<PAGE>
Registration Nos. 333-17217
811-07953
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 27, 1999
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. 11 /x/
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 /x/
Amendment NO.13 /x/
(Check appropriate box or boxes)
EQ ADVISORS TRUST
(formerly 787 Trust)
(Exact name of registrant as specified in charter)
1290 Avenue of the Americas
New York, New York 10104
(Address of principal executive offices)
Registrant's Telephone Number, including area code: (212) 554-1234
Peter D. Noris, Executive Vice President and
Chief Investment Officer
The Equitable Life Assurance Society of the United States
1290 Avenue of the Americas
New York, New York 10104
(Name and address of agent for service)
Please send copies of all communications to:
Jane A. Kanter
Dechert Price & Rhoads
1775 Eye Street, N.W.
Washington, D.C. 20006-2401
It is proposed that this filing will become effective:
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on date pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)
[ ] on date pursuant to paragraph (a) of Rule 485
[X] 75 days after filing pursuant to paragraph (a)
<PAGE>
EQ ADVISORS TRUST
PROSPECTUS
September 1, 1999
This Prospectus describes fourteen (14) of the Portfolios offered by EQ Advisors
Trust. Each Portfolio has its own investment objective and strategies that are
designed to meet different investment goals. This Prospectus contains
information you should know before investing. Please read this Prospectus
carefully before investing and keep it for future reference.
FIXED INCOME PORTFOLIOS ASSET ALLOCATION PORTFOLIOS
Alliance Money Market Alliance Balanced
Alliance Intermediate Government Securities Alliance Conservative Investors
Alliance Quality Bond Alliance Growth Investors
Alliance High Yield
DOMESTIC EQUITY PORTFOLIOS AGGRESSIVE EQUITY PORTFOLIOS
Alliance Common Stock Alliance Aggressive Stock
Alliance Equity Index Alliance Small Cap Growth
Alliance Growth and Income
GLOBAL/INTERNATIONAL EQUITY PORTFOLIOS
Alliance Global
Alliance International
You should be aware that the Securities and Exchange Commission has not approved
or disapproved of the investment merit of these Portfolios or determined if this
Prospectus is accurate or complete. Any representation to the contrary is a
criminal offense.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. EQ
ADVISORS TRUST MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS
IS NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY
THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
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EQ ADVISORS TRUST
This Prospectus tells you about fourteen (14) of the Portfolios of the EQ
Advisors Trust ("Trust") and the Class IA shares offered by the Trust on behalf
of each Portfolio. The Trust is an open-end management investment company. Each
Portfolio is a separate series of the Trust with its own investment objective,
investment strategies and risks, which are described in this Prospectus. Each of
the Portfolios is diversified for purposes of the Investment Company Act of
1940, as amended ("1940 Act").
The Trust's shares are currently sold (i) to insurance company separate accounts
in connection with variable life insurance contracts and variable annuity
certificates and contracts (the "Contract" or collectively, the "Contracts")
issued by The Equitable Life Assurance Society of the United States
("Equitable") and Equitable of Colorado, Inc. ("EOC") as well as insurance
companies that are not affiliated with Equitable or EOC ("non-affiliated
insurance companies"), and (ii) to The Equitable Investment Plan for Employees,
Managers and Agents ("Equitable Plan"). The prospectus is designed to help you
make informed decisions about the Portfolios that are available under your
Contract or under the Equitable Plan. You will find information about your
Contract and how it works in the accompanying prospectus for the Contracts if
you are a Contractholder or participant under a Contract.
EQ Financial Consultants, Inc. ("Manager") serves as the Manager of the Trust,
subject to the supervision and direction of the Board of Trustees. The Manager
has overall responsibility for the general management and administration of the
Trust. During 1999, the Manager plans to change its name to AXA Advisors, Inc.
Each of the Portfolios has its own investment adviser ("Adviser"). Information
about the Adviser for each Portfolio is contained in the description concerning
that Portfolio in the section entitled "About the Investment Portfolios." The
Manager has the ultimate responsibility to oversee each of the Advisers and to
recommend their hiring, termination and replacement. Subject to approval by the
Board of Trustees, the Manager may without obtaining shareholder approval: (i)
select Advisers for each of the Trust's Portfolios; (ii) enter into and
materially modify existing investment advisory agreements; and (iii) terminate
and replace Advisers.
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2nd right hand page TABLE OF CONTENTS
PAGE
SUMMARY INFORMATION CONCERNING EQ ADVISORS TRUST.............................4
ABOUT THE INVESTMENT PORTFOLIOS.............................................10
FIXED INCOME PORTFOLIOS..................................................13
ALLIANCE MONEY MARKET PORTFOLIO....................................13
ALLIANCE INTERMEDIATE GOVERNMENT SECURITIES PORTFOLIO..............16
ALLIANCE QUALITY BOND PORTFOLIO....................................21
ALLIANCE HIGH YIELD PORTFOLIO......................................25
ASSET ALLOCATION PORTFOLIOS..............................................29
ALLIANCE BALANCED PORTFOLIO........................................30
ALLIANCE CONSERVATIVE INVESTORS PORTFOLIO..........................34
ALLIANCE GROWTH INVESTORS PORTFOLIO................................38
DOMESTIC EQUITY PORTFOLIOS...............................................42
ALLIANCE COMMON STOCK PORTFOLIO....................................42
ALLIANCE EQUITY INDEX PORTFOLIO....................................46
ALLIANCE GROWTH AND INCOME PORTFOLIO...............................49
AGGRESSIVE EQUITY PORTFOLIOS.............................................53
ALLIANCE AGGRESSIVE STOCK PORTFOLIO................................53
ALLIANCE SMALL CAP GROWTH PORTFOLIO................................57
GLOBAL/INTERNATIONAL PORTFOLIOS..........................................60
ALLIANCE GLOBAL PORTFOLIO..........................................60
ALLIANCE INTERNATIONAL PORTFOLIO...................................64
MORE INFORMATION ON PRINCIPAL RISKS.........................................68
MANAGEMENT OF THE TRUST.....................................................74
The Trust................................................................74
The Manager..............................................................74
Expense Limitation Agreement.............................................75
The Advisers.............................................................75
The Administrator........................................................76
The Transfer Agent.......................................................76
Brokerage Practices......................................................76
Brokerage Transactions with Affiliates...................................76
FUND DISTRIBUTION ARRANGEMENTS..............................................76
PURCHASE AND REDEMPTION.....................................................77
HOW ASSETS ARE VALUED.......................................................77
TAX INFORMATION.............................................................78
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TWO PAGE SPREAD
SUMMARY INFORMATION CONCERNING EQ ADVISORS TRUST
The following chart highlights the fourteen (14) Portfolios described in this
Prospectus that you can choose as investment alternatives under your Contracts
offered by Equitable or EOC and non-affiliated insurance companies. The chart
and accompanying information identify each Portfolio's investment objective(s),
principal investment strategies, and principal risks. "More Information on
Principal Risks", which more fully describes each of the principal risks, is
provided beginning on page __.
EQ ADVISORS TRUST
FIXED INCOME PORTFOLIOS
Part A
<TABLE>
<CAPTION>
<S> <C>
- --------------------------------------------------------------------------------------------
PORTFOLIO INVESTMENT OBJECTIVE(S)
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ALLIANCE MONEY MARKET Seeks to obtain a high level of current income,
preserve its assets and maintain liquidity
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ALLIANCE INTERMEDIATE GOVERNMENT Seeks to achieve high current income consistent
SECURITIES 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
- --------------------------------------------------------------------------------------------
ALLIANCE QUALITY BOND Seeks to achieve high current income consistent with
preservation of capital by investing primarily in
investment grade fixed income securities
- --------------------------------------------------------------------------------------------
ALLIANCE HIGH YIELD Seeks to achieve a high return by maximizing current
income and, to the extent consistent with that
objective, capital appreciation
- --------------------------------------------------------------------------------------------
</TABLE>
EQ ADVISORS TRUST
ASSET ALLOCATION PORTFOLIOS
Part A
<TABLE>
<CAPTION>
<S> <C>
- --------------------------------------------------------------------------------------------
PORTFOLIO INVESTMENT OBJECTIVE(S)
- --------------------------------------------------------------------------------------------
ALLIANCE BALANCED Seeks to achieve a high return through both
appreciation of capital and current income
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ALLIANCE CONSERVATIVE INVESTORS Seeks to achieve a high total return without, in
the opinion of the Adviser, undue risk to principal
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ALLIANCE GROWTH INVESTORS Seeks to achieve the highest total return
consistent with the Adviser's determination of
reasonable risk
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</TABLE>
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EQ ADVISORS TRUST
FIXED INCOME PORTFOLIOS
Part B
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PRINCIPAL INVESTMENT STRATEGIES PRINCIPAL RISKS
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High quality U.S. dollar-denominated General investment, money market,
money market instruments (including leveraging, foreign securities, and
foreign securities) and securities securities lending risks
lending
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Securities issued to or guaranteed General investment, fixed income,
by the U.S. Government, including leveraging, derivatives, and
repurchase agreements and forward securities lending risks
commitments related to U.S. Government
securities, debt securities of
non-governmental issuers that own
mortgages, short sales, the purchase
or sale of securities on a when-issued
or delayed delivery basis,
derivatives, and securities lending
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Investment-grade debt securities General investment, fixed income,
rated at least BBB/Baa or unrated convertible securities, leveraging,
securities of comparable quality at derivatives, securities lending and
the time of purchase, convertible foreign securities risks
debt securities, preferred stock,
dividend-paying common stocks,
foreign securities, the purchase or
sale of securities on a when-issued,
delayed-delivery or forward commitment
basis, derivatives, and securities
lending
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High yield debt securities rated General investment, fixed income,
below BB/Ba or unrated securities of leveraging, derivatives, liquidity,
comparable quality ("junk bonds"), junk bond, foreign securities, small-
common stocks and other equity cap and mid-cap company, and securities,
foreign securities, securities lending risks
derivatives, and securities lending
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EQ ADVISORS TRUST
ASSET ALLOCATION PORTFOLIOS
Part B
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PRINCIPAL INVESTMENT STRATEGIES PRINCIPAL RISKS
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Debt and equity securities, money General investment, fixed income,
market instruments, foreign derivatives, leveraging, liquidity,
securities, derivatives, and securities lending, and foreign
securities lending securities risks
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Investment grade debt securities and General investment, fixed income,
equity securities of U.S. and derivatives, convertible
foreign issuers, derivatives, and securities, leveraging, securities
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<PAGE>
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securities lending lending, and foreign securities
risks
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Equity securities (including foreign General investment, fixed income,
stocks, preferred stocks, leveraging, derivatives, liquidity,
convertible securities, securities convertible securities, small-cap
of small and medium-sized companies) and mid-cap company, securities
and debt securities (including lending, junk bond, and foreign
foreign debt securities and junk securities risks
bonds), derivatives, and securities
lending
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EQ ADVISORS TRUST
DOMESTIC EQUITY PORTFOLIOS
Part A
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PORTFOLIO INVESTMENT OBJECTIVE(S)
- --------------------------------------------------------------------------------
ALLIANCE COMMON STOCK Seeks to achieve long-term growth
of its capital and increase income
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ALLIANCE EQUITY INDEX Seeks a total return before
expenses that approximates the
total return performance of the
S&P 500 Index, including
reinvestment of dividends,
at a risk level consistent
with that of the S&P 500
Index
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ALLIANCE GROWTH AND INCOME 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
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EQ ADVISORS TRUST
AGGRESSIVE EQUITY PORTFOLIOS
Part A
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PORTFOLIO INVESTMENT OBJECTIVE(S)
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ALLIANCE AGGRESSIVE STOCK Seeks to achieve long-term growth of
capital
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ALLIANCE SMALL CAP GROWTH Seeks to achieve long-term growth of
capital
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EQ ADVISORS TRUST
GLOBAL/INTERNATIONAL EQUITY PORTFOLIOS
Part A
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PORTFOLIO INVESTMENT OBJECTIVE(S)
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ALLIANCE GLOBAL Seeks long-term growth of capital
- --------------------------------------------------------------------------------
ALLIANCE INTERNATIONAL 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
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EQ ADVISORS TRUST
DOMESTIC EQUITY PORTFOLIOS
<TABLE>
<CAPTION>
Part B
- ---------------------------------------------------------------------------------------------
PRINCIPAL INVESTMENT STRATEGIES PRINCIPAL RISKS
- ---------------------------------------------------------------------------------------------
<S> <C>
Stocks and other equity securities (including General investment, foreign
securities, preferred stocks or convertible debt) leveraging, derivatives, small-cap and
and fixed income securities (including junk mid-cap company, junk bond, and fixed
bonds), foreign securities, derivatives, income risks
and securities lending
- ---------------------------------------------------------------------------------------------
Securities in the S&P 500 Index, derivatives, General investment, index-fund,
and securities lending derivatives, leveraging, and small-cap
and mid-cap company risks
- ---------------------------------------------------------------------------------------------
Stocks and securities convertible into stocks General investment, convertible
(including junk bonds) securities, leveraging, derivatives,
small-cap and mid-cap company, foreign
securities, junk bond, and fixed income
risks
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EQ ADVISORS TRUST
AGGRESSIVE EQUITY PORTFOLIOS
Part B
- ---------------------------------------------------------------------------------------------
PRINCIPAL INVESTMENT STRATEGIES PRINCIPAL RISKS
- ---------------------------------------------------------------------------------------------
Stocks and other equity securities of small General investment, small-cap and
and medium-sized companies (including mid-cap company, growth investing,
securities of companies in cyclical leveraging, derivatives, liquidity,
industries, companies whose securities foreign securities and fixed income
are temporarily undervalued, companies in risks
special situations and less widely known
companies)
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Stocks and other equity securities of General investment, small-cap and
smaller companies and undervalued securities mid-cap company, growth investing,
(including securities of companies in leveraging, derivatives, liquidity,
cyclical industries, companies whose foreign securities and fixed income
securities are temporarily undervalued, risks
companies in special situations and less
widely known companies)
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EQ ADVISORS TRUST
GLOBAL/INTERNATIONAL EQUITY PORTFOLIOS
Part B
- ---------------------------------------------------------------------------------------------
PRINCIPAL INVESTMENT STRATEGIES PRINCIPAL RISKS
- ---------------------------------------------------------------------------------------------
Equity securities of U.S. and established General investment, foreign
foreign companies (including shares of other securities, liquidity, derivatives,
mutual funds investing in foreign leveraging and fixed income risks
securities), debt securities, derivatives,
and securities lending
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</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
<S> <C>
Equity securities of non-U.S. companies General investment, foreign
(including those in emerging markets securities, liquidity, growth
securities) or foreign government investing, leveraging, derivatives,
enterprises (including other mutual funds and fixed income risks
investing in foreign securities), debt
securities, derivatives, and securities
lending)
- ---------------------------------------------------------------------------------------------
</TABLE>
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<PAGE>
ABOUT THE INVESTMENT PORTFOLIOS
This section of the Prospectus provides a more complete description of the
principal investment objectives, strategies, and risks of each of the
Portfolios. There can be no assurance that any Portfolio will achieve its
investment objective.
Please note that:
o A fuller description of each of the principal risks is included in the
section "More Information on Principal Risks," which follows the
description of each Portfolio in this section of the Prospectus.
o Additional information concerning each Portfolio's strategies, investments,
and risks can also be found in the Trust's Statement of Additional
Information.
GENERAL INVESTMENT RISKS
Each of the Portfolios is subject to the following risks:
ASSET CLASS RISK: The returns from the types of securities in which a
Portfolio invest may underperform returns from the various general
securities markets or different asset classes.
MARKET RISK: You could lose money over short periods due to fluctuation
in a Portfolio's share price in reaction to stock or bond market
movements, and over longer periods during extended market downturns.
SECURITY SELECTION RISK: There is the possibility that the specific
securities selected by a Portfolio's Adviser will underperform other
funds in the same asset class or benchmarks that are representative of
the general performance of the asset class. In some cases, certain
investments may not be available, or the Portfolio's Adviser may choose
not to use them under market conditions when, in retrospect, their use
would have been beneficial.
YEAR 2000 RISK: A Portfolio could be adversely affected if the computer
systems used by the Trust, Adviser, other service providers, or persons
with whom they deal, do not properly process and calculate date-related
information and data dated on and after January 1, 2000 ("Year 2000
Problem"). The extent of such impact cannot be predicted. Also, there
can be no assurances that the Year 2000 Problem will not have an
adverse effect on the issuers whose securities are held by a Portfolio.
This risk is greater for Portfolios that make foreign investments,
particularly in emerging market countries.
The Trust's Portfolios are not insured by the FDIC or any other government
agency. Each Portfolio is not a deposit or other obligation of any financial
institution or bank and is not guaranteed. Each Portfolio is subject to
investment risks and possible loss of principal invested.
THE BENCHMARKS
Performance of each of the Trust's Portfolios, as a predecessor registered
investment company managed by the Adviser using the same investment strategies
as the Portfolio, as shown on the following pages compares each Portfolio's
performance to that of: an index of funds with similar investment objectives, a
blended index, and a broad-based securities market index. Each of the
Portfolios' annualized rates of return are net of: (i) its investment management
fees; and (ii) its other expenses. These rates are not representative of the
actual return you would receive under your Contract.
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<PAGE>
Broad-based securities indices are unmanaged and are not subject to fees and
expenses typically associated with managed investment company portfolios.
Investments cannot be made directly in a broad-based securities index.
Comparisons with these benchmarks, therefore, are of limited use. They are
included because they are widely known and may help you to understand the
universe of securities from which each Portfolio is likely to select its
holdings. "Blended" performance numbers (e.g., 50% S&P 400/50% Russell 2000 or
60% S&P 500/40% Lehman Gov't/Corp) assume a static mix of the two indices.
THE LEHMAN AGGREGATE BOND INDEX ("Lehman Aggregate Bond") 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).
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 LEHMAN INTERMEDIATE GOVERNMENT BOND INDEX ("Lehman Intermediate Government
Bonds") represents an unmanaged group of securities consisting of all U.S.
Treasury and agency securities with remaining maturities of from one to ten
years and issue amounts of at least $100 million outstanding.
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 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 and direct operating expenses. 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 contract 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 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 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.
MSCI EAFE Index returns assume dividends reinvested net of withholding.
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 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. It is compiled by the
Frank Russell Company.
THE RUSSELL 2000 INDEX ("Russell 2000") is an unmanaged index (with no defined
investment objective) of 2000 small-cap stocks and reflects reinvestment of
dividends. It is compiled by the Frank Russell Company.
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<PAGE>
THE STANDARD & POOR'S 500 COMPOSITE STOCK PRICE INDEX ("S&P 500") is an
unmanaged index containing common stock of 500 industrial, transportation,
utility and financial companies, regarded as generally representative of the
larger capitalization portion of the United States stock market. The S&P 500
reflects the reinvestment of dividends, if any, but does not reflect fees,
brokerage commissions or other expenses of investing.
THE STANDARD & POOR'S MIDCAP 400 INDEX ("S&P 400 MidCap") is 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 VALUE LINE CONVERTIBLE INDEX ("Value Line Convertible") is comprised of 585
of the most actively traded convertible bonds and preferred stocks on an
unweighted basis.
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<PAGE>
FIXED INCOME PORTFOLIOS
ALLIANCE MONEY MARKET PORTFOLIO
INVESTMENT OBJECTIVE: Seeks to obtain a high level of current income, preserve
its assets and maintain liquidity.
THE INVESTMENT STRATEGY
The Portfolio invests primarily in a diversified portfolio of high-quality U.S.
dollar-denominated money market instruments. The Portfolio will maintain a
dollar-weighted average portfolio maturity of 90 days or less.
The instruments in which the Portfolio invests include:
o marketable obligations of, or guaranteed as to the timely payment of
principal and interest by, the U.S. Government, its agencies or
instrumentalities ("U.S. Government Securities");
o certificates of deposit, bankers' acceptances, bank notes, time deposits
and interest bearing savings deposits issued or guaranteed by:
(a) domestic banks (including their foreign branches) or savings and
loan associations having total assets of more than $1 billion and which
are FDIC members 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 (i)
commercial paper rated at least A-1 by Standard & Poor's ("S&P") or
Prime-1 by Moody's Investors Service, Inc. ("Moody's") or (ii) long
term debt rated at least AA by S&P or Aa by Moody's;
o 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;
o mortgage-backed securities and asset-backed securities;
o 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;
o floating rate or master demand notes; and
o repurchase agreements covering U.S. Government securities.
If the Adviser believes a security held by the Portfolio is no longer deemed to
present minimal credit risk, the Portfolio will dispose of the security as soon
as practicable unless the Board of Trustees determines that such action would
not be in the best interest of the Portfolio.
Purchases of securities that are unrated must be ratified by the Board of
Trustees. 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. Time deposits with maturities greater than seven days are considered to
be illiquid securities.
The Portfolio may make use of various other investment strategies, including
investing up to 20% of its total assets in U.S. dollar-denominated money market
instruments of foreign issuers and making secured loans of up to 50% of its
total portfolio securities.
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<PAGE>
THE PRINCIPAL RISKS
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 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. An investment in the Portfolio is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. Although the Portfolio seeks to preserve the value of your
investment, it is possible to lose money by investing in the Portfolio.
LEVERAGING RISK: When the Portfolio borrows money or otherwise leverages its
portfolio, the value of an investment in the Portfolio will be more volatile and
all other risks will tend to be compounded.
FOREIGN SECURITIES RISKS: The Portfolio's investments in foreign securities
involve risks not associated with investing in U.S. securities, which can
adversely affect the Portfolio's performance. Foreign markets, particularly
emerging markets, may be less liquid, more volatile, and subject to less
government supervision than domestic markets. There may be difficulties
enforcing contractual obligations, and it may take more time for trades to clear
and settle. In addition, the value of foreign investments can be adversely
affected by: unfavorable currency exchange rates (relative to the U.S. dollar
for securities denominated in foreign currencies); inadequate or inaccurate
information about foreign companies; higher transaction, brokerage and custody
costs; expropriation or nationalization; adverse changes in foreign economic and
tax policies; and foreign government instability, war or other adverse political
or economic actions.
SECURITIES LENDING RISK: This Portfolio may make secured loans of its portfolio
securities. 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.
PORTFOLIO PERFORMANCE
The bar chart below illustrates the Portfolio's annual total returns for each of
the last ten calendar years. The bar chart provides some indication of the risks
of investing in the Portfolio by showing changes in the Portfolio's performance
from year to year. The table below shows the Portfolio's average annual total
returns for the past one, five and ten years. The table also compares the
Portfolio's performance to the returns of an index of funds with similar
investment objectives and the returns on three-month U.S. Treasury bills. The
bar chart and table below includes the performance of the predecessor
(registered investment company) to this Portfolio, which was managed by the
Adviser using the same investment strategy as the Portfolio. Both the bar chart
and table assume reinvestment of dividends and distributions. Past performance
is not an indication of future performance. In addition, holders of Contracts
representing interests in the Portfolio will be subject to charges and expenses
relating to such insurance contracts. The performance results presented below do
not reflect any insurance related expenses and if reflected the results would be
reduced. For these purposes, the Portfolio is considered to be the successor
entity to the predecessor (registered investment company) whose inception date
is July 13, 1981.
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<PAGE>
CALENDAR YEAR ANNUAL TOTAL RETURN
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% 5.3%
Best quarter (% and time period) Worst quarter (% and time period)
2.37% (1989 2nd Quarter) 0.69% (1992 4th Quarter)
The Portfolio's 7-day yield for the quarter ended December 31, 1999 was 4.69%.
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR FIVE YEARS TEN YEARS
ALLIANCE MONEY MARKET PORTFOLIO - 5.34% 5.17% 5.58%
CLASS IA SHARES
LIPPER MONEY MARKET MUTUAL FUND 4.84% 4.77% 5.20%
AVERAGE*
3-MONTH TREASURY BILL 5.05% 5.11% 5.44%
- --------------------------------------------------------------------------------
*For more information on this index, see the preceding section "The Benchmarks."
WHO MANAGES THE PORTFOLIO
ALLIANCE CAPITAL MANAGEMENT, L.P. ("Alliance"), 1345 Avenue of the Americas, New
York, New York 10105. Alliance has been the Adviser to the Portfolios since it
commenced operations. Alliance, a publicly traded limited partnership, is
indirectly majority-owned by Equitable. Alliance manages investment companies,
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.
RAYMOND J. PAPERA has been responsible for the day-to-day management of the
Portfolio since 1990. Mr. Papera, a Senior Vice President of Alliance, has been
associated with Alliance since 1990.
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<PAGE>
ALLIANCE INTERMEDIATE GOVERNMENT SECURITIES PORTFOLIO
INVESTMENT OBJECTIVE: 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.
