one or more of the major dealers in such
bonds or stocks. Where there is a discrepancy between dealers, values may
be adjusted based on recent premium spreads to the underlying common
stocks.
o Mortgage backed and asset backed securities are valued at prices obtained
from a bond pricing service where available, or at a bid price obtained
from one or more of the major dealers in such securities. If a quoted
price is unavailable, an equivalent yield or yield spread quotes will be
obtained from a broker and converted to a price.
o Purchased options, including options on futures, are valued at their last
bid price. Written options are valued at their last asked price.
o Futures contracts are valued as of their last sale price or, if there is
no sale, at the latest available bid price.
o Other securities and assets for which market quotations are not readily
available or for which valuation cannot be provided are valued in good
faith by the valuation committee of the Board of Trustees using its best
judgment.
The market value of a put or call option will usually reflect, among other
factors, the market price of the underlying security.
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<PAGE>
When the Trust writes a call option, an amount equal to the premium received by
the Trust is included in the Trust's financial statements as an asset and an
equivalent liability. The amount of the liability is subsequently
marked-to-market to reflect the current market value of the option written.
When an option expires on its stipulated expiration date or the Trust enters
into a closing purchase or sale transaction, the Trust realizes a gain (or
loss) without regard to any unrealized gain or loss on the underlying security,
and the liability related to such option is extinguished. When an option is
exercised, the Trust realizes a gain or loss from the sale of the underlying
security, and the proceeds of sale are increased by the premium originally
received, or reduced by the price paid for the option.
Alliance may, from time to time, under the general supervision of the Board of
Trustees or its valuation committee, utilize the services of one or more
pricing services for assistance in valuing the assets of the Trust. Alliance
will continuously monitor the performance of such pricing services.
CERTAIN TAX CONSIDERATIONS
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
that is a shareholder of a Portfolio will generally not be taxed on
distributions from that Portfolio.
Each Portfolio is treated for Federal income tax purposes as a separate
taxpayer. Under present law, as a Massachusetts business trust doing business
in New York, a Portfolio will also not be subject to any excise or income taxes
in Massachusetts or New York on such amounts. A number of technical rules are
prescribed for computing net investment income and net capital gains. For
example, dividends are generally treated as received on the ex-dividend date.
Also, certain foreign currency losses and capital losses arising after October
31 of a given year may be treated as if they arise on the first day of the next
taxable year.
Portfolios investing in foreign securities or currencies may be subject to
foreign taxes which could reduce the investment performance of such Portfolios.
To qualify for treatment as a regulated investment company, a Portfolio must,
among other things, derive in each taxable year at least 90% of its gross
income from dividends, interest, payments with respect to securities loans,
gains from the sale or other disposition of stock or securities or foreign
currencies, or other income derived with respect to its business of investing.
For purposes of this test, gross income is determined without regard to losses
from the sale or other disposition of stock or securities. In addition, the
Secretary of the Treasury has regulatory authority to exclude from qualifying
income described above foreign currency gains which are not "directly related"
to a regulated investment company's "principal business of investing" in stock,
securities or related options or futures. The Secretary of the Treasury has not
to date exercised this authority.
A Portfolio, in general, must also (a) diversify its holdings so that, at the
close of each quarter of its taxable year, (i) at least 50% of the market value
of its total assets consists of cash and cash items (including receivables),
U.S. Government securities, securities of other regulated investment companies,
and other securities limited generally with respect to any one issuer to not
more than 5% of the value of its total assets and not more than 10% of the
outstanding voting securities of such issuer, and (ii) not more than 25% of the
value of its total assets is invested in the securities (other than U.S.
Government securities or securities of other regulated investment companies) of
any issuer or two or more issuers which the Fund controls and which are engaged
in the same, similar, or related trades or businesses; and (b) distribute with
respect to each taxable year at least 90% of the sum of its taxable net
investment income, its net tax-exempt income, and the excess, if any, of net
short-term capital gains over net long-term capital losses for such year.
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<PAGE>
Generally, in order to avoid a 4% nondeductible excise tax, each Portfolio of
the Trust must distribute to its shareholders during the calendar year the
following amounts:
o 98% of the Portfolio's ordinary income for the calendar year;
o 98% of the Portfolio's capital gain net income (all capital gains, both
long-term and short-term, minus all such capital losses), computed as if
the Portfolio were on a taxable year ending October 31 of the year in
question and beginning the previous November 1; and
o any undistributed ordinary income or capital gain net income for the
prior year.
The excise tax is inapplicable to any regulated investment company whose sole
shareholders are either tax-exempt pension trusts or separate accounts of life
insurance companies funding variable contracts. Although each Portfolio
believes that it is not subject to the excise tax, the Portfolios intend to
make the distributions required to avoid the imposition of such a tax.
Because the Trust is used to fund non-qualified Contracts, each Portfolio must
meet the diversification requirements imposed by the Code or these policies
will fail to qualify as life insurance and annuities. In general, for a
Portfolio to meet the investment diversification requirements of Subchapter L
of the Code, Treasury regulations require that no more than 55% of the total
value of the assets of the Portfolio may be represented by any one investment,
no more than 70% by two investments, no more than 80% by three investments and
no more than 90% by four investments. Generally, for purposes of the
regulations, all securities of the same issuer are treated as a single
investment. In the context of U.S. Government securities (including any
security that is issued, guaranteed or insured by the United States or an
instrumentality of the United States) each U.S. Government agency or
instrumentality is treated as a separate issuer. Compliance with the
regulations is tested on the last day of each calendar year quarter. There is a
30-day period after the end of each calendar year quarter in which to cure any
non-compliance.
PORTFOLIO PERFORMANCE
Returns and yields shown do not reflect insurance company charges and fees
applicable to the Contracts.
ALLIANCE MONEY MARKET PORTFOLIO YIELD
The Alliance Money Market Portfolio calculates yield information for seven-day
periods and may illustrate that information in advertisements or sales
materials. The seven-day current yield calculation is based on a hypothetical
shareholder account with one share at the beginning of the period. To determine
the seven-day rate of return, the net change in the share value is computed by
subtracting the share value at the beginning of the period from the share value
(exclusive of capital changes) at the end of the period. The net change is
divided by the share value at the beginning of the period to obtain the base
period rate of return. This seven-day base period return is then multiplied by
365/7 to produce an annualized current yield figure carried to the nearest
one-hundredth of one percent.
Realized capital gains or losses and unrealized appreciation or depreciation of
the Portfolio are excluded from this calculation. The net change in share
values also reflects all accrued expenses of the Alliance Money Market
Portfolio as well as the value of additional shares purchased with dividends
from the original shares and any additional shares.
The effective yield is obtained by adjusting the current yield to give effect
to the compounding nature of the Alliance Money Market Portfolio's investments,
as follows: The unannualized base period return is compounded by adding one to
the base period return, raising the sum to a power equal to 365 divided by 7,
and subtracting one from the result--i.e., effective yield = [(base period
return +1)365/7] - 1.
Alliance Money Market Portfolio yields will fluctuate daily. Accordingly,
yields for any given period are not necessarily representative of future
results. Yield is a function of the type and quality of the instruments in the
Alliance Money Market Portfolio, maturities and rates of return on investments,
among other factors. In addition, the value of shares of the Alliance Money
Market Portfolio will fluctuate and not remain constant.
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The Alliance Money Market Portfolio yield may be compared with yields of other
investments. However, it should not be compared to the return on fixed rate
investments which guarantee rates of interest for specified periods. The yield
also should not be compared to the yield of money market funds made available
to the general public because their yields usually are calculated on the basis
of a constant $1 price per share and they pay out earnings in dividends which
accrue on a daily basis. Investment income of the Alliance Money Market
Portfolio, including any realized gains as well as accrued interest, is not
paid out in dividends but is reflected in the share value. The Alliance Money
Market Portfolio yield also does not reflect insurance company charges and fees
applicable to Contracts.
The seven-day current yield for Class IA shares of the Money Market Portfolio
was % for the period ended December 31, 1998. The effective yield for that
period was %.
ALLIANCE QUALITY BOND, ALLIANCE INTERMEDIATE GOVERNMENT SECURITIES AND ALLIANCE
HIGH YIELD PORTFOLIO YIELDS
The Alliance Quality Bond, Alliance Intermediate Government Securities and
Alliance High Yield Portfolios each may illustrate its yield in advertisements
or sales materials. Such yields will be computed by annualizing net investment
income, as determined by the SEC's formula, calculated on a per share basis for
a recent 30-day period and dividing that amount by a Portfolio share's net
asset value (reduced by any undeclared earned income expected to be paid
shortly as a dividend) on the last trading day of that period. Net investment
income will reflect amortization of any market value premium or discount of
fixed income securities (except for obligations backed by mortgages or other
assets) over such period and may include recognition of a pro rata portion of
the stated dividend rate of dividend paying portfolio securities. The
Portfolios' yields will vary from time to time depending upon market
conditions, the compostition of each Portfolio's portfolio and operating
expenses of the Trust allocated to each Portfolio. Yield should also be
considered relative to changes in the value of a Portfolio's shares and to the
relative risks associated with the investment objectives and policies of the
Portfolios. These yields do not reflect insurance company charges and fees
applicable to the Contracts.
At any time in the future, yields and total return may be higher or lower than
past yields and there can be no assurance that any historical results will
continue.
The 30-day yields for Class IA shares of the Alliance Quality Bond, Alliance
Intermediate Government Securities and Alliance High Yield Portfolios for the
period ended December 31, 1998 were %, % and %, respectively.
TOTAL RETURN CALCULATIONS
Each Portfolio may provide or advertise average annual total return information
calculated according to a formula prescribed by the SEC. According to that
formula, average annual total return figures represent the average annual
compounded rate of return for the stated period. Average annual total return
quotations reflect the percentage change between the beginning value of a
static account in the Portfolio and the ending value of that account measured
by the then current net asset value of that Portfolio assuming that all
dividends and capital gains distributions during the stated period were
invested in shares of the Portfolio when paid. Total return is calculated by
finding the average annual compounded rates of return of a hypothetical
investment that would equate the initial amount invested to the ending
redeemable value of such investment, according to the following formula:
T = (ERV/P)1/n - 1
where T equals average annual total return; where ERV, the ending redeemable
value, is the value at the end of the applicable period of a hypothetical
$1,000 investment made at the beginning of the applicable period; where P
equals a hypothetical initial investment of $1,000; and where n equals the
number of years. These total returns do not reflect insurance company charges
and fees applicable to the Contracts.
The average annual total returns through December 31, 1998 for Class IA shares
of the Alliance Common Stock Portfolio for one year, five years, and ten years
were %, %, and %, respectively.
The average annual total returns through December 31, 1998 for Class IA shares
of the Alliance Intermediate Government Securities Portfolio for one year, five
years, and since inception (on April 1, 1991) were %, %, and %,
respectively.
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<PAGE>
The average annual total returns through December 31, 1998 for Class IA shares
of the Alliance High Yield Portfolio for one year, five years, and ten years
were %, %, and %, respectively.
The average annual total returns through December 31, 1998 for Class IA shares
of the Alliance Balanced Portfolio for one year, five years, and ten years were
%, %, and %, respectively.
The average annual total returns through December 31, 1998 for Class IA shares
of the Alliance Global Portfolio for one year, five years, and ten years were
%, %, and %, respectively.
The average annual total returns through December 31, 1998 for Class IA shares
of the Alliance Aggressive Stock Portfolio for one year, five years, and ten
years were %, %, and %, respectively.
The average annual total returns through December 31, 1998 for Class IA shares
of the Alliance Conservative Investors Portfolio for one year, five years, and
since inception (on October 2, 1989) were %, %, and %,
respectively.
The average annual total returns through December 31, 1998 for Class IA shares
of the Alliance Growth Investors Portfolio for one year, five years, and since
inception (on October 2, 1989) were %, %, and %, respectively.
The average annual total returns through December 31, 1998 for Class IA shares
of the Alliance Quality Bond Portfolio for one year and since inception (on
October 1, 1993) were % and %, respectively.
The average annual total returns through December 31, 1998 for Class IA shares
of the Alliance Growth and Income Portfolio for one year and since inception
(on October 1, 1993) were % and %, respectively.
The average annual total returns through December 31, 1998 for Class IA shares
of the Alliance Equity Index Portfolio for one year and since inception (on
March 1, 1994) were % and %, respectively.
The average annual total returns through December 31, 1998 for Class IA shares
of the Alliance International Portfolio for one year and since inception (April
3, 1995) were % and %, respectively.
The total return through December 31, 1998 for Class IA shares of the Alliance
Small Cap Growth Portfolio since inception (May 1, 1997) was %.
Each Portfolio, from time to time, also may advertise its cumulative total
return figures. Cumulative total return is the compound rate of return on a
hypothetical initial investment of $1,000 for a specified period. Cumulative
total return quotations reflect changes in the price of a Portfolio's shares
and assume that all dividends and capital gains distributions during the period
were reinvested in shares of that Portfolio. Cumulative total return is
calculated by finding the compound rates of return of a hypothetical investment
over such period, according to the following formula (cumulative total return
is then expressed as a percentage):
C = (ERV/P) - 1
Where:
C = Cumulative Total Return
P = a hypothetical initial investment of $1,000
ERV = ending redeemable value; ERV is the value, at the end of the applicable
period, of a hypothetical $1,000 investment made at the beginning of the
applicable period.
The cumulative total returns, since the inception of each Portfolio through
December 31, 1998, for Class IA shares of the Alliance Common Stock, Alliance
Intermediate Government Securities, Alliance High Yield, Alliance Balanced,
Alliance Global, Alliance Aggressive Stock, Alliance Conservative Investors,
Alliance Growth Investors, Alliance Quality Bond, Alliance Growth and Income,
Alliance Equity Index, Alliance International and Alliance Small Cap Growth
Portfolios were %, %, %, %, %, %, %, %, %, %,
%, %, and %, respectively.
35
<PAGE>
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.
OTHER SERVICES
INDEPENDENT ACCOUNTANTS
, serves as the Trust's independent accountants.
The financial statements of the Alliance Common Stock, Alliance Money Market,
Alliance Balanced, Alliance Aggressive Stock, Alliance High Yield, Alliance
Global, Alliance Conservative Investors, Alliance Growth Investors, Alliance
Intermediate Government Securities, Alliance Quality Bond, Alliance Growth and
Income, Alliance Equity Index, Alliance International and Alliance Small Cap
Growth Portfolios for the year ended December 31, 1998, which are included in
this SAI, have been audited by , the Trust's independent accountants
for such periods, as stated in their report appearing herein, and have been so
included in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
CUSTODIAN
The Chase Manhattan Bank, whose principal address is One Chase Manhattan Plaza,
New York, New York 10081, has been designated the Custodian of the Trust's
portfolio securities and other assets.
TRANSFER AGENT
Equitable serves as the transfer agent and dividend disbursing agent for the
Trust. For the year ended December 31, 1997, Equitable received no compensation
for providing such services for the Trust.
UNDERWRITER
EQ Financial, a wholly-owned subsidiary of Equitable, serves, without
compensation from the Trust, as the principal underwriter of the Class IA
shares of the Trust, pursuant to an agreement with the Trust. Under the terms
of the agreement, EQ Financial is not obligated to sell any specific number of
shares. It has authority, pursuant to the agreement, to enter into similar
contracts with other insurance companies and with other entities registered as
broker-dealers under the Securities Exchange Act of 1934.
As principal underwriter, EQ Financial bears the Trust's marketing expenses.
However, EQ Financial expects to be reimbursed for the portion of expenses
attributable to the marketing of other insurance companies' products by such
insurance companies. EQ Financial has entered into sales agreements with
Equitable and each unaffiliated insurer under which shares of the Trust are
made available for the investment of net considerations which are received
under variable insurance contracts and are allocated to their respective
separate accounts.
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<PAGE>
FINANCIAL STATEMENTS
[TO BE SUPPLIED]
37
<PAGE>
THE HUDSON RIVER TRUST
1345 Avenue of the Americas -- New York, New York 10105
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1999
This Statement of Additional Information is not a prospectus. It should be read
in conjunction with The Hudson River Trust ("Trust") Prospectus dated May 1,
1999 relating to Class IB shares and retained for future reference. This
Statement of Additional Information relates to the Trust's Class IB shares. A
separate Statement of Additional Information relates to the Trust's Class IA
shares.
A copy of the Prospectus to which this Statement of Additional Information
relates is available at no charge by writing the Trust at the above address.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
General Information and History ..................................... 2
Investment Restrictions of the Portfolios ........................... 4
Description of Certain Securities in Which the Portfolios May Invest 7
Management of the Trust ............................................. 21
Investment Advisory and Other Services .............................. 25
Brokerage Allocation ................................................ 28
Trust Expenses and Other Charges .................................... 29
Purchase and Pricing of Securities .................................. 30
Certain Tax Considerations .......................................... 32
Portfolio Performance ............................................... 33
Other Services ...................................................... 36
Financial Statements ................................................ 40
Appendix A--Description of Commercial Paper Ratings ................. A-1
</TABLE>
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HRT-SAI (2/99) Copyright 1998. The Hudson River Trust. All Catalog No. 127665
rights reserved.
<PAGE>
GENERAL INFORMATION AND HISTORY
THE TRUST
The Hudson River Trust is an open-end management investment company--a type of
company commonly known as a "mutual fund." It is registered as such under the
Investment Company Act of 1940, as amended ("Investment Company Act").
Originally organized as a Maryland corporation, the Trust's operations
commenced on March 22, 1985. On July 10, 1987, the Trust was reorganized as a
Massachusetts business trust. Shares of each Portfolio are divided into two
classes: Class IA shares and Class IB shares. Class IA shares are offered at
net asset value pursuant to this Statement of Additional Information and a
related prospectus and are not subject to fees imposed under any distribution
plan. Class IB shares are offered at net asset value pursuant to a separate
Statement of Additional Information and related prospectus and are subject to
distribution fees imposed under a distribution plan (the "Distribution Plan")
adopted pursuant to Rule 12b-1 under the Investment Company Act. Prior to
October 1, 1996, the Trust offered only Class IA shares.
The two classes of shares are offered under the Trust's multiple class
distribution system approved by the Trust's Board of Trustees on June 7, 1996
and are designed to allow promotion of insurance products that invest in the
Trust through alternative distribution channels. Under the Trust's multi-class
system, shares of each class of a Portfolio represent an equal pro rata
interest in the assets of that Portfolio and, generally, have identical voting,
dividend, liquidation, and other rights, other than with respect to the payment
of distribution fees under the Distribution Plan.
The Trust continuously offers its shares exclusively to separate accounts of
insurance companies in connection with variable life insurance contracts and
variable annuity certificates and contracts (collectively, "Contracts").
Currently, the Trust's shareholders of Class IA shares are a separate account
of Equitable, separate accounts of The Equitable Life Assurance Society of the
United States ("Equitable"), a separate account of Integrity Life Insurance
Company, a separate account of American Franklin Life Insurance Company, a
separate account of Transamerica Occidental Life Insurance Company and a
separate account of SAFECO Life Insurance Company, all of which are insurance
companies unaffiliated with Equitable. The Trust may offer its shares to
separate accounts of other insurance companies, regardless of whether they are
affiliated with Equitable. As of March 31, 1999, Equitable owned approximately
[99.7]% of the Trust's outstanding Class IA shares and all of the Trust's
outstanding Class IB shares and, as a result, may be deemed to control the
Trust.