THE INVESTMENT STRATEGY
The Portfolio invests primarily in U.S. Government Securities. The Portfolio may
also invest in repurchase agreements and forward commitments related to U.S.
Government Securities and may also purchase debt securities of non-government
issuers that own mortgages.
SIDEBAR: Duration is a measure of the weighted average maturity of the bonds
held by the Portfolio and can be used by the Adviser as a measure of the
sensitivity of the market value of the Portfolio to changes in interest rates.
Generally, the longer the duration of the Portfolio, the more sensitive its
market value will be to changes in interest rates.
SIDEBAR: In some cases, the Adviser'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 Adviser considered the duration of a
10-year Treasury bond to be 4.68 years. The Portfolio's investments will
generally have a final maturity of not more than ten years or a duration not
exceeding that of a 10-year Treasury note.
The Portfolio buys and sells securities with a view to maximizing current return
without, in the opinion of the Adviser, undue risk to principal. Potential
capital gains resulting from possible changes in interest rates will not be a
major consideration. The Portfolio may take full advantage of a wide range of
maturities of U.S. Government Securities and may adjust the dollar-weighted
average maturity of its portfolio from time to time, depending on the Adviser'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. The Portfolio may also invest a substantial
portion of its assets in money market instruments.
In order to enhance its current return, to reduce fluctuations in net asset
value, and to hedge against changes in interest rates, the Portfolio may write
covered call and put options on U.S. Government Securities 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. The Portfolio may also make secured
loans of its portfolio securities without limitation and enter into repurchase
agreement with respect to U.S. Government Securities with commercial banks and
registered broker-dealers.
The Portfolio may also make use of various other investment strategies,
including covered short sales, and the purchase or sale of securities on a
when-issued, delayed delivery or forward commitment basis.
Under normal market conditions, the Portfolio will invest at least 65%, and
expects to 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:
o U.S. Treasury Bills: Direct obligations of the U.S. Treasury which are
issued in maturities of one year or less.
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.
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<PAGE>
o U.S. Treasury Bonds: Direct obligations of the U.S. Treasury which are
issued in maturities more than ten years from the date of issue, with
interest payable every six months.
o "Ginnie Maes": 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.
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.
SIDEBAR: Guarantees of the Portfolio's U.S. Government Securities 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 Portfolio's shares.
The Portfolio may also purchase collateralized mortgage obligations ("CMOs")
issued by non-governmental issuers and securities issued by a real estate
mortgage investment conduits ("REMICs"'), but only if they are collateralized by
U.S. Government Securities. However, CMOs issued by entities other than U.S.
Government agencies and instrumentalities and securities issued by REMICs are
not considered U.S. Government Securities for purposes of the Portfolio meeting
its policy of investing at least 65% of its total assets in U.S. Government
Securities.
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<PAGE>
THE PRINCIPAL RISKS
FIXED INCOME RISKS: This Portfolio invests primarily in fixed income securities,
therefore, the Portfolio's performance will be affected by changes in interest
rates, credit risks of the issuer, the duration and maturity of the Portfolio's
fixed income holdings, and adverse market and economic conditions. Other risks
that relate to the Portfolio's investment in fixed income securities include:
INTEREST RATE RISK: When interest rates rise, the value (i.e., share
price and total return) of the Portfolio's fixed income securities,
particularly those with longer durations or maturities, will go down.
When interest rates fall, the reverse is true.
INVESTMENT-GRADE SECURITIES RISK: The Portfolio could lose money if the
issuer or guarantor of a debt security or counterparty to a Portfolio's
transaction is unable or unwilling to make timely principal and/or
interest payments, or to honor its financial obligations. Investment
grade securities which are rated BBB by S&P or an equivalent rating by
any other nationally recognized statistical rating organization, are
somewhat riskier than higher rated obligations because they are
regarded as having only an adequate capacity to pay principal and
interest, are considered to lack outstanding investment
characteristics, and may be speculative.
MORTGAGE-BACKED SECURITIES RISK: Rising interest rates may cause the
duration of mortgage-backed securities to increase, making them even
more susceptible to interest rate changes. Falling interest rates may
cause the value and yield of mortgage-backed securities to fall.
Falling interest rates also may encourage borrowers to pay off their
mortgages sooner than anticipated (pre-payment). The Portfolio would
need to reinvest the pre-paid funds at the newer, lower interest rates.
DERIVATIVES RISK: The Portfolio's investments in derivatives can significantly
increase the Portfolio's exposure to market risk or credit risk of the
counterparty. Derivatives also involve the risk of mispricing or improper
valuation and the risk that changes in value of the derivative may not correlate
perfectly with the relevant assets, rates and indices.
LEVERAGING RISK: When the portfolio borrows money or otherwise leverages its
portfolio, the value of an investment in the Portfolio will be more volatile and
all other risk will tend to be compounded.
SECURITIES LENDING RISK: This Portfolio may make secured loans of its portfolio
securities without restriction. The risk 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.
-18-
<PAGE>
PORTFOLIO PERFORMANCE
The bar chart below illustrates the Portfolio's annual total returns for each of
the last seven calendar years. The table below shows the Portfolio's average
annual total returns for the past one and five years and since inception. The
table also compares the Portfolio's performance to the returns of an index of
funds with similar investment objectives and the returns of a broad-based index.
The bar chart and table below includes the performance of the predecessor
(registered investment company) to this Portfolio, which was managed by the
Adviser using the same investment strategy as the Portfolio. Both the bar chart
and table assume reinvestment of dividends and distributions. Past performance
is not an indication of future performance. In addition, holders of Contracts
representing interests in the Portfolio will be subject to charges and expenses
relating to such insurance contracts. The performance results presented below do
not reflect any insurance related expenses and if reflected the results would be
reduced. For these purposes, the Portfolio is considered to be the successor
entity to the predecessor (registered investment company) whose inception date
is April 1, 1991.
CALENDAR YEAR ANNUAL TOTAL RETURN
1992 1993 1994 1995 1996 1997 1998
5.5% 10.6% -4.4% 13.3% 3.8% 7.3% 7.7%
Best quarter (% and time period) Worst quarter (% and time period)
5.31% (1991 3rd Quarter) -2.97% (1994 1st Quarter)
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR FIVE YEARS SINCE INCEPTION
ALLIANCE INTERMEDIATE GOVERNMENT 7.74% 5.39% 7.10%
SECURITIES PORTFOLIO - CLASS IA SHARES
LIPPER INTERMEDIATE GOVERNMENT FUNDS
AVERAGE* 7.68% 5.91% 7.25%
LEHMAN INTERMEDIATE GOVERNMENT BONDS* 8.49% 6.45% 7.60%
- --------------------------------------------------------------------------------
-19-
<PAGE>
*For more information on this index, see the preceding section "The Benchmarks."
WHO MANAGES THE PORTFOLIO
ALLIANCE CAPITAL MANAGEMENT, L.P. ("Alliance"), 1345 Avenue of the Americas, New
York, New York 10105. Alliance has been the Adviser to the Portfolios since it
commenced operations. Alliance, a publicly traded limited partnership, is
indirectly majority-owned by Equitable. Alliance manages investment companies,
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.
JEFFREY S. PHLEGAR has been responsible for the day-to-day management of the
Portfolio since January 1999. Mr. Phlegar, a Senior Vice President of Alliance,
has been associated with Alliance since 1998.
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<PAGE>
ALLIANCE QUALITY BOND PORTFOLIO
INVESTMENT OBJECTIVE: Seeks to achieve high current income consistent with
preservation of capital by investing primarily in investment grade fixed income
securities.
THE INVESTMENT STRATEGY
The Portfolio expects to invest in readily marketable securities with relatively
attractive yields that the Adviser believes do not involve undue risk.
The 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 that the Adviser determines to
be of comparable quality.
In the event that the credit rating of a security held by the Portfolio falls
below investment grade (or, in the case of unrated securities, the Adviser
determines that the quality of such security has deteriorated below investment
grade), the Portfolio will not be obligated to dispose of such security and may
continue to hold the obligation if the Adviser believes such an investment is
appropriate in the circumstances. The Portfolio will also seek to maintain an
average aggregate quality rating of its portfolio securities of at least A
(Moody's and S&P).
The Portfolio has complete flexibility as to the types of securities in which it
will invest and the relative proportions thereof. In this regard, the 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), preferred stocks and dividend-paying common stocks
in order to reflect the Adviser's assessment of prospective cyclical changes
even if such action may adversely affect current income.
The Portfolio may also invest in foreign securities, although it will not invest
more than 20% of its total assets in securities denominated in currencies other
than the U.S. dollar. The Portfolio may enter into foreign currency futures
contracts (and related options), forward foreign currency exchange contracts and
options on foreign currencies for hedging purposes.
The Portfolio may also make use of various other investment strategies,
including zero coupon pay-in-kind securities, collateralized mortgage
obligations, securities lending with a value of up to 50% of its total assets,
the purchase or sale of securities on a when-issued, delayed delivery or forward
commitment basis and repurchase agreements. The Portfolio may also use
derivatives, including: purchasing put and call options and writing covered put
and call options on securities it may purchase. The Portfolio also intends to
write covered call options for cross-hedging purposes, which are designed to
provide a hedge against a decline in value of another security which the
Portfolio owns or has the right to acquire.
The 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.
When market or financial conditions warrant, the Portfolio may invest in certain
money market instruments for temporary or defensive purposes. Such investments
could result in the Portfolio not achieving its investment objective.
THE PRINCIPAL RISKS
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<PAGE>
FIXED INCOME RISKS: This Portfolio invests primarily in fixed income securities,
therefore, the Portfolio's performance will be affected by changes in interest
rates, credit risks of the issuer, the duration and maturity of the Portfolio's
fixed income holdings, and adverse market and economic conditions. Other risks
that relate to the Portfolio's investment in fixed income securities include:
INTEREST RATE RISK: When interest rates rise, the value (i.e., share
price and total return) of the Portfolio's fixed income securities,
particularly those with longer durations or maturities, will go down.
When interest rates fall, the reverse is true.
INVESTMENT-GRADE SECURITIES RISK: The Portfolio could lose money if the
issuer or guarantor of a debt security or counterparty to a Portfolio's
transaction is unable or unwilling to make timely principal and/or
interest payments, or to honor its financial obligations. Investment
grade securities which are rated BBB or S&P or an equivalent rating by
any other nationally recognized statistical rating organization, are
somewhat riskier than higher rated obligations because they are
regarded as having only an adequate capacity to pay principal and
interest, are considered to lack outstanding investment
characteristics, and may be speculative.
MORTGAGE-BACKED SECURITIES RISK: Rising interest rates may cause the
duration of mortgage-backed securities to increase, making them even
more susceptible to interest rate changes. Falling interest rates may
cause the value and yield of mortgage-backed securities to fall.
Falling interest rates also may encourage borrowers to pay off their
mortgages sooner than anticipated (pre-payment). The Portfolio would
need to reinvest the prepaid funds at the newer, lower interest rates.
ZERO COUPON AND PAY-IN-KIND SECURITIES RISK: A zero coupon or
pay-in-kind security pays no interest in cash to its holder during its
life. Accordingly, zero coupon securities usually trade at a deep
discount from their face or par value and, together with pay-in-kind
securities, 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 in cash.
DERIVATIVES RISK: The Portfolio's investments in derivatives can significantly
increase the Portfolio's exposure to market risk or credit risk of the
counterparty. Derivatives also involve the risk of mispricing or improper
valuation and the risk that changes in value of the derivative may not correlate
perfectly with the relevant assets, rates and indices.
CONVERTIBLE SECURITIES RISK: Convertible securities generally enable the
Portfolio to benefit from increases in the market price of the underlying common
stock and provide higher yields than the underlying common stocks, but generally
offer lower yields than nonconvertible securities of similar quality. Like
bonds, the value of convertible securities fluctuates both in relation to
changes in interest rates and changes in the value of the underlying common
stock.
FOREIGN SECURITIES RISKS: The Portfolio's investments in foreign securities
involve risks not associated with investing in U.S. securities, which can
adversely affect the Portfolio's performance. Foreign markets, particularly
emerging markets, may be less liquid, more volatile, and subject to less
government supervision than domestic markets. There may be difficulties
enforcing contractual obligations, and it may take more time for trades to clear
and settle. In addition, the value of foreign investments can be adversely
affected by: unfavorable currency exchange rates (relative to the U.S. dollar
for securities denominated in foreign currencies); inadequate or inaccurate
information about foreign companies; higher transaction, brokerage and custody
costs; expropriation or nationalization; adverse changes in foreign economic and
tax policies; and foreign government instability, war or other adverse political
or economic actions.
-22-
<PAGE>
SECURITIES LENDING RISK: This Portfolio may make secured loans of its portfolio
securities. 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.
LEVERAGING RISK: When a portfolio is borrows money or otherwise leverages its
portfolio, the value of an investment in that Portfolio will be more volatile
and all other risk will tend to be compounded.
PORTFOLIO PERFORMANCE
The bar chart below illustrates the Portfolio's annual total returns for each of
the last five calendar years. The table below shows the Portfolio's average
annual total returns for the past one and five years and since inception. The
table also compares the Portfolio's performance to the returns of an index of
funds with similar investment objectives and the returns of a broad-based index.
The bar chart and table below includes the performance of the predecessor
(registered investment company) to this Portfolio, which was managed by the
Adviser using the same investment strategy as the Portfolio. Both the bar chart
and table assume reinvestment of dividends and distributions. Past performance
is not an indication of future performance. In addition, holders of Contracts
representing interests in the Portfolio will be subject to charges and expenses
relating to such insurance contracts. The performance results presented below do
not reflect any insurance related expenses and if reflected the results would be
reduced. For these purposes, the Portfolio is considered to be the successor
entity to the predecessor (registered investment company) whose inception date
is October 1, 1993.
CALENDAR YEAR ANNUAL TOTAL RETURN
1994 1995 1996 1997 1998
-5.1% 17.0% 5.4% 9.1% 8.7%
Best quarter (% and time period) Worst quarter (% and time period)
6.19% (1995 2nd Quarter) -4.03% (1994 1st Quarter)
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<PAGE>
- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR FIVE YEARS SINCE INCEPTION
ALLIANCE QUALITY BOND PORTFOLIO - 8.69% 6.78% 6.34%
CLASS IA SHARES
LIPPER CORPORATE DEBT FUNDS A RATED
AVERAGE* 7.47% 6.54% 6.21%
LEHMAN AGGREGATE BONDS* 8.69% 7.27% 6.92%
- -------------------------------------------------------------------------------
*For more information on this index, see the preceding section "The Benchmarks."
WHO MANAGES THE PORTFOLIO
ALLIANCE CAPITAL MANAGEMENT, L.P. ("Alliance"), 1345 Avenue of the Americas, New
York, New York 10105. Alliance has been the Adviser to the Portfolios since it
commenced operations. Alliance, a publicly traded limited partnership, is
indirectly majority-owned by Equitable. Alliance manages investment companies,
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.
MATTHEW BLOOM has been responsible for the day-to-day management of the
Portfolio since 1995. Mr. Bloom, a Senior Vice President of Alliance, has been
associated with Alliance since 1989.
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<PAGE>
ALLIANCE HIGH YIELD PORTFOLIO
INVESTMENT OBJECTIVE: Seeks to achieve a high return by maximizing current
income and, to the extent consistent with that objective, capital appreciation.
THE INVESTMENT STRATEGY
The Portfolio invests primarily in diversified mix of high yield, fixed income
securities (so-called "junk bonds"), which generally involve greater volatility
of price and risk of principal and income than high quality fixed income
securities. Junk bonds generally have a higher current yield but are rated
either in the lower categories by nationally recognized statistical rating
organizations ("NRSROs") i.e., rated Baa or lower by Moody's or BBB or lower by
S&P) or are unrated securities of comparable quality.
The 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 may also make use of various other investment strategies,
including investments in common stocks and other equity-type securities (such as
convertible debt securities) and secured loans of its portfolio securities
without limitation in order to enhance its current return and to reduce
fluctuations in net asset value. The Portfolio may also use derivatives,
including: writing covered call and put options; purchasing call and put options
on individual fixed income securities, securities indexes and foreign
currencies; and purchasing and selling stock index, interest rate and foreign
currency futures contracts and options thereon. The Portfolio may also invest in
participations and assignments of loans originally made by institutional lenders
or lending syndicates.
The Portfolio will not invest more than 10% of its total assets in:
(i) fixed income securities which are rated lower than B3 or B- or their
equivalents by one NRSRO or if unrated are of equivalent quality as determined
by the Adviser; and
(ii) money market instruments of any entity which has an outstanding issue of
unsecured debt that is rated lower than B3 or B- or their equivalents by an
NRSRO or if unrated is of equivalent quality as determined by the Adviser;
however, this restriction will not apply to:
o fixed income securities which the Adviser believes have similar
characteristics to securities which are rated B3 or higher by
Moody's or B- or higher by S&P, or
o money market instruments of any entity that has an unsecured
issue of outstanding debt which the Adviser believes has similar
characteristics to securities which are so rated.
In the event that any securities held by the Portfolio fall below those ratings,
the Portfolio will not be obligated to dispose of such securities and may
continue to hold such securities if the Adviser believes that such investments
are considered appropriate under the circumstances.
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.
-25-
<PAGE>
When market or financial conditions warrant, the Portfolio may also make
temporary investments in high-quality U.S. dollar-denominated money market
instruments. Such investment strategies could result in the Portfolio not
achieving its investment objective.
THE PRINCIPAL RISKS
JUNK BOND RISK: The Portfolio invests primarily in "junk bonds" or lower-rated
securities rated BB or lower by S&P or an equivalent rating by any other NRSRO
or unrated securities of similar quality. Junk bonds have speculative elements
or are predominantly speculative credit risks, therefore, credit risk is
particularly significant for this Portfolio. This Portfolio may also be subject
to greater credit risk because it 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 or principal, or in default.
FIXED INCOME RISKS: This Portfolio invests primarily in fixed income securities,
therefore, the Portfolio's performance will be affected by changes in interest
rates, credit risks of the issuer, the duration and maturity of the Portfolio's
fixed income holdings, and adverse market and economic conditions. Other risks
that relate to the Portfolio's investment in fixed income securities include:
INTEREST RATE RISK: When interest rates rise, the value (i.e., share
price and total return) of the Portfolio's fixed income securities,
particularly those with longer durations or maturities, will go down.
When interest rates fall, the reverse is true.
MORTGAGE-BACKED SECURITIES RISK: Rising interest rates may cause the
duration of mortgage-backed securities to increase, making them even
more susceptible to interest rate changes. Falling interest rates may
cause the value and yield of mortgage-backed securities to fall.
Falling interest rates also may encourage borrowers to pay off their
mortgages sooner than anticipated (pre-payment). The Portfolio would
need to reinvest the pre-paid funds at the newer, lower interest rates.
LOAN PARTICIPATION AND ASSIGNMENT RISK: In addition to the risks associated with
fixed income investments generally, the Portfolio's investments in loan
participations and assignments are subject to the risk that the financial
institution acting as agent for all interests in a loan, might fail financially.
It is also possible that, under emerging legal theories of lender liability, the
Portfolio could be held liable as a co-lender.
SMALL CAP AND MID-CAP COMPANY RISK: The Portfolio's investments in small-cap and
mid-cap companies may be subject to more abrupt or erratic movements in price
than are those of larger, more established companies because: the securities of
such companies are less well-known; held primarily by insiders or institutional
investors and may trade less frequently and in lower volume; such companies are
more likely to experience greater or more unexpected changes in their earnings
and growth prospects; such companies have limited financial resources or may
depend on a few key employees; and the products of technologies of such
companies may be at a relatively early stage of development or not fully tested
DERIVATIVES RISK: The Portfolio's investments in derivatives can significantly
increase the Portfolio's exposure to market risk or credit risk of the
counterparty. Derivatives also involve the risk of mispricing or improper
valuation and the risk that changes in value of the derivative may not correlate
perfectly with the relevant assets, rates and indices.
FOREIGN SECURITIES RISKS: The Portfolio's investments in foreign securities
involve risks not associated with investing in U.S. securities, which can
adversely affect the Portfolio's performance. Foreign markets, particularly
emerging markets, may be less liquid, more volatile, and subject to less
government supervision than domestic markets. There may be difficulties
-26-
<PAGE>
enforcing contractual obligations, and it may take more time for trades to clear
and settle. In addition, the value of foreign investments can be adversely
affected by: unfavorable currency exchange rates (relative to the U.S. dollar
for securities denominated in foreign currencies); inadequate or inaccurate
information about foreign companies; higher transaction, brokerage and custody
costs; expropriation or nationalization; adverse changes in foreign economic and
tax policies; and foreign government instability, war or other adverse political
or economic actions.
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 risk will tend to be compounded.
LIQUIDITY RISK: Certain securities held by the Portfolio may be difficult (or
impossible) to sell at the time and at the price the seller would like which may
cause the Portfolio to lose money or be prevented from earning capital gains.
SECURITIES LENDING RISK: This Portfolio may make secured loans of its portfolio
securities without restriction. The risk 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.
PORTFOLIO PERFORMANCE
The bar chart below illustrates the Portfolio's annual total returns for each of
the last ten calendar years. The table below shows the Portfolio's average
annual total returns for the past one, five and ten years. The table also
compares the Portfolio's performance to the returns of an index of funds with
similar investment objectives and the returns of a broad-based index. The bar
chart and table below includes the performance of the predecessor (registered
investment company) to this Portfolio, which was managed by the Adviser using
the same investment strategy as the Portfolio. Both the bar chart and table
assume reinvestment of dividends and distributions. Past performance is not an
indication of future performance. In addition, holders of variable insurance
contracts representing interests in the Portfolio will be subject to charges and
expenses relating to such insurance contracts. The performance results presented
below do not reflect any insurance related expenses and if reflected the results
would be reduced. For these purposes, the Portfolio is considered to be the
successor entity to the predecessor (registered investment company) whose
inception date is January 2, 1987.
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<PAGE>
CALENDER YEAR ANNUAL TOTAL RETURN*
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
5.1% -1.1% 24.5% 12.3% 23.2% -2.8% 19.9% 23.0% 18.5% -5.2%
Best quarter (% and time period) Worst quarter (% and time period)
7.96% (1997 2nd Quarter) -10.97% (1998 3rd Quarter)
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR FIVE YEARS TEN YEARS
ALLIANCE HIGH YIELD PORTFOLIO- -5.15% 9.99% 11.17%
CLASS IA SHARES
LIPPER HIGH CURRENT YIELD BOND FUNDS -0.44% 7.37% 9.34%
AVERAGE*
ML MASTER* 3.66% 9.01% 11.08%
- --------------------------------------------------------------------------------
*For more information on this index, see the preceding section "The Benchmarks."
WHO MANAGES THE PORTFOLIO
ALLIANCE CAPITAL MANAGEMENT, L.P. ("Alliance"), 1345 Avenue of the Americas, New
York, New York 10105. Alliance has been the Adviser to the Portfolios since it
commenced operations. Alliance, a publicly traded limited partnership, is
indirectly majority-owned by Equitable. Alliance manages investment companies,
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.
WAYNE C. TAPPE has been responsible for the day-to-day management of the
Portfolio since 1995. Mr. Tappe, a Senior Vice President of Alliance, has been
associated with Alliance since 1987.
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<PAGE>
ASSET ALLOCATION PORTFOLIOS
The Alliance Conservative Investors Portfolio, the Alliance Balanced Portfolio
and the Alliance Growth Investors Portfolio together are called the Asset
Allocation Portfolios. 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.
The Adviser has established an asset allocation committee (the "Committee"'),
all the members of which are employees of the Adviser, 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.
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 the Adviser believes that cash flow will 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.
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<PAGE>
ALLIANCE BALANCED PORTFOLIO
INVESTMENT OBJECTIVE: Seeks to achieve a high return through both appreciation
of capital and current income.
THE INVESTMENT STRATEGY
The Portfolio invests varying portions of its assets in publicly-traded equity
and debt securities and money market instruments depending on economic
conditions, the general level of common stock prices, interest rates and other
relevant considerations, including the risks associated with each investment
medium.
The 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 primarily in high-quality U.S. dollar denominated money market
instruments.
The Portfolio at all times will hold at least 25% of its total 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 a minimum or "core holdings" of at least 25% fixed income
securities and 25% equity securities. Over time, holdings by the Portfolio's
holdings 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 Portfolio may also invest up to 20% of its total assets in foreign
securities and may also make use of various other investment strategies,
including securities lending of up to 50% of its total portfolio securities. The
Portfolio may also use derivatives, including: writing covered call and put
options, purchasing call and put options on all the types of securities in which
it may invest, as well as securities indexes and foreign currencies. The
Portfolio may also purchase and sell stock index, interest rate and foreign
currency futures contracts and options thereon.
The debt securities will consist principally of bonds, notes, debentures and
equipment trust certificates, as well as 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 U.S. Government Securities. If such Baa or BBB debt
securities held by the Portfolio fall below those ratings, the Portfolio will
not be obligated to dispose of them and may continue to hold them if the Adviser
considers them appropriate investments under the circumstances. In addition, the
Portfolio may at times hold some of its assets in cash.
THE PRINCIPAL RISKS
This Portfolio invests in common stocks, therefore, its performance may go up or
down depending on general market conditions. Other principal risks include:
ASSET ALLOCATION RISK: In addition to the risks associated with the securities
in which the Portfolio invests, the Portfolio is subject to the risk that the
Adviser's allocation of the Portfolio's assets between debt and equity
securities may adversely affect the Portfolio's value.
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<PAGE>
DERIVATIVES RISK: The Portfolio's investments in derivatives can significantly
increase the Portfolio's exposure to market risk or credit risk of the
counterparty. Derivatives also involve the risk of mispricing or improper
valuation and the risk that changes in value of the derivative may not correlate
perfectly with the relevant assets, rates and indices.
FOREIGN SECURITIES RISKS: The Portfolio's investments in foreign securities
involve risks not associated with investing in U.S. securities, which can
adversely affect the Portfolio's performance. Foreign markets, particularly
emerging markets, may be less liquid, more volatile, and subject to less
government supervision than domestic markets. There may be difficulties
enforcing contractual obligations, and it may take more time for trades to clear
and settle. In addition, the value of foreign investments can be adversely
affected by: unfavorable currency exchange rates (relative to the U.S. dollar
for securities denominated in foreign currencies); inadequate or inaccurate
information about foreign companies; higher transaction, brokerage and custody
costs; expropriation or nationalization; adverse changes in foreign economic and
tax policies; and foreign government instability, war or other adverse political
or economic actions.
FIXED INCOME RISKS: This Portfolio invests primarily in fixed income securities,
therefore, the Portfolio's performance will be affected by changes in interest
rates, credit risks of the issuer, the duration and maturity of the Portfolio's
fixed income holdings, and adverse market and economic conditions. Other risks
that relate to the Portfolio's investment in fixed income securities include:
INTEREST RATE RISK: When interest rates rise, the value (i.e., share
price and total return) of the Portfolio's fixed income securities,
particularly those with longer durations or maturities, will go down.
When interest rates fall, the reverse is true.
INVESTMENT-GRADE SECURITIES RISK: The Portfolio could lose money if the
issuer or guarantor of a debt security or counterparty to a Portfolio's
transaction is unable or unwilling to make timely principal and/or
interest payments, or to honor its financial obligations. Investment
grade securities which are rated BBB by S&P or an equivalent rating by
any other nationally recognized statistical rating organization, are
somewhat riskier than higher rated obligations because they are
regarded as having only an adequate capacity to pay principal and
interest, are considered to lack outstanding investment
characteristics, and may be speculative.
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 risk will tend to be compounded.
SECURITIES LENDING RISK: This Portfolio may make secured loans of its portfolio
securities. 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.
PORTFOLIO PERFORMANCE
The bar chart below illustrates the Portfolio's annual total returns for each of
the last ten calendar years. The table below shows the Portfolio's average
annual total returns for the past one, five and ten years. The table also
compares the Portfolio's performance to the returns of an index of funds with
similar investment objectives, the returns of a blend of fixed income and equity
securities indices and the returns of a broad-based equity securities market
index. The bar chart and table below includes the performance of the predecessor
(registered investment company) to this Portfolio, which was managed by the
Adviser using the same investment strategy as the Portfolio. Both the bar chart
and table assume reinvestment of dividends and distributions. Past performance
is not an indication of future performance. In addition, holders of Contracts
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<PAGE>
representing interests in the Portfolio will be subject to charges and expenses
relating to such insurance contracts. The performance results presented below do
not reflect any insurance related expenses and if reflected the results would be
reduced. For these purposes, the Portfolio is considered to be the successor
entity to the predecessor (registered investment company) whose inception date
is January 27, 1986.
CALENDAR YEAR ANNUAL TOTAL RETURN
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
25.8% 0.3% 41.3% -2.8% 12.3% -8.0% 19.8% 11.70% 15.1% 18.1%
Best quarter (% and time period) Worst quarter (% and time period)
15.13% (1991 4th Quarter) -8.29% (1990 3rd Quarter)
- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR FIVE YEARS TEN YEARS
ALLIANCE BALANCED PORTFOLIO - CLASS IA 18.11% 10.82% 12.51%
SHARES
LIPPER BALANCED MUTUAL FUNDS AVERAGE 13.48% 13.84% 12.97%
50% S&P 500 INDEX/50% LEHMAN GOV'T
CORP.* 19.02% 16.88% 15.21%
S&P 500 INDEX* 28.58% 24.06% 19.21%
- -------------------------------------------------------------------------------
*For more information on this index, see the preceding section "The Benchmarks."
WHO MANAGES THE PORTFOLIO
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<PAGE>
ALLIANCE CAPITAL MANAGEMENT, L.P. ("Alliance"), 1345 Avenue of the Americas, New
York, New York 10105. Alliance has been the Adviser to the Portfolios since it
commenced operations. Alliance, a publicly traded limited partnership, is
indirectly majority-owned by Equitable. Alliance manages investment companies,
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.
ROBERT G. HEISTERBERG has been responsible for the day-to-day management of the
Portfolio since February 12, 1996. Mr. Heisterberg, a Senior Vice President of
Alliance and Global Economic Policy Analysis, has been associated with Alliance
since 1977.
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<PAGE>
ALLIANCE CONSERVATIVE INVESTORS PORTFOLIO
INVESTMENT OBJECTIVE: Seeks to achieve a high total return without, in the
opinion of the Adviser, undue risk to principal.
THE INVESTMENT STRATEGY
The Portfolio invests varying portions of its assets in 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.
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 the
Adviser, that is less than that of a 10-year Treasury bond (the "fixed income
core"). 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.
SIDEBAR: Duration is a measure of the weighted average maturity of the bonds
held by the Portfolio and can be used by the Adviser as a measure of the
sensitivity of the market value of the Portfolio to changes in interest rates.
Generally, the longer the duration of the Portfolio, the more sensitive its
market value will be to changes in interest rates.
SIDEBAR: In some cases, the Adviser'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 Adviser considered the duration of a
10-year Treasury bond to be 4.68 years. The Portfolio's investments will
generally have a final maturity of not more than ten years or a duration not
exceeding that of a 10-year Treasury note.
All debt securities held by the Portfolio will be of investment grade (i.e.,
rated at least BBB by S&P or Baa by Moody's) or unrated securities of comparable
quality as determined by the Adviser. The equity securities invested in by the
Portfolio will consist primarily of common stocks, including convertible
securities. No more than 15% of the Portfolio's assets will be invested in
securities of non-U.S. issuers.
The Portfolio may also make use of various other investment strategies,
including securities lending and the derivatives.
THE PRINCIPAL RISKS
This Portfolio invests in common stocks, therefore, its performance may go up or
down depending on general market conditions. Other principal risks include:
ASSET ALLOCATION RISK: In addition to the risks associated with the securities
in which the Portfolio invests, the Portfolio is subject to the risk that the
Adviser's allocation of the Portfolio's assets between debt and equity
securities may adversely affect the Portfolio's value.
FIXED INCOME RISKS: This Portfolio invests primarily in fixed income securities,
therefore, the Portfolio's performance will be affected by changes in interest
rates, credit risks of the issuer, the duration and maturity of the Portfolio's
fixed income holdings, and adverse market and economic conditions. Other risks
that relate to the Portfolio's investment in fixed income securities include:
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<PAGE>
INTEREST RATE RISK: When interest rates rise, the value (i.e., share
price and total return) of the Portfolio's fixed income securities,
particularly those with longer durations or maturities, will go down.
When interest rates fall, the reverse is true.
INVESTMENT-GRADE SECURITIES RISK: The Portfolio could lose money if the
issuer or guarantor of a debt security or counterparty to a Portfolio's
transaction is unable or unwilling to make timely principal and/or
interest payments, or to honor its financial obligations. Investment
grade securities which are rated BBB by S&P or an equivalent rating by
any other nationally recognized statistical rating organization, are
somewhat riskier than higher rated obligations because they are
regarded as having only an adequate capacity to pay principal and
interest, are considered to lack outstanding investment
characteristics, and may be speculative.
MORTGAGE-BACKED SECURITIES RISK: Rising interest rates may cause the
duration of mortgage-backed securities to increase, making them even
more susceptible to interest rate changes. Falling interest rates may
cause the value and yield of mortgage-backed securities to fall.
Falling interest rates also may encourage borrowers to pay off their
mortgages sooner than anticipated (pre-payment). The Portfolio would
need to reinvest the pre-paid funds at the newer, lower interest rates.
CONVERTIBLE SECURITIES RISK: Convertible securities generally enable the
Portfolio to benefit from increases in the market price of the underlying common
stock and provide higher yields than the underlying common stocks, but generally
offer lower yields than nonconvertible securities of similar quality. Like
bonds, the value of convertible securities fluctuates both in relation to
changes in interest rates and changes in the value of the underlying common
stock.
SECURITIES LENDING RISK: This Portfolio may make secured loans of its portfolio
securities. 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.
DERIVATIVES RISK: The Portfolio's investments in derivatives can significantly
increase the Portfolio's exposure to market risk or credit risk of the
counterparty. Derivatives also involve the risk of mispricing or improper
valuation and the risk that changes in value of the derivative may not correlate
perfectly with the relevant assets, rates and indices.
FOREIGN SECURITIES RISKS: The Portfolio's investments in foreign securities
involve risks not associated with investing in U.S. securities, which can
adversely affect the Portfolio's performance. Foreign markets, particularly
emerging markets, may be less liquid, more volatile, and subject to less
government supervision than domestic markets. There may be difficulties
enforcing contractual obligations, and it may take more time for trades to clear
and settle. In addition, the value of foreign investments can be adversely
affected by: unfavorable currency exchange rates (relative to the U.S. dollar
for securities denominated in foreign currencies); inadequate or inaccurate
information about foreign companies; higher transaction, brokerage and custody
costs; expropriation or nationalization; adverse changes in foreign economic and
tax policies; and foreign government instability, war or other adverse political
or economic actions.
LIQUIDITY RISK: Certain securities held by the Portfolio may be difficult (or
impossible) to sell at the time and at the price the seller would like which may
cause the Portfolio to lose money or be prevented from earning capital gains.
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 risk will tend to be compounded.
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<PAGE>
PORTFOLIO PERFORMANCE
The bar chart below illustrates the Portfolio's annual total returns for each of
the last nine calendar years. The table below shows the Portfolio's average
annual total returns for the past one and five years and since inception. The
table also compares the Portfolio's performance to the returns of an index of
funds with similar investment objectives, the returns of a blend of fixed income
and equity securities indices and the returns of a broad-based equity securities
market index. The bar chart and table below includes the performance of the
predecessor (registered investment company) to this Portfolio, which was managed
by the Adviser using the same investment strategy as the Portfolio. Both the bar
chart and table assume reinvestment of dividends and distributions. Past
performance is not an indication of future performance. In addition, holders of
Contracts representing interests in the Portfolio will be subject to charges and
expenses relating to such insurance contracts. The performance results presented
below do not reflect any insurance related expenses and if reflected the results
would be reduced. For these purposes, the Portfolio is considered to be the
successor entity to the predecessor (registered investment company) whose
inception date is October 2, 1989.
CALENDAR YEAR ANNUAL TOTAL RETURN
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% 13.9%
Best quarter (% and time period) Worst quarter (% and time period)
7.65% (1998 4th Quarter) -3.21% (1994 1st Quarter)
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<PAGE>
- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR FIVE YEARS SINCE INCEPTION
ALLIANCE CONSERVATIVE INVESTORS 13.88% 9.40% 9.99%
PORTFOLIO - CLASS IA SHARES
LIPPER FLEXIBLE PORTFOLIO AVERAGE 14.20% 14.31% 12.55%
70% LEHMAN TREASURY/30% S&P 500 INDEX* 15.59% 13.37% 12.08%
S&P 500 INDEX* 28.58% 24.06% 17.62%
- -------------------------------------------------------------------------------
*For more information on this index, see the preceding section "The Benchmarks."
WHO MANAGES THE PORTFOLIO
ALLIANCE CAPITAL MANAGEMENT, L.P. ("Alliance"), 1345 Avenue of the Americas, New
York, New York 10105. Alliance has been the Adviser to the Portfolios since it
commenced operations. Alliance, a publicly traded limited partnership, is
indirectly majority-owned by Equitable. Alliance manages investment companies,
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.
ROBERT G. HEISTERBERG has been responsible for the day-to-day management of the
Portfolio since February 12, 1996. Mr. Heisterberg, a Senior Vice President of
Alliance and Global Economic Policy Analysis, has been associated with Alliance
since 1977.
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<PAGE>
ALLIANCE GROWTH INVESTORS PORTFOLIO
INVESTMENT OBJECTIVE: Seeks to achieve the highest total return consistent with
the Adviser's determination of reasonable risk.
THE INVESTMENT STRATEGY
The Portfolio allocates varying portions of its assets to a number of asset
classes. 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. Over time, the Portfolio's holdings, on average, are expected to be
allocated 70% to equity securities and 30% to debt securities. Actual asset
mixes will be adjusted in response to economic and credit market cycles.
The Portfolio's investments in equity securities will include both
exchange-traded and over-the counter common stocks and other equity securities,
including foreign stocks, preferred stocks, convertible debt instruments, as
well as securities issued by small-and mid-sized companies that have favorable
growth prospects.
The Portfolio's debt securities may include foreign debt securities, investment
grade fixed income securities (including cash and money market instruments) as
well as lower quality, higher yielding debt securities (junk bonds). The
Portfolio may also make use of various other investment strategies, including
securities lending of up to 50% of its total assets and derivatives. No more
than 30% of the Portfolio's assets will be invested in securities of foreign
issuers.
When market or financial conditions warrant, the Portfolio may invest in U.S.
Government or Government agency securities, money market securities or cash for
temporary or defensive purposes. Such investment strategies could result in the
Portfolio not achieving its investment objective.
THE PRINCIPAL RISKS
This Portfolio invests in common stocks, therefore, its performance may go up or
down depending on general market conditions. Other principal risks include:
ASSET ALLOCATION RISK: In addition to the risks associated with the securities
in which the Portfolio invests, the Portfolio is subject to the risk that the
Adviser's allocation of the Portfolio's assets between debt and equity
securities may adversely affect the Portfolio's value.
FIXED INCOME RISKS: To the extent that a substantial amount of the Portfolio's
assets are invested in fixed income securities, that portion of the Portfolio's
performance will be affected by changes in interest rates, the credit risk of
the issuer, the duration or maturity of the Portfolio's fixed income holdings,
and adverse market or economic conditions. When interest rates rise, the value
of the Portfolio's fixed income securities, particularly those with longer
durations or maturities, will go down. When interest rates fall, the reverse is
true. In addition, to the extent that the Portfolio invests in investment-grade
securities which are rated BBB by S&P or an equivalent rating by any other
NRSRO, it will be exposed to greater risk than if it invested in higher-rated
obligations because BBB-rated securities are regarded as having only an adequate
capacity to pay principal and interest, are considered to lack outstanding
investment characteristics, and may be speculative. Other risks that relate to
the Portfolio's investment in fixed income securities include:
INTEREST RATE RISK: When interest rates rise, the value (i.e., share
price and total return) of the Portfolio's fixed income securities,
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<PAGE>
particularly those with longer durations or maturities, will go down.
When interest rates fall, the reverse is true.
MORTGAGE-BACKED SECURITIES RISK: Rising interest rates may cause the
duration of mortgage-backed securities to increase, making them even
more susceptible to interest rate changes. Falling interest rates may
cause the value and yield of mortgage-backed securities to fall.
Falling interest rates also may encourage borrowers to pay off their
mortgages sooner than anticipated (pre-payment). The Portfolio would
need to reinvest the pre-paid funds at the newer, lower interest rates.
JUNK BOND RISK: The Portfolio may invest a portion of its assets in
"junk bonds" or lower-rated securities rated BB or lower by S&P or an
equivalent rating by any other NRSRO or unrated securities of similar
quality. Therefore, credit risk is particularly significant for this
Portfolio. Junk bonds have speculative elements or are predominantly
speculative credit risks. This Portfolio may also be subject to greater
credit risk because it 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 or principal,
or in default.
SMALL CAP AND MID-CAP COMPANY RISK: The Portfolio's investments in small-cap and
mid-cap companies may be subject to more abrupt or erratic movements in price
than are those of larger, more established companies because: the securities of
such companies are less well-known, held primarily by insiders or institutional
investors and may trade less frequently and in lower volume; such companies are
more likely to experience greater or more unexpected changes in their earnings
and growth prospects; such companies have limited financial resources or may
depend on a few key employees; and the products of technologies of such
companies may be at a relatively early stage of development or not fully tested.
LIQUIDITY RISK: Certain securities held by the Portfolio may be difficult (or
impossible) to sell at the time and at the price the seller would like which may
cause the Portfolio to lose money or be prevented from earning capital gains.
CONVERTIBLE SECURITIES RISK: Convertible securities generally enable the
Portfolio to benefit from increases in the market price of the underlying common
stock and provide higher yields than the underlying common stocks, but generally
offer lower yields than nonconvertible securities of similar quality. Like
bonds, the value of convertible securities fluctuates both in relation to
changes in interest rates and changes in the value of the underlying common
stock.
DERIVATIVES RISK: The Portfolio's investments in derivatives can significantly
increase the Portfolio's exposure to market risk or credit risk of the
counterparty. Derivatives also involve the risk of mispricing or improper
valuation and the risk that changes in value of the derivative may not correlate
perfectly with the relevant assets, rates and indices.
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<PAGE>
FOREIGN SECURITIES RISKS: The Portfolio's investments in foreign securities
involve risks not associated with investing in U.S. securities, which can
adversely affect the Portfolio's performance. Foreign markets, particularly
emerging markets, may be less liquid, more volatile, and subject to less
government supervision than domestic markets. There may be difficulties
enforcing contractual obligations, and it may take more time for trades to clear
and settle. In addition, the value of foreign investments can be adversely
affected by: unfavorable currency exchange rates (relative to the U.S. dollar
for securities denominated in foreign currencies); inadequate or inaccurate
information about foreign companies; higher transaction, brokerage and custody
costs; expropriation or nationalization; adverse changes in foreign economic and
tax policies; and foreign government instability, war or other adverse political
or economic actions.
SECURITIES LENDING RISK: This Portfolio may make secured loans of its portfolio
securities. 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.
PORTFOLIO PERFORMANCE
The bar chart below illustrates the Portfolio's annual total returns for each of
the last nine calendar years. The table below shows the Portfolio's average
annual total returns for the past one and five years and since inception. The
table also compares the Portfolio's performance to the returns of an index of
funds with similar investment objectives, the returns of a blend of fixed income
and equity securities indices and the returns of a broad-based equity securities
market index. The bar chart and table below includes the performance of the
predecessor (registered investment company) to this Portfolio, which was managed
by the Adviser The bar chart and table below includes the performance of the
predecessor (registered investment company) to this Portfolio, which was managed
by the Adviser using the same investment strategy as the Portfolio. Both the bar
chart and table assume reinvestment of dividends and distributions. Past
performance is not an indication of future performance. In addition, holders of
Contracts representing interests in the Portfolio will be subject to charges and
expenses relating to such insurance contracts. The performance results presented
below do not reflect any insurance related expenses and if reflected the results
would be reduced. For these purposes, the Portfolio is considered to be the
successor entity to the predecessor (registered investment company) whose
inception date is October 2, 1989.
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<PAGE>
CALENDAR YEAR ANNUAL TOTAL RETURN
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% 19.1%
Best quarter (% and time period) Worst quarter (% and time period)
18.16% (1998 4th Quarter) -10.60% (1990 3rd Quarter)
- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR FIVE YEARS SINCE INCEPTION
ALLIANCE GROWTH INVESTORS PORTFOLIO - 19.13% 13.92% 16.09%
CLASS IA SHARES
LIPPER FLEXIBLE PORTFOLIO AVERAGE* 14.20% 14.31% 12.55%
70% S&P 500 INDEX/30% LEHMAN GOV'T 22.85% 19.96% 15.55%
CORP.*
S&P 500 INDEX* 28.58% 24.06% 17.62%
- -------------------------------------------------------------------------------
*For more information on this index, see the preceding section "The Benchmarks."
WHO MANAGES THE PORTFOLIO
ALLIANCE CAPITAL MANAGEMENT, L.P. ("Alliance"), 1345 Avenue of the Americas, New
York, New York 10105. Alliance has been the Adviser to the Portfolios since it
commenced operations. Alliance, a publicly traded limited partnership, is
indirectly majority-owned by Equitable. Alliance manages investment companies,
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.
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<PAGE>
ROBERT G. HEISTERBERG has been responsible for the day-to-day management of the
Portfolio since February 12, 1996. Mr. Heisterberg, a Senior Vice President of
Alliance and Global Economic Policy Analysis, has been associated with Alliance
since 1977.
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<PAGE>
DOMESTIC EQUITY PORTFOLIOS
ALLIANCE COMMON STOCK PORTFOLIO
INVESTMENT OBJECTIVE: Seeks to achieve long-term growth of its capital and
increase income.
THE INVESTMENT STRATEGY
The Portfolio invests primarily in common stocks and other equity-type
securities (such as preferred stocks or convertible debt) that the Adviser
believes will share in the growth of the nation's economy over a long period.
Most of the time, the 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.
Current income is an incidental consideration. The Portfolio generally will not
invest more than 20% of its total assets in foreign securities.
The Portfolio may also make use of various other investment strategies,
including making secured loans of up to 50% of its total assets. The Portfolio
may also use derivatives, including: writing covered call and put options,
buying 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.
When market or financial conditions warrant or it appears that the Portfolio's
investment objective will not be achieved by purchasing equity securities, the
Portfolio may invest a portion of its assets in debt securities, including
nonparticipating and nonconvertible preferred stocks, investment-grade debt
securities and junk bonds, e.g., rated BB or lower by S&P or Ba or lower by
Moody's. The Portfolio also may make temporary investments in high-quality U.S.
dollar-denominated money market instruments. Such investment strategies could
result in the Portfolio not achieving its investment objective.
THE PRINCIPAL RISKS
This Portfolio invests in common stocks, therefore, its performance may go up or
down depending on general market conditions. Other principal risks include:
DERIVATIVES RISK: The Portfolio's investments in derivatives can significantly
increase the Portfolio's exposure to market risk or credit risk of the
counterparty. Derivatives also involve the risk of mispricing or improper
valuation and the risk that changes in value of the derivative may not correlate
perfectly with the relevant assets, rates and indices.
FOREIGN SECURITIES RISKS: The Portfolio's investments in foreign securities
involve risks not associated with investing in U.S. securities, which can
adversely affect the Portfolio's performance. Foreign markets, particularly
emerging markets, may be less liquid, more volatile, and subject to less
government supervision than domestic markets. There may be difficulties
enforcing contractual obligations, and it may take more time for trades to clear
and settle. In addition, the value of foreign investments can be adversely
affected by: unfavorable currency exchange rates (relative to the U.S. dollar
for securities denominated in foreign currencies); inadequate or inaccurate
information about foreign companies; higher transaction, brokerage and custody
costs; expropriation or nationalization; adverse changes in foreign economic and
tax policies; and foreign government instability, war or other adverse political
or economic actions.
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<PAGE>
CONVERTIBLE SECURITIES RISK: Convertible securities generally enable the
Portfolio to benefit from increases in the market price of the underlying common
stock and provide higher yields than the underlying common stocks, but generally
offer lower yields than nonconvertible securities of similar quality. Like
bonds, the value of convertible securities fluctuates both in relation to
changes in interest rates and changes in the value of the underlying common
stock.
SMALL-CAP AND MID-CAP COMPANY RISK: The Portfolio's investments in small-cap and
mid-cap companies may be subject to more abrupt or erratic movements in price
than are those of larger, more established companies because: the securities of
such companies are less well-known, held primarily by insiders or institutional
investors and may trade less frequently and in lower volume; such companies are
more likely to experience greater or more unexpected changes in their earnings
and growth prospects; such companies have limited financial resources or may
depend on a few key employees; and the products of technologies of such
companies may be at a relatively early stage of development or not fully tested.
FIXED INCOME RISKS: To the extent that a substantial amount of the Portfolio's
assets are invested in fixed income securities, that portion of the Portfolio's
performance will be affected by changes in interest rates, the credit risk of
the issuer, the duration or maturity of the Portfolio's fixed income holdings,
and adverse market or economic conditions. When interest rates rise, the value
of the Portfolio's fixed income securities, particularly those with longer
durations or maturities, will go down. When interest rates fall, the reverse is
true. In addition, to the extent that the Portfolio invests in investment-grade
securities which are rated BBB by S&P or an equivalent rating by any other
nationally recognized statistical rating organization, it will be exposed to
greater risk than if it invested in higher-rated obligations because BBB-rated
securities are regarded as having only an adequate capacity to pay principal and
interest, are considered to lack outstanding investment characteristics, and may
be speculative.