As a "series" investment company, the Trust issues separate series of shares of
beneficial interest, each of which represents a separate portfolio
("Portfolio") of investments. Each Portfolio resembles a separate fund issuing
a separate class of stock. The Alliance Common Stock and Alliance Money Market
Portfolios are the successors to Separate Accounts I and II of Equitable
Variable Life Insurance Company, formerly a wholly owned subsidiary of
Equitable that was merged into Equitable as of January 1, 1997 ("Equitable
Variable"). (See "Description of Reorganization and Other Matters".) The
Alliance Balanced and Alliance Aggressive Stock Portfolios received their
initial funding on January 27, 1986 from Equitable Variable. The Alliance High
Yield Portfolio received its initial funding on January 2, 1987. The Alliance
Global Portfolio received its initial funding on August 27, 1987. The Alliance
Conservative Investors and Alliance Growth Investors Portfolios received their
initial funding on October 2, 1989. The Alliance Intermediate Government
Securities Portfolio received its initial funding on April 1, 1991. The
Alliance Quality Bond and Alliance Growth and Income Portfolios received their
initial funding on October 1, 1993. The Alliance Equity Index Portfolio
received its initial funding on March 1, 1994. The Alliance International
Portfolio received its initial funding on April 3, 1995. The Alliance Small Cap
Growth Portfolio received its initial funding on May 1, 1997.
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.
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<PAGE>
Because of current Federal securities law requirements, the Trust expects that
its shareholders will offer to owners of the Contracts ("Contractowners") the
opportunity to instruct them as to how shares allocable to their Contracts will
be voted with respect to certain matters, such as approval of investment
advisory agreements. As of March 31, 1999, to the Trust's knowledge, no
Contractowners other than those set forth below owned Contracts entitling such
persons to give voting instructions regarding more than 5% of either class of
the outstanding shares of a Portfolio.
[UPDATE]
CLASS IB
<TABLE>
<CAPTION>
ALLIANCE INTERMEDIATE
ALLIANCE QUALITY ALLIANCE GLOBAL GOVERNMENT SECURITIES
BOND PORTFOLIO PORTFOLIO PORTFOLIO
--------------------- --------------------- --------------------
UNITS % OF UNITS % OF UNITS % OF
OWNED PORTFOLIO OWNED PORTFOLIO OWNED PORTFOLIO
------- ----------- ------- ----------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
- ----------
The principal addresses of Boston Safe Deposit and Trust Co., Equitable Realty
Assets Corp. and PNC Bank, N.A. are 175 East Houston Street, San Antonio,
Texas, 9000 Central Park Avenue, Atlanta, Georgia, and 1000 Ashland Drive,
Ashland, Kentucky, respectively.
Were such a substantial Contractowner's funds withdrawn from the Trust or
transferred to a different Portfolio at the Contractowner's request, the Trust
could be forced to sell portfolio securities at disadvantageous prices.
LEGAL CONSIDERATIONS
Under Massachusetts law, annual election of Trustees is not required, and, in
the normal course, the Trust does not expect to hold annual meetings of
shareholders. There will normally be no meetings of shareholders for the
purpose of electing Trustees unless and until such time as less than a majority
of the Trustees holding office have been elected by shareholders, at which time
the Trustees then in office will call a shareholders' meeting for the election
of Trustees. The Trust has agreed to be bound by the procedures set forth in
Section 16(c) of the Investment Company Act, and accordingly, shareholders of
record of not less than two-thirds of the outstanding shares of the Trust may
remove a Trustee by a vote cast in person or by proxy at a meeting called for
that purpose.
Except as set forth above, the Trustees shall continue to hold office and may
appoint successor Trustees. Voting rights are not cumulative, so that the
holders of more than 50% of the shares voting in the election of Trustees can,
if they choose to do so, elect all the Trustees of the Trust, in which event
the holders of the remaining shares will be unable to elect any person as a
Trustee. Amendments to the Declaration of Trust of the Trust generally require
the affirmative vote of a majority of the outstanding shares of the Trust.
The shares of each Portfolio, when issued, will be fully paid and
non-assessable by the Trust and will have no preference, preemptive,
conversion, exchange or similar rights.
Under Massachusetts law, in certain circumstances shareholders may be held
personally liable as partners for the obligations of a business trust such as
the Trust. The shareholders of the Trust are the insurance companies whose
separate accounts invest in it. The Trust's Declaration of Trust contains
provisions designed to protect shareholders from such liability to the extent
of the Trust's assets. As a result, the risk of personal liability for the
insurance company shareholders is remote.
The Declaration of Trust further provides that the Trustees will not be liable
for errors of judgment or mistakes of fact or law, but nothing in the
Declaration of Trust protects a Trustee against any liability to
3
<PAGE>
which he or she would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of his or her office. The Declaration of Trust permits the Trust to
purchase and maintain on behalf of the Trustees insurance against certain
liabilities.
DESCRIPTION OF REORGANIZATION AND OTHER MATTERS
The following transactions, referred to as the Reorganization, were effected
simultaneously on March 22, 1985, pursuant to an Agreement and Plan of
Reorganization dated November 20, 1984, entered into by Equitable Variable,
Separate Accounts I and II, and The Hudson River Fund, Inc. (the "Fund"), the
predecessor of the Trust.
Equitable Variable divided Separate Account I into two divisions, a Common
Stock Division and a Money Market Division. Separate Account II was combined
with Separate Account I (the "Continuing Separate Account"). Rather than
investing directly, the Common Stock Division and the Money Market Division of
the Continuing Separate Account invested in shares of the Fund, which, in turn,
invested in diversified portfolios of common stock or money market investments.
In order for the Fund to commence operations, all the investment assets of
Separate Accounts I and II (together with any related liabilities) were
transferred to the Common Stock and Money Market Portfolios of the Fund,
respectively, in exchange for shares in those Portfolios having an equivalent
aggregate net asset value.
On September 30, 1987, all of the Fund's assets and liabilities were
transferred to the Trust, pursuant to an Agreement and Plan of Reorganization
(the "Plan") between the Fund and the Trust. The Plan was proposed to
shareholders in order to permit greater operating flexibility and efficiencies.
The Plan provided for changes of domicile (from Maryland to Massachusetts) and
of form of organization (from a corporation to a business trust). However, in
all other material respects the Trust was identical to the Fund immediately
prior to the execution of the Plan.
At a meeting held on April 9, 1997, the shareholders of the Trust approved the
amendment and restatement of the Trust's Agreement and Declaration of Trust. On
April 16, 1997 the Agreement and Declaration of Trust was amended and restated,
and filed with the office of the Secretary of the Commonwealth of
Massachusetts.
INVESTMENT RESTRICTIONS OF THE PORTFOLIOS
FUNDAMENTAL RESTRICTIONS
The following restrictions apply to all of the Portfolios and are fundamental.
Unless permitted by law, they will not be changed for any Portfolio without a
vote of that Portfolio's shareholders.
None of the Portfolios will:
o underwrite securities issued by other persons except to the extent that,
in connection with the disposition of its portfolio investments, it may
be deemed to be an underwriter under certain Federal securities laws;
o make short sales of securities, except when it has, by reason of
ownership of other securities, the right to obtain securities of
equivalent kind and amount that will be held so long as it is in a short
position;
o issue senior securities;
o purchase real estate or mortgages; however, the Portfolios may, as
appropriate and consistent with their investment policies and other
investment restrictions, buy securities of issuers which engage in real
estate operations and securities which are secured by interests in real
estate (including partnership interests and shares of real estate
investment trusts), and may hold and sell real estate acquired as a
result of ownership of such securities;
o purchase any security on margin or borrow money, except that this
restriction shall not apply to borrowing from banks for temporary
purposes, to the pledging of assets to banks in order to
4
<PAGE>
transfer funds for various purposes as required without interfering with
the orderly liquidation of securities in a Portfolio (but not for
leveraging purposes), to margin payments or pledges in connection with
options, futures contracts, options on futures contracts, forward
contracts or options on foreign currencies or, with respect to the
Alliance Quality Bond Portfolio, to transactions in interest rate swaps,
caps and floors; or
o make loans (including lending cash or securities), except that this
restriction shall not apply to the Alliance High Yield and Alliance
Intermediate Government Securities Portfolios. Additionally, each of the
other Portfolios may make loans of portfolio securities not exceeding 50%
of the value of that Portfolio's total assets. This restriction does not
prevent a Portfolio from purchasing debt obligations in which a Portfolio
may invest consistent with its investment policies, or from buying
government obligations, short-term commercial paper, or publicly-traded
debt, including bonds, notes, debentures, certificates of deposit, and
equipment trust certificates, nor does this restriction apply to loans
made under insurance policies or through entry into repurchase agreements
to the extent they may be viewed as loans.
Each Portfolio, except as noted below, elects not to "concentrate" investments
in an industry, as that concept is defined under applicable Federal securities
laws. In general, this means that no Portfolio will make an investment in an
industry if that investment would make the Portfolio's holdings in that
industry exceed 25% of the Portfolio's assets. However, this restriction does
not apply to investments by the Alliance Money Market Portfolio in certificates
of deposit or securities issued and guaranteed by domestic banks. Furthermore,
the U.S. Government, its agencies and instrumentalities are not considered
members of any industry.
Each Portfolio intends to be "diversified," as that term is defined under the
Investment Company Act. In general, this means that no Portfolio will make an
investment unless, when considering all its other investments, 75% of the value
of the Portfolio's assets would consist of cash, cash items, U.S. Government
securities, securities of other investment companies and other securities. For
the purposes of this restriction, "other securities" are limited for any one
issuer to not more than 5% of the value of the Portfolio's total assets and to
not more than 10% of the issuer's outstanding voting securities. As a matter of
operating policy, each Portfolio will not consider repurchase agreements to be
subject to the above-stated 5% limitation if the collateral underlying the
repurchase agreements consists exclusively of U.S. Government securities and
such repurchase agreements are fully collateralized.
Further, as a matter of operating policy, the Alliance Money Market Portfolio
will invest no more than 5% of the value of its total assets in securities of
any one issuer, other than U.S. Government securities, except that the Alliance
Money Market Portfolio may invest up to 25% of its total assets in First Tier
Securities (as defined in Rule 2a-7 under the Investment Company Act) of a
single issuer for a period of up to three business days after the purchase of
such security. Further, as a matter of operating policy, the Alliance Money
Market Portfolio will not invest more than (i) the greater of 1% of its total
assets or $1,000,000 in Second Tier Securities (as defined in Rule 2a-7 under
the Investment Company Act) of a single issuer and (ii) 5% of its total assets,
at the time a Second Tier Security is acquired, in Second Tier Securities.
These policies of the Portfolios with respect to concentration and
diversification will not be changed for any Portfolio without a vote of that
Portfolio's shareholders, unless permitted by law.
NON-FUNDAMENTAL RESTRICTIONS
The following investment restrictions apply to all of the Portfolios, but are
not fundamental. They may be changed for any Portfolio without a vote of that
Portfolio's shareholders.
None of the Portfolios will:
o invest more than 15% of its net assets in securities restricted as to
disposition under Federal securities laws, or securities otherwise
considered illiquid or not readily marketable, including
5
<PAGE>
repurchase agreements having a maturity of more than seven days; however,
this restriction will not apply to securities sold pursuant to Rule 144A
under the Securities Act of 1933, so long as such securities meet
liquidity guidelines to be established by the Trust's Board of Trustees;
o trade in foreign exchange (except transactions incidental to the
settlement of purchases or sales of securities for a Portfolio); however,
the Alliance Global and Alliance International Portfolios may trade in
foreign exchange without limitation in connection with their foreign
currency hedging strategies; and the Alliance High Yield, Alliance
Quality Bond, Alliance Growth and Income, Alliance Conservative
Investors, Alliance Balanced, Alliance Common Stock, Alliance Aggressive
Stock, Alliance Growth Investors and Alliance Small Cap Growth Portfolios
may trade in foreign exchange in connection with their foreign currency
hedging strategies, provided the amount of foreign exchange underlying
such a Portfolio's currency hedging transactions does not exceed 10% of
such Portfolio's assets;
o acquire securities of any company that is a securities broker or dealer,
a securities underwriter, an investment adviser of an investment company,
or an investment adviser registered under the Investment Advisers Act of
1940 (other than any such company that derives no more than 15% of its
gross revenues from securities related activities), except that the
Portfolios (other than the Alliance Money Market Portfolio) may purchase
bank, trust company, and bank holding company stock, and except that each
of the Portfolios may invest, in accordance with Rule 12d3-1 under the
Investment Company Act, up to 5% of its total assets in any such company
provided that it owns no more than 5% of the outstanding equity
securities of any class plus 10% of the outstanding debt securities of
such company; or
o make an investment in order to exercise control or management over a
company.
In addition, none of the Portfolios will invest more than 5% of its assets in
the securities of any one investment company, own more than 3% of any one
investment company's outstanding voting securities, or have total holdings of
investment company securities in excess of 10% of the value of the Portfolio's
assets.
ADDITIONAL INVESTMENT RESTRICTION APPLICABLE TO THE ALLIANCE COMMON STOCK,
ALLIANCE BALANCED, ALLIANCE AGGRESSIVE STOCK AND ALLIANCE CONSERVATIVE INVESTORS
PORTFOLIOS
The Alliance Common Stock, Alliance Balanced, Alliance Aggressive Stock and
Alliance Conservative Investors Portfolios will operate under the general
investment restrictions described above. In addition, they will not:
o acquire securities of investment companies not registered under the
Investment Company Act.
ADDITIONAL INVESTMENT RESTRICTIONS APPLICABLE TO THE ALLIANCE MONEY MARKET
PORTFOLIO
The Alliance Money Market Portfolio will operate under the general investment
restrictions described above. In addition, it will not:
o invest more than 10% of its assets in securities restricted as to
disposition under Federal securities laws, or securities otherwise
considered illiquid or not readily marketable, including repurchase
agreements having a maturity of more than seven days; however, this
restriction will not apply to securities sold pursuant to Rule 144A under
the Securities Act of 1933, so long as such securities meet liquidity
guidelines to be established by the Trust's Board of Trustees;
o purchase oil and gas interests;
o purchase or write puts or calls (options); or
o purchase equity securities, voting securities other than securities of
registered investment companies with investment policies not
substantially broader than those of the Portfolio (subject to the above
percentage limitations) or local or state government securities.
The Alliance Money Market Portfolio will invest only in funds whose investment
policies are similar to or narrower than those of the Portfolio. It is expected
that such investments would be made in funds
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designed for institutional investors such as the Portfolio and would be used
for amounts which might otherwise be left uninvested because they do not meet
the minimums necessary for other permitted investments or to take advantage of
higher yields available at that time in such funds.
ADDITIONAL INVESTMENT RESTRICTION APPLICABLE TO THE ALLIANCE HIGH YIELD AND
ALLIANCE GROWTH INVESTORS PORTFOLIOS
The Alliance High Yield and Alliance Growth Investors Portfolios will operate
under the general investment restrictions described above. In addition, each
will not:
o invest more than 10% of its total assets in (i) fixed income securities
which are rated lower than B3 by Moody's Investors Service, Inc.
("Moody's") or B- by Standard & Poor's ("S&P") or are unrated, and (ii)
money market instruments of any entity which has an outstanding issue of
unsecured debt that is rated lower than B3 by Moody's or B- by S&P, or is
unrated; however this restriction will not apply to (A) fixed income
securities which, in the opinion of the Trust's investment adviser, have
similar characteristics to securities which are rated B3 or higher by
Moody's or B- or higher by S&P, or (B) money market instruments of any
entity that has an unsecured issue of outstanding debt which, in the
opinion of the Trust's investment adviser, has similar characteristics to
securities which are so rated.
DESCRIPTION OF CERTAIN SECURITIES IN WHICH THE PORTFOLIOS MAY INVEST
REPURCHASE AGREEMENTS
All of the Portfolios, except the Alliance Equity Index Portfolio, may enter
into repurchase agreements. Under a repurchase agreement, underlying debt
instruments are acquired for a relatively short period (usually not more than
one week and never more than a year) subject to an obligation of the seller to
repurchase and the Portfolio to resell the debt instruments at a fixed price
and time, thereby determining the yield during the Portfolio's holding period.
Repurchase agreements may exhibit the characteristics of loans by the
Portfolio. During the term of the repurchase agreement, the Portfolio retains
the security subject to the repurchase agreement as collateral securing the
seller's repurchase obligation, continually monitors on a daily basis the
market value of the security subject to the agreement and requires the seller
to deposit with the Portfolio collateral equal to any amount by which the
market value of the security subject to the repurchase agreement falls below
the resale amount provided under the repurchase agreement. A Portfolio enters
into repurchase agreements with respect to U.S. Government obligations,
certificates of deposit, or bankers' acceptances with registered
broker-dealers, U.S. Government securities dealers or domestic banks whose
creditworthiness is determined to be satisfactory by the Trust's investment
adviser, Alliance Capital Management L.P. ("Alliance"), pursuant to guidelines
adopted by the Board of Trustees. Generally, a Portfolio does not invest in
repurchase agreements maturing in more than seven days. The staff of the
Securities and Exchange Commission ("SEC") currently takes the position that
repurchase agreements maturing in more than seven days are illiquid securities.
No Portfolio will enter into a repurchase agreement maturing in more than seven
days if as a result more than 15% (10%, in the case of the Alliance Money
Market Portfolio) of the Portfolio's net assets would be invested in "illiquid
securities."
If a seller under a repurchase agreement were to default on the agreement and
be unable to repurchase the security subject to the agreement, the Portfolio
would look to the collateral underlying the seller's repurchase agreement,
including the security subject to the repurchase agreement, for satisfaction of
the seller's obligation to the Portfolio. In the event a repurchase agreement
is considered a loan and the seller defaults, the Portfolio might incur a loss
if the value of the collateral declines and may incur disposition costs in
liquidating the collateral. In addition, if bankruptcy proceedings are
commenced with respect to the seller, realization on the collateral may be
delayed or limited and a loss may be incurred.
FORWARD COMMITMENTS AND WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
The Portfolios may enter into forward commitments for the purchase or sale of
securities and may purchase or sell securities on a "when-issued" or "delayed
delivery" basis. Forward commitments and
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when-issued or delayed delivery transactions arise when securities are
purchased by a Portfolio with payment and delivery taking place in the future
in order to secure what Alliance considers to be an advantageous price or yield
to the Portfolio at the time of entering into the transaction. However, the
price of or yield on a comparable security available when delivery takes place
may vary from the price of or yield on the security at the time that the
forward commitment or when-issued or delayed delivery transaction was entered
into. Agreements for such purchases might be entered into, for example, when a
Portfolio anticipates a decline in interest rates and is able to obtain a more
advantageous price or yield by committing currently to purchase securities to
be issued later. When a Portfolio purchases securities on a forward commitment,
when-issued or delayed delivery basis, it does not pay for the securities until
they are received, and the Portfolio is required to create a segregated account
with the Trust's custodian and to maintain in that account liquid assets in an
amount equal to or greater than, on a daily basis, the amount of the
Portfolio's forward commitments, when-issued or delayed delivery commitments.
A Portfolio will only enter into forward commitments and make commitments to
purchase securities on a when-issued or delayed delivery basis with the
intention of actually acquiring the securities. However, the Portfolio may sell
these securities before the settlement date if it is deemed advisable as a
matter of investment strategy. Forward commitments and when-issued and delayed
delivery transactions are generally expected to settle within three months from
the date the transactions are entered into, although a Portfolio may close out
its position prior to the settlement date by entering into a matching sale
transaction.