JUNK BOND RISK: The Portfolio may invest a portion of its assets in "junk bonds"
or lower-rated securities rated BB or lower by S&P or an equivalent rating by
any other NRSRO or unrated securities of similar quality. Junk bonds have
speculative elements or are predominantly speculative credit risks, therefore,
credit risk is particularly significant for this Portfolio. This Portfolio may
also be subject to greater credit risk because it 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 or principal, or in
default.
LEVERAGING RISK. When a portfolio borrows money or otherwise leverages its
portfolio, the value of an investment in that Portfolio will be more volatile
and all other risk 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.
PORTFOLIO PERFORMANCE
The bar chart below illustrates the Portfolio's annual total returns for each of
the last ten calendar years. The table below shows the Portfolio's average
annual total returns for the past one, five and ten years. The table also
compares the Portfolio's performance to the returns of an index of funds with
similar investment objectives and the returns of a broad-based equity securities
market index. The bar chart and table below includes the performance of the
predecessor (registered investment company) to this Portfolio, which was managed
by the Adviser using the same investment strategy as the Portfolio. Both the bar
chart and table assume reinvestment of dividends and distributions. Past
performance is not an indication of future performance. In addition, holders of
Contracts representing interests in the Portfolio will be subject to charges and
expenses relating to such insurance contracts. The performance results presented
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<PAGE>
below do not reflect any insurance related expenses and if reflected the results
would be reduced. For these purposes, the Portfolio is considered to be the
successor entity to the predecessor (registered investment company) whose
inception date is June 16, 1975.
CALENDAR YEAR ANNUAL TOTAL RETURN
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
25.6% -8.1% 40.0% 3.2% 24.8% -2.1% 32.5% 24.3% 29.4% 29.4%
Best quarter (% and time period) Worst quarter (% and time period)
28.42% (1998 4th Quarter) -20.22% (1990 3rd Quarter)
- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR FIVE YEARS TEN YEARS
ALLIANCE COMMON STOCK RETURN PORTFOLIO - 29.39% 21.95% 18.65%
CLASS IA SHARES
LIPPER GROWTH EQUITY MUTUAL FUNDS
AVERAGE* 22.86% 18.63% 16.72%
S&P 500 INDEX* 28.58% 24.06% 19.21%
- -------------------------------------------------------------------------------
*For more information on this index, see the preceding section "The Benchmarks."
WHO MANAGES THE PORTFOLIO
ALLIANCE CAPITAL MANAGEMENT, L.P. ("Alliance"), 1345 Avenue of the Americas, New
York, New York 10105. Alliance has been the Adviser to the Portfolios since it
commenced operations. Alliance, a publicly traded limited partnership, is
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<PAGE>
indirectly majority-owned by Equitable. Alliance manages investment companies,
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.
TYLER J. SMITH has been responsible for the day-to-day management of the
Portfolio since 1977. Mr. Smith, a Senior Vice President of Alliance, has been
associated with Alliance since 1970.
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<PAGE>
ALLIANCE EQUITY INDEX PORTFOLIO
INVESTMENT OBJECTIVE: Seeks a total return before expenses that approximates the
total return performance of the S&P 500 Index, including reinvestment of
dividends, at a risk level consistent with that of the S&P 500 Index.
THE INVESTMENT STRATEGY
The Adviser will not utilize customary economic, financial or market analyses or
other traditional investment techniques in managing the Portfolio. Rather, the
Adviser will use proprietary modeling techniques to construct a portfolio that
it believes will, in the aggregate, approximate the performance results of the
S&P 500 Index. The Adviser will first select from the largest capitalization
securities in the S&P 500 on a capitalization-weighted basis. Generally, the
largest capitalization securities reasonably track the S&P 500 because the S&P
500 is significantly influenced by a small number of securities. However, in the
Adviser's view, selecting securities on the basis of their capitalization alone
would distort the Portfolio's industry diversification, and therefore economic
events could potentially have a dramatically different impact on the performance
of the Portfolio from that of the S&P 500. Recognizing this fact, the modeling
techniques also consider industry diversification when selecting investments for
the Portfolio. The Adviser also seeks to diversify the Portfolio's assets with
respect to market capitalization. As a result, the Portfolio will include
securities of smaller and medium-sized capitalization companies in the S&P 500.
The Portfolio may invest in foreign securities to the extent such securities are
included in the S&P 500 Index.
Cash may be accumulated in the Portfolio until it reaches approximately 1% of
the value of the Portfolio at which time such cash will be invested in common
stocks as described above. Accumulation of cash increases tracking error. The
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 Portfolio.
In order to reduce brokerage costs, maintain liquidity to meet shareholder
redemptions or minimize tracking error when the Portfolio holds cash, the
Portfolio may from time to time buy and hold futures contracts on the S&P 500
Index and options on such futures contracts. The contract value of futures
contracts purchased by the Portfolio plus the contract value of futures
contracts underlying call options purchased by the Portfolio will not exceed 20%
of the Portfolio's total assets. The Portfolio may seek to increase income by
lending its portfolio securities with a value of up to 50% of its total assets
to brokers-dealers.
THE PRINCIPAL RISKS
This Portfolio invests in common stocks, therefore, its performance may go up or
down depending on general market conditions. Other principal risks include:
INDEX-FUND RISK: The Portfolio is not actively managed and invests in securities
included in the index regardless of their investment merit. Therefore, the
Portfolio cannot modify its investment strategies to respond to changes in the
economy and may be particularly susceptible to a general decline in the U.S. or
global stock market segment relating to the index. Although the Portfolio's
modeling techniques are intended to produce performance that approximates that
of the S&P 500 (before expenses), there can be no assurance that these
techniques will reduce "tracking error" (i.e., the difference between the
Portfolio's investment results (before expenses) and the S&P 500's). Tracking
error may arise as a result of brokerage costs, fees and operating expenses and
a lack of correlation between the Portfolio's investments and the S&P 500.
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<PAGE>
DERIVATIVES RISK: The Portfolio's investments in derivatives can significantly
increase the Portfolio's exposure to market risk or credit risk of the
counterparty. Derivatives also involve the risk of mispricing or improper
valuation and the risk that changes in value of the derivative may not correlate
perfectly with the relevant assets, rates and indices.
LEVERAGING RISK. When a portfolio borrows money or otherwise leverages its
portfolio, the value of an investment in that Portfolio will be more volatile
and all other risk 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.
FOREIGN SECURITIES RISKS: The Portfolio's investments in foreign securities
involve risks not associated with investing in U.S. securities, which can
adversely affect the Portfolio's performance. Foreign markets, particularly
emerging markets, may be less liquid, more volatile, and subject to less
government supervision than domestic markets. There may be difficulties
enforcing contractual obligations, and it may take more time for trades to clear
and settle. In addition, the value of foreign investments can be adversely
affected by: unfavorable currency exchange rates (relative to the U.S. dollar
for securities denominated in foreign currencies); inadequate or inaccurate
information about foreign companies; higher transaction, brokerage and custody
costs; expropriation or nationalization; adverse changes in foreign economic and
tax policies; and foreign government instability, war or other adverse political
or economic actions.
PORTFOLIO PERFORMANCE
The bar chart below illustrates the Portfolio's annual total returns for each of
the last four calendar years. The table below shows the Portfolio's average
annual total returns for the past year and since inception. The table also
compares the Portfolio's performance to the returns of an index of funds with
similar investment objectives and the returns of a broad-based equity securities
market index. The bar chart and table below includes the performance of the
predecessor (registered investment company) to this Portfolio, which was managed
by the Adviser using the same investment strategy as the Portfolio. Both the bar
chart and table assume reinvestment of dividends and distributions. Past
performance is not an indication of future performance. In addition, holders of
variable insurance contracts representing interests in the Portfolio will be
subject to charges and expenses relating to such insurance contracts. The
performance results presented below do not reflect any insurance related
expenses and if reflected the results would be reduced. For these purposes, the
Portfolio is considered to be the successor entity to the predecessor
(registered investment company) whose inception date is March 1, 1994.
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<PAGE>
CALENDAR YEAR ANNUAL TOTAL RETURN
1995 1996 1997 1998
36.5% 22.4% 32.6% 28.1%
Best quarter (% and time period) Worst quarter (% and time period)
21.13% (1998 4th Quarter) -9.97% (1998 3rd Quarter)
- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR SINCE
INCEPTION
ALLIANCE EQUITY INDEX PORTFOLIO -
CLASS IA SHARES 28.07% 24.31%
LIPPER S&P 500 INDEX FUNDS AVERAGE* 28.05% 24.31%
S&P 500 INDEX* 28.58% 24.79%
- -------------------------------------------------------------------------------
* For more information on this index, see the preceding section "The
Benchmarks."
WHO MANAGES THE PORTFOLIO
ALLIANCE CAPITAL MANAGEMENT, L.P. ("Alliance"), 1345 Avenue of the Americas, New
York, New York 10105. Alliance has been the Adviser to the Portfolios since it
commenced operations. Alliance, a publicly traded limited partnership, is
indirectly majority-owned by Equitable. Alliance manages other investment
companies, 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.
JUDITH A. DEVIVO has been responsible for the day-to-day management of the
portfolio since its inception. Ms. DeVivo, a Vice President of Alliance, has
been associated with Alliance since 1970.
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<PAGE>
ALLIANCE GROWTH AND INCOME PORTFOLIO
INVESTMENT OBJECTIVE: 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.
THE INVESTMENT STRATEGY
The Portfolio seeks to maintain a portfolio yield above that of issuers
comprising the S&P 500 and to achieve (in the long run) a rate of growth in
Portfolio income that exceeds the rate of inflation. The Portfolio will
generally invest in common stocks of "blue chip" issuers, i.e., those:
o that have a total market capitalization of at least $1 billion;
o that pay periodic dividends; and
o whose common stock is in the highest four issuer ratings for S&P (i.e., A+,
A, Ab or B+) or Moody's (i.e., high grade, investment grade, upper medium
grade or medium grade) or, if unrated, is determined to be of comparable
quality by the Adviser.
It is expected that on average the dividend rate of these issuers will exceed
the average rate of issuers constituting the S&P 500.
The Portfolio may also invest without limit in securities convertible into
common stocks, which include convertible bonds, convertible preferred stocks and
convertible warrants. The Portfolio may also 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 BB or lower by S&P or Ba or lower
by Moody's or determined by the Adviser to be of comparable quality).
The 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.
The Portfolio may also 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 Portfolio may also purchase and sell securities index futures
contracts and may write and purchase options thereon for hedging purposes.
When market or financial conditions warrant, the Portfolio may invest in certain
money market instruments for temporary or defensive purposes. Such investment
strategies could result in the Portfolio not achieving its investment objective.
THE PRINCIPAL RISKS
This Portfolio invests in common stocks, therefore, its performance may go up or
down depending on general market conditions. Other principal risks include:
CONVERTIBLE SECURITIES RISK: Convertible securities generally enable the
Portfolio to benefit from increases in the market price of the underlying common
stock and provide higher yields than the underlying common stocks, but generally
offer lower yields than nonconvertible securities of similar quality. Like
bonds, the value of convertible securities fluctuates both in relation to
changes in interest rates and changes in the value of the underlying common
stock.
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<PAGE>
DERIVATIVES RISK: The Portfolio's investments in derivatives can significantly
increase the Portfolio's exposure to market risk or credit risk of the
counterparty. Derivatives also involve the risk of mispricing or improper
valuation and the risk that changes in value of the derivative may not correlate
perfectly with the relevant assets, rates and indices.
FIXED INCOME RISKS: To the extent that a substantial amount of the Portfolio's
assets are invested in fixed income securities, that portion of the Portfolio's
performance will be affected by changes in interest rates, the credit risk of
the issuer, the duration or maturity of the Portfolio's fixed income holdings,
and adverse market or economic conditions. When interest rates rise, the value
of the Portfolio's fixed income securities, particularly those with longer
durations or maturities, will go down. When interest rates fall, the reverse is
true. In addition, to the extent that the Portfolio invests in investment-grade
securities which are rated BBB by S&P or an equivalent rating by any other
nationally recognized statistical rating organization, it will be exposed to
greater risk than if it invested in higher-rated obligations because BBB-rated
securities are regarded as having only an adequate capacity to pay principal and
interest, are considered to lack outstanding investment characteristics, and may
be speculative.
JUNK BOND RISK: The Portfolio may invest a portion of its assets in "junk bonds"
or lower-rated securities rated BB or lower by S&P or an equivalent rating by
any other NRSRO or unrated securities of similar quality. Therefore, credit risk
is particularly significant for this Portfolio. Junk bonds have speculative
elements or are predominantly speculative credit risks. This Portfolio may also
be subject to greater credit risk because it 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 or principal, or in
default.
FOREIGN SECURITIES RISKS: The Portfolio's investments in foreign securities
involve risks not associated with investing in U.S. securities, which can
adversely affect the Portfolio's performance. Foreign markets, particularly
emerging markets, may be less liquid, more volatile, and subject to less
government supervision than domestic markets. There may be difficulties
enforcing contractual obligations, and it may take more time for trades to clear
and settle. In addition, the value of foreign investments can be adversely
affected by: unfavorable currency exchange rates (relative to the U.S. dollar
for securities denominated in foreign currencies); inadequate or inaccurate
information about foreign companies; higher transaction, brokerage and custody
costs; expropriation or nationalization; adverse changes in foreign economic and
tax policies; and foreign government instability, war or other adverse political
or economic actions.
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 risk will tend to be compounded.
PORTFOLIO PERFORMANCE
The bar chart below illustrates the Portfolio's annual total returns for each of
the last five calendar years. The table below shows the Portfolio's average
annual total returns for the past one and five years and since inception. The
table also compares the Portfolio's performance to the returns of an index of
funds with similar investment objectives, the returns of a blend of convertible
and equity securities indices and the returns of a broad-based equity securities
market index. The bar chart and table below includes the performance of the
predecessor (registered investment company) to this Portfolio, which was managed
by the Adviser using the same investment strategy as the Portfolio. Both the bar
chart and table assume reinvestment of dividends and distributions. Past
performance is not an indication of future performance. In addition, holders of
Contracts representing interests in the Portfolio will be subject to charges and
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<PAGE>
expenses relating to such insurance contracts. The performance results presented
below do not reflect any insurance related expenses and if reflected the results
would be reduced. For these purposes, the Portfolio is considered to be the
successor entity to the predecessor (registered investment company) whose
inception date is October 1, 1993.
CALENDAR YEAR ANNUAL TOTAL RETURN
1994 1995 1996 1997 1998
-0.6% 24.1% 20.1% 26.9% 20.9%
Best quarter (% and time period) Worst quarter (% and time period)
26.28% (1998 4th Quarter) -15.03% (1998 3rd Quarter)
- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR FIVE YEARS SINCE INCEPTION
ALLIANCE GROWTH & INCOME PORTFOLIO - 20.86% 17.84% 16.86%
CLASS IA SHARES
LIPPER GROWTH AND INCOME FUNDS AVERAGE* 15.61% 18.35% 17.89%
75% S&P 500 INDEX/25% VALUE LINE
CONVERTIBLE* 20.10% 21.07% 20.48%
S&P 500 INDEX* 28.58% 24.06% 23.32%
- -------------------------------------------------------------------------------
*For more information on this index, see the preceding section "The Benchmarks."
WHO MANAGES THE PORTFOLIO
ALLIANCE CAPITAL MANAGEMENT, L.P. ("Alliance"), 1345 Avenue of the Americas, New
York, New York 10105. Alliance has been the Adviser to the Portfolios since it
commenced operations. Alliance, a publicly traded limited partnership, is
indirectly majority-owned by Equitable. Alliance manages other investment
companies, 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.
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<PAGE>
PAUL RISSMAN AND W. THEODORE KUCK have been the persons responsible for the
day-to-day management of the Portfolio, Mr. Rissman since 1996 and Mr. Kuck
since the Portfolio's inception. Mr. Rissman, a Senior Vice President of
Alliance, has been associated with Alliance since 1989. Mr. Kuck, a Vice
President of Alliance, has been associated with Alliance since 1971.
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<PAGE>
AGGRESSIVE EQUITY PORTFOLIOS
ALLIANCE AGGRESSIVE STOCK PORTFOLIO
INVESTMENT OBJECTIVE: Seeks to achieve long-term growth of capital.
THE INVESTMENT STRATEGY
The Portfolio invests primarily in common stocks and other equity securities of
small and medium-sized companies that, in the opinion of the Adviser, have
favorable growth prospects. 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 also invest up to 20% of its total assets in foreign
securities and may also make use of various other investment strategies,
including investments in debt securities and making secured loans of up to 50%
of its total portfolio securities. The Portfolio may also use derivatives,
including: writing covered call options and purchasing call and put options on
individual equity securities, securities indexes and foreign currencies. The
Portfolio may also purchase and sell stock index and foreign currency futures
contracts and options thereon.
When market or financial conditions warrant, or it appears that the Portfolio's
investment objective will not be achieved primarily through investments in
common stocks, the Portfolio may invest in other equity-type securities (such as
preferred stocks and convertible debt instruments) and protective options. The
Portfolio may also make temporary investments in corporate fixed income
securities, which will generally be investment grade, or invest part its assets
in cash or cash equivalents, including high-quality money market instruments for
liquidity or defensive purposes . Such investments could result in the Portfolio
not achieving its investment objective.
THE PRINCIPAL RISKS
This Portfolio invests in common stocks, therefore, its performance may go up or
down depending on general market conditions. Other principal risks include:
GROWTH INVESTING RISK: As noted above, this Portfolio uses a growth oriented
approach to stock selection. The price of growth stocks may be more sensitive to
changes in current or expected earnings than the prices of other stocks. The
price of growth stocks is also subject to the risk that the stock price of one
or more companies will fall or will fail to appreciate as anticipated by the
Adviser, regardless of movements in the securities market.
SMALL-CAP AND MID-CAP COMPANY RISK: The Portfolio's investments in small-cap and
mid-cap companies may be subject to more abrupt or erratic movements in price
than are those of larger, more established companies because: the securities of
such companies are less well-known, held primarily by insiders or institutional
investors and may trade less frequently and in lower volume; such companies are
more likely to experience greater or more unexpected changes in their earnings
and growth prospects; such companies have limited financial resources or may
depend on a few key employees; and the products of technologies of such
companies may be at a relatively early stage of development or not fully tested.
LIQUIDITY RISK: Certain securities held by the Portfolio may be difficult (or
impossible) to sell at the time and at the price the seller would like which may
cause the Portfolio to lose money or be prevented from earning capital gains.
DERIVATIVES RISK: The Portfolio's investments in derivatives can significantly
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<PAGE>
increase the Portfolio's exposure to market risk or credit risk of the
counterparty. Derivatives also involve the risk of mispricing or improper
valuation and the risk that changes in value of the derivative may not correlate
perfectly with the relevant assets, rates and indices.
FOREIGN SECURITIES RISKS: The Portfolio's investments in foreign securities
involve risks not associated with investing in U.S. securities, which can
adversely affect the Portfolio's performance. Foreign markets, particularly
emerging markets, may be less liquid, more volatile, and subject to less
government supervision than domestic markets. There may be difficulties
enforcing contractual obligations, and it may take more time for trades to clear
and settle. In addition, the value of foreign investments can be adversely
affected by: unfavorable currency exchange rates (relative to the U.S. dollar
for securities denominated in foreign currencies); inadequate or inaccurate
information about foreign companies; higher transaction, brokerage and custody
costs; expropriation or nationalization; adverse changes in foreign economic and
tax policies; and foreign government instability, war or other adverse political
or economic actions.
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 risk will tend to be compounded.
PORTFOLIO PERFORMANCE
The bar chart below illustrates the Portfolio's annual total returns for each of
the last ten calendar years. The table below shows the Portfolio's average
annual total returns for the past one, five and ten years. The table also
compares the Portfolio's performance to the returns of an index of funds with
similar investment objectives, the returns of a blend of two securities indices
and the returns of a broad-based equity securities market index. The bar chart
and table below includes the performance of the predecessor (registered
investment company) to this Portfolio, which was managed by the Adviser using
the same investment strategy as the Portfolio. Both the bar chart and table
assume reinvestment of dividends and distributions. Past performance is not an
indication of future performance. In addition, holders of Contracts representing
interests in the Portfolio will be subject to charges and expenses relating to
such insurance contracts. The performance results presented below do not reflect
any insurance related expenses and if reflected the results would be reduced.
For these purposes, the Portfolio is considered to be the successor entity to
the predecessor (registered investment company) whose inception date is January
27, 1986.
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CALENDAR YEAR ANNUAL TOTAL RETURN
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% 0.3%
Best quarter (% and time period) Worst quarter (% and time period)
40.10% (1991 1st Quarter) -27.19% (1998 3rd Quarter)
- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR FIVE YEARS TEN YEARS
ALLIANCE AGGRESSIVE STOCK PORTFOLIO - 0.29% 11.47% 18.90%
CLASS IA SHARES
LIPPER MIDCAP GROWTH FUNDS AVERAGE* 12.16% 14.87% 15.44%
50% S&P 400 MIDCAP INDEX/50% RUSSELL
2000* 8.28% 15.56% 16.49%
S&P 400 MIDCAP INDEX* 19.11% 18.84% 19.29%
- -------------------------------------------------------------------------------
*For more information on this index, see the preceding section "The Benchmarks."
WHO MANAGES THE PORTFOLIO
ALLIANCE CAPITAL MANAGEMENT, L.P. ("Alliance"), 1345 Avenue of the Americas, New
York, New York 10105. Alliance has been the Adviser to the Portfolios since it
commenced operations. Alliance, a publicly traded limited partnership, is
indirectly majority-owned by Equitable. Alliance manages other investment
companies, 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.
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<PAGE>
ALDEN M. STEWART AND RANDALL E. HAASE have been the persons principally
responsible for the day-to-day management of the Portfolio 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.
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<PAGE>
ALLIANCE SMALL CAP GROWTH PORTFOLIO
INVESTMENT OBJECTIVE: Seeks to achieve long-term growth of capital.
THE INVESTMENT STRATEGY
The Portfolio invests primarily in U.S. common stocks and other equity-type
securities issued by smaller companies with favorable growth prospects. 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.
Under normal market conditions, the Portfolio intends to invest at least 65% of
its total assets in securities of smaller capitalization companies (currently
considered by the Adviser to mean companies with market capitalization at or
below $2 billion).
The Portfolio may invest in foreign securities and may also make use of various
other investment strategies, including making secured loans of up to 50% of its
total portfolio securities. The Portfolio may also use derivatives including:
writing covered call options and purchasing call and put options on individual
equity securities, securities indexes and foreign currencies. The Portfolio may
also purchase and sell stock index and foreign currency futures contracts and
options thereon.
The Portfolio will invest up to 20% of its net asset value, measured at the time
of investment, in securities principally traded on foreign securities markets
(other than commercial paper).
When market or financial conditions warrant, the Portfolio may invest in other
equity-type securities (such as preferred stocks and convertible debt
instruments) and investment-grade corporate fixed income securities. For
temporary or defensive purposes, the Portfolio may invest without limitation in
cash or cash equivalents or high-quality money market instruments. Such
investments could result in the Portfolio not achieving its investment
objective.
THE PRINCIPAL RISKS
This Portfolio invests in common stocks, therefore, its performance may go up or
down depending on general market conditions. Other principal risks include:
GROWTH INVESTING RISK: As noted above, this Portfolio uses a growth oriented
approach to stock selection. The price of growth stocks may be more sensitive to
changes in current or expected earnings than the prices of other stocks. The
price of growth stocks is also subject to the risk that the stock price of one
or more companies will fall or will fail to appreciate as anticipated by the
Adviser, regardless of movements in the securities market.
SMALL-CAP AND MID-CAP COMPANY RISK: The Portfolio's investments in small-cap and
mid-cap companies may be subject to more abrupt or erratic movements in price
than are those of larger, more established companies because: the securities of
such companies are less well-known, held primarily by insiders or institutional
investors and may trade less frequently and in lower volume; such companies are
more likely to experience greater or more unexpected changes in their earnings
and growth prospects; such companies have limited financial resources or may
depend on a few key employees; and the products of technologies of such
companies may be at a relatively early stage of development or not fully tested.
LIQUIDITY RISK: Certain securities held by the Portfolio may be difficult (or
impossible) to sell at the time and at the price the seller would like which may
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<PAGE>
cause the Portfolio to lose money or be prevented from earning capital gains.
DERIVATIVES RISK: The Portfolio's investments in derivatives can significantly
increase the Portfolio's exposure to market risk or credit risk of the
counterparty. Derivatives also involve the risk of mispricing or improper
valuation and the risk that changes in value of the derivative may not correlate
perfectly with the relevant assets, rates and indices.
FOREIGN SECURITIES RISKS: The Portfolio's investments in foreign securities
involve risks not associated with investing in U.S. securities, which can
adversely affect the Portfolio's performance. Foreign markets, particularly
emerging markets, may be less liquid, more volatile, and subject to less
government supervision than domestic markets. There may be difficulties
enforcing contractual obligations, and it may take more time for trades to clear
and settle. In addition, the value of foreign investments can be adversely
affected by: unfavorable currency exchange rates (relative to the U.S. dollar
for securities denominated in foreign currencies); inadequate or inaccurate
information about foreign companies; higher transaction, brokerage and custody
costs; expropriation or nationalization; adverse changes in foreign economic and
tax policies; and foreign government instability, war or other adverse political
or economic actions.
LEVERAGING RISK: When a portfolio is borrows money or otherwise leverages its
portfolio, the value of an investment in that Portfolio will be more volatile
and all other risk 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.
PORTFOLIO PERFORMANCE
The bar chart below illustrates the Portfolio's annual total returns for 1998,
the Portfolio's first year of existence. The table below shows the Portfolio's
average annual total returns for one year and since inception. The table also
compares the Portfolio's performance to the returns of an index of funds with
similar investment objectives and the returns of a broad-based equity securities
market index. The bar chart and table below includes the performance of the
predecessor (registered investment company) to this Portfolio, which was managed
by the Adviser using the same investment strategy as the Portfolio. Both the bar
chart and table assume reinvestment of dividends and distributions. Past
performance is not an indication of future performance. In addition, holders of
Contracts representing interests in the Portfolio will be subject to charges and
expenses relating to such insurance contracts. The performance results presented
below do not reflect any insurance related expenses and if reflected the results
would be reduced. For these purposes, the Portfolio is considered to be the
successor entity to the predecessor (registered investment company) whose
inception date is May 1, 1997.
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CALENDAR YEAR ANNUAL TOTAL RETURN
1998
-4.3%
Best quarter (% and time period) Worst quarter (% and time period)
22.98 (1998 4th Quarter) -28.07% (1998 3rd Quarter)
- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR SINCE
INCEPTION
ALLIANCE SMALL CAP GROWTH PORTFOLIO - -4.28% 12.27%
CLASS IA SHARES
LIPPER SMALL COMPANY GROWTH FUNDS
AVERAGE* -0.33% 16.72%
RUSSELL 2000 GROWTH INDEX* 1.23% 16.58%
- -------------------------------------------------------------------------------
* For more information on this index, see the preceding section "The
Benchmarks."
WHO MANAGES THE PORTFOLIO
ALLIANCE CAPITAL MANAGEMENT, L.P. ("Alliance"), 1345 Avenue of the Americas, New
York, New York 10105. Alliance has been the Adviser to the Portfolios since it
commenced operations. Alliance, a publicly traded limited partnership, is
indirectly majority-owned by Equitable. Alliance manages other investment
companies, 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.
MARK J. CUNNEEN has been responsible for the day-to-day management of Portfolio
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.
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GLOBAL/INTERNATIONAL PORTFOLIOS
ALLIANCE GLOBAL PORTFOLIO
INVESTMENT OBJECTIVE: Seeks long-term growth of capital.
THE INVESTMENT STRATEGY
The Portfolio invests primarily in a diversified mix of established foreign
companies and equity securities of U.S. These equity securities are selected
principally to permit participation in established U.S. non-U.S. companies that
the Adviser believes have prospects for growth. The Portfolio intends to make
investments in several countries and to have represented in the Portfolio
business activities in not less than three different countries (including the
United States).
Sidebar: These non-U.S. companies may have operations in the United States, in
their country of incorporation or in other countries.
The Portfolio may invest in any type of security including, but not limited to,
common and preferred stock, as well as shares of mutual funds that 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 Portfolio intends under normal
conditions to invest in equity securities.
The Portfolio may also make use of various other investment strategies,
including making secured loans of up to 50% of its total assets. The Portfolio
may also use derivatives including: writing covered call and put options,
purchasing call and put options on individual equity securities, securities
indexes, and foreign currencies. The 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
When market or financial conditions warrant, the 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 for temporary or defensive purposes. Such investment strategies could
result in the Portfolio not achieving its investment objective.
THE PRINCIPAL RISKS
This Portfolio invests in common stocks, therefore, its performance may go up or
down depending on general market conditions. Other principal risks include:
FOREIGN SECURITIES RISKS: Investing in foreign securities involves risks not
associated with investing in U.S. securities that can adversely affect the
Portfolio's performance. Foreign markets, particularly emerging markets, may be
less liquid, more volatile and subject to less government supervision than
domestic markets. There may be difficulties enforcing contractual obligations,
and it may take more time for trades to clear and settle. In addition, foreign
investments can be adversely affected by: unfavorable currency exchange rates
(relative to the U.S. dollar for securities denominated in a foreign
currencies); inadequate or inaccurate information about foreign companies;
higher transaction, brokerage and custody costs; expropriation or
nationalization; adverse changes in foreign economic and tax policies; and
foreign government instability, war or other adverse political or economic
actions. Other specific risks of investing in foreign securities include:
EMERGING MARKET RISK: There are greater risks involved in investing in
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<PAGE>
emerging markets countries and/or their securities markets, such as
less diverse and less mature economic structures, less stable political
systems, more restrictive foreign investment policies, smaller-sized
securities markets and low trading volumes. Such risks can make
investments illiquid and more volatile than investments in developed
countries and such securities may be subject to abrupt and severe price
declines.
EURO RISK: The Portfolio invests in securities issued by European
issuers that that may be adversely impacted by the introduction of the
"Euro" as a common currency in 11 European Monetary Union member
states. The Euro may result in various legal and accounting
differences, tax treatments, the creation and implementation of
suitable clearing and settlement systems and other operational
problems, that may cause market disruptions that could adversely affect
investments quoted in the Euro.
REGULATORY RISK: In general, foreign companies are also not subject to
uniform accounting, auditing and financial reporting standards or to
other regulatory practices and requirements as are U.S. companies,
which could adversely affect their value.
LIQUIDITY RISK: Certain securities held by the Portfolio may be difficult (or
impossible) to sell at the time and at the price the seller would like which may
cause the Portfolio to lose money or be prevented from earning capital gains.
DERIVATIVES RISK: The Portfolio's investments in derivatives can significantly
increase the Portfolio's exposure to market risk or credit risk of the
counterparty. Derivatives also involve the risk of mispricing or improper
valuation and the risk that changes in value of the derivative may not correlate
perfectly with the relevant assets, rates and indices.
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 risk will tend to be compounded.
FIXED INCOME RISKS: To the extent that a substantial amount of the Portfolio's
assets are invested in fixed income securities, that portion of the Portfolio's
performance will be affected by changes in interest rates, the credit risk of
the issuer, the duration or maturity of the Portfolio's fixed income holdings,
and adverse market or economic conditions. When interest rates rise, the value
of the Portfolio's fixed income securities, particularly those with longer
durations or maturities, will go down. When interest rates fall, the reverse is
true. In addition, to the extent that the Portfolio invests in investment-grade
securities which are rated BBB by S&P or an equivalent rating by any other
nationally recognized statistical rating organization, it will be exposed to
greater risk than if it invested in higher-rated obligations because BBB-rated
securities are regarded as having only an adequate capacity to pay principal and
interest, are considered to lack outstanding investment characteristics, and may
be speculative.
PORTFOLIO PERFORMANCE
The bar chart below illustrates the Portfolio's annual total returns for each of
the last ten calendar years. The table below shows the Portfolio's average
annual total returns for the past one, five and ten years. The table also
compares the Portfolio's performance to the returns of an index of funds with
similar investment objectives and the returns of a broad-based equity securities
market index. The bar chart and table below includes the performance of the
predecessor (registered investment company) to this Portfolio, which was managed
by the Adviser using the same investment strategy as the Portfolio. Both the bar
chart and table assume reinvestment of dividends and distributions. Past
performance is not an indication of future performance. In addition, holders of
Contracts representing interests in the Portfolio will be subject to charges and
expenses relating to such insurance contracts. The performance results presented
below do not reflect any insurance related expenses and if reflected the results
would be reduced. For these purposes, the Portfolio is considered to be the
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<PAGE>
successor entity to the predecessor (registered investment company) whose
inception date is August 27, 1987.
CALENDAR YEAR ANNUAL TOTAL RETURN
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% 21.8%
Best quarter (% and time period) Worst quarter (% and time period)
26.59% (1998 4th Quarter) -16.99% (1998 3rd Quarter)
- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR FIVE YEARS TEN YEARS
ALLIANCE GLOBAL PORTFOLIO - CLASS IA 21.80% 14.28% 14.81%
SHARES
LIPPER GLOBAL MUTUAL FUNDS AVERAGE* 14.34% 11.98% 11.21%
MSCI WORLD INDEX* 24.34% 15.68% 10.66%
- -------------------------------------------------------------------------------
*For more information on this index, see the preceding section "The Benchmarks."
WHO MANAGES THE PORTFOLIO
ALLIANCE CAPITAL MANAGEMENT, L.P. ("Alliance"), 1345 Avenue of the Americas, New
York, New York 10105. Alliance has been the Adviser to the Portfolios since it
commenced operations. Alliance, a publicly traded limited partnership, is
indirectly majority-owned by Equitable. Alliance manages other investment
companies, endowment funds, insurance companies, foreign entities, qualified and
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<PAGE>
non-tax qualified corporate funds, public and private pension and profit-sharing
plans, foundations and tax-exempt organizations.
SANDRA L. YEAGER has been responsible for the day-to-day management of the
Portfolio's investment program since 1998. Ms. Yeager, a Senior Vice President
of Alliance Capital Management L.P. ("Alliance"), has been associated with
Alliance since 1990.
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<PAGE>
ALLIANCE INTERNATIONAL PORTFOLIO
INVESTMENT OBJECTIVE: 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.
THE INVESTMENT STRATEGY
The Portfolio invests primarily in a diversified portfolio of equity securities
selected principally to permit participation in non-U.S. companies or foreign
governmental enterprises that the Adviser believes have prospects for growth.
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.
SIDEBAR: These non-U.S. companies may have operations in the United States, in
their country of incorporation and/or in other countries.
The Portfolio intends to have represented in the Portfolio business activities
in not less than three different countries.
The Portfolio may also 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. Although no particular proportion of stocks,
bonds or other securities is required to be maintained, the Portfolio intends
under normal market conditions to invest primarily in equity securities.
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 making loans of up to 50%
of its portfolio securities. The Portfolio may also use derivatives, including:
writing covered call and put options, purchasing purchase call and put options
on individual equity securities, securities indexes, and foreign currencies. The
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.
For temporary or defensive purposes, when market or financial conditions
warrant, the 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. In addition, the Portfolio may 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. Such
investments could result in the Portfolio not achieving its investment
objective.
THE PRINCIPAL RISKS
This Portfolio invests in common stocks, therefore, its performance may go up or
down depending on general market conditions. Other principal risks include:
FOREIGN SECURITIES RISKS: Investing in foreign securities involves risks not
associated with investing in U.S. securities that can adversely affect the
Portfolio's performance. Foreign markets, particularly emerging markets, may be
less liquid, more volatile and subject to less government supervision than
domestic markets. There may be difficulties enforcing contractual obligations,
and it may take more time for trades to clear and settle. In addition, foreign
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<PAGE>
investments can be adversely affected by: unfavorable currency exchange rates
(relative to the U.S. dollar for securities denominated in a foreign
currencies); inadequate or inaccurate information about foreign companies;
higher transaction, brokerage and custody costs; expropriation or
nationalization; adverse changes in foreign economic and tax policies; and
foreign government instability, war or other adverse political or economic
actions. Other specific risks of investing in foreign securities include:
EMERGING MARKET RISK: There are greater risks involved in investing in
emerging markets countries and/or their securities markets, such as
less diverse and less mature economic structures, less stable political
systems, more restrictive foreign investment policies, smaller-sized
securities markets and low trading volumes. Such risks can make
investments illiquid and more volatile than investments in developed
countries and such securities may be subject to abrupt and severe price
declines.
EURO RISK: The Portfolio invests in securities issued by European
issuers that that may be adversely impacted by the introduction of the
"Euro" as a common currency in 11 European Monetary Union member
states. The Euro may result in various legal and accounting
differences, tax treatments, the creation and implementation of
suitable clearing and settlement systems and other operational
problems, that may cause market disruptions that could adversely affect
investments quoted in the Euro.
REGULATORY RISK: In general, foreign companies are also not subject to
uniform accounting, auditing and financial reporting standards or to
other regulatory practices and requirements as are U.S. companies,
which could adversely affect their value.
LIQUIDITY RISK: Certain securities held by the Portfolio may be difficult (or
impossible) to sell at the time and at the price the seller would like which may
cause the Portfolio to lose money or be prevented from earning capital gains.
GROWTH INVESTING RISK: As noted above, this Portfolio uses a growth oriented
approach to stock selection. The price of growth stocks may be more sensitive to
changes in current or expected earnings than the prices of other stocks. The
price of growth stocks is also subject to the risk that the stock price of one
or more companies will fall or will fail to appreciate as anticipated by the
Adviser, regardless of movements in the securities market.
DERIVATIVES RISK: The Portfolio's investments in derivatives can significantly
increase the Portfolio's exposure to market risk or credit risk of the
counterparty. Derivatives also involve the risk of mispricing or improper
valuation and the risk that changes in value of the derivative may not correlate
perfectly with the relevant assets, rates and indices.
FIXED INCOME RISKS: To the extent that a substantial amount of the Portfolio's
assets are invested in fixed income securities, that portion of the Portfolio's
performance will be affected by changes in interest rates, the credit risk of
the issuer, the duration or maturity of the Portfolio's fixed income holdings,
and adverse market or economic conditions. When interest rates rise, the value
of the Portfolio's fixed income securities, particularly those with longer
durations or maturities, will go down. When interest rates fall, the reverse is
true. In addition, to the extent that the Portfolio invests in investment-grade
securities which are rated BBB by S&P or an equivalent rating by any other
nationally recognized statistical rating organization, it will be exposed to
greater risk than if it invested in higher-rated obligations because BBB-rated
securities are regarded as having only an adequate capacity to pay principal and
interest, are considered to lack outstanding investment characteristics, and may
be speculative.
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<PAGE>
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 risk will tend to be compounded.
PORTFOLIO PERFORMANCE
The bar chart below illustrates the Portfolio's annual total returns for each of
the last three calendar years. The table below shows the Portfolio's average
annual total returns for the past year and since inception. The table also
compares the Portfolio's performance to the returns of an index of funds with
similar investment objectives and the returns of a broad-based equity securities
market index. The bar chart and table below includes the performance of the
predecessor (registered investment company) to this Portfolio, which was managed
by the Adviser using the same investment strategy as the Portfolio. Both the bar
chart and table assume reinvestment of dividends and distributions. Past
performance is not an indication of future performance. In addition, holders of
Contracts representing interests in the Portfolio will be subject to charges and
expenses relating to such insurance contracts. The performance results presented
below do not reflect any insurance related expenses and if reflected the results
would be reduced. For these purposes, the Portfolio is considered to be the
successor entity to the predecessor (registered investment company) whose
inception date is April 3, 1995.
CALENDAR YEAR ANNUAL TOTAL RETURN
1996 1997 1998
9.8% -2.98% 10.6%
Best quarter (% and time period) Worst quarter (% and time period)
16.55% (1998 4th Quarter) -15.68% (1998 3rd Quarter)
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- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR SINCE INCEPTION
ALLIANCE INTERNATIONAL PORTFOLIO - CLASS 10.57% 7.49%
IA SHARES
LIPPER INTERNATIONAL MUTUAL FUNDS
AVERAGE* 13.02% 10.74%
MSCI EAFE INDEX* 20.00% 9.68%
- -------------------------------------------------------------------------------
* For more information on this index, see the preceding section "The
Benchmarks."
WHO MANAGES THE PORTFOLIO
ALLIANCE CAPITAL MANAGEMENT, L.P. ("Alliance"), 1345 Avenue of the Americas, New
York, New York 10105. Alliance has been the Adviser to the Portfolios since it
commenced operations. Alliance, a publicly traded limited partnership, is
indirectly majority-owned by Equitable. Alliance manages other investment
companies, 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.
SANDRA L. YEAGER has been responsible for the day-to-day management of the
Portfolio since January 1999. Ms. Yeager, a Senior Vice President of Alliance
Capital Management L.P. ("Alliance"), has been associated with Alliance since
1990.
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MORE INFORMATION ON PRINCIPAL RISKS
Risk is the chance that you will lose money on your investment or that it will
not earn as much as you expect. In general, the greater the risk, the more money
your investment can earn for you - and the more you can lose. Like other
investment companies, the value of each Portfolio's shares may be affected by
the Portfolio's investment objective(s), principal investment strategies and
particular risk factors. Consequently, each Portfolio may be subject to
different principal risks. Some of the principal risks of investing in the
Portfolios are discussed below. However, other factors may also affect each
Portfolio's net asset value.
There is no guarantee that a Portfolio will achieve its investment objective(s)
or that it will not lose principal value.
GENERAL INVESTMENT RISKS: Each Portfolio is subject to the following risks:
ASSET CLASS RISK: There is the possibility that the returns from the
types of securities in which a Portfolio invests will underperform
returns from the various general securities markets or different asset
classes. Different types of securities tend to go through cycles of
outperformance and underperformance in comparison to the general
securities markets.
MARKET RISK: Each Portfolio's share price moves up and down over the
short term in reaction to stock or bond market movements. This means
that you could lose money over short periods, and perhaps over longer
periods during extended market downturns.
SECURITY SELECTION RISK: The Advisers for each Portfolio rely on the
insights of different specialists in making investment decisions based
on each Portfolio's particular investment objective(s) and investment
strategies. There is the possibility that the specific securities held
by a Portfolio will underperform other funds in the same asset class or
benchmarks that are representative of the general performance of the
asset class because of the Adviser's choice of portfolio securities.
YEAR 2000 RISK: Like other mutual funds, financial and business
organizations and individuals around the world, the Trust and its
Portfolios could be adversely affected if the computer systems used by
the Advisers, other service providers, or persons with whom they deal,
do not properly process and calculate date-related information and data
dated on and after January 1, 2000. This possibility is commonly known
as the "Year 2000 Problem." Virtually all operations of the Trust and
its Portfolios are computer reliant. The Manager, Advisers,
administrator, transfer agent, distributors and custodian have informed
the Trust that they are actively taking steps to address the Year 2000
Problem with regard to their respective computer systems and the
interfaces between their respective computer systems. The Trust is also
taking measures to obtain assurances from necessary persons that
comparable steps are being taken by the key service providers to the
Trust's Advisers, administrator, transfer agent, distributors, and
custodian. There can be no assurance that the Trust and the Portfolios'
key service providers will be Year 2000 compliant. If not adequately
addressed, the Year 2000 Problem could result in the inability of the
Trust to perform its mission critical functions, including trading and
settling trades of Portfolio securities, pricing of portfolio
securities and processing shareholder transactions, and the net asset
value of its Portfolios' shares may be materially affected.
In addition, because the Year 2000 Problem affects virtually all
issuers, the companies or entities in which the Portfolios may invest
also could be adversely impacted by the Year 2000 Problem. For example,
issuers may incur substantial costs to address the Year 2000 problem.
The extent of such impact cannot be predicted and there can be no
assurances that the Year 2000 Problem will not have an adverse effect
on the issuers whose securities are held by the Portfolios. The
Advisers have assured the Trust that they consider such issues in
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making investment decisions for the Portfolios. Furthermore, certain of
the Portfolios make international investments thereby exposing these
Portfolios to operations, custody and settlement processes outside the
United States. In many countries outside the United States the Year
2000 Problem has not been adequately addressed and concerns have been
raised that capital flight, among other issues, may be triggered by
full disclosure of the Year 2000 Problem on countries outside the
United States. Additional information on the impact of the Year 2000
Problem on emerging market countries is provided in this section, under
"FOREIGN SECURITIES RISKS--EMERGING MARKET RISK."
As indicated in "Summary Information Concerning EQ Advisors Trust" and "About
the Investment Portfolios," a particular Portfolio may also be subject to the
following risks:
CONVERTIBLE SECURITIES RISK: Convertible securities may include both convertible
debt and convertible preferred stock. Such securities may be converted into
shares of the underlying common stock at either a stated price or stated rate.
Therefore, convertible securities generally enable you to benefit from increases
in the market price of the underlying common stock. Convertible securities
provide higher yields than the underlying common stocks, but generally offer
lower yields than nonconvertible securities of similar quality. Like bonds, the
value of convertible securities fluctuates in relation to changes in interest
rates and, in addition, fluctuates in relation to the underlying common stock.
Subsequent to purchase by a Portfolio, convertible securities may cease to be
rated or a rating may be reduced below the minimum required for purchase by that
Portfolio. Each Adviser will consider such event in its determination of whether
a Portfolio should continue to hold the securities.
DERIVATIVES RISK: Derivatives are financial contracts whose value depends on, or
is derived from the value of an underlying asset, reference rate or index.
Derivatives include stock options, securities index options, currency options,
forward currency exchange contracts, futures contracts, swaps and options on
futures contracts. Certain Portfolios can use derivatives involving U.S.
Government and foreign government securities and currencies. Investments in
derivatives can significantly increase your exposure to market risk, or credit
risk of the counterparty. Derivatives also involve the risk of mispricing or
improper valuation and the risk that changes in value of the derivative may not
correlate perfectly with the relevant assets, rates and indices.
FIXED INCOME RISKS: To the extent that any of the Portfolios invests a
substantial amount of its assets in fixed income securities, it may be subject
to the following risks:
CREDIT RISK: Credit risk is the risk that the issuer or guarantor of a
debt security or counterparty to a Portfolio's transactions will be
unable or unwilling to make timely principal and/or interest payments,
or otherwise will be unable or unwilling to honor its financial
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 or repurchase agreements, which
involve a promise by a third party to honor an obligation to the
Portfolio.
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 "JUNK
BONDS" or lower-rated securities (i.e., rated BB or lower by S&P or an
equivalent rating by any other NRSRO or unrated securities of similar
quality). These debt securities and similar unrated securities have
speculative elements or are predominantly speculative credit risks.
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 or principal, or in
default.
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INTEREST RATE RISK: The price of a bond or a fixed income security is
dependent upon interest rates. Therefore, the share price and total
return of a Portfolio investing a significant portion of its assets in
bonds or fixed income securities will vary in response to changes in
interest rates. A rise in interest rates causes the value of a bond to
decrease, and vice versa. There is the possibility that the value of a
Portfolio's investment in bonds or fixed income securities may fall
because bonds or fixed income securities generally fall in value when
interest rates rise. The longer the term of a bond or fixed income
instrument, the more sensitive it will be to fluctuations in value from
interest rate changes. Changes in interest rates may have a significant
effect on Portfolios holding a significant portion of their assets in
fixed income securities with long term maturities.
MORTGAGE-BACKED SECURITIES RISK: In the case of mortgage-backed
securities, rising interest rates tend to extend the term to maturity
of the securities, making them even more susceptible to interest rate
changes. When interest rates drop, not only can the value of fixed
income securities drop, but the yield can drop, particularly where the
yield on the fixed income securities is tied to changes in interest
rates, such as adjustable mortgages. Also when interest rates drop, the
holdings of mortgage-backed securities by a Portfolio can reduce
returns if the owners of the underlying mortgages pay off their
mortgages sooner than anticipated since the funds prepaid will have to
be reinvested at the then lower prevailing rates. This is known as
prepayment risk. When interest rates rise, the holdings of
mortgage-backed securities by a Portfolio can reduce returns if the
owners of the underlying mortgages pay off their mortgages later than
anticipated. This is known as extension risk.
INVESTMENT-GRADE SECURITIES RISK: Debt securities are rated by national
bond ratings agencies. Securities rated BBB by S&P or Baa by Moody's
are considered investment grade securities, but are somewhat riskier
than higher rated obligations because they are regarded as having only
an adequate capacity to pay principal and interest, and are considered
to lack outstanding investment characteristics and may be speculative.
JUNK BONDS OR LOWER RATED SECURITIES RISK: Bonds rated below investment
grade by S&P and Moody's are speculative in nature, may be subject to
certain risks with respect to the issuing entity and to greater market
fluctuations than higher rated fixed-income securities. They are
usually issued by companies without long track records of sales and
earnings, or by those companies with questionable credit strength.