Although none of the Portfolios intends to make such purchases for speculative
purposes, purchases of securities on such bases may involve more risk than
other types of purchases. For example, by committing to purchase securities in
the future, a Portfolio subjects itself to a risk of loss on such commitments
as well as on its portfolio securities. Also, a Portfolio may have to sell
assets that have been set aside in order to meet redemptions. In addition, if a
Portfolio determines it is advisable as a matter of investment strategy to sell
the forward commitment or when-issued or delayed delivery securities before
delivery, that Portfolio may incur a gain or loss because of market
fluctuations since the time the commitment to purchase such securities was
made. Any such gain or loss would be treated as a capital gain or loss and
would be treated for tax purposes as such. When the time comes to pay for the
securities to be purchased under a forward commitment or on a when-issued or
delayed delivery basis, a Portfolio will meet its obligations from the then
available cash flow or the sale of securities, or, although it would not
normally expect to do so, from the sale of the forward commitment or
when-issued or delayed delivery securities themselves (which may have a value
greater or less than a Portfolio's payment obligation).
WARRANTS
All the Portfolios, except the Alliance Money Market Portfolio, may purchase
warrants and similar rights, which are rights to purchase securities at
specific prices valid for a specific period of time. Their prices do not
necessarily move in parallel with the prices of the underlying securities, and
warrantholders receive no dividends and have no voting rights or rights with
respect to the assets of an issuer. Warrants cease to have value if not
exercised prior to the expiration date.
FOREIGN SECURITIES
Each Portfolio, except the Alliance Intermediate Government Securities and
Alliance Equity Index Portfolios, may invest in foreign securities. Each of the
Alliance Common Stock, Alliance Balanced, Alliance Quality Bond, Alliance
Aggressive Stock and Alliance Small Cap Growth Portfolios has the discretion to
invest a portion of its assets in foreign securities. Generally, this amount
will not exceed 20% of each Portfolio's total assets. The Alliance Money Market
Portfolio may invest up to 20% of its assets in foreign money market
instruments denominated in U.S. dollars. The Alliance Conservative Investors
Portfolio may invest up to 15% of its assets in foreign securities, the
Alliance Growth Investors Portfolio may invest up to 30% of its assets in
foreign securities, and the Alliance Growth and Income Portfolio may invest up
to 25% of its assets in foreign securities. The Alliance High Yield Portfolio
may purchase foreign securities, provided the value of issues denominated in
foreign currencies shall not exceed 20% of the Portfolio's total assets and the
value of issues denominated in U.S. dollars shall not exceed 25% of the
Portfolio's total assets.
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No percentage limitation applies to investments in foreign securities by the
Alliance Global Portfolio or the Alliance International Portfolio.
Foreign securities involve currency risks. The value of a foreign security
denominated in a foreign currency changes with fluctuations in exchange rates.
Fluctuations in exchange rates may also affect the earning power and asset
value of the foreign entity issuing a security, even one denominated in U.S.
dollars. Dividend and interest payments will be repatriated based on the
exchange rate at the time of disbursement, and restrictions on capital flows
may be imposed.
Foreign securities may be subject to foreign government taxes which reduce
their attractiveness. Other risks of investing in such securities include
political or economic instability in the country involved, the difficulty of
predicting international trade patterns and the possibility of imposition of
exchange controls. The prices of such securities may be more volatile than
those of domestic securities. In addition, there may be less publicly available
information about a foreign issuer than about a domestic issuer. Foreign
issuers generally are not subject to uniform accounting, auditing and financial
reporting standards comparable to those applicable to domestic issuers. There
is generally less regulation of stock exchanges, brokers, banks and listed
companies abroad than in the United States, and settlements may be slower and
may be subject to failure. With respect to certain foreign countries, there is
a possibility of expropriation of assets or nationalization, imposition of
withholding taxes on dividend or interest payments, difficulty in obtaining and
enforcing judgments against foreign entities or diplomatic developments which
could affect investment in these countries. Losses and other expenses may be
incurred in converting between various currencies in connection with purchases
and sales of foreign securities.
For many foreign securities, there are U.S. dollar-denominated American
Depository Receipts (ADRs) which are traded in the United States on exchanges
or over-the-counter, are issued by domestic banks or trust companies and for
which market quotations are readily available. ADRs do not lessen the foreign
exchange risk inherent in investing in the securities of foreign issuers.
However, by investing in ADRs rather than directly in stock of foreign issuers,
the Portfolios will avoid currency risks which might occur during the
settlement period for either purchases or sales. A Portfolio may purchase
foreign securities directly, as well as through ADRs.
MORTGAGE-BACKED SECURITIES
Government National Mortgage Association ("GNMA") certificates are
mortgage-backed securities representing part ownership of a pool of mortgage
loans. These loans, issued by lenders such as mortgage bankers, commercial
banks and savings and loan associations, are either insured by the Federal
Housing Administration or the Farmer's Home Administration or guaranteed by the
Veterans Administration. A "pool" or group of such mortgages is assembled and
after being approved by GNMA, is offered to investors through securities
dealers. Once approved by GNMA, the timely payment of interest and principal on
each mortgage is guaranteed by GNMA and backed by the full faith and credit of
the U.S. Treasury. GNMA certificates differ from bonds in that principal is
paid back monthly by the borrower over the term of the loan rather than
returned in a lump sum at maturity. GNMA certificates are called "pass-through"
securities because both interest and principal payments (including prepayments)
are passed through to the holder of the certificate.
In addition to GNMA certificates, a Portfolio (other than the Alliance Equity
Index Portfolio) may invest in mortgage-backed securities issued by the Federal
National Mortgage Association ("FNMA") and by the Federal Home Loan Mortgage
Corporation ("FHLMC"). FNMA, a federally chartered and privately-owned
corporation, issues mortgage-backed pass-through securities which are
guaranteed as to timely payment of principal and interest by FNMA. FHLMC, a
corporate instrumentality of the United States whose stock is owned by the
Federal Home Loan Banks, issues participation certificates which represent an
interest in mortgages from FHLMC's portfolio. FHLMC guarantees the timely
payment of interest and the ultimate collection of principal. Securities
guaranteed by FNMA and FHLMC are not backed by the full faith and credit of the
United States. If other fixed or variable rate pass-through mortgage-backed
securities issued by the U.S. Government or its agencies or instrumentalities
are developed in the future, the Portfolios reserve the right to invest in
them.
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The Portfolios (other than the Alliance Equity Index Portfolio) may also invest
in other types of mortgage-backed securities issued by governmental or
non-governmental entities, such as banks and other mortgage lenders. These
other instruments include collateralized mortgage obligations ("CMOs"),
mortgage pass-through bonds and mortgage-backed bonds. Non-governmental
securities may offer a higher yield but may also be subject to greater price
fluctuation and risk than governmental securities.
CMOs are obligations fully collateralized directly or indirectly by a pool of
mortgages on which payments of principal and interest are passed through to the
holders of the CMOs on the same schedule as they are received, although not
necessarily on a pro rata basis. In reliance on an SEC interpretation,
investments in certain qualifying CMOs, including CMOs that have elected to be
treated as Real Estate Mortgage Investment Conduits ("REMICs"), are not subject
to the Investment Company Act's limitation on acquiring interests in other
investment companies. In order to be able to rely on the SEC's interpretation,
the CMOs and REMICs must be unmanaged, fixed-asset issuers that (i) invest
primarily in mortgage-backed securities, (ii) do not issue redeemable
securities, (iii) operate under general exemptive orders exempting them from
all provisions of the Investment Company Act, and (iv) are not registered or
regulated under the Investment Company Act as investment companies. To the
extent that a Portfolio selects CMOs or REMICs that do not meet the above
requirements, the Portfolio may not invest more than 10% of its assets in all
such entities and may not acquire more than 3% of the voting securities of any
single such entity. Mortgage-backed bonds are general obligations of the issuer
fully collateralized directly or indirectly by a pool of mortgages. The
mortgages serve as collateral for the issuer's payment obligations on the
mortgage-backed bonds but interest and principal payments on the mortgages are
not passed through directly (as with GNMA, FNMA and FHLMC pass-through
securities) or on a modified basis (as with CMOs). Accordingly, a change in the
rate of prepayments on the pool of mortgages could change the effective
maturity of a CMO but not the effective maturity of a mortgage-backed bond
(although, like many bonds, mortgage-backed bonds may be callable by the issuer
prior to maturity). It is expected that governmental, government-related, or
private entities may create mortgage loan pools and other mortgage-backed
securities offering mortgage pass-through and mortgage-collateralized
investments in addition to those described above.
Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers, and other secondary market issuers also create
pass-through pools of conventional residential mortgage loans. In addition,
such issuers may be the originators and/or servicers of the underlying mortgage
loans as well as the guarantors of the mortgage-backed securities. Pools
created by non-governmental issuers generally offer a higher rate of interest
than government and government-related pools because of the absence of direct
or indirect government or agency guarantors. Timely payment of interest and
principal with respect to these pools may be supported by various forms of
insurance or guarantees, including individual loan, title, pool and hazard
insurance, and letters of credit. The insurance, guarantees, and
creditworthiness of the issuers thereof will be considered in determining
whether a mortgage-backed security meets a Portfolio's investment quality
standards. There is no assurance that the private insurers or guarantors can
meet their obligations under the insurance policies or guarantee arrangements.
Each Portfolio (other than the Alliance Equity Index Portfolio) may buy
mortgage-backed securities without insurance or guarantees, if the investment
adviser determines that the securities meet the Portfolio's quality standards.
Alliance will, consistent with each Portfolio's investment objectives,
policies, and quality standards, consider making investments in new types of
mortgage-backed securities as such securities are developed and offered to
investors.
Prepayment of mortgages underlying mortgage-backed securities may reduce their
current yield and total return. During periods of declining interest rates,
such prepayments can be expected to accelerate and the Portfolios would be
required to reinvest the proceeds at the lower interest rates then available.
In addition, prepayments of mortgages which underlie securities purchased at a
premium could result in capital losses because the premium may not have been
fully amortized at the time the obligation is repaid. The Portfolios do not
intend to invest in these securities unless the Trust's adviser believes that
the potential benefits outweigh the risks.
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ASSET-BACKED SECURITIES
The Portfolios (other than the Alliance Equity Index Portfolio) may purchase
asset-backed securities (unrelated to first mortgage loans) that represent
fractional interests in pools of retail installment loans, both secured (such
as Certificates for Automobile Receivables) and unsecured, leases or revolving
credit receivables, both secured and unsecured (such as Credit Card Receivable
Securities). These assets are generally held by a special purpose trust and
payments of principal and interest or interest only are passed through or paid
through monthly or quarterly to certificate holders and may be guaranteed up to
certain amounts by letters of credit issued by a financial institution
affiliated or unaffiliated with the trustee or originator of the trust.
Underlying retail installment loans, leases or revolving credit receivables are
subject to prepayment, which may reduce the overall return to certificate
holders. Certificate holders may also experience delays in payment on the
certificates if the full amounts due on underlying retail installment loans,
leases or revolving credit receivables are not realized by the Trust because of
unanticipated legal or administrative costs of enforcing the contracts, retail
installment loans, leases or revolving credit receivables, or because of
depreciation or damage to the collateral (usually automobiles) securing certain
contracts, retail installment loans, leases or revolving credit receivables, or
other factors. If consistent with its investment objective and policies, a
Portfolio may invest in other asset-backed securities that may be developed in
the future.
SECURITIES ISSUED OR GUARANTEED BY THE U.S. GOVERNMENT OR ITS AGENCIES OR
INSTRUMENTALITIES
These securities include issues of the U.S. Treasury, such as bills,
certificates of indebtedness, notes and bonds, and issues of agencies and
instrumentalities established under the authority of an act of Congress.
Such agencies and instrumentalities include, but are not limited to, the
National Bank for Cooperatives, each of the Federal Financing Banks, FHLMC, the
Farm Credit Banks, Federal Land Banks, FNMA, Tennessee Valley Authority, Farm
Credit System, Farm Credit System Financial Assistance Corporation,
Inter-American Development Bank, Maritime Administration, Resolution Trust
Corporation, Federal Agricultural Mortgage Corporation, Small Business
Administration, U.S. Postal Service and Washington Metropolitan Transit
Authority.
Issues of the U.S. Treasury are direct obligations of the U.S. Government and
are backed by the full faith and credit of the United States. Issues of
agencies, such as GNMA, are guaranteed by the U.S. Treasury, and issues of
other agencies and instrumentalities, such as FNMA, are supported by the
issuing agency's or instrumentality's right to borrow from the U.S. Treasury,
at the discretion of the U.S. Treasury, or are supported by the issuing
agency's or instrumentality's own credit.
CERTIFICATES OF DEPOSIT, BANKERS' ACCEPTANCES AND BANK TIME DEPOSITS
Certificates of deposit are receipts issued by a bank in exchange for the
deposit of funds. The issuer agrees to pay the amount deposited plus interest
to the bearer of the receipt on the date specified on the certificate. The
certificate usually can be traded in the secondary market prior to maturity.
Bankers' acceptances typically arise from short-term credit arrangements
designed to enable businesses to obtain funds to finance commercial
transactions. Generally, an acceptance is a time draft drawn on a bank by an
exporter or an importer to obtain a stated amount of funds to pay for specific
merchandise. The draft is then "accepted" by a bank that, in effect,
unconditionally guarantees to pay the face value of the instrument on its
maturity date. The acceptance may then be held by the accepting bank as an
earning asset or it may be sold in the secondary market at the going rate of
discount for a specific maturity. Although maturities for acceptances can be as
long as 270 days, most maturities are six months or less.
Bank time deposits are funds kept on deposit with a bank for a stated period of
time in an interest bearing account. At present, bank time deposits maturing in
more than seven days are not considered by management of the Trust to be
readily marketable and therefore are subject to the 15% limit on illiquid
securities.
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COMMERCIAL PAPER, MASTER DEMAND NOTES AND FLOATING RATE NOTES
Commercial paper consists of short-term (usually from 1 to 270 days) unsecured
promissory notes issued by corporations in order to finance their current
operations.
Variable amount master demand notes are obligations that permit the investment
of fluctuating amounts by a Portfolio at varying rates of interest pursuant to
direct arrangements between the Portfolio, as lender, and the borrower. These
notes permit daily changes in the amounts borrowed. The Portfolio has the right
to increase the amount under the note at any time up to the full amount
provided by the note agreement, or to decrease the amount, and the borrower may
repay up to the full amount of the note without penalty. Because variable
amount master notes are direct lending arrangements between the lender and
borrower, and not generally backed by bank letters of credit, it is not
generally contemplated that such instruments will be traded, and there is no
secondary market for these notes, although they are redeemable (and thus
immediately repayable by the borrower) at face value, plus accrued interest, at
any time. Therefore, the Portfolio's right to redeem depends on the ability of
the borrower to pay principal and interest on demand. Variable amount master
demand notes are valued at their face amount (par) because of their one-day
demand feature. In connection with master demand note arrangements, the
Portfolio considers earning power, cash flow, and other liquidity ratios of the
issuer. Master demand notes, as such, are not typically rated by credit rating
agencies.
Floating or variable rate notes are generally medium- to long-term debt
securities, but may include short-term debt securities, issued by entities such
as commercial banks, corporations or sovereign borrowers. They are interest
bearing securities on which the coupon is adjusted periodically to reflect
money market conditions. The period at the end of which the adjustment occurs
is often called the interest reset period. The Portfolios will buy only notes
with an interest reset period of six months or less. There is an active
secondary market for floating or variable rate notes.
EURODOLLAR SECURITIES
Negotiable certificates of deposit and time deposits of foreign branches of
U.S. or foreign banks payable in U.S. dollars are known as Eurodollar deposits.
Eurodollar securities also include bonds underwritten by an international
syndicate and sold "at issue" to non-U.S. investors. Such securities are not
registered with the SEC or issued domestically and are primarily traded in
foreign markets. Certain risks applicable to foreign securities apply to
Eurodollar instruments. Investment risks from these securities include future
political and economic developments, possible foreign withholding taxes on
interest, possible seizure of foreign deposits, or the possible establishment
of exchange controls affecting payment on these securities. See "Foreign
Securities," above, for additional information about foreign securities. In
addition to those risks, foreign branches of U.S. and foreign banks are subject
to extensive government regulation which may limit both the amount and type of
loans and interest rates. In addition, the banking industry's profitability is
closely linked to prevailing money market conditions for financing lending
operations. Both general economic conditions and credit risks play an important
part in the operations of the industry. U.S. banks are required to maintain
reserves, are limited in how much they can loan a single borrower and are
subject to other regulations to promote financial soundness. Not all of these
laws and regulations apply to foreign branches of U.S. and foreign banks. In
addition, foreign countries have accounting and reporting principles that
differ from those in the United States.
HIGH YIELD DEBT SECURITIES
The Alliance High Yield Portfolio, as described in the Prospectus, intends to
invest primarily in debt securities offering high current income. The Alliance
Growth Investors Portfolio may invest up to 15% of its total assets in such
high yield debt securities, and the Alliance Growth and Income Portfolio may
invest up to 30% of its total assets in high yield convertible securities. High
yield securities may be medium and lower quality securities rated, for example,
BB or B by one of the nationally recognized statistical rating organizations
("NRSROs") or may be unrated but of similar investment quality as determined by
Alliance. These securities are also known as "junk bonds." The market values of
such high yield securities tend to reflect individual corporate developments to
a greater extent than higher rated securities, which
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react primarily to fluctuations in the general level of interest rates. Such
medium and lower rated securities also tend to be more sensitive to real or
perceived adverse economic conditions than higher rated securities.
Companies that issue high yield securities are often highly leveraged and may
not have available to them more traditional methods of financing. Therefore,
the risks associated with acquiring the securities of such issuers generally
are greater than is the case with higher rated securities. For example, during
an economic downturn or a sustained period of rising interest rates, highly
leveraged issuers of high yield securities may experience "financial stress"
and may not have sufficient revenues to meet their payment obligations. Such an
issuer's ability to service its obligations may also be adversely affected by
specific corporate developments, the issuer's inability to meet specific
projected business forecasts, or the unavailability of additional financing.
Risk of loss due to default by the issuer is also significantly greater for the
holders of high yield securities because such securities are generally
unsecured and are generally subordinated to the debts of other creditors of the
issuer.
The Alliance High Yield, Alliance Growth and Income and Alliance Growth
Investors Portfolios may have difficulty disposing of certain high yield
securities, particularly those perceived to have a high credit risk, because
there may be a thin trading market for such securities. Because not all dealers
maintain markets in all high yield securities, there is no established retail
secondary market for certain of these securities, and the Portfolios anticipate
that such securities could be sold only to a limited number of dealers or
institutional investors. Moreover, to the extent a secondary trading market for
high yield securities exists, it may be less liquid than the secondary market
for higher rated securities. The lack of a highly liquid secondary market for
certain high yield securities may have an adverse impact on the market price
for such securities and each Portfolio's ability to dispose of particular
issues when necessary to meet the Portfolio's liquidity needs or in response to
a specific economic event such as a deterioration in the creditworthiness of
the issuer. Adverse publicity and investor perceptions, whether or not based on
fundamental analysis, may decrease the values and liquidity of high yield
securities, especially in a thinly traded market. The lack of a liquid
secondary market for certain securities may also make it more difficult for the
Portfolios to obtain accurate market quotations for purposes of valuing certain
of its high yield portfolio securities. Market quotations are generally
available on many high yield issues only from a limited number of dealers and
may not necessarily represent firm bids of such dealers or prices for actual
sales.
In addition, the market for high yield securities, at its current size, has not
weathered a major economic recession, and one cannot be certain what effect
such a recession might have on such securities. It is possible that a recession
could severely disrupt the market for such medium and lower quality securities
and may have an adverse impact on the value of such securities. In addition, it
is possible that an economic downturn could adversely affect the ability of the
issuers of such securities to repay principal and pay interest on such
securities.
From time to time, proposals have been discussed regarding new legislation
designed to limit the use of certain high yield securities by issuers in
connection with leveraged buy-outs, mergers and acquisitions, or to limit the
deductibility of interest payments on such securities. Such proposals if
enacted into law could: (i) reduce the market for such securities generally;
(ii) negatively affect the financial condition of issuers of high yield
securities by removing or reducing a source of future financing; and (iii)
negatively affect the value of specific high yield securities and the high
yield market in general.