These bonds are considered "below investment grade." The retail
secondary market for these "junk bonds" may be less liquid than that of
higher rated securities and adverse conditions could make it difficult
at times to sell certain securities or could result in lower prices
than those used in calculating the Portfolio's net asset value.
FOREIGN SECURITIES RISKS: A Portfolio's investments in foreign securities,
including depositary receipts, involve risks not associated with investing in
U.S. securities and can affect a Portfolio's performance. Foreign markets,
particularly emerging markets, may be less liquid, more volatile and subject to
less government supervision than domestic markets. There may be difficulties
enforcing contractual obligations, and it may take more time for trades to clear
and settle. The specific risks of investing in foreign securities, among others,
include:
CURRENCY RISK: The risk that changes in currency exchange rates will
negatively affect securities denominated in, and/or receiving revenues
in, foreign currencies. Adverse changes in currency exchange rates
(relative to the U.S. dollar) may erode or reverse any potential gains
from a Portfolio's investment in securities denominated in a foreign
currency or may widen existing losses.
EMERGING MARKET RISK: There are greater risks involved in investing in
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emerging markets countries and/or their securities markets. Generally,
economic structures in these countries are less diverse and mature than
those in developed countries, and their political systems are less
stable. Investments in emerging markets countries may be affected by
national policies that restrict foreign investment in certain issuers
or industries. The small size of their securities markets and low
trading volumes can make investments illiquid and more volatile than
investments in developed countries and such securities may be subject
to abrupt and severe price declines. As a result, a Portfolio investing
in emerging markets countries may be required to establish special
custody or other arrangements before investing.
The YEAR 2000 PROBLEM may also be especially acute in emerging market
countries. Many emerging market countries are currently lagging behind
more developed countries in their Year 2000 preparedness because they
lack the financial resources to undertake the necessary remedial
actions. A lack of Year 2000 preparedness may adversely affect the
health, security and economic well-being of emerging market countries
and could, obviously, adversely affect the value of a Portfolio's
investments in emerging market countries. More information on the Year
2000 Problem is provided in this section, under "GENERAL INVESTMENT
RISKS--YEAR 2000 RISK."
EURO RISK: Certain of the Portfolios invests in securities issued by
European issuers. On January 1, 1999, 11 of the 15 member states of the
European Monetary Union ("EMU") introduced the "Euro" as a common
currency. During a three-year transitional period, the Euro will
coexist with each participating state's currency and, on July 1, 2002,
the Euro is expected to become the sole currency of the participating
states. The introduction of the Euro will result in the redenomination
of European debt and equity securities over a period of time, which may
result in various legal and accounting differences and/or tax
treatments that otherwise would not likely occur. During this period,
the creation and implementation of suitable clearing and settlement
systems and other operational problems may cause market disruptions
that could adversely affect investments quoted in the Euro.
The consequences of the Euro conversion for foreign exchange rates,
interest rates and the value of European securities eligible for
purchase by the Portfolios are presently unclear and it is not possible
to predict the eventual impact of the Euro implementation plan on the
Portfolios. There are a number of significant risks associated with
EMU. Monetary and economic union on this scale has never been attempted
before. There is a significant degree of uncertainty as to whether
participating countries will remain committed to EMU in the face of
changing economic conditions. The conversion may adversely affect a
Portfolio if the Euro does not take effect as planned or if a
participating state withdraws from the EMU. Such actions may adversely
affect the value and/or increase the volatility of securities held by
the Portfolios.
POLITICAL/ECONOMIC RISK: Changes in economic and tax policies,
expropriation or nationalization; government instability, war or other
political or economic actions or factors may have an adverse effect on
a Portfolio's foreign investments.
REGULATORY RISK: Less information may be available about foreign
companies. In general, foreign companies are not subject to uniform
accounting, auditing and financial reporting standards or to other
regulatory practices and requirements as are U.S. companies.
TRANSACTION COSTS RISK: The costs of buying and selling foreign
securities, including tax, brokerage and custody costs, generally are
higher than those involving domestic transactions.
GROWTH INVESTING RISK: Growth investing generally focuses on companies that, due
to their strong earnings and revenue potential, offer above-average prospects
for capital growth, with less emphasis on dividend income. Earnings
predictability and confidence in earnings forecasts are an important part of the
selection process. As a result, the price of growth stocks may be more sensitive
to changes in current or expected earnings than the prices of other stocks.
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Advisers using this approach generally seek out companies experiencing some or
all of the following: high sales growth, high unit growth, high or improving
returns on assets and equity, and a strong balance sheet. Such Advisers also
prefer companies with a competitive advantage such as unique management,
marketing or research and development. Growth investing is also subject to the
risk that the stock price of one or more companies will fall or will fail to
appreciate as anticipated by the Advisers, regardless of movements in the
securities market.
INDEX-FUND RISK: The Alliance Equity Index Portfolio is not actively managed
(which involves buying and selling of securities based upon economic, financial
and market analysis and investment judgment). Rather, the Portfolio utilizes a
"passive" or "indexing" investment approach and attempts to duplicate the
investment performance of the particular index the Portfolio is tracking (i.e.,
S&P 500 Index), through statistical procedures. Therefore, the Portfolio will
invest in securities included in the relevant index or substantially identical
securities regardless of market trends. The Portfolio cannot modify its
investment strategies to respond to changes in the economy, which means it may
be particularly susceptible to a general decline in the U.S. or global stock
market segment relating to the relevant index.
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 in collateral from securities loans and by
borrowing money to meet redemption requests.
LIQUIDITY RISK: Certain securities held by a Portfolio may be difficult (or
impossible) to sell at the time and at the price the seller would like. A
Portfolio may have to hold these securities longer than it would like and may
forego other investment opportunities. There is the possibility that a Portfolio
may lose money or be prevented from earning capital gains if it can not sell a
security at the time and price that is most beneficial to the Portfolio.
Portfolios that invest in privately-placed securities, derivatives, high-yield
bonds, mortgage-backed securities or foreign or emerging markets securities,
which have all experienced periods of illiquidity, are subject to liquidity
risks. A particular Portfolio may be more susceptible to some of these risks
than others, as noted in the description of each Portfolio.
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 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 yield. In addition, the Portfolio is still subject to the risk that
the value of an investment may be eroded over time by inflation.
SECURITIES LENDING RISK: 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 the
Adviser to be of good standing and will not be made unless, in the judgment of
the Adviser, the consideration to be earned from such loans would justify the
risk.
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PORTFOLIO TURNOVER RISK: Consistent with their investment policies, the
Portfolios also will purchase and sell securities without regard to the effect
on portfolio turnover. Higher portfolio turnover (e.g., over 100% per year) will
cause a Portfolio to incur additional transaction costs and may result in
taxable gains being passed through to shareholders.
SMALL-CAP AND MID-CAP COMPANY RISK: A Portfolio's investments in small-cap and
mid-cap companies may involve greater risks than investments in larger, more
established issuers. Smaller companies may have narrower product lines, more
limited financial resources and more limited trading markets for their stock, as
compared with larger companies. Their securities may be less well-known, held
primarily by insiders or institutional investors and trade less frequently and
in more limited volume than the securities of larger, more established
companies. In addition, small-cap and mid-cap companies are typically subject to
greater changes in earnings and business prospects than are those of larger
companies. Consequently, the prices of small company stocks tend to rise and
fall in value more frequently than the stocks of larger companies. Although
investing in small-cap and mid-cap companies offers potential for above-average
returns, the companies may not succeed and the value of their stock could
decline significantly.
VALUE INVESTING RISK: Value investing attempts to identify strong companies
selling at a discount from their perceived true worth. Advisers using this
approach generally select stocks at prices, in their view, that are temporarily
low relative to the company's earnings, assets, cash flow and dividends. Value
investing is subject to the risk that the stocks' intrinsic value may never be
fully recognized or realized by the market, or their prices may go down. In
addition, there is the risk that a stock judged to be undervalued may actually
be appropriately priced. Value investing generally emphasizes companies that,
considering their assets and earnings history, are attractively priced and may
provide dividend income.
The Trust's Portfolios are not insured by the FDIC or any other government
agency. Each Portfolio is not a deposit or other obligation of any financial
institution or bank and is not guaranteed. Each Portfolio is subject to
investment risks and possible loss of principal invested.
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MANAGEMENT OF THE TRUST
This section gives you information on the Trust, the Manager and the Advisers
for the Portfolios. More detailed information concerning each of the Advisers
and portfolio managers is included in the description for each Portfolio in the
section "About The Investment Portfolios."
THE TRUST
The Trust is organized as a Delaware business trust and is registered with the
Securities and Exchange Commission ("SEC") as an open-end management investment
company. The Trust issues shares of beneficial interest that are currently
divided among thirty-nine (39) Portfolios, each of which has authorized Class IA
and Class IB shares. Each Portfolio has its own objectives, investment
strategies and risks, which have been previously described in this prospectus.
THE MANAGER
EQ Financial Consultants, Inc. ("Manager"), 1290 Avenue of the Americas, New
York, New York 10104, serves as the Manager of the Trust, subject to the
supervision and direction of the Board of Trustees. The Manager has overall
responsibility for the general management and administration of the Trust.
In the exercise of that responsibility, the Manager, without obtaining
shareholder approval but subject to the review and approval by the Board of
Trustees, may: (i) select the Advisers for the Portfolios; (ii) enter into and
materially modify existing investment advisory agreements; and (iii) terminate
and replace the Advisers. The Manager also monitors each Adviser's investment
program and results, reviews brokerage matters, oversees compliance by the Trust
with various federal and state statutes, and carries out the directives of the
Board of Trustees. The Manager also supervises the provision of services by
third parties such as the Trust's custodian and administrator.
The Manager is an investment adviser registered under the 1940 Act and a
broker-dealer registered under the Securities Exchange Act of 1934, as amended.
The Manager is a wholly-owned subsidiary of Equitable. During 1999, the Manager
plans to change its name to AXA Advisors, Inc.
The Portfolios will commence operations ______________, 1999. The table below
shows the annual rate of the management fees (as a percentage of each
Portfolio's average daily net assets) that the Manager is entitled to receive in
1999 for managing each of these Portfolios.
ANNUAL RATE OF MANAGEMENT FEES
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PORTFOLIOS ANNUAL RATE
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Alliance Money Market Portfolio ____%
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Alliance Intermediate Government Securities Portfolio ____%
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Alliance Quality Bond Portfolio ____%
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Alliance High Yield Portfolio ____%
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Alliance Balanced Portfolio ____%
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Alliance Conservative Investors Portfolio ____%
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Alliance Growth Investors Portfolio ____%
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Alliance Common Stock Portfolio ____%
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Alliance Equity Index Portfolio ____%
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Alliance Growth And Income Portfolio ____%
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Alliance Aggressive Stock Portfolio ____%
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Alliance Small Cap Growth Portfolio ____%
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Alliance Global Portfolio ____%
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Alliance International Portfolio ____%
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EXPENSE LIMITATION AGREEMENT
In the interest of limiting expenses of each Portfolio, the Manager has entered
into an expense limitation agreement with the Trust with respect to each
Portfolio ("Expense Limitation Agreement"). Pursuant to that Expense Limitation
Agreement, the Manager has agreed to waive or limit its fees and to assume other
expenses so that the total annual operating expenses of each Portfolio other
than interest, taxes, brokerage commissions, other expenditures which are
capitalized in accordance with generally accepted accounting principles, other
extraordinary expenses not incurred in the ordinary course of each Portfolio's
business and amounts payable pursuant to a plan adopted in accordance with Rule
12b-1 under the 1940 Act, are limited to the following rates:
MANAGEMENT EXPENSE LIMITATION FEES
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PORTFOLIOS AMOUNT EXPENSES LIMITED TO
(% of daily net assets)
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Alliance Money Market Portfolio ____%
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Alliance Intermediate Government Securities Portfolio ____%
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Alliance Quality Bond Portfolio ____%
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Alliance High Yield Portfolio ____%
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Alliance Balanced Portfolio ____%
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Alliance Conservative Investors Portfolio ____%
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Alliance Growth Investors Portfolio ____%
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Alliance Common Stock Portfolio ____%
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Alliance Equity Index Portfolio ____%
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Alliance Growth And Income Portfolio ____%
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Alliance Aggressive Stock Portfolio ____%
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Alliance Small Cap Growth Portfolio ____%
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Alliance Global Portfolio ____%
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Alliance International Portfolio ____%
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Each Portfolio may at a later date reimburse to the Manager the management fees
waived or limited and other expenses assumed and paid by the Manager pursuant to
the Expense Limitation Agreement provided such Portfolio has reached a
sufficient asset size to permit such reimbursement to be made without causing
the total annual expense ratio of each Portfolio to exceed the percentage limits
stated above. Consequently, no reimbursement by a Portfolio will be made unless:
(i) the Portfolio's assets exceed $100 million; (ii) the Portfolio's total
annual expense ratio is less than the respective percentages stated above; and
(iii) the payment of such reimbursement has been approved by the Trust's Board
of Trustees on a quarterly basis.
THE ADVISERS
Each Portfolio has an Adviser that furnishes an investment program for the
Portfolio pursuant to an investment advisory agreement with the Manager. Each
Adviser makes investment decisions on behalf of the Portfolio, places all orders
for the purchase and sale of investments for the Portfolio's account with
brokers or dealers selected by such Adviser and may perform certain limited
related administrative functions in connection therewith.
The Manager has received an exemptive order from the SEC that permits the
Manager, subject to certain conditions, including board approval, and without
the approval of shareholders to: (a) employ a new Adviser or Advisers for any
Portfolio pursuant to the terms of a new Advisory Agreement, in each case either
as a replacement for an existing Adviser or as an additional Adviser; (b) change
the terms of any Advisory Agreement; and (c) continue the employment of an
existing Adviser on the same advisory contract terms where a contract has been
assigned because of a change in control of the Adviser. In such circumstances,
shareholders would receive notice of such action, including the information
concerning the Adviser that normally is provided in the Prospectus.
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The Manager pays each Adviser a fee based on the Portfolio's average daily net
assets. No Portfolio is responsible for the fees paid on its behalf to the
relevant Adviser.
THE ADMINISTRATOR
Pursuant to an agreement, Chase Global Funds Services Company ("Administrator")
assists the Manager in the performance of its administrative responsibilities to
the Trust and provides the Trust with other necessary administrative, fund
accounting and compliance services. In addition, the Administrator makes
available the office space, equipment, personnel and facilities required to
provide such services to the Trust. For these services, the Trust pays the
Administrator a monthly fee at the annual rate of .0525 of 1% of the total Trust
assets, plus $25,000 for each Portfolio, until the total Trust assets reach $2.0
billion, and when the total Trust assets exceed $2.0 billion: .0425 of 1% of the
next $0.5 billion of the total Trust assets; .035 of 1% of the next $2.0 billion
of the total Trust assets; .025 of 1% of the next $1.0 billion of the total
Trust assets; .015 of 1% of the next $2.5 billion of the total Trust assets; .01
of 1% of the total Trust assets in excess of $8.0 billion; provided, however,
that the annual fee payable to Chase with respect to any Portfolio which
commenced operations after July 1, 1997 and whose assets do not exceed $200
million shall be computed at the annual rate of .0525% of 1% of the Portfolio's
total assets plus $25,000.
THE TRANSFER AGENT
Equitable serves as the transfer agent and dividend disbursing agent of the
Trust and receives no compensation for serving in such capacity.
BROKERAGE PRACTICES
In selecting brokers and dealers, the Manager and each Adviser may consider
research and brokerage services furnished to either company and their
affiliates. Subject to seeking the most favorable net price and execution
available, the Manager and each Adviser may also consider sales of shares of the
Trust as a factor in the selection of brokers and dealers.
BROKERAGE TRANSACTIONS WITH AFFILIATES
To the extent permitted by law, the Trust may engage in securities and other
transactions with entities that may be affiliated with the Manager or the
Advisers. The 1940 Act generally prohibits the Trust from engaging in principal
securities transactions with an affiliate of the Manager or Advisers unless
pursuant to an exemptive order from the SEC. For these purposes, however, the
Trust has considered this issue and believes that a broker-dealer affiliate of
an Adviser to one Portfolio should not be treated as an affiliate of the Adviser
to another Portfolio for which such Adviser does not provide investment advice.
The Trust has adopted procedures that are reasonably designed to provide that
any commission it pays to affiliates of the Manager or Advisers does not exceed
the usual and customary broker's commission. The Trust has also adopted
procedures permitting it to purchase securities, under certain restrictions
prescribed by a rule under the 1940 Act, in a public offering in which an
affiliate of the Manager or Advisers is an underwriter.
FUND DISTRIBUTION ARRANGEMENTS
The Trust offers two classes of shares on behalf of each Portfolio: Class IA
shares and Class IB shares. The Manager, serves as one of the distributors for
the Class IA shares of the Trust offered by this Prospectus as well as one of
the distributors for the Class IB shares. Equitable Distributors, Inc. serves as
the other distributor for the Class IA shares of the Trust as well as the Class
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IB shares. Both classes of shares are offered and redeemed at their net asset
value without any sales load.
PURCHASE AND REDEMPTION
The price at which a purchase or redemption is effected is based on the next
calculation of net asset value after an order is placed by an insurance company
or qualified retirement plan investing in or redeeming from 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 and class related expenses, which are
accrued daily), by the total number of outstanding shares of that Portfolio. The
net asset value per share of each Portfolio is determined each business day at
4:00 p.m. Eastern time. Net asset value per share is not calculated on days on
which the New York Stock Exchange ("NYSE")is closed for trading.
All shares are purchased and redeemed in accordance with the Trust's Amended and
Restated Declaration of Trust and By-Laws. Sales and redemptions of shares of
the same class by the same shareholder on the same day will be netted for each
Portfolio. All redemption requests will be processed and payment with respect
thereto will normally be made within seven days after tenders.
The Trust may suspend redemption, if permitted by the 1940 Act, for any period
during which NYSE 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. If the Board of Trustees determines that it would be detrimental
to the best interest of the Trust's remaining shareholders to make payment in
cash, the Trust may pay redemption proceeds in whole or in part by a
distribution-in-kind of readily marketable securities.
HOW ASSETS ARE VALUED
Values are determined according to accepted practices and all laws and
regulations that apply. The assets of each Portfolio are generally valued as
follows:
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 Depository Receipt
or similar form, in the United States are valued at representative quoted
prices in the currency in 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 NYSE, the value of a Portfolio's share may change
on days when shareholders are not able to buy or sell them. If events
materially affecting the values of the Portfolios foreign investments occur
between the close of foreign markets and the close of regular trading on
the NYSE, these investments may be valued at their fair value.
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<PAGE>
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 of the Trust
using its best judgment.
TAX INFORMATION
Each Portfolio of the Trust is a separate regulated investment company for
federal income tax purposes. Regulated investment companies are usually not
taxed at the entity (Portfolio) level. They pass through their income and gains
to their shareholders by paying dividends. Their shareholders include this
income on their respective tax returns. A Portfolio will be treated as a
regulated investment company if it meets specified federal income tax rules,
including types of investments, limits on investments, calculation of income,
and dividend payment requirements. Although the Trust intends that it and each
Portfolio will be operated to have no federal tax liability, if they have any
federal tax liability, that could hurt the investment performance of the
Portfolio in question. Also, any Portfolio investing in foreign securities or
holding foreign currencies could be subject to foreign taxes which could reduce
the investment performance of the Portfolio.
It is important for each Portfolio to maintain its federal income tax regulated
investment company status because the shareholders of the Portfolio that are
insurance company separate accounts will then be able to use a favorable federal
income tax investment diversification testing rule in figuring out whether the
Contracts indirectly funded by the Portfolio meet tax qualification rules for
variable insurance contracts. If a Portfolio fails to meet specified investment
diversification requirements, owners of non-pension plan Contracts funded
through the Trust could be taxed immediately on the accumulated investment
earnings under their Contracts and could lose any benefit of tax deferral. The
Administrator and the Manager therefore carefully monitor compliance with all of
the regulated investment company rules and variable insurance contract
investment diversification rules.
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BACK COVER
If you wish to know more, you will find additional information about the Trust
and its Portfolios in the following documents:
ANNUAL REPORTS
The Annual Report includes more information about the Trust's performance and is
available upon request free of charge. The reports usually include performance
information, a discussion of market conditions and the investment strategies
that affected the Portfolios' performance during the last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI, dated September 1, 1999, is incorporated into this Prospectus by
reference and is available upon request free of charge by calling our toll free
number at 1-888-555-5100.
You may visit the SEC's website at www.sec.gov to view the SAI and other
information about the Trust.
You can also review and copy information about the Trust, including the SAI, at
the SEC's Public Reference Room in Washington, D.C. You may have to pay a
duplicating fee. To find out more about the Public Reference Room, call the SEC
at 800-SEC-0330.
Investment Company Act File Number: 811-07953
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EQ ADVISORS TRUST
PROSPECTUS
September 1, 1999
This Prospectus describes fourteen (14) of the Portfolios offered by EQ Advisors
Trust. Each Portfolio has its own investment objective and strategies that are
designed to meet different investment goals. This Prospectus contains
information you should know before investing. Please read this Prospectus
carefully before investing and keep it for future reference.
FIXED INCOME PORTFOLIOS ASSET ALLOCATION PORTFOLIOS
- ----------------------- ---------------------------
Alliance Money Market Alliance Balanced
Alliance Intermediate Government Securities Alliance Conservative Investors
Alliance Quality Bond Alliance Growth Investors
Alliance High Yield
DOMESTIC EQUITY PORTFOLIOS AGGRESSIVE EQUITY PORTFOLIOS
- -------------------------- ----------------------------
Alliance Common Stock Alliance Aggressive Stock
Alliance Equity Index Alliance Small Cap Growth
Alliance Growth and Income
GLOBAL/INTERNATIONAL EQUITY PORTFOLIOS
- --------------------------------------
Alliance Global
Alliance International
You should be aware that the Securities and Exchange Commission has not approved
or disapproved of the investment merit of these Portfolios or determined if this
Prospectus is accurate or complete. Any representation to the contrary is a
criminal offense.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. EQ
ADVISORS TRUST MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS
IS NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY
THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
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<PAGE>
EQ ADVISORS TRUST
This Prospectus tells you about fourteen (14) of the Portfolios of the EQ
Advisors Trust ("Trust") and the Class IB shares offered by the Trust on behalf
of each Portfolio. The Trust is an open-end management investment company. Each
Portfolio is a separate series of the Trust with its own investment objective,
investment strategies and risks, which are described in this Prospectus. Each of
the Portfolios is diversified for purposes of the Investment Company Act of
1940, as amended ("1940 Act").
The Trust's shares are currently sold (i) to insurance company separate accounts
in connection with variable life insurance contracts and variable annuity
certificates and contracts (the "Contract" or collectively, the "Contracts")
issued by The Equitable Life Assurance Society of the United States
("Equitable") and Equitable of Colorado, Inc. ("EOC") as well as insurance
companies that are not affiliated with Equitable or EOC ("non-affiliated
insurance companies"), and (ii) to The Equitable Investment Plan for Employees,
Managers and Agents ("Equitable Plan"). The prospectus is designed to help you
make informed decisions about the Portfolios that are available under your
Contract or under the Equitable Plan. You will find information about your
Contract and how it works in the accompanying prospectus for the Contracts if
you are a Contractholder or participant under a Contract.
EQ Financial Consultants, Inc. ("Manager") serves as the Manager of the Trust,
subject to the supervision and direction of the Board of Trustees. The Manager
has overall responsibility for the general management and administration of the
Trust. During 1999, the Manager plans to change its name to AXA Advisors, Inc.
Each of the Portfolios has its own investment adviser ("Adviser"). Information
about the Adviser for each Portfolio is contained in the description concerning
that Portfolio in the section entitled "About the Investment Portfolios." The
Manager has the ultimate responsibility to oversee each of the Advisers and to
recommend their hiring, termination and replacement. Subject to approval by the
Board of Trustees, the Manager may without obtaining shareholder approval: (i)
select Advisers for each of the Trust's Portfolios; (ii) enter into and
materially modify existing investment advisory agreements; and (iii) terminate
and replace Advisers.
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<PAGE>
2nd right hand page TABLE OF CONTENTS
PAGE
SUMMARY INFORMATION CONCERNING EQ ADVISORS TRUST...............................4
ABOUT THE INVESTMENT PORTFOLIOS...............................................10
FIXED INCOME PORTFOLIOS....................................................13
ALLIANCE MONEY MARKET PORTFOLIO.......................................13
ALLIANCE INTERMEDIATE GOVERNMENT SECURITIES PORTFOLIO.................17
ALLIANCE QUALITY BOND PORTFOLIO.......................................22
ALLIANCE HIGH YIELD PORTFOLIO.........................................26
ASSET ALLOCATION PORTFOLIOS................................................30
ALLIANCE BALANCED PORTFOLIO...........................................31
ALLIANCE CONSERVATIVE INVESTORS PORTFOLIO.............................35
ALLIANCE GROWTH INVESTORS PORTFOLIO...................................39
DOMESTIC EQUITY PORTFOLIOS.................................................43
ALLIANCE COMMON STOCK PORTFOLIO.......................................43
ALLIANCE EQUITY INDEX PORTFOLIO.......................................47
ALLIANCE GROWTH AND INCOME PORTFOLIO..................................50
AGGRESSIVE EQUITY PORTFOLIOS...............................................54
ALLIANCE AGGRESSIVE STOCK PORTFOLIO...................................54
ALLIANCE SMALL CAP GROWTH PORTFOLIO...................................58
GLOBAL/INTERNATIONAL PORTFOLIOS............................................61
ALLIANCE GLOBAL PORTFOLIO.............................................61
ALLIANCE INTERNATIONAL PORTFOLIO......................................65
MORE INFORMATION ON PRINCIPAL RISKS...........................................69
MANAGEMENT OF THE TRUST.......................................................75
The Trust..................................................................75
The Manager................................................................75
Expense Limitation Agreement...............................................76
The Advisers...............................................................76
The Administrator..........................................................77
The Transfer Agent.........................................................77
Brokerage Practices........................................................77
Brokerage Transactions with Affiliates.....................................77
FUND DISTRIBUTION ARRANGEMENTS................................................78
PURCHASE AND REDEMPTION.......................................................78
HOW ASSETS ARE VALUED.........................................................78
TAX INFORMATION...............................................................79
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TWO PAGE SPREAD
SUMMARY INFORMATION CONCERNING EQ ADVISORS TRUST
The following chart highlights the fourteen (14) Portfolios described in this
Prospectus that you can choose as investment alternatives under your Contracts
offered by Equitable or EOC and non-affiliated insurance companies. The chart
and accompanying information identify each Portfolio's investment objective(s),
principal investment strategies, and principal risks. "More Information on
Principal Risks", which more fully describes each of the principal risks, is
provided beginning on page __.
EQ ADVISORS TRUST
FIXED INCOME PORTFOLIOS
Part A
- ----------------------------------------------------------------------------
PORTFOLIO INVESTMENT OBJECTIVE(S)
- ----------------------------------------------------------------------------
ALLIANCE MONEY MARKET Seeks to obtain a high level of current
income, preserve its assets and maintain
liquidity
- ----------------------------------------------------------------------------
ALLIANCE INTERMEDIATE Seeks to achieve high current income
GOVERNMENT SECURITIES 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
- ----------------------------------------------------------------------------
ALLIANCE QUALITY BOND Seeks to achieve high current income
consistent with preservation of capital by
investing primarily in investment
grade fixed income securities
- ----------------------------------------------------------------------------
ALLIANCE HIGH YIELD Seeks to achieve a high return by
maximizing current income and, to the
extent consistent with that objective,
capital appreciation
- ----------------------------------------------------------------------------
EQ ADVISORS TRUST
ASSET ALLOCATION PORTFOLIOS
Part A
- ----------------------------------------------------------------------------
PORTFOLIO INVESTMENT OBJECTIVE(S)
- ----------------------------------------------------------------------------
ALLIANCE BALANCED Seeks to achieve a high return through
both appreciation of capital and current
income
- ----------------------------------------------------------------------------
ALLIANCE CONSERVATIVE INVESTORS Seeks to achieve a high total return
without, in the opinion of the
Adviser, undue risk to principal
- ----------------------------------------------------------------------------
ALLIANCE GROWTH INVESTORS Seeks to achieve the highest total return
consistent with the Adviser's
determination of reasonable risk
- ----------------------------------------------------------------------------
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<PAGE>
EQ ADVISORS TRUST
FIXED INCOME PORTFOLIOS
Part B
---------------------------------------------------------------
PRINCIPAL INVESTMENT STRATEGIES PRINCIPAL RISKS
---------------------------------------------------------------
High quality U.S. General investment, money
dollar-denominated money market, leveraging, foreign
market instruments (including securities, and securities
foreign securities) and lending risks
securities lending
---------------------------------------------------------------
Securities issued to or General investment, fixed
guaranteed by the U.S. income, leveraging,
Government, including derivatives, and securities
repurchase agreements and lending risks
forward commitments related to
U.S. Government securities,
debt securities of
non-governmental issuers that
own mortgages, short sales,
the purchase or sale of
securities on a when-issued or
delayed delivery basis,
derivatives, and securities
lending
---------------------------------------------------------------
Investment-grade debt General investment, fixed
securities rated at least income, convertible
BBB/Baa or unrated securities securities, leveraging,
of comparable quality at the derivatives, securities
time of purchase, convertible lending and foreign
debt securities, preferred securities risks
stock, dividend-paying common
stocks, foreign securities,
the purchase or sale of
securities on a when-issued,
delayed-delivery or forward
commitment basis, derivatives,
and securities lending
---------------------------------------------------------------
High yield debt securities General investment, fixed
rated below BB/Ba or unrated income, leveraging,
securities of comparable derivatives, liquidity, junk
quality ("junk bonds"), common bond, foreign securities,
stocks and other equity small-cap and mid-cap
securities, foreign company, and securities
securities, derivatives, and lending risks
securities lending
---------------------------------------------------------------
EQ ADVISORS TRUST
ASSET ALLOCATION PORTFOLIOS
Part B
---------------------------------------------------------------
PRINCIPAL INVESTMENT STRATEGIES PRINCIPAL RISKS
---------------------------------------------------------------
Debt and equity securities, General investment, fixed
money market instruments, income, derivatives,
foreign securities, leveraging, liquidity,
derivatives, and securities securities lending, and
lending foreign securities risks
---------------------------------------------------------------
Investment grade debt General investment, fixed
securities and equity income, derivatives,
securities of U.S. and foreign convertible securities,
issuers, derivatives, and leveraging, securities
lending, and
---------------------------------------------------------------
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<PAGE>
---------------------------------------------------------------
securities lending foreign securities risks
---------------------------------------------------------------
Equity securities (including General investment, fixed
foreign stocks, preferred income, leveraging,
stocks, convertible derivatives, liquidity,
securities, securities of convertible securities,
small and medium-sized small-cap and mid-cap
companies) and debt securities company, securities lending,
(including foreign debt junk bond, and foreign
securities and junk bonds), securities risks
derivatives, and securities
lending
---------------------------------------------------------------
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<PAGE>
EQ ADVISORS TRUST
DOMESTIC EQUITY PORTFOLIOS
Part A
- --------------------------------------------------------------------------------
PORTFOLIO INVESTMENT OBJECTIVE(S)
- --------------------------------------------------------------------------------
ALLIANCE COMMON STOCK Seeks to achieve long-term growth of its
capital and increase income
- --------------------------------------------------------------------------------
ALLIANCE EQUITY INDEX Seeks a total return before expenses that
approximates the total return performance
of the S&P 500 Index, including
reinvestment of dividends, at a risk
level consistent with that of the S&P 500
Index
- --------------------------------------------------------------------------------
ALLIANCE GROWTH AND INCOME 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
- --------------------------------------------------------------------------------
EQ ADVISORS TRUST
AGGRESSIVE EQUITY PORTFOLIOS
Part A
---------------------------------------------------------------------
PORTFOLIO INVESTMENT OBJECTIVE(S)
---------------------------------------------------------------------
ALLIANCE AGGRESSIVE STOCK Seeks to achieve long-term
growth of capital
---------------------------------------------------------------------
ALLIANCE SMALL CAP GROWTH Seeks to achieve long-term
growth of capital
---------------------------------------------------------------------
EQ ADVISORS TRUST
GLOBAL/INTERNATIONAL EQUITY PORTFOLIOS
Part A
--------------------------------------------------------------------------
PORTFOLIO INVESTMENT OBJECTIVE(S)
--------------------------------------------------------------------------
ALLIANCE GLOBAL Seeks long-term growth of
capital
--------------------------------------------------------------------------
ALLIANCE INTERNATIONAL 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
--------------------------------------------------------------------------
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<PAGE>
EQ ADVISORS TRUST
DOMESTIC EQUITY PORTFOLIOS
Part B
----------------------------------------------------------------------------
PRINCIPAL INVESTMENT STRATEGIES PRINCIPAL RISKS
----------------------------------------------------------------------------
Stocks and other equity securities General investment, foreign
(including preferred stocks or securities, leveraging,
convertible debt) and fixed income derivatives, small-cap and
securities (including junk bonds), mid-cap company, junk bond, and
foreign securities, derivatives, and fixed income risks
securities lending
----------------------------------------------------------------------------
Securities in the S&P 500 Index, General investment, index-fund,
derivatives, and securities lending derivatives, leveraging, and
small-cap and mid-cap company
risks
----------------------------------------------------------------------------
Stocks and securities convertible into General investment, convertible
stocks (including junk bonds) securities, leveraging,
derivatives, small-cap and
mid-cap company, foreign
securities, junk bond, and fixed
income risks
----------------------------------------------------------------------------
EQ ADVISORS TRUST
AGGRESSIVE EQUITY PORTFOLIOS
Part B
-----------------------------------------------------------------------
PRINCIPAL INVESTMENT STRATEGIES PRINCIPAL RISKS
-----------------------------------------------------------------------
Stocks and other equity securities General investment, small-cap
of small and medium-sized companies and mid-cap company, growth
(including securities of companies investing, leveraging,
in cyclical industries, companies derivatives, liquidity, foreign
whose securities are temporarily securities and fixed income
undervalued, companies in special risks
situations and less widely known
companies)
-----------------------------------------------------------------------
Stocks and other equity securities General investment, small-cap
of smaller companies and and mid-cap company, growth
undervalued securities (including investing, leveraging,
securities of companies in cyclical derivatives, liquidity, foreign
industries, companies whose securities and fixed income
securities are temporarily risks
undervalued, companies in special
situations and less widely known
companies)
-----------------------------------------------------------------------
EQ ADVISORS TRUST
GLOBAL/INTERNATIONAL EQUITY PORTFOLIOS
Part B
-----------------------------------------------------------------------
PRINCIPAL INVESTMENT STRATEGIES PRINCIPAL RISKS
-----------------------------------------------------------------------
Equity securities of U.S. and General investment, foreign
established foreign companies securities, liquidity,
(including shares of other mutual derivatives, leveraging and
funds investing in foreign fixed income risks
securities), debt securities,
derivatives, and securities lending
-----------------------------------------------------------------------
-8-
<PAGE>
-----------------------------------------------------------------------
Equity securities of non-U.S. General investment, foreign
companies (including those in securities, liquidity, growth
emerging markets securities) or investing, leveraging,
foreign government enterprises derivatives, and fixed income
(including other mutual funds risks
investing in foreign securities),
debt securities, derivatives, and
securities lending)
-----------------------------------------------------------------------
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<PAGE>
ABOUT THE INVESTMENT PORTFOLIOS
This section of the Prospectus provides a more complete description of the
principal investment objectives, strategies, and risks of each of the
Portfolios. There can be no assurance that any Portfolio will achieve its
investment objective.
Please note that:
o A fuller description of each of the principal risks is included in the
section "More Information on Principal Risks," which follows the description
of each Portfolio in this section of the Prospectus.
o Additional information concerning each Portfolio's strategies, investments,
and risks can also be found in the Trust's Statement of Additional
Information.
GENERAL INVESTMENT RISKS
Each of the Portfolios is subject to the following risks:
ASSET CLASS RISK: The returns from the types of securities in which a
Portfolio invest may underperform returns from the various general
securities markets or different asset classes.
MARKET RISK: You could lose money over short periods due to fluctuation
in a Portfolio's share price in reaction to stock or bond market
movements, and over longer periods during extended market downturns.
SECURITY SELECTION RISK: There is the possibility that the specific
securities selected by a Portfolio's Adviser will underperform other
funds in the same asset class or benchmarks that are representative of
the general performance of the asset class. In some cases, certain
investments may not be available, or the Portfolio's Adviser may choose
not to use them under market conditions when, in retrospect, their use
would have been beneficial.
YEAR 2000 RISK: A Portfolio could be adversely affected if the computer
systems used by the Trust, Adviser, other service providers, or persons
with whom they deal, do not properly process and calculate date-related
information and data dated on and after January 1, 2000 ("Year 2000
Problem"). The extent of such impact cannot be predicted. Also, there
can be no assurances that the Year 2000 Problem will not have an
adverse effect on the issuers whose securities are held by a Portfolio.
This risk is greater for Portfolios that make foreign investments,
particularly in emerging market countries.
The Trust's Portfolios are not insured by the FDIC or any other government
agency. Each Portfolio is not a deposit or other obligation of any financial
institution or bank and is not guaranteed. Each Portfolio is subject to
investment risks and possible loss of principal invested.
THE BENCHMARKS
Performance of each of the Trust's Portfolios, as a predecessor registered
investment company managed by the Adviser using the same investment strategies
as the Portfolio, as shown on the following pages compares each Portfolio's
performance to that of: an index of funds with similar investment objectives, a
blended index, and a broad-based securities market index. Each of the
Portfolios' annualized rates of return are net of: (i) its investment management
fees; and (ii) its other expenses. These rates are not representative of the
actual return you would receive under your Contract.
Broad-based securities indices are unmanaged and are not subject to fees and
expenses typically
-10-
<PAGE>
associated with managed investment company portfolios. Investments cannot be
made directly in a broad-based securities index. Comparisons with these
benchmarks, therefore, are of limited use. They are included because they are
widely known and may help you to understand the universe of securities from
which each Portfolio is likely to select its holdings. "Blended" performance
numbers (e.g., 50% S&P 400/50% Russell 2000 or 60% S&P 500/40% Lehman
Gov't/Corp) assume a static mix of the two indices.
THE LEHMAN AGGREGATE BOND INDEX ("Lehman Aggregate Bond") 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).
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 LEHMAN INTERMEDIATE GOVERNMENT BOND INDEX ("Lehman Intermediate Government
Bonds") represents an unmanaged group of securities consisting of all U.S.
Treasury and agency securities with remaining maturities of from one to ten
years and issue amounts of at least $100 million outstanding.
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 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 and 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 contract 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 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 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.
MSCI EAFE Index returns assume dividends reinvested net of withholding.
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 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. It is compiled by the
Frank Russell Company.
THE RUSSELL 2000 INDEX ("Russell 2000") is an unmanaged index (with no defined
investment objective) of 2000 small-cap stocks and reflects reinvestment of
dividends. It is compiled by the Frank Russell Company.
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<PAGE>
THE STANDARD & POOR'S 500 COMPOSITE STOCK PRICE INDEX ("S&P 500") is an
unmanaged index containing common stock of 500 industrial, transportation,
utility and financial companies, regarded as generally representative of the
larger capitalization portion of the United States stock market. The S&P 500
reflects the reinvestment of dividends, if any, but does not reflect fees,
brokerage commissions or other expenses of investing.
THE STANDARD & POOR'S MIDCAP 400 INDEX ("S&P 400 MidCap") is 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 VALUE LINE CONVERTIBLE INDEX ("Value Line Convertible") is comprised of 585
of the most actively traded convertible bonds and preferred stocks on an
unweighted basis.
-12-
<PAGE>
FIXED INCOME PORTFOLIOS
ALLIANCE MONEY MARKET PORTFOLIO
INVESTMENT OBJECTIVE: Seeks to obtain a high level of current income, preserve
its assets and maintain liquidity.
THE INVESTMENT STRATEGY
The Portfolio invests primarily in a diversified portfolio of high-quality U.S.
dollar-denominated money market instruments. The Portfolio will maintain a
dollar-weighted average portfolio maturity of 90 days or less.
The instruments in which the Portfolio invests include:
o marketable obligations of, or guaranteed as to the timely payment of
principal and interest by, the U.S. Government, its agencies or
instrumentalities ("U.S. Government Securities");
o certificates of deposit, bankers' acceptances, bank notes, time deposits and
interest bearing savings deposits issued or guaranteed by:
(a) domestic banks (including their foreign branches) or savings and
loan associations having total assets of more than $1 billion and which
are FDIC members 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 (i)
commercial paper rated at least A-1 by Standard & Poor's ("S&P") or
Prime-1 by Moody's Investors Service, Inc. ("Moody's") or (ii) long
term debt rated at least AA by S&P or Aa by Moody's;
o 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;
o mortgage-backed securities and asset-backed securities;
o 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;
o floating rate or master demand notes; and
o repurchase agreements covering U.S. Government securities.
If the Adviser believes a security held by the Portfolio is no longer deemed to
present minimal credit risk, the Portfolio will dispose of the security as soon
as practicable unless the Board of Trustees determines that such action would
not be in the best interest of the Portfolio.
Purchases of securities that are unrated must be ratified by the Board of
Trustees. 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. Time deposits with maturities greater than seven days are considered to
be illiquid securities.
The Portfolio may make use of various other investment strategies, including
investing up to 20% of its total assets in U.S. dollar-denominated money market
instruments of foreign issuers and making secured loans of up to 50% of its
total portfolio securities.
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<PAGE>
THE PRINCIPAL RISKS
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 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. An investment in the Portfolio is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. Although the Portfolio seeks to preserve the value of your
investment, it is possible to lose money by investing in the Portfolio.
LEVERAGING RISK: When the Portfolio borrows money or otherwise leverages its
portfolio, the value of an investment in the Portfolio will be more volatile and
all other risks will tend to be compounded.
FOREIGN SECURITIES RISKS: The Portfolio's investments in foreign securities
involve risks not associated with investing in U.S. securities, which can
adversely affect the Portfolio's performance. Foreign markets, particularly
emerging markets, may be less liquid, more volatile, and subject to less
government supervision than domestic markets. There may be difficulties
enforcing contractual obligations, and it may take more time for trades to clear
and settle. In addition, the value of foreign investments can be adversely
affected by: unfavorable currency exchange rates (relative to the U.S. dollar
for securities denominated in foreign currencies); inadequate or inaccurate
information about foreign companies; higher transaction, brokerage and custody
costs; expropriation or nationalization; adverse changes in foreign economic and
tax policies; and foreign government instability, war or other adverse political
or economic actions.
SECURITIES LENDING RISK: This Portfolio may make secured loans of its portfolio
securities. 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.
PORTFOLIO PERFORMANCE
The bar chart below illustrates the Portfolio's annual total returns for each of
the last ten calendar years. The bar chart provides some indication of the risks
of investing in the Portfolio by showing changes in the Portfolio's performance
from year to year. The table below shows the Portfolio's average annual total
returns for the past one, five and ten years. The table also compares the
Portfolio's performance to the returns of an index of funds with similar
investment objectives and the returns on three-month U.S. Treasury bills. The
bar chart and table below includes the performance of the predecessor
(registered investment company) to this Portfolio, which was managed by the
Adviser using the same investment strategy as the Portfolio. Both the bar chart
and table assume reinvestment of dividends and distributions. Past performance
is not an indication of future performance. In addition, holders of Contracts
representing interests in the Portfolio will be subject to charges and expenses
relating to such insurance contracts. The performance results presented below do
not reflect any insurance related expenses and if reflected the results would be
reduced. For these purposes, the Portfolio is considered to be the successor
entity to the predecessor (registered investment company) whose inception date
is July 13, 1981.
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<PAGE>
CALENDAR YEAR ANNUAL TOTAL RETURN*
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
8.9% 8.0% 5.9% 3.3% 2.7% 3.8% 5.5% 5.1% 5.2% 5.1%
Best quarter (% and time period) Worst quarter (% and time period)
2.31% (1989 2nd Quarter) 0.63% (1992 4th Quarter)
The Portfolio's 7-day yield for the quarter ended December 31, 1999 was 4.45%.
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR FIVE YEARS TEN YEARS
ALLIANCE MONEY MARKET PORTFOLIO 5.08% 4.91% 5.33%
- - CLASS IB SHARES
LIPPER MONEY MARKET MUTUAL FUND 4.84% 4.77% 5.20%
AVERAGE**
3-MONTH TREASURY BILL 5.05% 5.11% 5.44%
- --------------------------------------------------------------------------------
* For periods prior to the inception of Class IB Shares (October 10, 1996),
performance information shown is the performance of Class IA shares adjusted to
reflect the 12b-1 fees paid by Class IB shares. The average annual total return
for Class IB since its actual inception date was 5.13%. Index return for the
comparable period (which dates from month-end of the Class IB inception date)
was 5.04%.
** For more information on this index, see the preceding section "The
Benchmarks."
WHO MANAGES THE PORTFOLIO
ALLIANCE CAPITAL MANAGEMENT, L.P. ("Alliance"), 1345 Avenue of the Americas, New
York, New York 10105. Alliance has been the Adviser to the Portfolios since it
commenced operations. Alliance, a publicly traded limited partnership, is
indirectly majority-owned by Equitable. Alliance manages investment companies,
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.
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<PAGE>
RAYMOND J. PAPERA has been responsible for the day-to-day management of the
Portfolio since 1990. Mr. Papera, a Senior Vice President of Alliance, has been
associated with Alliance since 1990.
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<PAGE>
ALLIANCE INTERMEDIATE GOVERNMENT SECURITIES PORTFOLIO
INVESTMENT OBJECTIVE: 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.
THE INVESTMENT STRATEGY
The Portfolio invests primarily in U.S. Government Securities. The Portfolio may
also invest in repurchase agreements and forward commitments related to U.S.
Government Securities and may also purchase debt securities of non-government
issuers that own mortgages.
SIDEBAR: Duration is a measure of the weighted average maturity of the bonds
held by the Portfolio and can be used by the Adviser as a measure of the
sensitivity of the market value of the Portfolio to changes in interest rates.
Generally, the longer the duration of the Portfolio, the more sensitive its
market value will be to changes in interest rates.
SIDEBAR: In some cases, the Adviser'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 Adviser considered the duration of a
10-year Treasury bond to be 4.68 years. The Portfolio's investments will
generally have a final maturity of not more than ten years or a duration not
exceeding that of a 10-year Treasury note.
The Portfolio buys and sells securities with a view to maximizing current return
without, in the opinion of the Adviser, undue risk to principal. Potential
capital gains resulting from possible changes in interest rates will not be a
major consideration. The Portfolio may take full advantage of a wide range of
maturities of U.S. Government Securities and may adjust the dollar-weighted
average maturity of its portfolio from time to time, depending on the Adviser'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. The Portfolio may also invest a substantial
portion of its assets in money market instruments.
In order to enhance its current return, to reduce fluctuations in net asset
value, and to hedge against changes in interest rates, the Portfolio may write
covered call and put options on U.S. Government Securities 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. The Portfolio may also make secured
loans of its portfolio securities without limitation and enter into repurchase
agreement with respect to U.S. Government Securities with commercial banks and
registered broker-dealers.
The Portfolio may also make use of various other investment strategies,
including covered short sales, and the purchase or sale of securities on a
when-issued, delayed delivery or forward commitment basis.
Under normal market conditions, the Portfolio will invest at least 65%, and
expects to 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:
o U.S. Treasury Bills: Direct obligations of the U.S. Treasury which are
issued in maturities of one year or less.
o U.S. Treasury Notes: Direct obligations of the U.S. Treasury issued in
maturities which vary between
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<PAGE>
one and ten years, with interest payable every six months.
o U.S. Treasury Bonds: Direct obligations of the U.S. Treasury which are
issued in maturities more than ten years from the date of issue, with
interest payable every six months.
o "Ginnie Maes": 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.
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.
SIDEBAR: Guarantees of the Portfolio's U.S. Government Securities 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 Portfolio's shares.
The Portfolio may also purchase collateralized mortgage obligations ("CMOs")
issued by non-governmental issuers and securities issued by a real estate
mortgage investment conduits ("REMICs"'), but only if they are collateralized by
U.S. Government Securities. However, CMOs issued by entities other than U.S.
Government agencies and instrumentalities and securities issued by REMICs are
not considered U.S. Government Securities for purposes of the Portfolio meeting
its policy of investing at least 65% of its total assets in U.S.
Government Securities.
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<PAGE>
THE PRINCIPAL RISKS
FIXED INCOME RISKS: This Portfolio invests primarily in fixed income securities,
therefore, the Portfolio's performance will be affected by changes in interest
rates, credit risks of the issuer, the duration and maturity of the Portfolio's
fixed income holdings, and adverse market and economic conditions. Other risks
that relate to the Portfolio's investment in fixed income securities include:
INTEREST RATE RISK: When interest rates rise, the value (i.e., share
price and total return) of the Portfolio's fixed income securities,
particularly those with longer durations or maturities, will go down.
When interest rates fall, the reverse is true.
INVESTMENT-GRADE SECURITIES RISK: The Portfolio could lose money if the
issuer or guarantor of a debt security or counterparty to a Portfolio's
transaction is unable or unwilling to make timely principal and/or
interest payments, or to honor its financial obligations. Investment
grade securities which are rated BBB by S&P or an equivalent rating by
any other nationally recognized statistical rating organization, are
somewhat riskier than higher rated obligations because they are
regarded as having only an adequate capacity to pay principal and
interest, are considered to lack outstanding investment
characteristics, and may be speculative.