Factors adversely impacting the market value of high yield securities may
adversely impact each Portfolio's net asset value. In addition, each Portfolio
may incur additional expenses to the extent it is required to seek recovery
upon a default in the payment of principal or interest on its portfolio
securities. The Portfolios will not rely primarily on ratings of NRSROs, but
rather will rely on judgment, analysis and experience in evaluating the
creditworthiness of an issuer. In evaluating such securities, Alliance will
take into consideration, among other things, the issuer's financial resources
and quality of management, its sensitivity to economic conditions and trends,
its operating history and regulatory matters.
TRANSACTIONS IN OPTIONS, FUTURES AND FORWARD CONTRACTS
To the extent provided below, the Portfolios may enter into transactions in
options, futures and forward contracts on a variety of instruments and indexes,
in order to protect against declines in the value of
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portfolio securities and increases in the cost of securities to be acquired
and, in the case of options written on securities or indexes of securities, to
increase a Portfolio's return. All the Portfolios, except the Alliance Money
Market Portfolio, are authorized to engage in futures transactions. In general,
the Portfolios will limit their use of futures contracts and options on futures
contracts so that either (i) the contracts or options thereon are for "bona
fide hedging" purposes as defined under regulations of the Commodity Futures
Trading Commission ("CFTC") or (2) if for other purposes, no more than 5% of
the liquidation value of each Portfolio's total assets will be used for initial
margin or option premiums required to establish non-hedging positions. These
instruments will be used for hedging purposes and not for speculation or to
leverage the Portfolios.
OPTIONS ON SECURITIES
Writing Call Options. Each Portfolio, other than the Alliance Money Market and
Alliance Equity Index Portfolios, may write (sell) covered call options on its
portfolio securities in an attempt to enhance investment performance. A call
option is a contract which gives the purchaser of the option (in return for a
premium paid) the right to buy, and the writer of the option (in return for a
premium received) the obligation to sell, the underlying security at the
exercise price at any time prior to the expiration of the option, regardless of
the market price of the security during the option period. A covered call
option is, for example, a call option written on a security that is owned by
the writer (or on a security convertible into such a security without
additional consideration) throughout the option period.
A Portfolio will write covered call options both to reduce the risks associated
with certain of its investments and to increase total investment return through
the receipt of premiums. In return for the premium income, the Portfolio will
give up the opportunity to profit from an increase in the market price of the
underlying security above the exercise price so long as its obligations under
the contract continue, except insofar as the premium represents a profit.
Moreover, in writing the call option, the Portfolio will retain the risk of
loss should the price of the security decline. The premium is intended to
offset that loss in whole or in part. Unlike the situation in which the
Portfolio owns securities not subject to a call option, the Portfolio, in
writing call options, must assume that the call may be exercised at any time
prior to the expiration of its obligation as a writer, and that in such
circumstances the net proceeds realized from the sale of the underlying
securities pursuant to the call may be substantially below the prevailing
market price.
A Portfolio may terminate its obligation under an option it has written by
buying an identical option. Such a transaction is called a "closing purchase
transaction." The Portfolio will realize a gain or loss from a closing purchase
transaction if the amount paid to purchase a call option is less or more than
the amount received from the sale of the corresponding call option. When an
underlying security is sold from the Portfolio's securities portfolio, the
Portfolio will effect a closing purchase transaction so as to close out any
existing covered call option on that underlying security. A closing purchase
transaction for exchange-traded options may be made only on a national
securities exchange (exchange). There is no assurance that a liquid secondary
market on an exchange will exist for any particular option, or at any
particular time, and for some options, such as over-the-counter options, no
secondary market on an exchange may exist. If the Portfolio is unable to effect
a closing purchase transaction, the Portfolio will not sell the underlying
security until the option expires or the Portfolio delivers the underlying
security upon exercise.
Writing Put Options. The writer of a put option becomes obligated to purchase
the underlying security at a specified price during the option period if the
buyer elects to exercise the option before its expiration date. A Portfolio
which writes a put option will be required to "cover" it, for example, by
depositing and maintaining in a segregated account with its custodian liquid
securities having a value equal to or greater than the exercise price of the
option.
The Portfolios, except the Alliance Money Market and Alliance Equity Index
Portfolios, may write put options either to earn additional income in the form
of option premiums (anticipating that the price of the underlying security will
remain stable or rise during the option period and the option will therefore
not be exercised) or to acquire the underlying security at a net cost below the
current value (e.g., the option is exercised because of a decline in the price
of the underlying security, but the amount paid by the Portfolio, offset by the
option premium, is less than the current price). The risk of either strategy is
that
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the price of the underlying security may decline by an amount greater than the
premium received. The premium which a Portfolio receives from writing a put
option will reflect, among other things, the current market price of the
underlying security, the relationship of the exercise price to that market
price, the historical price volatility of the underlying security, the option
period, supply and demand and interest rates.
A Portfolio may effect a closing purchase transaction to realize a profit on an
outstanding put option or to prevent an outstanding put option from being
exercised. If a Portfolio is able to enter into a closing purchase transaction,
the Portfolio will realize a profit (or loss) from that transaction if the cost
of the transaction is less (or more) than the premium received from the writing
of the option. After writing a put option, a Portfolio may incur a loss equal
to the difference between the exercise price of the option and the sum of the
market value of the underlying security plus the premiums received from the
sale of the option.
Purchasing Options. The Portfolios, except the Alliance Money Market and
Alliance Equity Index Portfolios, may purchase put options and call options.
The Portfolios may purchase put options on securities to protect their holdings
against a substantial decline in market value. The Portfolio will continue to
receive interest or dividend income on the security. The Portfolios may also
purchase call options on securities to protect against substantial increases in
prices of securities the Portfolios intend to purchase pending their ability to
invest in an orderly manner in those securities. The Portfolios may sell put or
call options they have previously purchased, which could result in a net gain
or loss depending on whether the amount received on the sale is more or less
than the premium and other transaction costs paid on the put or call option
which was purchased.
SECURITIES INDEX OPTIONS
The Portfolios, except the Alliance Money Market and Alliance Equity Index
Portfolios, may write covered put and call options and purchase call and put
options on securities indexes for the purpose of hedging against the risk of
unfavorable price movements adversely affecting the value of a Portfolio's
securities or securities it intends to purchase. Each Portfolio writes only
"covered" options. A call option on a securities index is considered covered,
for example, if, so long as the Portfolio is obligated as the writer of the
call, it holds securities the price changes of which are, in the opinion of
Alliance, expected to replicate substantially the movement of the index or
indexes upon which the options written by the Portfolio are based. A put on a
securities index written by a Portfolio will be considered covered if, so long
as it is obligated as the writer of the put, the Portfolio segregates with its
custodian liquid assets having a value equal to or greater than the exercise
price of the option. Unlike a stock option, which gives the holder the right to
purchase or sell a specified stock at a specified price, an option on a
securities index gives the holder the right to receive a cash "exercise
settlement amount" equal to (i) the difference between the exercise price of
the option and the value of the underlying stock index on the exercise date,
multiplied by (ii) a fixed "index multiplier."
A securities index fluctuates with changes in the market values of the
securities included in the index. For example, some securities index options
are based on a broad market index such as the S&P 500 or the New York Stock
Exchange ("NYSE") Composite Index, or a narrower market index such as the S&P
100. Indexes may also be based on an industry or market segment such as the
AMEX Oil and Gas Index or the Computer and Business Equipment Index. Options on
stock indexes are currently traded on the following exchanges among others: The
Chicago Board Options Exchange; NYSE; and American Stock Exchange.
The effectiveness of hedging through the purchase of securities index options
will depend upon the extent to which price movements in the portion of the
securities portfolio being hedged correlate with price movements in the
selected securities index. Perfect correlation is not possible because the
securities held or to be acquired by a Portfolio will not exactly match the
composition of the securities indexes on which options are written. The
principal risk of purchasing securities index options is that the premium and
transaction costs paid by a Portfolio in purchasing an option will be lost if
the changes (increase in the case of a call, decrease in the case of a put) in
the level of the index do not exceed the cost of the option.
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The principal risk of writing securities index options is that price changes in
the hedged securities will not correlate with price changes in the options, and
thus the Portfolio could bear a loss on the options that would be only
partially offset (or not offset at all) by the increased value or reduced cost
of the hedged securities. Moreover, in the event the Portfolio were unable to
close an option it had written, it might be unable to sell the securities used
as cover.
OVER-THE-COUNTER OPTIONS
Options traded in the over-the-counter market may not be as actively traded as
those traded on an exchange. Accordingly, it may be more difficult to value
such options. In addition, it may be difficult to enter into closing
transactions with respect to options traded over-the-counter. The Portfolios
will engage in such transactions only with firms of sufficient credit, in the
opinion of Alliance, so as to minimize these risks. Such options and the
securities used as "cover" for such options may be considered illiquid
securities.
The Portfolios may enter into contracts (or amend existing contracts) with
primary dealer(s) with whom they write over-the-counter options. The contracts
will provide that each Portfolio has the absolute right to repurchase an option
it writes at any time at a repurchase price which represents the fair market
value, as determined in good faith through negotiation between the parties, but
which in no event will exceed a price determined pursuant to a formula
contained in the contract. Although the specific details of the formula may
vary between contracts with different primary dealers, the formula will
generally be based on a multiple of the premium received by each Portfolio for
writing the option, plus the amount, if any, of the option's intrinsic value
(i.e., the amount the option is "in-the-money"). The formula will also include
a factor to account for the difference between the price of the security and
the strike price of the option if the option is written "out-of-the-money."
Although the Portfolios have established standards of creditworthiness for
these primary dealers, the Portfolios may still be subject to the risk that
firms participating in such transactions will fail to meet their obligations.
With respect to agreements concerning the over-the-counter options a Portfolio
has written, the Portfolio will treat as illiquid only securities equal in
amount to the formula price described above less the amount by which the option
is "in-the-money," i.e., the amount by which the price of the option exceeds
the exercise price.
FUTURES TRANSACTIONS
All the Portfolios, except the Alliance Money Market Portfolio, may trade in
certain futures contracts. A futures contract is a bilateral agreement to buy
or sell a security (or deliver a cash settlement price, in the case of a
contract relating to an index or otherwise not calling for physical delivery at
the end of trading in the contracts) for a set price in the future. No purchase
price is paid or received when the contract is entered into. Instead, a good
faith deposit known as initial margin is made with the broker and subsequent
daily payments known as variation margin are made to and by the broker
reflecting changes in the value of the security or level of the index. Futures
contracts are designated by boards of trade which have been designated
"contracts markets" by the CFTC.
Purchases or sales of securities index futures contracts may be used to attempt
to protect a Portfolio's current or intended investments from broad
fluctuations in securities prices, and interest rate and foreign currency
futures contracts may be purchased or sold to attempt to hedge against the
effects of interest or exchange rate changes on a Portfolio's current or
intended investments in fixed income or foreign securities. All the Portfolios,
except the Alliance Money Market, Alliance Equity Index and Alliance
Intermediate Government Securities Portfolios, may trade in foreign currency
futures contracts. In the event that an anticipated decrease in the value of
portfolio securities occurs as a result of a general stock market decline, a
general increase in interest rates or a decline in the dollar value of foreign
currencies in which portfolio securities are denominated, the adverse effects
of such changes may be offset, in whole or in part, by gains on the sale of
futures contracts. In addition, the increased cost of portfolio securities to
be acquired, caused by a general rise in the dollar value of foreign currencies
or by a rise in stock prices or a decline in interest rates, may be offset, in
whole or in part, by gains on futures contracts purchased by a Portfolio. In
order to achieve desired asset mix parameters, the Alliance Conservative
Investors and Alliance Growth Investors Portfolios may use futures contracts
and related options transactions to
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establish a position in an asset class as a temporary substitute for purchasing
individual securities, which may be subsequently purchased in orderly fashion.
Similarly, these transactions may enable the Alliance Conservative Investors
and Alliance Growth Investors Portfolios to reduce a position in an asset class
as a temporary substitute for selling individual securities, in order to effect
an orderly sale. In the case of the Alliance Equity Index Portfolio, futures
contracts and related options on the S&P 500 Index may be purchased in order to
reduce brokerage costs, maintain liquidity to meet shareholder redemptions or
minimize tracking error. A Portfolio will incur brokerage fees when it
purchases and sells futures contracts, and it will be required to maintain
margin deposits. (See "Risks of Transactions in Options, Futures Contracts and
Forward Currency Contracts," below.) Positions taken in the futures markets are
not normally held until delivery or cash settlement is required, but are
instead liquidated through offsetting transactions which may result in a gain
or a loss. While futures positions taken by a Portfolio will usually be
liquidated in this manner, the Portfolio may instead make or take delivery of
underlying securities whenever it appears economically advantageous to the
Portfolio to do so. A clearing organization associated with the exchange on
which futures are traded assumes responsibility for closing out transactions
and guarantees that, as between the clearing members of an exchange, the sale
and purchase obligations will be performed with regard to all positions that
remain open at the termination of the contract.
SECURITIES INDEX FUTURES CONTRACTS
A securities index futures contract does not require the physical delivery of
securities, but merely provides for profits and losses resulting from changes
in the market value of the contract to be credited or debited at the close of
each trading day to the respective accounts of the parties to the contract. On
the contract's expiration date a final cash settlement occurs and the futures
positions are simply closed out. Changes in the market value of a particular
index futures contract reflect changes in the specified index of securities on
which the futures contract is based.
By establishing an appropriate "short" position in index futures, a Portfolio
may seek to protect the value of its portfolio against an overall decline in
the market for such securities. Alternatively, in anticipation of a generally
rising market, a Portfolio can seek to avoid losing the benefit of apparently
low current prices by establishing a "long" position in securities index
futures and later liquidating that position as particular securities are
acquired. To the extent that these hedging strategies are successful, the
Portfolio will be affected to a lesser degree by adverse overall market price
movements than would otherwise be the case.
OPTIONS ON FUTURES CONTRACTS
Each of the Portfolios, other than the Alliance Money Market Portfolio, may
also purchase and write exchange-traded call and put options on futures
contracts it is authorized to enter into. These options are traded on exchanges
that are licensed and regulated by the CFTC for the purpose of options trading.
A call option on a futures contract gives the purchaser the right, in return
for the premium paid, to purchase a futures contract (assume a "long" position)
at a specified exercise price at any time before the option expires. A put
option gives the purchaser the right, in return for the premium paid, to sell a
futures contract (assume a "short" position), for a specified exercise price,
at any time before the option expires. The Portfolios will write only options
on futures contracts which are "covered." A Portfolio will be considered
"covered" with respect to a put option it has written if, so long as it is
obligated as a writer of the put, the Portfolio segregates with its custodian
liquid assets at all times equal to or greater than the aggregate exercise
price of the puts it has written (less any related margin deposited with the
futures broker). A Portfolio will be considered "covered" with respect to a
call option it has written on a debt security future if, so long as it is
obligated as a writer of the call, the Portfolio owns the security deliverable
under the futures contract. A Portfolio will be considered "covered" with
respect to a call it has written on a securities index future if so long as the
Portfolio is obligated as the writer of the call, the Portfolio owns a
portfolio of securities the price changes of which are, in the opinion of
Alliance, expected to replicate substantially the movement of the index upon
which the futures contract is based.
Upon the exercise of a call, the writer of the option is obligated to sell the
futures contract (to deliver a "long" position to the option holder) at the
option exercise price, which will presumably be lower than
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the current market price of the contract in the futures market. Upon exercise
of a put, the writer of the option is obligated to purchase the futures
contract (deliver a "short" position to the option holder) at the option
exercise price which will presumably be higher than the current market price of
the contract in the futures market. When the holder of an option exercises it
and assumes a long futures position, in the case of a call, or a short futures
position, in the case of a put, its gain will be credited to its futures margin
account, while the loss suffered by the writer of the option will be debited to
its futures margin account and must be immediately paid by the writer. However,
as with the trading of futures, most participants in the options markets do not
seek to realize their gains or losses by exercise of their option rights.
Instead, the holder of an option will usually realize a gain or loss by buying
or selling an offsetting option at a market price that will reflect an increase
or a decrease from the premium originally paid.
Options on futures contracts can be used by a Portfolio to hedge substantially
the same risks as might be addressed by the direct purchase or sale of the
underlying futures contracts. If the Portfolio purchases an option on a futures
contract, it may obtain benefits similar to those that would result if it held
the futures position itself. Purchases of options on futures contracts may
present less risk in hedging than the purchase and sale of the underlying
futures contracts since the potential loss is limited to the amount of the
premium plus related transaction costs.
The purchase of put options on futures contracts is a means of hedging a
portfolio of securities against a general decline in market prices. The
purchase of a call option on a futures contract represents a means of hedging
against a market advance when a Portfolio is not fully invested.
If a Portfolio writes options on futures contracts, the Portfolio will receive
a premium but will assume a risk of adverse movement in the price of the
underlying futures contract comparable to that involved in holding a futures
position. If the option is not exercised, the Portfolio will realize a gain in
the amount of the premium, which may partially offset unfavorable changes in
the value of securities held in or to be acquired for the Portfolio. If the
option is exercised, the Portfolio will incur a loss in the option transaction,
which will be reduced by the amount of the premium it has received, but which
will offset any favorable changes in the value of its portfolio securities or,
in the case of a put, lower prices of securities it intends to acquire.
The writing of a call option on a futures contract constitutes a partial hedge
against declining prices of the underlying securities. If the futures price at
expiration is below the exercise price, the Portfolio will retain the full
amount of the option premium, which provides a partial hedge against any
decline that may have occurred in the value of the Portfolio's holdings of
securities. The writing of a put option on a futures contract is analogous to
the purchase of a futures contract in that it hedges against an increase in the
price of securities the Portfolio intends to acquire. However, the hedge is
limited to the amount of premium received for writing the put.
While the holder or writer of an option on a futures contract may normally
terminate its position by selling or purchasing an offsetting option of the
same series, a Portfolio's ability to establish and close out options positions
at fairly established prices will be subject to the existence of a liquid
market. The Portfolios will not purchase or write options on futures contracts
unless, in Alliance's opinion, the market for such options has sufficient
liquidity that the risks associated with such options transactions are not at
unacceptable levels.
LIMITATIONS ON PURCHASE AND SALE OF FUTURES CONTRACTS AND OPTIONS ON FUTURES
CONTRACTS
The Portfolios will not engage in transactions in futures contracts and related
options for speculation. All the Portfolios, except the Alliance Money Market
Portfolio, may enter into futures contracts and buy and sell related options as
described above. The Portfolios will not purchase or sell futures contracts or
related options unless either (1) the futures contracts or options thereon are
purchased for "bona fide hedging" purposes (as that term is defined under the
CFTC regulations) or (2) if purchased for other purposes, the sum of the
amounts of initial margin deposits on a Portfolio's existing futures and
premiums required to establish non-hedging positions would not exceed 5% of the
liquidation value of the Portfolio's total assets. In instances involving the
purchase of futures contracts or the writing of put options thereon by a
Portfolio, an amount of liquid assets equal to the cost of such futures
contracts or options written (less any
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related margin deposits) will be deposited in a segregated account with its
custodian, thereby insuring that the use of such futures contracts and options
is unleveraged. In instances involving the sale of futures contracts or the
writing of call options thereon by a Portfolio, the securities underlying such
futures contracts or options will at all times be maintained by the Portfolio
or, in the case of index futures and related options, the Portfolio will own
securities the price changes of which are, in the opinion of Alliance, expected
to replicate substantially the movement of the index upon which the futures
contract or option is based.
Positions in futures contracts may be closed out only on an exchange or a board
of trade which provides the market for such futures. Although the Portfolios
intend to purchase or sell futures only on exchanges or boards of trade where
there appears to be an active market, there is no guarantee that such will
exist for any particular contract or at any particular time. If there is not a
liquid market at a particular time, it may not be possible to close a futures
position at such time, and, in the event of adverse price movements, a
Portfolio would continue to be required to make daily cash payments of
maintenance margin. However, in the event futures positions are used to hedge
portfolio securities, the securities will not be sold until the futures
positions can be liquidated. In such circumstances, an increase in the price of
securities, if any, may partially or completely offset losses on the futures
contracts.
FOREIGN CURRENCY OPTIONS, FOREIGN CURRENCY FUTURES CONTRACTS AND OPTIONS ON
FUTURES
The Portfolios, other than the Alliance Money Market, Alliance Intermediate
Government Securities and Alliance Equity Index Portfolios, may purchase or
sell exchange-traded or over-the-counter foreign currency options, foreign
currency futures contracts and related options on foreign currency futures
contracts as a hedge against possible variations in foreign exchange rates. The
Portfolios will write options on foreign currencies or on foreign currency
futures contracts only if they are "covered." A put option on a foreign
currency or on a foreign currency futures contract written by a Portfolio will
be considered "covered" if, so long as the Portfolio is obligated as the writer
of the put, it segregates with the Portfolio's custodian liquid assets equal at
all times to the aggregate exercise price of the put. A call option on a
foreign currency or on a foreign currency futures contract written by the
Portfolio will be considered "covered" only if the Portfolio owns short term
debt securities with a value equal to the face amount of the option contract
and denominated in the currency upon which the call is written. Option
transactions may be effected to hedge the currency risk on non-U.S.
dollar-denominated securities owned by a Portfolio, sold by a Portfolio but not
yet delivered, or anticipated to be purchased by a Portfolio. As an
illustration, a Portfolio may use such techniques to hedge the stated value in
U.S. dollars of an investment in a Japanese yen-denominated security. In these
circumstances, a Portfolio may purchase a foreign currency put option enabling
it to sell a specified amount of yen for dollars at a specified price by a
future date. To the extent the hedge is successful, a loss in the value of the
dollar relative to the yen will tend to be offset by an increase in the value
of the put option. As in the case of other types of options, however, the
writing of an option on foreign currency will constitute only a partial hedge,
up to the amount of the premium received, and the Portfolio could be required
to purchase or sell foreign currencies at disadvantageous exchange rates,
thereby incurring losses. Although the purchase of an option on foreign
currency may constitute an effective hedge against fluctuations in exchange
rates in the event of exchange rate movements adverse to the Portfolio's
position it may forfeit the entire amount of the premium plus related
transaction costs.
Certain differences exist between foreign currency hedging instruments. Foreign
currency options provide the holder the right to buy or to sell a currency at a
fixed price on or before a future date. Listed options are third-party
contracts (performance is guaranteed by an exchange or clearing corporation)
which are issued by a clearing corporation, traded on an exchange and have
standardized prices and expiration dates. Over-the-counter options are
two-party contracts and have negotiated prices and expiration dates. See
"Over-the-Counter Options," above. A futures contract on a foreign currency is
an agreement between two parties to buy and sell a specified amount of the
currency for a set price on a future date. Futures contracts and listed options
on futures contracts are traded on boards of trade or futures exchanges.
Options traded in the over-the-counter market may not be as actively traded as
those on an exchange, thus it may be more difficult to value such options. In
addition, it may be difficult to enter into closing transactions with respect
to options traded over-the-counter.
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A Portfolio will not speculate in foreign currency options, futures or related
options. Accordingly, a Portfolio will not hedge a currency substantially in
excess of the market value of the securities denominated in that currency which
it owns or the expected acquisition price of securities which it anticipates
purchasing.
Hedging against a decline in the value of a currency does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. These hedging transactions also preclude the
opportunity for gain if the value of the hedged currency should rise. Whether a
currency hedge benefits a Portfolio will depend on Alliance's ability to
predict future foreign currency exchange rates.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
When a Portfolio invests in foreign securities, the securities are usually
denominated in a foreign currency, and the Portfolio may temporarily hold
foreign currency in connection with such investments. As a result, the value of
the Portfolio's assets will be subject to fluctuations based on changes in the
relative value of the foreign currency and the U.S. dollar. To control the
effects of this exchange risk, all of the Portfolios, except the Alliance Money
Market, Alliance Equity Index and Alliance Intermediate Government Securities
Portfolios, may enter into forward foreign currency exchange contracts
("forward currency contracts"), which are agreements to purchase or sell
foreign currencies at a specified future date and price. Forward currency
contracts are usually used to fix the U.S. dollar value of securities a
Portfolio has agreed to buy or sell ("transaction hedging"). The Portfolios may
also use forward currency contracts to hedge the U.S. dollar value of
securities it already owns ("position hedging"). The Portfolios will not
speculate in forward currency contracts.
In general, forward currency contracts are not regulated by any governmental
authority guaranteed by a third party or traded on an exchange. Accordingly,
each party to a forward currency contract is dependent upon the
creditworthiness and good faith of the other. The Portfolios will only enter
forward currency contracts with counterparties that, in the opinion of
Alliance, do not present undue credit risk.
RISKS OF TRANSACTIONS IN OPTIONS, FUTURES CONTRACTS AND FORWARD CURRENCY
CONTRACTS
Although the Portfolios will enter into transactions in futures contracts,
options on securities and securities indexes, options on futures contracts,
forward currency contracts and certain currency options as described above for
hedging purposes, and transactions in options on securities and securities
indexes to generate option premium income, their use involves certain risks. A
lack of correlation between the index or instrument underlying an option or
futures contract and the assets or liabilities being hedged, or unexpected
adverse price movements, could render a Portfolio's hedging strategy
unsuccessful and could result in losses. Moreover, when an option has been
written, in the event of a decline, the underlying position is only hedged to
the extent of the amount of premium received. Over-the-counter transactions in
options on foreign currencies and options on securities and securities indexes
also involve a lack of an organized exchange trading environment, making them
less liquid and making it more difficult to value than if they were exchange
traded.
In addition, there can be no assurance that a liquid secondary market will
exist for any futures contract or option purchased or sold. Accordingly a
Portfolio may be required to maintain a position until exercise or expiration,
which could result in losses. If in the event of an adverse movement the
Portfolio could not close a futures position, it would be required to continue
to make daily cash payments of variation margin. If a Portfolio could not close
an option position, an option holder would be able to realize profits or limit
losses only by exercising the option, and an option writer would remain
obligated until exercise or expiration. Finally, if a broker or clearing member
of an options or futures clearing corporation were to become insolvent, the
Portfolios could experience delays and might not be able to trade or exercise
options or futures purchased through that broker. In addition, the Portfolios
could have some or all of their positions closed out without their consent. If
substantial and widespread, these insolvencies could ultimately impair the
ability of the clearing corporations themselves. While the principal purpose of
hedging is to limit or offset the effects of adverse market movements, the
attendant expense may cause
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the Portfolios' returns to be less than if hedging had not taken place. The
overall effectiveness of hedging therefore depends on Alliance's accuracy in
predicting future changes in interest rate levels and/or securities price
movements, as well as on the expense of hedging.
MANAGEMENT OF THE TRUST
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.
[As of March 31, 1999, the Trustees and officers of the Trust owned Contracts
entitling them to provide voting instructions in the aggregate with respect to
less than one percent of the Trust's shares of beneficial interest.]
THE TRUSTEES
<TABLE>
<CAPTION>
NAME, ADDRESS AND AGE PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- --------------------- -------------------------------------------
<S> <C>
*John D. Carifa (54) ................... President, Chief Operating Officer and a Director of
Alliance Capital Management L.P. Alliance Capital Management Corporation ("ACMC");
1345 Avenue of the Americas Chairman and Chief Executive Officer of Alliance's
New York, NY 10105 Mutual Fund Division. Currently a Director and Trustee
of all other registered investment companies (the
"Alliance Mutual Funds") sponsored by Alliance, and
Director of Frontier Trust Company, a subsidiary of
Equitable.
William H. Foulk, Jr. (66) ............ Investment adviser and independent consultant. Former
2 Hekma Road Senior Manager of Barrett Associates, Inc. (investment
Greenwich, CT 06831 adviser), from May 1986 to November 1994.
Brenton W. Harries (71) ............... Director of Enhance Reinsurance Co. since December
14 Point Road 1986. Mr. Harries was also President and Chief Executive
Wilton Point, Officer, Global Electronic Markets Company from August
South Norwalk, CT 06854 1985 to October 1986.
Howard E. Hassler (Chairman) (69)...... Currently a consultant specializing in retailing, finance and
P.O. Box 967 real estate. Former Chairman and Chief Executive Officer
New York, NY 10150 of Brooks Fashion Stores, Inc. (specialty clothing stores);
Former Chairman, President and Chief Operating Officer
of Allied Stores Corporation (department and specialty
stores), 1987; Executive Vice President and Director,
Allied Stores Corporation from June 1984 to June 1987.
William L. Mannion (68) ............... Retired. Former Group Senior Vice President of Opera-
45 Bonnie Way tions of American Ultramar Limited until December 1986;
Allendale, NJ 07401 President and Chief Executive Officer of Tittston Petro-
leum, Inc., from January 1978 to July 1985; Director of the
East Jersey Railroad and the Bayonne Terminal Ware-
house from July 1978 to May 1983.
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
NAME, ADDRESS AND AGE PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- --------------------- -------------------------------------------
<S> <C>
Clifford L. Michel (59) ......... Partner of the law firm of Cahill Gordon & Reindel since
St. Bernard's Road January 1972. President, Chief Executive Officer and Di-
Gladstone, NJ 07934 rector of Wenonah Development Company (investment
holding company) since 1976. Director since 1987 and
Member of the Human Resources, Environmental and
Safety, and Executive Committees since 1987 of Placer
Dome Inc. (mining). Director, Faber-Castell Corporation
from 1988-1994 (writing instruments). President of Board
of Trustees of St. Mark's School from 1988 to 1993. Chair-
man of the Board of Trustees of Morristown Memorial
Hospital (and Memorial Health Foundation) from 1991 to
1996. Director, Vice Chairman and Treasurer of Atlantic
Health Systems, Inc. and Atlantic Hospital since 1996.
*Peter D. Noris (43) ............. Executive Vice President (since May 1995) and Chief Invest-
The Equitable Life Assurance ment Officer of Equitable (since July 1995); Executive Vice
Society of the United States President, The Equitable Companies Incorporated ("Equi-
787 Seventh Avenue table Companies") (since May 1995); Director of ACMC,
New York, NY 10019 the general partner of Alliance, since July 1995. Prior
thereto, Vice President of Salomon Brothers Inc., from
1992 to 1995. Principal of Morgan Stanley & Co. Inc., from
1984 to 1992.
Donald J. Robinson (64) ......... Senior Partner of the law firm of Orrick, Herrington &
666 Fifth Avenue Sutcliffe from July 1987 to December 1994; Member of the
New York, NY 10022 Executive Committee of the firm from January to Decem-
ber 1994; Senior Counsel of the firm since January 1995.
Trustee of the Museum of the City of New York from 1977
to 1995.
</TABLE>
*Trustees Carifa and Noris are "interested persons" (as defined in the
Investment Company Act) of the Trust. Mr. Carifa is deemed an "interested
person" of the Trust by virtue of his positions as a director and officer and
director of ACMC and Alliance, respectively. Mr. Noris is deemed an "interested
person" of the Trust by virtue of his positions as an officer of Equitable and
a director of ACMC.
Trustees Harries and Robinson are trustees (but not "interested persons") of
The Alliance Portfolios, a mutual fund advised by Alliance. Trustee Robinson is
also a director or trustee (but not an "interested person") of 37 other mutual
funds advised by Alliance. Trustee Michel is a director or trustee (but not an
"interested person") of 40 other mutual funds advised by Alliance. Trustee
Hassler is a director (but not an "interested person") of Alliance Real Estate
Investment Fund, Inc, a mutual fund advised by Alliance.
COMMITTEES OF THE BOARD
The Trust has a standing audit committee consisting of Trustees Mannion,
Dobkin, Foulk, Harries, Hassler, Michel and Robinson. The audit committee's
function is to recommend to the Board of Trustees a firm of independent
auditors to conduct the annual audit of the Trust's financial statements;
review with such firm the outline, scope and results of this annual audit; and
review the performance and fees charged by the independent auditors for
professional services. In addition, the committee meets with the independent
auditors and representatives of management to review accounting activities and
areas of financial reporting and control.
The Trust has a nominating committee consisting of Trustees Hassler, Harries
and Robinson. This committee considers individuals for nomination as Trustees
of the Trust.
The Trust has a valuation committee consisting of Trustees Harries, Mannion and
Noris. This committee determines the value of any of the Trust's securities and
assets for which market quotations are not readily available or for which
valuation cannot otherwise be provided.
22
<PAGE>
The Trust has a compensation committee consisting of Trustees Robinson, Hassler
and Mannion. The compensation committee's function is to review the Trustees'
compensation arrangements.
The Trust has a conflicts committee consisting of Trustees Hassler, Michel and
Robinson. The conflicts committee's function is to take any action necessary to
resolve conflicts among shareholders.
COMPENSATION TABLE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
(1) (2) (3) (4) (5)
- ------------------------------------------------------------------------------------------------------------
PENSION OR TOTAL
RETIREMENT COMPENSATION
AGGREGATE BENEFITS ACCRUED ESTIMATED ANNUAL FROM FUND AND
COMPENSATION AS PART OF FUND BENEFITS UPON FUND COMPLEX
NAME OF PERSON, POSITION FROM FUND EXPENSES RETIREMENT PAID TO DIRECTORS(1)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
John D. Carifa
Trustee $ -0- $-0- $-0- $ -0-
- ------------------------------------------------------------------------------------------------------------
John H. Dobkin(2)
Trustee $ -0- $-0- $-0- $ 185,362.50
- ------------------------------------------------------------------------------------------------------------
William H. Foulk, Jr.
Trustee $ 28,850.00 $-0- $-0- $ 241,002.50
- ------------------------------------------------------------------------------------------------------------
Brenton W. Harries
Trustee $ 65,000.00 $-0- $-0- $ 92,000.00
- ------------------------------------------------------------------------------------------------------------
Howard E. Hassler
Trustee $ 82,000.00 $-0- $-0- $ 85,500.00
- ------------------------------------------------------------------------------------------------------------
Michael Hegarty
Trustee $ -0- $-0- $-0- $ -0-
- ------------------------------------------------------------------------------------------------------------
William L. Mannion
Trustee $ 69,000.00(3) $-0- $-0- $ 69,000.00
- ------------------------------------------------------------------------------------------------------------
Clifford L. Michel
Trustee $ 25,850.00 $-0- $-0- $ 187,762.50
- ------------------------------------------------------------------------------------------------------------
Peter D. Noris
Trustee $ -0- $-0- $-0- $ -0-
- ------------------------------------------------------------------------------------------------------------
Donald J. Robinson
Trustee $ 21,450.00(3) $-0- $-0- $ 193,708.50
- ------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------
1 As of December 31, 1998 there were 118 investment companies in the Alliance
Fund Complex.
2 Appointed as Trustee on December 11, 1998.
3 Completely deferred. The total amounts of deferred compensation (including
interest) payable by the Trust to Messrs. Mannion and Robinson as of
December 31, 1998 were $389,769 and $276,523, respectively.
COMPENSATION OF TRUSTEES
Each Trustee, other than those who are "interested persons" of the Trust (as
defined in the Investment Company Act), receives from the Trust an annual fee
of $29,000, plus an additional fee of $4,000 per board meeting and $2,000 per
committee meeting attended. The meeting fee paid to the Trustee acting as
chairman of the meeting is increased by 50%. The Chairman of the Board receives
an additional annual retainer of $7,000. Trustees receive $1,000 for each day
spent performing special services requested by the Chairman or the President of
the Trust, and reimbursement for expenses in connection with the performance of
regular and special services.
During the year ended December 31, 1997, the Trust paid total retainer and
meeting fees of $496,000 (including deferrals of $210,000).
A deferred compensation plan for the benefit of the Trustees has been adopted
by the Trust. Under the plan each Trustee may defer payment of all or part of
the fees payable for such Trustee's services. Each
23
<PAGE>
Trustee may defer payment of such fees until his retirement as a Trustee or
until the earlier attainment of a specified age. Fees deferred under the plan,
together with accrued interest thereon, will be disbursed to a participating
Trustee in monthly installments over a five- to twenty-year period elected by
such Trustee.
THE TRUST'S OFFICERS
No officer of the Trust receives any compensation paid by the Trust. Each
officer of the Trust is an employee of Alliance or Equitable. The Trust's
principal executive officers are:
<TABLE>
<CAPTION>
NAME AND AGE POSITION WITH TRUST PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- ------------ ------------------- -------------------------------------------
<S> <C> <C>
John D. Carifa (53) President and Chief Executive President, Chief Operating Officer
Officer and a Director of ACMC, with which
he has been associated since prior to
1993.
Mark D. Gersten (48) Treasurer and Chief Financial Senior Vice President, Alliance Fund
Officer Services, Inc. ("AFS"), with which he
has been associated since prior to
1992.
Thomas R. Manley (46) Controller and Chief Vice President, ACMC (May 1996 to
Accounting Officer present); Assistant Vice President,
ACMC (July 1993 to May 1996);
Assistant Vice President, Equitable
Capital Management Corporation
("ECMC") (March 1991 to July
1993).
Bruce W. Calvert (52) Vice President Vice Chairman and Chief Investment
Officer of ACMC, with which he has
been associated since prior to 1992.
Kathleen A. Corbet (38) Vice President Executive Vice President, ACMC
(February 1997 to present); Senior
Vice President, ACMC (July 1993 to
February 1997); Executive Vice
President, ECMC (June 1992 to July
1993).
Jerome S. Golden (53) Vice President Executive Vice President of
Equitable (January 1998 to present);
rejoined Equitable in 1994 as
President of the Income Management
Group; previously President of
Golden Financial Group, which he
founded in 1987.
Nelson R. Jantzen (53) Vice President Senior Vice President, ACMC (July
1993 to present); Executive Vice
President, ECMC (June 1992 to July
1993).
Wayne D. Lyski (57) Vice President Executive Vice President, ACMC,
with which he has been associated
since prior to 1992.
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
NAME AND AGE POSITION WITH TRUST PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- ------------ ------------------- -------------------------------------------
<S> <C> <C>
Robin K. Murray (42) Vice President Vice President, Equitable (April 1994
to present); associated with Equitable
since prior to 1992.
Alden M. Stewart (52) Vice President Executive Vice President, ACMC
(July 1993 to present); associated
with ECMC since prior to 1992.
Edmund P. Bergan, Jr. (48) Secretary Senior Vice President and General
Counsel, Alliance Fund Distributors,
Inc. ("AFD"), with which he has
been associated since prior to 1992.
</TABLE>
INVESTMENT ADVISORY AND OTHER SERVICES
GENERAL INFORMATION
Alliance Capital Management L.P., a Delaware limited partnership with principal
offices at 1345 Avenue of the Americas, New York, New York 10105, has been
retained under an investment advisory agreement (the "Investment Advisory
Contract") to provide investment advice and, in general, to conduct the
management and investment program of the Trust under the supervision of the
Trust's Board of Trustees (see "Management of the Fund" in the Prospectus).
The Adviser is a leading international investment manager supervising client
accounts with assets as of September 30, 1998, totaling more than $241 billion
(of which more than $99 billion represented the assets of investment
companies). The Adviser's clients are primarily major corporate employee
benefit funds, public employee retirement systems, investment companies,
foundations and endowment funds. The 54 registered investment companies managed
by the Adviser, comprising 119 separate investment portfolios, currently have
more than 3.5 million shareholders. As of December 31, 1998, the Adviser and
its subsidiaries employed approximately 2,000 employees who operate out of
domestic offices and the offices of subsidiaries in Bahrain, Bangalore, Cairo,
Chennai, Hong Kong, Istanbul, Johannesburg, London, Luxembourg, Madrid, Moscow,
Mumbai, New Delhi, Paris, Pune, Sao Paolo, Seoul, Singapore, Sydney, Tokyo,
Toronto, Vienna and Warsaw. As of September 30, 1998, the Adviser was retained
as an investment manager for employee benefit plan assets of 34 of the FORTUNE
100 companies.
Alliance Capital Management Corporation ("ACMC"), the sole general partner of,
and the owner of a 1% general partnership interest in the Adviser, is an
indirect wholly owned subsidiary of the Equitable Life Assurance Society of the
United States ("Equitable"), one of the largest life insurance companies in the
United States and a wholly owned subsidiary of the Equitable Companies
Incorporated ("ECI"). ECI is a holding company controlled by AXA-UAP ("AXA") a
French insurance holding company which at March 1, 1998, beneficially owned
approximately 59% of the outstanding voting shares of ECI. As of June 30, 1998,
ACMC and Equitable Capital Management Corporation, each a wholly owned direct
or indirect subsidiary of Equitable, together with Equitable, owned in the
aggregate approximately 57% of the issued and outstanding units representing
assignments of beneficial ownership of limited partnership interests in the
Adviser.
AXA is a holding company for an international group of insurance and related
financial services companies. AXA's insurance operations include activities in
life insurance, property and casualty insurance and reinsurance. The insurance
operations are diverse geographically, with activities principally in Western
Europe, North America and the Asia/Pacific area. AXA is also engaged in asset
management, investment banking, securities trading, brokerage, real estate and
other financial services activities principally in the United States, as well
as in Western Europe and the Asia/Pacific area.
Based on information privided by AXA, as of March 31, 1998, more than 30% of
the voting power of AXA was controlled directly and indirectly by FINAXA, a
French holding Company. As of March 31, 1998 approximately 74% of the voting
power of FINAXA was controlled directly and indirectly by four French mutual
insurance companies (the "Mutuelles AXA"), one of which, AXA Assurances
I.A.R.D.
25
<PAGE>
Mutuelle itself controlled directly and indirectly more than 42% of the voting
power of FINAXA. Acting as a group, the Mutuelles AXA control both AXA and
FINAXA. Mutuelle, itself controlled directly and indirectly more than 42% of
the voting power of FINAXA. Acting as a group, the Mutuelles AXA control both
AXA and FINAXA.
ADVISORY AGREEMENT
The Investment Advisory Agreement terminates automatically in the event of its
assignment or, with respect to any Portfolio, upon 60 days' notice given by the
Trust's Board of Trustees, by Alliance or by majority vote (as defined in the
Investment Company Act and the rules thereunder) of the Portfolio's shares.
Otherwise, the term of the Investment Advisory Agreement on behalf of each
Portfolio is two years, but the Agreement will remain in effect from year to
year with respect to any Portfolio so long as its continuance is approved at
least annually by a majority of the non-interested members of the Board of
Trustees, and by (i) a majority vote (as defined in the Investment Company Act
and the rules thereunder) of the Portfolio's shareholders or (ii) the Board of
Trustees.
The advisory fee payable by the Trust is at the following annual percentages of
the value of each Portfolio's daily average net assets:
<TABLE>
<CAPTION>
DAILY AVERAGE NET ASSETS
-----------------------------------------------------------------------------
FIRST NEXT NEXT NEXT
$750 MILLION $750 MILLION $1 BILLION $2.5 BILLION THEREAFTER
-------------- -------------- ------------ -------------- -----------
<S> <C> <C> <C> <C> <C>
Alliance Conservative Investors ......... .475% .425% .375% .350% .325%
Alliance Balanced ....................... .450% .400% .350% .325% .300%
Alliance Growth Investors ............... .550% .500% .450% .425% .400%
Alliance Common Stock ................... .475% .425% .375% .355% .345%*
Alliance Global ......................... .675% .600% .550% .530% .520%
Alliance Aggressive Stock ............... .625% .575% .525% .500% .475%
Alliance Small Cap Growth ............... .900% .850% .825% .800% .775%
Alliance Money Market ................... .350% .325% .300% .280% .270%
Alliance Intermediate Government
Securities ............................. .500% .475% .450% .430% .420%
Alliance High Yield ..................... .600% .575% .550% .530% .520%
Alliance Growth and Income .............. .550% .525% .500% .480% .470%
Alliance Quality Bond ................... .525% .500% .475% .455% .445%
Alliance Equity Index ................... .325% .300% .275% .255% .245%
Alliance International .................. .900% .825% .800% .780% .770%
</TABLE>
- ----------
* On assets in excess of $10 billion, the management fee for the Alliance
Common Stock Portfolio is reduced to 0.335% of average daily net assets.
Because of undertakings made by Equitable Variable in connection with the
Reorganization, Equitable reimburses the Alliance Common Stock and Alliance
Money Market Divisions of its Continuing Separate Account to offset completely
the effect on such divisions of the portion of the Trust's advisory fees
applicable to such divisions which exceed a .25% effective annual rate. In
addition, Equitable reimburses the Alliance High Yield, Alliance Aggressive
Stock and Alliance Balanced Divisions of its Separate Account I for the portion
of the Trust's advisory fees applicable to those divisions which exceeds a .25%
effective annual rate. Because of expense limits in the variable annuity
contracts funded by its Separate Account A, Equitable reimburses the Alliance
Common Stock, Alliance Money Market and Alliance Balanced Division of that
separate account for the portion of the Trust's advisory fees applicable to
those divisions which exceeds a .26% effective rate, and the Alliance
Aggressive Stock Division for the portion that exceeds a .41% effective rate.
Policies sold by insurers other than Equitable and newer policy designs of
Equitable bear the advisory fees without adjustment. For a discussion of the
Reorganization, see "General Information," above.
26
<PAGE>
In 1998, the Trust paid advisory fees of $ to Alliance. In 1997, the
Trust paid advisory fees of $83,421,824 to Alliance. In 1996, the Trust paid
advisory fees of $59,901,466 to Alliance.
SPECIFIC SERVICES PERFORMED
Alliance performs the following services for or on behalf of the Trust pursuant
to the Investment Advisory Agreement.
Subject to the approval and supervision of the Board of Trustees, Alliance
exercises overall responsibility for the investment and reinvestment of the
Trust's assets. Alliance manages each Portfolio and is responsible for the
investment operations of the Trust and the composition of each Portfolio,
including the purchase, retention and disposition of the investments,
securities and cash contained therein, in accordance with each Portfolio's
investment objectives and policies as stated in the Trust's Agreement and
Declaration of Trust, By-laws, Prospectus and Statement of Additional
Information as from time to time in effect. In connection therewith, Alliance
provides investment research and supervision of the Trust's investments and
conducts a continuous program of investment evaluation and, if appropriate,
sales and reinvestment of the Trust's assets. Alliance furnishes to the Trust
such statistical information, with respect to the investments which the Trust
may hold or contemplate purchasing, as the Trust may reasonably request. On
Alliance's own initiative, it apprises the Trust of important developments
materially affecting each Portfolio and furnishes the Trust from time to time
such information as it may believe appropriate for this purpose. In addition,
Alliance furnishes to the Board of Trustees such periodic and special reports
as the Board may reasonably request. Alliance also implements all purchases and
sales of investments for each Portfolio in a manner consistent with such
investment policies, as from time to time amended.
Alliance, on behalf of the Trust, arranges for the placement of orders and
other execution of transactions for each Portfolio.
At the Trust's request, Alliance provides, without charge, personnel, who may
be the Trust's officers, to render such clerical, administrative and other
services, other than investor services or accounting services, to the Trust and
also furnishes to the Trust, without charge, such office facilities, which may
be Alliance's own offices, as may be required to perform its investment
advisory and portfolio management services. The Trust may also hire its own
employees and contract for services to be performed by third parties.
Pursuant to the terms of the Investment Advisory Agreement, Alliance has
contracted with Equitable for the provision of certain administrative services
to the Trust.
Alliance also performs investment advisory services for certain of Equitable's
separate and advisory accounts and for other clients, including mutual funds
registered as investment companies under the Investment Company Act, some of
which fund Contracts issued by Equitable and certain other unaffiliated
insurance companies. There are occasions on which transactions for the Trust
may be executed as part of concurrent authorizations to purchase or sell the
same security for Equitable's general account or for other accounts or
investment companies managed by Equitable or Alliance. These concurrent
authorizations potentially can be either advantageous or disadvantageous to the
Trust. When these concurrent authorizations occur, the objective is to allocate
the executions and related brokerage charges among the accounts or mutual funds
in an equitable manner.
ACCOUNTING SERVICES
Under an Accounting Services Agreement dated as of June 30, 1997, Alliance has
agreed to provide, or arrange for the provision of, certain investment
accounting services, including calculation of net asset values, preparation of
financial statements for each Portfolio, and such other accounting services as
the Trust may from time to time reasonably request, in exchange for
reimbursement by the Trust of costs and expenses incurred in providing, or
arranging for the provision of, such services. For 1998, Alliance was
reimbursed for $ of costs and expenses incurred in arranging for the
provision of accounting services.
27
<PAGE>
BROKERAGE ALLOCATION
SELECTION OF BROKERS
Pursuant to the Investment Advisory Agreement, Alliance, on behalf of the
Trust, arranges for the placement of orders and other transactions for each
Portfolio.
BROKERAGE COMMISSIONS
The Portfolios are charged for securities brokers' commissions, transfer taxes
and similar fees relating to securities transactions. Alliance seeks to obtain
the best price and execution on all orders placed for the Portfolios,
considering all the circumstances except to the extent it may be permitted to
pay higher commissions as described below.
It is expected that securities will ordinarily be purchased in the primary
markets, whether over-the-counter or listed, and that listed securities may be
purchased in the over-the-counter market if that market is deemed the primary
market.
Transactions on stock exchanges involve the payment of brokerage commissions.
In transactions on stock exchanges in the United States, these commissions are
negotiated, whereas on many foreign stock exchanges these commissions are
fixed. However, brokerage commission rates in certain countries in which the
Portfolios may invest may be discounted for certain large domestic and foreign
investors such as the Portfolios. A number of foreign banks and brokers will be
used for execution of each Portfolio's portfolio transactions. In the case of
securities traded in the foreign and domestic over-the-counter markets, there
is generally no stated commission, but the price usually includes an
undisclosed com-mission or mark-up. In underwritten offerings, the price
generally includes a disclosed fixed commission or discount.
Alliance may, in the allocation of brokerage business, take into consideration
research and other brokerage services provided by brokers and dealers to
Equitable or Alliance. The research services include economic, market, industry
and company research material. Based upon an assessment of the value of
research and other brokerage services provided, proposed allocations of
brokerage for commission transactions are periodically prepared internally. In
limited cases, certain brokers have been advised informally that, although the
Trust is under no legal obligation, an attempt will be made to meet the
internally proposed level of allocated brokerage business to the broker for
brokerage and research services over a period of time.
Commissions charged by brokers which provide research services may be somewhat
higher than commissions charged by brokers which do not provide them. As
permitted by Section 28(e) of the Securities Exchange Act of 1934 and by
policies adopted by the Trustees, Alliance may cause the Trust to pay a
broker-dealer which provides brokerage and research services to Alliance an
amount of commission for effecting a securities transaction for the Trust in
excess of the commission another broker-dealer would have charged for effecting
that transaction.
Alliance does not engage brokers whose commissions it believes to be
unreasonable in relation to services provided. The overall reasonableness of
commissions paid will be evaluated by rating brokers on such general factors as
execution capabilities, quality of research (that is, quantity and quality of
information provided, diversity of sources utilized, nature and frequency of
communication, professional experience, analytical ability and professional
stature of the broker) and financial standing, as well as the net results of
specific transactions, taking into account such factors as price, promptness,
size of order and difficulty of execution. The research services obtained will,
in general, be used by Alliance for the benefit of all accounts for which it
makes investment decisions. The receipt of research services from brokers will
tend to reduce Alliance's expenses in managing the Portfolios other than the
Alliance Money Market Portfolio. This has been taken into account when setting
the amount paid for managing those Portfolios. Although orders may be given by
the Alliance Money Market Portfolio to brokers or dealers which provide
research services to Alliance, the fact that the investment adviser may benefit
from such research has not been considered when setting the amount paid for
managing that Portfolio. This is because
28
<PAGE>
Alliance Money Market Portfolio transactions will generally be with issuers or
market makers where no commissions are charged. In 1996 the Trust paid an
aggregate of $27,895,553 in brokerage commissions of which $25,576,822 was paid
to brokers relating to transactions aggregating $12,956,909,742 which were
directed to them in part for research services provided by them. In 1997 the
Trust paid an aggregate of $30,333,516 in brokerage commissions of which
$14,164,169 was paid to brokers relating to transactions aggregating
$15,241,230,017 which were directed to them in part for research services
provided by them. In 1998 the Trust paid an aggregate of $ in
brokerage commissions of which $ was paid to brokers relating to
transactions aggregating $ which were directed to them in part
for research services provided by them.
BROKERAGE TRANSACTIONS WITH AFFILIATES
To the extent permitted by law, the Trust may engage in brokerage transactions
with its affiliate, Donaldson, Lufkin & Jenrette, Inc. ("DLJ"), with brokers
who are DLJ affiliates, or with unaffiliated brokers who trade or clear through
DLJ. The Investment Company Act generally prohibits the Trust from engaging in
securities transactions with DLJ or its affiliates, as principal, unless
pursuant to an exemptive order from the SEC. The Trust may apply for such
exemptive relief. The Trust has adopted procedures, prescribed by the
Investment Company Act, which are reasonably designed to provide that any
commissions or other remuneration it pays to DLJ or its affiliates do not
exceed the usual and customary broker's commission. In addition, the Trust will
adhere to the requirements under the Securities Exchange Act of 1934 governing
floor trading. Also, due to securities law limitations, the Trust will limit
purchases of securities in a public offering, if such securities are
underwritten by DLJ or its affiliates. During the year ended December 31, 1996,
the Trust paid $2,500 to Autranet, Inc., an affiliate of DLJ, and during the
fiscal year ended December 31, 1997, the Trust paid $29,805 to DLJ, and during
the year ended December 31, 1998, the Trust paid $ to , in
accordance with the procedures described above.
TRUST EXPENSES AND OTHER CHARGES
Pursuant to the Trust's Investment Advisory Agreement, the Trust is obligated
to pay all of its operating expenses not specifically assumed by Alliance. In
addition, as principal underwriter of the Trust's Class IA shares, EQ Financial
Consultants, Inc. ("EQ Financial") will bear the Trust's marketing expenses. A
daily adjustment will be made in the values under certain Contracts outstanding
and offered by Equitable and Equitable Variable when the management separate
accounts of Equitable and Equitable Variable were reorganized into unit
investment trust form to offset completely the impact of any such expense on
values under such Contracts. Contracts sold by insurers other than Equitable
and Equitable Variable and new policy designs of Equitable bear such expenses
without adjustment. Although Equitable does not expect the Trust to incur any
federal income or excise tax liability (see "Dividends, Distributions and
Taxes" in the Prospectus), Equitable reserves the right to exclude any such
taxes from such adjustments.
The expenses borne by the Trust include or could include taxes; brokerage
commissions; interest charges; securities lending fees; fees and expenses of
the registration or qualification of a Portfolio's securities under federal or
state securities laws; fees of the Portfolio's custodian, transfer agent,
independent accountants, and legal counsel; all expenses of shareholders' and
trustees' meetings; all expenses of the preparation, typesetting, printing and
mailing to existing shareholders of prospectuses, prospectus supplements,
statements of additional information, proxy statements, and annual and
semi-annual reports; any proxy solicitor's fees and expenses; costs of fidelity
bonds and Trustees; liability insurance premiums as well as extraordinary
expenses such as indemnification payments or damages awarded in litigation or
settlements made; any membership fees of the Investment Company Institute and
similar organizations; costs of maintaining the Trust's corporate existence and
the compensation of Trustees who are not directors, officers, or employees of
Alliance or its affiliates.
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.
29
<PAGE>
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 has 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 of shares shall have a
different designation; (2) each class 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 Plans for Class IB
shares.
PURCHASE AND PRICING OF SECURITIES
As stated in the Prospectus, the Trust will offer and sell its shares at each
Portfolio's per share net asset value, which will be determined in the manner
set forth below.
The net asset value of the shares of each Portfolio of the Trust will be
determined once daily, immediately after the declaration of dividends, if any,
at the close of business on each business day. The net asset value per share of
each Portfolio will be computed by dividing the sum of the investments held by
that Portfolio, plus any cash or other assets, minus all liabilities, by the
total number of outstanding shares of that Portfolio at such time. All expenses
borne by the Trust, including the investment advisory fee payable to Alliance,
will be accrued daily.
The net asset value per share of any series (i.e., Portfolio) will be
determined and computed as follows, in accordance with generally accepted
accounting principles, and consistent with the Investment Company Act:
o The assets belonging to each series will include (a) all consideration
received by the Trust for the issue or sale of shares of that particular
series, together with all assets in which such consideration is invested
or reinvested, (b) all income, earnings, profits, and proceeds thereof,
including any proceeds derived from the sale, exchange or liquidation of
such assets, (c) any funds or payments derived from any reinvestment of
such proceeds in whatever form the same may be and (d) General Items, if
any, allocated to that series. General Items includes any assets, income,
earnings, profits, and proceeds thereof, funds, or payments which are not
readily identifiable as belonging to any particular series. General Items
will be allocated as the Trust's Board of Trustees considers fair and
equitable.
o The liabilities belonging to each series will include (a) the liabilities
of the Trust in respect of that series, (b) all expenses, costs, charges
and reserves attributable to that series, and (c) any general
liabilities, expenses, costs, charges or reserves of the Trust which are
not readily identifiable as belonging to any particular series which have
been allocated as the Trust's Board of Trustees considers fair and
equitable.
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The value of each Portfolio will be determined at the close of business on each
"business day," i.e., each day in which the degree of trading in the Portfolio
might materially affect the net asset value of such Portfolio. Normally, this
would be each day that the NYSE is open and would include some Federal
holidays. For stocks and options, the close of trading is the 4:00 p.m. and
4:15 p.m. (Eastern time) close respectively of the NYSE and the Options Price
Reporting Authority; for bonds the close of trading is the close of business in
New York City, and for foreign securities it is the close of business in the
applicable foreign country with exchange rates determined at 2:00 p.m. New York
City time.
Values are determined according to generally accepted accounting practices and
all laws and regulations that apply. The assets of each Portfolio are valued as
follows:
o Stocks listed on national securities exchanges and certain
over-the-counter issues traded on the NASDAQ national market system are
valued at the last sale price, or, if there is no sale, at the latest
available bid price. Other unlisted stocks are valued at their last sale
price or, if there is no reported sale during the day, at a bid price
estimated by a broker.
o Foreign securities not traded directly, or in American Depositary Receipt
or similar form in the United States, are valued at representative quoted
prices in the currency of the country of origin. Foreign currency is
converted into its U.S. dollar equivalent at current exchange rates.
o U.S. Treasury securities and other obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities, are valued at
representative quoted prices.
o Long-term corporate bonds may be valued on the basis of prices provided
by a pricing service when such prices are believed to reflect the fair
market value of such securities. The prices provided by a pricing service
take into account many factors, including institutional size, trading in
similar groups of securities and any developments related to specific
securities; however, when such prices are not available, such bonds are
valued at a bid price estimated by a broker.
o Short-term debt securities held by the Portfolios other than the Money
Market Portfolio which mature in 60 days or less are valued at amortized
cost, which approximates market value. Short-term debt securities held by
such Portfolios which mature in more than 60 days are valued at
representative quoted prices. Securities held by the Money Market
Portfolio are valued at prices based on equivalent yields or yield
spreads.
o Convertible preferred stocks listed on national securities exchanges are
valued as of their last sale price or, if there is no sale, at the latest
available bid price.
o Convertible bonds, and unlisted convertible preferred stocks, are valued
at bid prices obtained from one or more of the major dealers in such
bonds or stocks. Where there is a discrepancy between dealers, values may
be adjusted based on recent premium spreads to the underlying common
stocks.
o Mortgage backed and asset backed securities are valued at prices obtained
from a bond pricing service where available, or at a bid price obtained
from one or more of the major dealers in such securities. If a quoted
price is unavailable, an equivalent yield or yield spread quotes will be
obtained from a broker and converted to a price.
o Purchased options, including options on futures, are valued at their last
bid price. Written options are valued at their last asked price.
o Futures contracts are valued as of their last sale price or, if there is
no sale, at the latest available bid price.
o Other securities and assets for which market quotations are not readily
available or for which valuation cannot be provided are valued in good
faith by the valuation committee of the Board of Trustees using its best
judgment.
The market value of a put or call option will usually reflect, among other
factors, the market price of the underlying security.
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When the Trust writes a call option, an amount equal to the premium received by
the Trust is included in the Trust's financial statements as an asset and an
equivalent liability. The amount of the liability is subsequently
marked-to-market to reflect the current market value of the option written.
When an option expires on its stipulated expiration date or the Trust enters
into a closing purchase or sale transaction, the Trust realizes a gain (or
loss) without regard to any unrealized gain or loss on the underlying security,
and the liability related to such option is extinguished. When an option is
exercised, the Trust realizes a gain or loss from the sale of the underlying
security, and the proceeds of sale are increased by the premium originally
received, or reduced by the price paid for the option.
Alliance may, from time to time, under the general supervision of the Board of
Trustees or its valuation committee, utilize the services of one or more
pricing services for assistance in valuing the assets of the Trust. Alliance
will continuously monitor the performance of such pricing services.
CERTAIN TAX CONSIDERATIONS
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
that is a shareholder of a Portfolio will generally not be taxed on
distributions from that Portfolio.
Each Portfolio is treated for Federal income tax purposes as a separate
taxpayer. Under present law, as a Massachusetts business trust doing business
in New York, a Portfolio will also not be subject to any excise or income taxes
in Massachusetts or New York on such amounts. A number of technical rules are
prescribed for computing net investment income and net capital gains. For
example, dividends are generally treated as received on the ex-dividend date.
Also, certain foreign currency losses and capital losses arising after October
31 of a given year may be treated as if they arise on the first day of the next
taxable year.
Portfolios investing in foreign securities or currencies may be subject to
foreign taxes which could reduce the investment performance of such Portfolios.
To qualify for treatment as a regulated investment company, a Portfolio must,
among other things, derive in each taxable year at least 90% of its gross
income from dividends, interest, payments with respect to securities loans,
gains from the sale or other disposition of stock or securities or foreign
currencies, or other income derived with respect to its business of investing.
For purposes of this test, gross income is determined without regard to losses
from the sale or other disposition of stock or securities. In addition, the
Secretary of the Treasury has regulatory authority to exclude from qualifying
income described above foreign currency gains which are not "directly related"
to a regulated investment company's "principal business of investing" in stock,
securities or related options or futures. The Secretary of the Treasury has not
to date exercised this authority.
A Portfolio, in general, must also (a) diversify its holdings so that, at the
close of each quarter of its taxable year, (i) at least 50% of the market value
of its total assets consists of cash and cash items (including receivables),
U.S. Government securities, securities of other regulated investment companies,
and other securities limited generally with respect to any one issuer to not
more than 5% of the value of its total assets and not more than 10% of the
outstanding voting securities of such issuer, and (ii) not more than 25% of the
value of its total assets is invested in the securities (other than U.S.
Government securities or securities of other regulated investment companies) of
any issuer or two or more issuers which the Fund controls and which are engaged
in the same, similar, or related trades or businesses; and (b) distribute with
respect to each taxable year at least 90% of the sum of its taxable net
investment income, its net tax-exempt income, and the excess, if any, of net
short-term capital gains over net long-term capital losses for such year.
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Generally, in order to avoid a 4% nondeductible excise tax, each Portfolio of
the Trust must distribute to its shareholders during the calendar year the
following amounts:
o 98% of the Portfolio's ordinary income for the calendar year;
o 98% of the Portfolio's capital gain net income (all capital gains, both
long-term and short-term, minus all such capital losses), computed as if
the Portfolio were on a taxable year ending October 31 of the year in
question and beginning the previous November 1; and
o any undistributed ordinary income or capital gain net income for the
prior year.
The excise tax is inapplicable to any regulated investment company whose sole
shareholders are either tax-exempt pension trusts or separate accounts of life
insurance companies funding variable contracts. Although each Portfolio
believes that it is not subject to the excise tax, the Portfolios intend to
make the distributions required to avoid the imposition of such a tax.
Because the Trust is used to fund non-qualified Contracts, each Portfolio must
meet the diversification requirements imposed by the Code or these policies
will fail to qualify as life insurance and annuities. In general, for a
Portfolio to meet the investment diversification requirements of Subchapter L
of the Code, Treasury regulations require that no more than 55% of the total
value of the assets of the Portfolio may be represented by any one investment,
no more than 70% by two investments, no more than 80% by three investments and
no more than 90% by four investments. Generally, for purposes of the
regulations, all securities of the same issuer are treated as a single
investment. In the context of U.S. Government securities (including any
security that is issued, guaranteed or insured by the United States or an
instrumentality of the United States) each U.S. Government agency or
instrumentality is treated as a separate issuer. Compliance with the
regulations is tested on the last day of each calendar year quarter. There is a
30-day period after the end of each calendar year quarter in which to cure any
non-compliance.
PORTFOLIO PERFORMANCE
Returns and yields shown do not reflect insurance company charges and fees
applicable to the Contracts.
ALLIANCE MONEY MARKET PORTFOLIO YIELD
The Alliance Money Market Portfolio calculates yield information for seven-day
periods and may illustrate that information in advertisements or sales
materials. The seven-day current yield calculation is based on a hypothetical
shareholder account with one share at the beginning of the period. To determine
the seven-day rate of return, the net change in the share value is computed by
subtracting the share value at the beginning of the period from the share value
(exclusive of capital changes) at the end of the period. The net change is
divided by the share value at the beginning of the period to obtain the base
period rate of return. This seven-day base period return is then multiplied by
365/7 to produce an annualized current yield figure carried to the nearest
one-hundredth of one percent.
Realized capital gains or losses and unrealized appreciation or depreciation of
the Portfolio are excluded from this calculation. The net change in share
values also reflects all accrued expenses of the Alliance Money Market
Portfolio as well as the value of additional shares purchased with dividends
from the original shares and any additional shares.
The effective yield is obtained by adjusting the current yield to give effect
to the compounding nature of the Alliance Money Market Portfolio's investments,
as follows: The unannualized base period return is compounded by adding one to
the base period return, raising the sum to a power equal to 365 divided by 7,
and subtracting one from the result--i.e., effective yield = [(base period
return +1)365/7] - 1.
Alliance Money Market Portfolio yields will fluctuate daily. Accordingly,
yields for any given period are not necessarily representative of future
results. Yield is a function of the type and quality of the instruments in the
Alliance Money Market Portfolio, maturities and rates of return on investments,
among other factors. In addition, the value of shares of the Alliance Money
Market Portfolio will fluctuate and not remain constant.
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The Alliance Money Market Portfolio yield may be compared with yields of other
investments. However, it should not be compared to the return on fixed rate
investments which guarantee rates of interest for specified periods. The yield
also should not be compared to the yield of money market funds made available
to the general public because their yields usually are calculated on the basis
of a constant $1 price per share and they pay out earnings in dividends which
accrue on a daily basis. Investment income of the Alliance Money Market
Portfolio, including any realized gains as well as accrued interest, is not
paid out in dividends but is reflected in the share value. The Alliance Money
Market Portfolio yield also does not reflect insurance company charges and fees
applicable to Contracts.
The seven-day current yield for Class IB shares of the Money Market Portfolio
was % for the period ended December 31, 1998. The effective yield for that
period was %.
ALLIANCE QUALITY BOND, ALLIANCE INTERMEDIATE GOVERNMENT SECURITIES AND ALLIANCE
HIGH YIELD PORTFOLIO YIELDS
The Alliance Quality Bond, Alliance Intermediate Government Securities and
Alliance High Yield Portfolios each may illustrate its yield in advertisements
or sales materials. Such yields will be computed by annualizing net investment
income, as determined by the SEC's formula, calculated on a per share basis for
a recent 30-day period and dividing that amount by a Portfolio share's net
asset value (reduced by any undeclared earned income expected to be paid
shortly as a dividend) on the last trading day of that period. Net investment
income will reflect amortization of any market value premium or discount of
fixed income securities (except for obligations backed by mortgages or other
assets) over such period and may include recognition of a pro rata portion of
the stated dividend rate of dividend paying portfolio securities. The
Portfolios' yields will vary from time to time depending upon market
conditions, the compostition of each Portfolio's portfolio and operating
expenses of the Trust allocated to each Portfolio. Yield should also be
considered relative to changes in the value of a Portfolio's shares and to the
relative risks associated with the investment objectives and policies of the
Portfolios. These yields do not reflect insurance company charges and fees
applicable to the Contracts.
At any time in the future, yields and total return may be higher or lower than
past yields and there can be no assurance that any historical results will
continue.
The 30-day yields for Class IB shares of the Alliance Quality Bond, Alliance
Intermediate Government Securities and Alliance High Yield Portfolios for the
period ended December 31, 1998 were %, % and %, respectively.
TOTAL RETURN CALCULATIONS
Each Portfolio may provide or advertise average annual total return information
calculated according to a formula prescribed by the SEC. According to that
formula, average annual total return figures represent the average annual
compounded rate of return for the stated period. Average annual total return
quotations reflect the percentage change between the beginning value of a
static account in the Portfolio and the ending value of that account measured
by the then current net asset value of that Portfolio assuming that all
dividends and capital gains distributions during the stated period were
invested in shares of the Portfolio when paid. Total return is calculated by
finding the average annual compounded rates of return of a hypothetical
investment that would equate the initial amount invested to the ending
redeemable value of such investment, according to the following formula:
T = (ERV/P)1/n - 1
where T equals average annual total return; where ERV, the ending redeemable
value, is the value at the end of the applicable period of a hypothetical
$1,000 investment made at the beginning of the applicable period; where P
equals a hypothetical initial investment of $1,000; and where n equals the
number of years. These total returns do not reflect insurance company charges
and fees applicable to the Contracts.
The average annual total returns through December 31, 1998 for Class IB shares
of the Alliance Common Stock Portfolio for one year, five years, and ten years
were %, %, and %, respectively.
The average annual total returns through December 31, 1998 for Class IB shares
of the Alliance Intermediate Government Securities Portfolio for one year, five
years, and since inception (on April 1, 1991) were %, %, and %,
respectively.
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The average annual total returns through December 31, 1998 for Class IB shares
of the Alliance High Yield Portfolio for one year, five years, and ten years
were %, %, and %, respectively.
The average annual total returns through December 31, 1998 for Class IB shares
of the Alliance Balanced Portfolio for one year, five years, and ten years were
%, %, and %, respectively.
The average annual total returns through December 31, 1998 for Class IB shares
of the Alliance Global Portfolio for one year, five years, and ten years were
%, %, and %, respectively.
The average annual total returns through December 31, 1998 for Class IB shares
of the Alliance Aggressive Stock Portfolio for one year, five years, and ten
years were %, %, and %, respectively.
The average annual total returns through December 31, 1998 for Class IB shares
of the Alliance Conservative Investors Portfolio for one year, five years, and
since inception (on October 2, 1989) were %, %, and %,
respectively.
The average annual total returns through December 31, 1998 for Class IB shares
of the Alliance Growth Investors Portfolio for one year, five years, and since
inception (on October 2, 1989) were %, %, and %, respectively.
The average annual total returns through December 31, 1998 for Class IB shares
of the Alliance Quality Bond Portfolio for one year and since inception (on
October 1, 1993) were % and %, respectively.
The average annual total returns through December 31, 1998 for Class IB shares
of the Alliance Growth and Income Portfolio for one year and since inception
(on October 1, 1993) were % and %, respectively.
The average annual total returns through December 31, 1998 for Class IB shares
of the Alliance Equity Index Portfolio for one year and since inception (on
March 1, 1994) were % and %, respectively.
The average annual total returns through December 31, 1998 for Class IB shares
of the Alliance International Portfolio for one year and since inception (April
3, 1995) were % and %, respectively.
The total return through December 31, 1998 for Class IB shares of the Alliance
Small Cap Growth Portfolio since inception (May 1, 1997) was %.
Each Portfolio, from time to time, also may advertise its cumulative total
return figures. Cumulative total return is the compound rate of return on a
hypothetical initial investment of $1,000 for a specified period. Cumulative
total return quotations reflect changes in the price of a Portfolio's shares
and assume that all dividends and capital gains distributions during the period
were reinvested in shares of that Portfolio. Cumulative total return is
calculated by finding the compound rates of return of a hypothetical investment
over such period, according to the following formula (cumulative total return
is then expressed as a percentage):
C = (ERV/P) - 1
Where:
C = Cumulative Total Return
P = a hypothetical initial investment of $1,000
ERV = ending redeemable value; ERV is the value, at the end of the applicable
period, of a hypothetical $1,000 investment made at the beginning of the
applicable period.
The cumulative total returns, since the inception of each Portfolio through
December 31, 1998, for Class IB shares of the Alliance Common Stock, Alliance
Intermediate Government Securities, Alliance High Yield, Alliance Balanced,
Alliance Global, Alliance Aggressive Stock, Alliance Conservative Investors,
Alliance Growth Investors, Alliance Quality Bond, Alliance Growth and Income,
Alliance Equity Index, Alliance International and Alliance Small Cap Growth
Portfolios were %, %, %, %, %, %, %, %, %, %,
%, %, and %, respectively.
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These performance figures are based on historical earnings and are not intended
to indicate future performance. Nor do they reflect fees and charges imposed
under the Contracts, which fees and charges will reduce such performance
figures; therefore, these figures may be of limited use for comparative
purposes. No Portfolio will use information concerning its investment
performance in advertisements or sales materials unless appropriate information
concerning the relevant separate account is also included.
OTHER SERVICES
INDEPENDENT ACCOUNTANTS
, serves as the Trust's independent
accountants. The financial statements of the Alliance Common Stock, Alliance
Money Market, Alliance Balanced, Alliance Aggressive Stock, Alliance High
Yield, Alliance Global, Alliance Conservative Investors, Alliance Growth
Investors, Alliance Intermediate Government Securities, Alliance Quality Bond,
Alliance Growth and Income, Alliance Equity Index, Alliance International and
Alliance Small Cap Growth Portfolios for the year ended December 31, 1998,
which are included in this SAI, have been audited by , the Trust's
independent accountants for such periods, as stated in their report appearing
herein, and have been so included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
CUSTODIAN
The Chase Manhattan Bank, whose principal address is One Chase Manhattan Plaza,
New York, New York 10081, has been designated the Custodian of the Trust's
portfolio securities and other assets.
TRANSFER AGENT
Equitable serves as the transfer agent and dividend disbursing agent for the
Trust. For the year ended December 31, 1997, Equitable received no compensation
for providing such services for the Trust.
UNDERWRITER
The Trust has distribution agreements (the "Class IB Underwriting Agreements")
with each of Equitable Distributors, Inc. ("EDI") and EQ Financial Consultants,
Inc. ("EQ Financial") (each a "Class IB Distributor") with respect to the Class
IB shares. Both EDI and EQ Financial are indirect wholly owned subsidiaries of
Equitable and affiliates of Alliance. The address for EDI is 787 Seventh
Avenue, New York, New York 10019. The address for EQ Financial is 1290 Avenue
of the Americas, New York, New York 10104.
The Class IB Underwriting Agreements became effective on July 1, 1998. The
Class IB Underwriting Agreement with EDI replaced an earlier substantially
identical agreement (the "First Underwriting Agreement") that was amended to
reflect the addition of EQ Financial as a Class IB Distributor.
The Class IB Underwriting Agreements will remain in effect until July 1, 1999,
and from year to year thereafter only if their continuance is approved annually
by (1) a majority of the Trustees who are not parties to such agreement or
"interested person" (as defined in the Investment Company Act) of the Trust or
a Portfolio and who have no direct or indirect financial interest in the
operation of the distribution plan adopted under Rule 12b-1 of the Investment
Company Act (the "Distribution Plan") or any such related agreement (the
"Independent Trustees") and (2) either by vote of a majority of the Trustees or
a majority of the outstanding voting securities of the Trust.
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Each Class IB Distributor will pay for printing and distributing prospectuses
or reports prepared for its use in connection with its offering of the Class IB
shares to prospective investors and preparing, printing and mailing any other
literature or advertising in connection with its offering of the Class IB
shares to prospective investors. Each Class IB Distributor will pay all fees
and expenses in connection with its qualification and registration as a broker
or dealer under Federal and state laws and of any activity which is primarily
intended to result in the sale of Class IB shares issued by the Trust, unless
the Distribution Plan in effect for Class IB shares provides that the Trust or
another entity shall bear some or all of such expenses.
As agent, each Class IB Distributor may offer shares of each Portfolio on a
continuous basis to the separate accounts of insurance companies offering the
Contracts in all states in which the Portfolio or the Trust may from time to
time be registered or where permitted by applicable law. The Class IB
Underwriting Agreements provided that each Class IB Distributor accepts orders
for shares at net asset value without sales commissions or loads being charged.
Neither Class IB Distributor has made any firm commitment to acquire shares of
any Portfolio.
A description of the Distribution Plan and related services and fees thereunder
is provided in the prospectus. On June 7, 1996, the Board of Trustees of the
Trust unanimously approved the Distribution Plan. In connection with its
consideration of the Distribution Plan, the Board of Trustees was furnished
with drafts of the Distribution Plan and the related materials, including
information related to the advantages and disadvantages of Rule 12b-1 plans
currently being used in the mutual fund industry generally and with other
competing funding vehicles for variable annuity and variable life contracts.
Legal counsel for the Independent Trustees provided additional information,
summarized the provisions of the proposed Distribution Plan and discussed the
legal and regulatory considerations in adopting such Distribution Plan.
The Board considered various factors in connection with its decision as to
whether to approve the Distribution Plan, including (a) the nature and causes
of the circumstances which make implementation of the Distribution Plan
necessary and appropriate; (b) the way in which the Distribution Plan would
address those circumstances, including the nature and potential amount of
expenditures; (c) the nature of the anticipated benefits; (d) the possible
benefits of the Distribution Plan to any other person relative to those of the
Trust; (e) the effect of the Distribution Plan on existing owners of variable
annuity contracts and variable life insurance policies; (f) the merits of
possible alternative plans or pricing structures; (g) competitive conditions in
the variable products industry; and (h) the relationship of the Distribution
Plan to other distribution efforts of the Trust.
Based upon its review of the foregoing factors and the materials presented to
it, and in light of its fiduciary duties under relevant state law and the
Investment Company Act, the Board determined, in the exercise of its business
judgment, that the Distribution Plan is reasonably likely to benefit the Trust
and the shareholders of its Portfolios.
The Distribution Plan and any Rule 12b-1 related agreement that is entered into
by the Trust or a Class IB Distributor in connection with the Distribution Plan
will continue in effect for a period of more than one year only so long as its
continuance is specifically approved at least annually by a vote of a majority
of the Trust's Board of Trustees, and of a majority of the Independent
Trustees, cast in person at a meeting called for the purpose of voting on the
Distribution Plan, or the Rule 12b-1 related agreement, as applicable. In
addition, the Distribution Plan and any Rule 12b-1 related agreement may be
terminated as to Class IB shares of a Portfolio at any time, and in the case of
any Rule 12b-1 related agreement, upon 60 days' written notice, without
penalty, by vote of a majority of the outstanding Class IB shares of that
Portfolio or by vote of a majority of the Independent Trustees. The
Distribution Plan also provides that it may not be amended to increase
materially the amount (to more than .50% of average daily net assets annually)
that may be spent for distribution of Class IB shares of a Portfolio without
the approval of Class IB shareholders of that Portfolio. The Trustees currently
limit payments under the Distribution Plan to .25% of a Portfolio's aggregate
average daily net assets attributable to the Class IB shares. The Distribution
Plan provides that a portion of the distribution services fee in an amount not
to exceed .25% of the aggregate average daily net assets of a Portfolio
attributable to Class IB shares constitutes a service
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fee that the Class IB Distributor will use for personal service and/or the
maintenance of shareholder accounts. The Distribution Plan also provides that
Alliance may use its own resources, which may include management fees received
by Alliance from the Trust or other investment companies which it manages and
Alliance's past profits, to finance the distribution of the Portfolios' shares.
The Class IB Underwriting Agreements provide that each Class IB Distributor
will receive fees, from each Portfolio other than the Alliance Small Cap Growth
Portfolio, at the annual rate of 0.25% of the average annual net assets of such
Portfolio attributable to Class IB shares for which such Class IB Distributor
provides services and/or assumes expenses under the Distribution Plan. With
respect to the Alliance Small Cap Growth Portfolio, this amount shall not
exceed the lesser of (a) 0.25% of the average daily net assets of the Portfolio
attributable to Class IB shares for which each Class IB Distributor provides
services and/or assumes expenses under the Distribution Plan, and (b) an amount
that, when added to certain other expenses of the Class IB shares, would result
in a ratio of expenses to average daily net assets attributable to Class IB
shares for which such Class IB Distributor provides services and/or assumes
expenses under the Distribution Plan equaling 1.20%.
For services rendered by EDI in connection with the distribution of Class IB
shares pursuant to the Distribution Plan, EDI received $ with respect to the
Class IB shares of the Alliance Aggressive Stock Portfolio, $ with respect
to the Class IB shares of the Alliance Common Stock Portfolio, $ with
respect to the Class IB shares of the Alliance Growth Investors Portfolio, $
with respect to the IB shares of the Alliance Global Portfolio, $ with
respect to the Class IB shares of the Alliance High Yield Portfolio, $ with
respect to the Class IB shares of the Alliance Money Market Portfolio, $
with respect to the Class IB shares of the Alliance Intermediate Government
Securities Portfolio, $ with respect to the Class IB shares of the Alliance
Quality Bond Portfolio, $ with respect to the Class IB shares of the
Alliance Conservative Investors Portfolio, $ with respect to the Class IB
shares of the Alliance Balanced Portfolio, $ with respect to the Class IB
shares of the Alliance Equity Index Portfolio, $ with respect to the Class
IB shares of the Alliance International Portfolio, $ with respect to the
Class IB shares of the Alliance Small Cap Growth Portfolio, and $ with
respect to the Class IB shares of the Alliance Growth and Income Portfolio for
the year ended December 31, 1998.
For services rendered by EQ Financial in connection with the distribution of
Class IB shares pursuant to the Distribution Plan, EQ Financial received $
with respect to the Class IB shares of the Alliance Aggressive Stock Portfolio,
$ with respect to the Class IB shares of the Alliance Common Stock
Portfolio, $ with respect to the Class IB shares of the Alliance Growth
Investors Portfolio, $ with respect to the IB shares of the Alliance Global
Portfolio, $ with respect to the Class IB shares of the Alliance High Yield
Portfolio, $ with respect to the Class IB shares of the Alliance Money
Market Portfolio, $ with respect to the Class IB shares of the Alliance
Intermediate Government Securities Portfolio, $ with respect to the Class IB
shares of the Alliance Quality Bond Portfolio, $ with respect to the Class
IB shares of the Alliance Conservative Investors Portfolio, $ with respect
to the Class IB shares of the Alliance Balanced Portfolio, $ with respect to
the Class IB shares of the Alliance Equity Index Portfolio, $ with respect
to the Class IB shares of the Alliance International Portfolio, $ with
respect to the Class IB shares of the Alliance Small Cap Growth Portfolio, and
$ with respect to the Class IB shares of the Alliance Growth and Income
Portfolio for the year ended December 31, 1998.
38
<PAGE>
The Class IB Distributors have informed the Trust that expenses incurred by the
Trust and costs allocated to it in connection with activities primarily
intended to result in the sale of Class IB shares were as follows for the year
ended December 31, 1998:
AMOUNT OF EXPENSE AND ALLOCATED COST
<TABLE>
<CAPTION>
ALLIANCE ALLIANCE ALLIANCE ALLIANCE ALLIANCE ALLIANCE
CATEGORY OF EXPENSE AGGRESSIVE STOCK COMMON STOCK GROWTH INVESTORS GLOBAL HIGH YIELD MONEY MARKET
------------------- ---------------- ------------ ---------------- ------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Advertising/Marketing ...... $ $ $ $ $ $
Printing and Mailing of
Prospectuses and
Semi-Annual and
Annual Reports to
Other than Current
Shareholders .............. $ $ $ $ $ $
Compensation to
Underwriters .............. $ $ $ $ $ $
Compensation to Dealers.....
Compensation to Sales
Personnel ................. $ $ $ $ $ $
Interest, Carrying or
Other Financing
Charges ................... $ $ $ $ $ $
Other (includes personnel
cost of those home
office employees
involved in the
distribution effort and
the travel-related
expenses incurred by the
marketing personnel
conducting seminars) ...... $ $ $ $ $ $
</TABLE>
AMOUNT OF EXPENSE AND ALLOCATED COST
<TABLE>
<CAPTION>
ALLIANCE
INTERMEDIATE ALLIANCE ALLIANCE ALLIANCE ALLIANCE
GOVERNMENT CONSERVATIVE EQUITY ALLIANCE SMALL CAP GROWTH &
CATEGORY OF EXPENSE SECURITIES INVESTORS INDEX INTERNATIONAL GROWTH INCOME
------------------- ---------- --------- ----- ------------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Advertising/Marketing ...... $ $ $ $ $ $
Printing and Mailing of
Prospectuses and
Semi-Annual and
Annual Reports to
Other than Current
Shareholders .............. $ $ $ $ $ $
Compensation to
Underwriters .............. $ $ $ $ $ $
Compensation to Dealers.....
Compensation to Sales
Personnel ................. $ $ $ $ $ $
Interest, Carrying or
Other Financing
Charges ................... $ $ $ $ $ $
Other (includes personnel
cost of those home
office employees
involved in the
distribution effort and
the travel-related
expenses incurred by the
marketing personnel
conducting seminars) ...... $ $ $ $ $ $
</TABLE>
39
<PAGE>
FINANCIAL STATEMENTS
[TO BE SUPPLIED]
40
<PAGE>
PART C
OTHER INFORMATION
ITEM 23. EXHIBITS
(a) Amended and Restated Agreement and Declaration of Trust of the
Trust (previously filed with Post-Effective Amendment No. 29 on
May 1, 1997).
(b) By-Laws of the Trust (previously filed with Post-Effective
Amendment No. 29 on May 1, 1997).
(c) (1) Portions of Amended and Restated Agreement and Declaration
of Trust relating to shareholders' rights (previously filed
with Post-Effective Amendment No. 28 on February 14, 1997).
(2) Portions of By-Laws of the Trust relating to shareholders'
rights (previously filed with Post-Effective Amendment
No. 28 on February 14, 1997).
(d) Investment Advisory Agreement between the Trust and Alliance dated
May 1, 1997 (previously filed with Post-Effective Amendment No. 29
on May 1, 1997).
(e) (1) Class IA Distribution Agreement between the Trust and EQ
Financial Consultants, Inc. (previously filed with
Post-Effective Amendment No. 27 on May 9, 1996).
(2) Class IB Distribution Agreement between the Trust and
Equitable Distributors, Inc. (previously filed with
Post-Effective Amendment No. 27 on May 9, 1996).
(f) Not applicable.
(g) Custodian Agreement between the Trust and Chase, dated August 25,
1988 (previously filed with Post-Effective Amendment No. 29 on
May 1, 1997).
(h) Not applicable.
(i) Not applicable.
(j) (1) Consent of .
(2) Powers of Attorney (previously filed with Post-Effective
Amendment No. 29 on May 1, 1997).
(k) Not applicable.
<PAGE>
(l) Not applicable.
(m) Rule 12b-1 Plan (previously filed with Post-Effective Amendment
No. 27 on May 9, 1996).
(n) Financial Data Schedules.
(o) Rule 18f-3 Plan (previously filed with Post-Effective Amendment
No. 27 on May 9, 1996).
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE FUND
Equitable controls the Trust by virtue of their ownership of % of the
Trust's shares as of September 30, 1998. All Trust shareholders are required to
solicit instructions from their policy owners as to certain matters. The Trust
also offers its shares to insurance companies unaffiliated with Equitable.
On July 22, 1992, Equitable converted from a New York mutual life
insurance company to a publicly-owned New York stock life insurance company. At
that time Equitable became a wholly-owned subsidiary of The Equitable Companies
Incorporated ("Holding Company" or "EQ") and currently Equitable constitutes
the Holding Company's only operating business.
The largest stockholder of the Holding Company is AXA, a French insurance
holding company. AXA currently owns approximately 60% of the outstanding shares
of common stock of the Holding Company plus convertible preferred stock. AXA, a
public company with shares traded on the Paris Bourse (the French stock
exchange), is the principal holding company for most of the companies in one of
the largest insurance groups in Europe. The majority of AXA's stock is owned by
a group of five French mutual insurance companies.
The response to Item 26 included in Post-Effective Amendment No. 5 to the
Registration Statement on Form N-4 for Separate Account A of Equitable (File
Nos. 33-47949 and 811-1705) is incorporated herein by reference.
ITEM 27. INDEMNIFICATION
DECLARATION OF TRUST
The Declaration of Trust provides in substance that no Trustee or officer
and no investment adviser or other third party shall be liable to the Trust,
its shareholders, or to any shareholder, Trustee, officer, employee or agent
for any action or failure to act, except upon a showing of bad faith, willful
misfeasance, gross negligence or reckless disregard of duties. The
<PAGE>
Declaration of Trust further provides in substance that, with the exceptions
stated above, a Trustee or officer of the Trust is entitled to be indemnified
against all liability incurred in connection with the affairs of the Trust. In
addition, the Declaration of Trust authorizes the Trust to purchase and pay for
liability insurance to indemnify the Trustees and officers against certain
claims and liabilities.
MASSACHUSETTS LAW
Under Massachusetts law, shareholders of a Massachusetts business trust
such as the Trust may, under certain circumstances, be held personally liable
as partners for the obligations of the Trust. The Trust's Declaration of Trust
contains an express disclaimer of shareholder liability for acts or obligations
of the Trust and requires that notice of such disclaimer be given in each
agreement, obligation or instrument entered into or executed by the Trust or
the Trustees.
INSURANCE
To the extent permitted by New York law and subject to all applicable
requirements thereof, Equitable has undertaken to indemnify each Trustee and
officer of the Trust, so long as Equitable indirectly controls the Trust, who
is made or threatened to be made a party to any action or proceeding, whether
civil or criminal, by reason of the fact that he or she, his or her testator or
intestate, is or was a Trustee or officer of the Trust.
The Trustees and officers are insured under a policy issued by Lloyd's of
London to Equitable and certain affiliates:
Annual Limit: $25,000,000
Deductible: $5,000,000 each loss and aggregate for company
retention, nil per trustee and officer individually.
The Trustees and officers are also insured under a policy issued by
X.L. Insurance Company of $25,000,000 coverage and a policy issued by
A.C.E. Insurance Company of $50,000,000 coverage excess of the Lloyd's policy.
UNDERTAKING
Insofar as indemnification for liability arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
<PAGE>
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
The descriptions of Alliance Capital Management L.P. under the caption
"Management of the Trust" in the Prospectus and under the caption "Investment
Advisory and Other Services" in the Statement of Additional Information
constituting Parts A and B, respectively, of this Registration Statement are
incorporated by reference herein.
The information as to the directors and executive officers of Alliance
Capital Management Corporation, the general partner of Alliance Capital
Management L.P., set forth in Alliance Capital Management L.P.'s Form ADV filed
with the Securities and Exchange Commission on April 21, 1988 (File
No. 801-32361) and amended through the date hereof, is incorporated by
reference.
ITEM 27. PRINCIPAL UNDERWRITERS
(a) EQ Financial Consultants, Inc. is the principal underwriter of the
Trust's Class IA shares, and Equitable Distributors, Inc. is the principal
underwriter of the Trust's Class IB shares.
(b) Set forth below is certain information regarding the directors and
officers of EQ Financial Consultants, Inc., the principal underwriter of the
Trust's Class IA shares, and of Equitable Distributors, Inc., the principal
underwriter of the Trust's Class IB shares. The business address of the persons
whose names are preceded by a single asterisk is 1290 Avenue of the Americas,
New York, New York 10104. The business address of the persons whose names are
preceded by a double asterisk is 1755 Broadway, 3rd Floor, New York, New York
10019. Mr. Witte's business address is 135 West Fiftieth Street, 4th Floor, New
York, New York 10020. Mr. Kornweiss's business address is 4251 Crums Mill Road,
Harrisburg, PA 17112. Mr. Bullen's and Mr. Hayes' business address is 200 Plaza
Drive, Secaucus, New Jersey 07096. The business address for Messrs. Brakovich,
Shepherdson and Beaz is 660 Newport Center Drive, Suite 1200, Newport Beach,
California 92660. The business address for
<PAGE>
Mr. Laughlin is 1345 Avenue of the Americas, New York, New York 10105.
<TABLE>
<CAPTION>
POSITIONS AND POSITIONS AND
NAME AND PRINCIPAL OFFICES WITH OFFICES WITH
BUSINESS ADDRESS EQ FINANCIAL CONSULTANTS, INC. REGISTRANT
- ---------------- ------------------------------ ----------
<S> <C> <C>
*Derry E. Bishop Director None
*Harvey Blitz Director None
Michael J. Laughlin Director None
*Michael S. Martin Director Vice President
**Michael F. McNelis Director None
*Richard V. Silver Director None
*Mark R. Wutt Director None
*Michael S. Martin Chairman of the Board Vice President
and Chief Executive Officer
**Michael F. McNelis President and Chief Operating Officer None
*Derry E. Bishop Executive Vice President None
*Gordon G. Dinsmore Executive Vice President None
**Martin J. Telles Executive Vice President None
and Chief Marketing Officer
*Fred A. Folco Executive Vice President None
*Thomas J. Duddy, Jr. Executive Vice President None
*William J. Green Executive Vice President None
A. Frank Beaz Executive Vice President None
Dennis D. Witte Executive Vice President None
*Harvey Blitz Executive Vice President None
*Peter D. Noris Executive Vice President Trustee
**Robert McKenna Senior Vice President None
and Chief Financial Officer
**Theresa A. Nurge-Alws Senior Vice President None
*Mary P. Breen Vice President and Counsel None
**Ronald Boswell First Vice President None
**Donna M. Dazzo First Vice President None
*Robin K. Murray First Vice President None
*Michael Brzozowski Vice President and Compliance Director None
Edward J. Hayes Vice President None
**Amy Franceschini Vice President None
**Linda Funigiello Vice President None
**James Furlong Vice President None
Peter R. Kornweiss Vice President None
**Frank Lupo Vice President None
**T.S. Narayanan Vice President None
**James R. Anderson Vice President None
*Raymond T. Barry Vice President None
Rosemary Magee Vice President None
<PAGE>
Laura A. Pellegrini Vice President None
*Janet E. Hannon Secretary None
*Linda J. Galasso Assistant Secretary None
Greg Brakovich Director None
*Jerome S. Golden Director None
*William T. McCaffrey Director None
*James A. Shepherdson,
III Director None
Jerome S. Golden Chairman of the Board None
Greg Brakovich Co-President, None
Co-Chief Executive Officer and
Managing Director
James A. Shepherdson,
III Co-President, None
Co-Chief Executive Officer and
Managing Director
Dennis D. Witte Senior Vice President None
Thomas D. Bullen Chief Financial Officer None
*Michael Brzozowski Chief Compliance Officer None
*Mary P. Breen Vice President and Counsel None
*Ronald R. Quist Treasurer None
*Janet Hannon Secretary None
*Linda J. Galasso Assistant Secretary None
</TABLE>
(c) Not applicable.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
The Trust's accounts and records required to be maintained by Section
31(a) of the Investment Company Act of 1940 and the Rules thereunder are in the
physical possession of the following:
The Trust
Rule 31a-1(b)(4)
Rule 31a-2(a)(1)
Alliance Capital Management Corporation
135 West 50th Street
New York, New York 10019
Rule 31a-1(b)(1)-(3),(5)-(12)
Rule 31a-2(a)(1)-(2)
Chase Global Funds Services Company
<PAGE>
73 Tremont Street
Boston, MA 02108
Rule 31a-1(b)(2)-(3)
Rule 31a-2(a)(2)
ITEM 29. MANAGEMENT SERVICES
Inapplicable.
ITEM 30. UNDERTAKINGS
The Registrant undertakes to furnish each person to whom a prospectus is
delivered with a copy of the Registrant's latest annual report to shareholders
upon request and without charge.
<PAGE>
NOTICE
A copy of the Declaration of Trust of The Hudson River Trust (the "Trust")
is on file with the Secretary of State of The Commonwealth of Massachusetts and
notice is hereby given that this Registration Statement has been executed on
behalf of the Trust by an officer of the Trust as an officer and by its
Trustees as trustees and not individually and the obligations of or arising out
of this Registration Statement are not binding upon any of the Trustees,
officers or shareholders individually but are binding only upon the assets and
property of the Trust.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of the Registration Statement pursuant to
Rule 485(a) under the Securities Act of 1933 and has duly caused this amendment
to the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York and the State of New York on
the 26th day of February 1999.
THE HUDSON RIVER TRUST
By: EDMUND P. BERGAN, JR.
-------------------------------
Title: Secretary
Pursuant to the requirements of the Securities Act of 1933, this amended
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
PRINCIPAL EXECUTIVE OFFICER:
John D. Carifa,
President and Chief Executive Officer
PRINCIPAL FINANCIAL OFFICER:
Mark D. Gersten,
Treasurer and Chief Financial Officer
PRINCIPAL ACCOUNTING OFFICER:
Thomas R. Manley,
Controller and Chief Accounting Officer
TRUSTEES:
John D. Carifa
Brenton W. Harries
Howard E. Hassler
William L. Mannion
Michael Hegarty
<PAGE>
Clifford L. Michel
Peter D. Noris
Donald J. Robinson
By: EDMUND P. BERGAN, JR.
-------------------------------
Edmund P. Bergan, Jr.
As Attorney-in-Fact
February 26, 1999
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
(23)(n) Financial Data Schedules.
<PAGE>
[TO COME]
<PAGE>
[TO COME]