MORTGAGE-BACKED SECURITIES RISK: Rising interest rates may cause the
duration of mortgage-backed securities to increase, making them even
more susceptible to interest rate changes. Falling interest rates may
cause the value and yield of mortgage-backed securities to fall.
Falling interest rates also may encourage borrowers to pay off their
mortgages sooner than anticipated (pre-payment). The Portfolio would
need to reinvest the pre-paid funds at the newer, lower interest rates.
DERIVATIVES RISK: The Portfolio's investments in derivatives can significantly
increase the Portfolio's exposure to market risk or credit risk of the
counterparty. Derivatives also involve the risk of mispricing or improper
valuation and the risk that changes in value of the derivative may not correlate
perfectly with the relevant assets, rates and indices.
LEVERAGING RISK: When the portfolio borrows money or otherwise leverages its
portfolio, the value of an investment in the Portfolio will be more volatile and
all other risk will tend to be compounded.
SECURITIES LENDING RISK: This Portfolio may make secured loans of its portfolio
securities without restriction. The risk 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.
PORTFOLIO PERFORMANCE
The bar chart below illustrates the Portfolio's annual total returns for each of
the last seven calendar years. The table below shows the Portfolio's average
annual total returns for the past one and five years and since inception. The
table also compares the Portfolio's performance to the returns of an index of
funds with similar investment objectives and the returns of a broad-based index.
The bar chart and table below includes the performance of the predecessor
(registered investment company) to this Portfolio, which was managed by the
Adviser using the same investment strategy as the Portfolio. Both the bar chart
and table assume reinvestment of dividends and distributions. Past performance
is not an indication of future performance. In addition, holders of Contracts
representing interests in the Portfolio will be subject to charges and expenses
relating to such insurance contracts. The performance results presented below do
not reflect any insurance related expenses and if reflected the results would be
reduced. For these purposes, the Portfolio is considered to be the successor
entity to the predecessor (registered investment company) whose
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<PAGE>
inception date is April 1, 1991.
CLANDER YEAR ANNUAL TOTAL RETURN*
1992 1993 1994 1995 1996 1997 1998
5.4% 10.3% -4.6% 13.1% 3.5% 7.0% 7.5%
Best quarter (% and time period) Worst quarter (% and time period)
5.25% (1991 3rd Quarter) -3.03% (1994 1st Quarter)
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS*
ONE YEAR FIVE YEARS SINCE INCEPTION
ALLIANCE INTERMEDIATE 7.48% 5.13% 6.83%
GOVERNMENT SECURITIES PORTFOLIO
- - CLASS IB SHARES
LIPPER INTERMEDIATE GOVERNMENT
FUNDS AVERAGE** 7.68% 5.91% 7.25%
LEHMAN INTERMEDIATE GOVERNMENT
BONDS** 8.49% 6.45% 7.60%
- --------------------------------------------------------------------------------
* For periods prior to the inception of Class IB Shares (May 2, 1997),
performance information shown is the performance of Class IA shares adjusted to
reflect the 12b-1 fees paid by Class IB shares. The average annual total return
for Class IB since its actual inception date was 8.01%. Index return for the
comparable period (which dates from month-end of the Class IB inception date)
was 9.08%.
** For more information on this index, see the preceding section "The
Benchmarks."
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<PAGE>
WHO MANAGES THE PORTFOLIO
ALLIANCE CAPITAL MANAGEMENT, L.P. ("Alliance"), 1345 Avenue of the Americas, New
York, New York 10105. Alliance has been the Adviser to the Portfolios since it
commenced operations. Alliance, a publicly traded limited partnership, is
indirectly majority-owned by Equitable. Alliance manages investment companies,
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.
JEFFREY S. PHLEGAR has been responsible for the day-to-day management of the
Portfolio since January 1999. Mr. Phlegar, a Senior Vice President of Alliance,
has been associated with Alliance since 1998.
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<PAGE>
ALLIANCE QUALITY BOND PORTFOLIO
INVESTMENT OBJECTIVE: Seeks to achieve high current income consistent with
preservation of capital by investing primarily in investment grade fixed income
securities.
THE INVESTMENT STRATEGY
The Portfolio expects to invest in readily marketable securities with relatively
attractive yields that the Adviser believes do not involve undue risk.
The 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 that the Adviser determines to
be of comparable quality.
In the event that the credit rating of a security held by the Portfolio falls
below investment grade (or, in the case of unrated securities, the Adviser
determines that the quality of such security has deteriorated below investment
grade), the Portfolio will not be obligated to dispose of such security and may
continue to hold the obligation if the Adviser believes such an investment is
appropriate in the circumstances. The Portfolio will also seek to maintain an
average aggregate quality rating of its portfolio securities of at least A
(Moody's and S&P).
The Portfolio has complete flexibility as to the types of securities in which it
will invest and the relative proportions thereof. In this regard, the 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), preferred stocks and dividend-paying common stocks
in order to reflect the Adviser's assessment of prospective cyclical changes
even if such action may adversely affect current income.
The Portfolio may also invest in foreign securities, although it will not invest
more than 20% of its total assets in securities denominated in currencies other
than the U.S. dollar. The Portfolio may enter into foreign currency futures
contracts (and related options), forward foreign currency exchange contracts and
options on foreign currencies for hedging purposes.
The Portfolio may also make use of various other investment strategies,
including zero coupon pay-in-kind securities, collateralized mortgage
obligations, securities lending with a value of up to 50% of its total assets,
the purchase or sale of securities on a when-issued, delayed delivery or forward
commitment basis and repurchase agreements. The Portfolio may also use
derivatives, including: purchasing put and call options and writing covered put
and call options on securities it may purchase. The Portfolio also intends to
write covered call options for cross-hedging purposes, which are designed to
provide a hedge against a decline in value of another security which the
Portfolio owns or has the right to acquire.
The 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.
When market or financial conditions warrant, the Portfolio may invest in certain
money market instruments for temporary or defensive purposes. Such investments
could result in the Portfolio not achieving its investment objective.
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<PAGE>
THE PRINCIPAL RISKS
FIXED INCOME RISKS: This Portfolio invests primarily in fixed income securities,
therefore, the Portfolio's performance will be affected by changes in interest
rates, credit risks of the issuer, the duration and maturity of the Portfolio's
fixed income holdings, and adverse market and economic conditions. Other risks
that relate to the Portfolio's investment in fixed income securities include:
INTEREST RATE RISK: When interest rates rise, the value (i.e., share
price and total return) of the Portfolio's fixed income securities,
particularly those with longer durations or maturities, will go down.
When interest rates fall, the reverse is true.
INVESTMENT-GRADE SECURITIES RISK: The Portfolio could lose money if the
issuer or guarantor of a debt security or counterparty to a Portfolio's
transaction is unable or unwilling to make timely principal and/or
interest payments, or to honor its financial obligations. Investment
grade securities which are rated BBB or S&P or an equivalent rating by
any other nationally recognized statistical rating organization, are
somewhat riskier than higher rated obligations because they are
regarded as having only an adequate capacity to pay principal and
interest, are considered to lack outstanding investment
characteristics, and may be speculative.
MORTGAGE-BACKED SECURITIES RISK: Rising interest rates may cause the
duration of mortgage-backed securities to increase, making them even
more susceptible to interest rate changes. Falling interest rates may
cause the value and yield of mortgage-backed securities to fall.
Falling interest rates also may encourage borrowers to pay off their
mortgages sooner than anticipated (pre-payment). The Portfolio would
need to reinvest the prepaid funds at the newer, lower interest rates.
ZERO COUPON AND PAY-IN-KIND SECURITIES RISK: A zero coupon or
pay-in-kind security pays no interest in cash to its holder during its
life. Accordingly, zero coupon securities usually trade at a deep
discount from their face or par value and, together with pay-in-kind
securities, 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 in cash.
DERIVATIVES RISK: The Portfolio's investments in derivatives can significantly
increase the Portfolio's exposure to market risk or credit risk of the
counterparty. Derivatives also involve the risk of mispricing or improper
valuation and the risk that changes in value of the derivative may not correlate
perfectly with the relevant assets, rates and indices.
CONVERTIBLE SECURITIES RISK: Convertible securities generally enable the
Portfolio to benefit from increases in the market price of the underlying common
stock and provide higher yields than the underlying common stocks, but generally
offer lower yields than nonconvertible securities of similar quality. Like
bonds, the value of convertible securities fluctuates both in relation to
changes in interest rates and changes in the value of the underlying common
stock.
FOREIGN SECURITIES RISKS: The Portfolio's investments in foreign securities
involve risks not associated with investing in U.S. securities, which can
adversely affect the Portfolio's performance. Foreign markets, particularly
emerging markets, may be less liquid, more volatile, and subject to less
government supervision than domestic markets. There may be difficulties
enforcing contractual obligations, and it may take more time for trades to clear
and settle. In addition, the value of foreign investments can be adversely
affected by: unfavorable currency exchange rates (relative to the U.S. dollar
for securities denominated in foreign currencies); inadequate or inaccurate
information about foreign companies; higher transaction, brokerage and custody
costs; expropriation or nationalization; adverse changes in foreign
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<PAGE>
economic and tax policies; and foreign government instability, war or other
adverse political or economic actions.
SECURITIES LENDING RISK: This Portfolio may make secured loans of its portfolio
securities. 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.
LEVERAGING RISK: When a portfolio is borrows money or otherwise leverages its
portfolio, the value of an investment in that Portfolio will be more volatile
and all other risk will tend to be compounded.
PORTFOLIO PERFORMANCE
The bar chart below illustrates the Portfolio's annual total returns for each of
the last five calendar years. The table below shows the Portfolio's average
annual total returns for the past one and five years and since inception. The
table also compares the Portfolio's performance to the returns of an index of
funds with similar investment objectives and the returns of a broad-based index.
The bar chart and table below includes the performance of the predecessor
(registered investment company) to this Portfolio, which was managed by the
Adviser using the same investment strategy as the Portfolio. Both the bar chart
and table assume reinvestment of dividends and distributions. Past performance
is not an indication of future performance. In addition, holders of Contracts
representing interests in the Portfolio will be subject to charges and expenses
relating to such insurance contracts. The performance results presented below do
not reflect any insurance related expenses and if reflected the results would be
reduced. For these purposes, the Portfolio is considered to be the successor
entity to the predecessor (registered investment company) whose inception date
is October 1, 1993.
CALENDAR YEAR ANNUAL TOTAL RETURN*
1994 1995 1996 1997 1998
-5.4% 16.8% 5.1% 8.9% 8.4%
Best quarter (% and time period) Worst quarter (% and time period)
6.13% (1995 2nd Quarter) -4.09% (1994 1st Quarter)
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<PAGE>
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS*
ONE YEAR FIVE YEARS SINCE INCEPTION
ALLIANCE QUALITY BOND PORTFOLIO 8.43% 6.52% 6.05%
- - CLASS IB SHARES
LIPPER CORPORATE DEBT FUNDS A
RATED AVERAGE** 7.47% 6.54% 6.21%
LEHMAN AGGREGATE BONDS** 8.69% 7.27% 6.92%
- --------------------------------------------------------------------------------
* For periods prior to the inception of Class IB Shares (July 8, 1998),
performance information shown is the performance of Class IA shares adjusted to
reflect the 12b-1 fees paid by Class IB shares. The average annual total return
for Class IB since its actual inception date was 4.05%. Index return for the
comparable period (which dates from month-end of the Class IB inception date)
was 9.37%.
** For more information on this index, see the preceding section "The
Benchmarks."
WHO MANAGES THE PORTFOLIO
ALLIANCE CAPITAL MANAGEMENT, L.P. ("Alliance"), 1345 Avenue of the Americas, New
York, New York 10105. Alliance has been the Adviser to the Portfolios since it
commenced operations. Alliance, a publicly traded limited partnership, is
indirectly majority-owned by Equitable. Alliance manages investment companies,
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.
MATTHEW BLOOM has been responsible for the day-to-day management of the
Portfolio since 1995. Mr. Bloom, a Senior Vice President of Alliance, has been
associated with Alliance since 1989.
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<PAGE>
ALLIANCE HIGH YIELD PORTFOLIO
INVESTMENT OBJECTIVE: Seeks to achieve a high return by maximizing current
income and, to the extent consistent with that objective, capital appreciation.
THE INVESTMENT STRATEGY
The Portfolio invests primarily in diversified mix of high yield, fixed income
securities (so-called "junk bonds"), which generally involve greater volatility
of price and risk of principal and income than high quality fixed income
securities. Junk bonds generally have a higher current yield but are rated
either in the lower categories by nationally recognized statistical rating
organizations ("NRSROs") i.e., rated Baa or lower by Moody's or BBB or lower by
S&P) or are unrated securities of comparable quality.
The 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 may also make use of various other investment strategies,
including investments in common stocks and other equity-type securities (such as
convertible debt securities) and secured loans of its portfolio securities
without limitation in order to enhance its current return and to reduce
fluctuations in net asset value. The Portfolio may also use derivatives,
including: writing covered call and put options; purchasing call and put options
on individual fixed income securities, securities indexes and foreign
currencies; and purchasing and selling stock index, interest rate and foreign
currency futures contracts and options thereon. The Portfolio may also invest in
participations and assignments of loans originally made by institutional lenders
or lending syndicates.
The Portfolio will not invest more than 10% of its total assets in:
(i) fixed income securities which are rated lower than B3 or B- or their
equivalents by one NRSRO or if unrated are of equivalent quality as determined
by the Adviser; and
(ii) money market instruments of any entity which has an outstanding issue of
unsecured debt that is rated lower than B3 or B- or their equivalents by an
NRSRO or if unrated is of equivalent quality as determined by the Adviser;
however, this restriction will not apply to:
o fixed income securities which the Adviser believes have similar
characteristics to securities which are rated B3 or higher by Moody's
or B- or higher by S&P, or
o money market instruments of any entity that has an unsecured issue of
outstanding debt which the Adviser believes has similar characteristics
to securities which are so rated.
In the event that any securities held by the Portfolio fall below those ratings,
the Portfolio will not be obligated to dispose of such securities and may
continue to hold such securities if the Adviser believes that such investments
are considered appropriate under the circumstances.
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.
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<PAGE>
When market or financial conditions warrant, the Portfolio may also make
temporary investments in high-quality U.S. dollar-denominated money market
instruments. Such investment strategies could result in the Portfolio not
achieving its investment objective.
THE PRINCIPAL RISKS
JUNK BOND RISK: The Portfolio invests primarily in "junk bonds" or lower-rated
securities rated BB or lower by S&P or an equivalent rating by any other NRSRO
or unrated securities of similar quality. Junk bonds have speculative elements
or are predominantly speculative credit risks, therefore, credit risk is
particularly significant for this Portfolio. This Portfolio may also be subject
to greater credit risk because it 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 or principal, or in default.
FIXED INCOME RISKS: This Portfolio invests primarily in fixed income securities,
therefore, the Portfolio's performance will be affected by changes in interest
rates, credit risks of the issuer, the duration and maturity of the Portfolio's
fixed income holdings, and adverse market and economic conditions. Other risks
that relate to the Portfolio's investment in fixed income securities include:
INTEREST RATE RISK: When interest rates rise, the value (i.e., share
price and total return) of the Portfolio's fixed income securities,
particularly those with longer durations or maturities, will go down.
When interest rates fall, the reverse is true.
MORTGAGE-BACKED SECURITIES RISK: Rising interest rates may cause the
duration of mortgage-backed securities to increase, making them even
more susceptible to interest rate changes. Falling interest rates may
cause the value and yield of mortgage-backed securities to fall.
Falling interest rates also may encourage borrowers to pay off their
mortgages sooner than anticipated (pre-payment). The Portfolio would
need to reinvest the pre-paid funds at the newer, lower interest rates.
LOAN PARTICIPATION AND ASSIGNMENT RISK: In addition to the risks associated with
fixed income investments generally, the Portfolio's investments in loan
participations and assignments are subject to the risk that the financial
institution acting as agent for all interests in a loan, might fail financially.
It is also possible that, under emerging legal theories of lender liability, the
Portfolio could be held liable as a co-lender.
SMALL CAP AND MID-CAP COMPANY RISK: The Portfolio's investments in small-cap and
mid-cap companies may be subject to more abrupt or erratic movements in price
than are those of larger, more established companies because: the securities of
such companies are less well-known; held primarily by insiders or institutional
investors and may trade less frequently and in lower volume; such companies are
more likely to experience greater or more unexpected changes in their earnings
and growth prospects; such companies have limited financial resources or may
depend on a few key employees; and the products of technologies of such
companies may be at a relatively early stage of development or not fully tested
DERIVATIVES RISK: The Portfolio's investments in derivatives can significantly
increase the Portfolio's exposure to market risk or credit risk of the
counterparty. Derivatives also involve the risk of mispricing or improper
valuation and the risk that changes in value of the derivative may not correlate
perfectly with the relevant assets, rates and indices.
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<PAGE>
FOREIGN SECURITIES RISKS: The Portfolio's investments in foreign securities
involve risks not associated with investing in U.S. securities, which can
adversely affect the Portfolio's performance. Foreign markets, particularly
emerging markets, may be less liquid, more volatile, and subject to less
government supervision than domestic markets. There may be difficulties
enforcing contractual obligations, and it may take more time for trades to clear
and settle. In addition, the value of foreign investments can be adversely
affected by: unfavorable currency exchange rates (relative to the U.S. dollar
for securities denominated in foreign currencies); inadequate or inaccurate
information about foreign companies; higher transaction, brokerage and custody
costs; expropriation or nationalization; adverse changes in foreign economic and
tax policies; and foreign government instability, war or other adverse political
or economic actions.
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 risk will tend to be compounded.
LIQUIDITY RISK: Certain securities held by the Portfolio may be difficult (or
impossible) to sell at the time and at the price the seller would like which may
cause the Portfolio to lose money or be prevented from earning capital gains.
SECURITIES LENDING RISK: This Portfolio may make secured loans of its portfolio
securities without restriction. The risk 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.
PORTFOLIO PERFORMANCE
The bar chart below illustrates the Portfolio's annual total returns for each of
the last ten calendar years. The table below shows the Portfolio's average
annual total returns for the past one, five and ten years. The table also
compares the Portfolio's performance to the returns of an index of funds with
similar investment objectives and the returns of a broad-based index. The bar
chart and table below includes the performance of the predecessor (registered
investment company) to this Portfolio, which was managed by the Adviser using
the same investment strategy as the Portfolio. Both the bar chart and table
assume reinvestment of dividends and distributions. Past performance is not an
indication of future performance. In addition, holders of variable insurance
contracts representing interests in the Portfolio will be subject to charges and
expenses relating to such insurance contracts. The performance results presented
below do not reflect any insurance related expenses and if reflected the results
would be reduced. For these purposes, the Portfolio is considered to be the
successor entity to the predecessor (registered investment company) whose
inception date is January 2, 1987.
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<PAGE>
CALENDAR YEAR ANNUAL TOTAL RETURN*
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
4.9% -1.4% 24.2% 12.1% 22.9% -3.0% 19.7% 22.6% 18.2% -5.4%
Best quarter (% and time period) Worst quarter (% and time period)
7.90% (1997 2nd Quarter) -11.03% (1998 3rd Quarter)
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS*
ONE YEAR FIVE YEARS TEN YEARS
ALLIANCE HIGH YIELD PORTFOLIO - -5.38% 9.74% 10.91%
CLASS IB SHARES
LIPPER HIGH CURRENT YIELD BOND -0.44% 7.37% 9.34%
FUNDS AVERAGE**
ML MASTER** 3.66% 9.01% 11.08%
- --------------------------------------------------------------------------------
* For periods prior to the inception of Class IB Shares (October 1, 1996),
performance information shown is the performance of Class IA shares adjusted to
reflect the 12b-1 fees paid by Class IB shares. The average annual total return
for Class IB since its actual inception date was 6.63%. Index return for the
comparable period (which dates from month-end of the Class IB inception date)
was 9.06%.
** For more information on this index, see the preceding section "The
Benchmarks."
WHO MANAGES THE PORTFOLIO
ALLIANCE CAPITAL MANAGEMENT, L.P. ("Alliance"), 1345 Avenue of the Americas, New
York, New York 10105. Alliance has been the Adviser to the Portfolios since it
commenced operations. Alliance, a publicly traded limited partnership, is
indirectly majority-owned by Equitable. Alliance manages investment companies,
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.
WAYNE C. TAPPE has been responsible for the day-to-day management of the
Portfolio since 1995. Mr. Tappe, a Senior Vice President of Alliance, has been
associated with Alliance since 1987.
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<PAGE>
ASSET ALLOCATION PORTFOLIOS
The Alliance Conservative Investors Portfolio, the Alliance Balanced Portfolio
and the Alliance Growth Investors Portfolio together are called the Asset
Allocation Portfolios. 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.
The Adviser has established an asset allocation committee (the "Committee"'),
all the members of which are employees of the Adviser, 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.
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 the Adviser believes that cash flow will 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.
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<PAGE>
ALLIANCE BALANCED PORTFOLIO
INVESTMENT OBJECTIVE: Seeks to achieve a high return through both appreciation
of capital and current income.
THE INVESTMENT STRATEGY
The Portfolio invests varying portions of its assets in publicly-traded equity
and debt securities and money market instruments depending on economic
conditions, the general level of common stock prices, interest rates and other
relevant considerations, including the risks associated with each investment
medium.
The 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 primarily in high-quality U.S. dollar denominated money market
instruments.
The Portfolio at all times will hold at least 25% of its total 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 a minimum or "core holdings" of at least 25% fixed income
securities and 25% equity securities. Over time, holdings by the Portfolio's
holdings 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 Portfolio may also invest up to 20% of its total assets in foreign
securities and may also make use of various other investment strategies,
including securities lending of up to 50% of its total portfolio securities. The
Portfolio may also use derivatives, including: writing covered call and put
options, purchasing call and put options on all the types of securities in which
it may invest, as well as securities indexes and foreign currencies. The
Portfolio may also purchase and sell stock index, interest rate and foreign
currency futures contracts and options thereon.
The debt securities will consist principally of bonds, notes, debentures and
equipment trust certificates, as well as 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 U.S. Government Securities. If such Baa or BBB debt
securities held by the Portfolio fall below those ratings, the Portfolio will
not be obligated to dispose of them and may continue to hold them if the Adviser
considers them appropriate investments under the circumstances. In addition, the
Portfolio may at times hold some of its assets in cash.
THE PRINCIPAL RISKS
This Portfolio invests in common stocks, therefore, its performance may go up or
down depending on general market conditions. Other principal risks include:
ASSET ALLOCATION RISK: In addition to the risks associated with the securities
in which the Portfolio invests, the Portfolio is subject to the risk that the
Adviser's allocation of the Portfolio's assets between debt and equity
securities may adversely affect the Portfolio's value.
-31-
<PAGE>
DERIVATIVES RISK: The Portfolio's investments in derivatives can significantly
increase the Portfolio's exposure to market risk or credit risk of the
counterparty. Derivatives also involve the risk of mispricing or improper
valuation and the risk that changes in value of the derivative may not correlate
perfectly with the relevant assets, rates and indices.
FOREIGN SECURITIES RISKS: The Portfolio's investments in foreign securities
involve risks not associated with investing in U.S. securities, which can
adversely affect the Portfolio's performance. Foreign markets, particularly
emerging markets, may be less liquid, more volatile, and subject to less
government supervision than domestic markets. There may be difficulties
enforcing contractual obligations, and it may take more time for trades to clear
and settle. In addition, the value of foreign investments can be adversely
affected by: unfavorable currency exchange rates (relative to the U.S. dollar
for securities denominated in foreign currencies); inadequate or inaccurate
information about foreign companies; higher transaction, brokerage and custody
costs; expropriation or nationalization; adverse changes in foreign economic and
tax policies; and foreign government instability, war or other adverse political
or economic actions.
FIXED INCOME RISKS: This Portfolio invests primarily in fixed income securities,
therefore, the Portfolio's performance will be affected by changes in interest
rates, credit risks of the issuer, the duration and maturity of the Portfolio's
fixed income holdings, and adverse market and economic conditions. Other risks
that relate to the Portfolio's investment in fixed income securities include:
INTEREST RATE RISK: When interest rates rise, the value (i.e., share
price and total return) of the Portfolio's fixed income securities,
particularly those with longer durations or maturities, will go down.
When interest rates fall, the reverse is true.
INVESTMENT-GRADE SECURITIES RISK: The Portfolio could lose money if the
issuer or guarantor of a debt security or counterparty to a Portfolio's
transaction is unable or unwilling to make timely principal and/or
interest payments, or to honor its financial obligations. Investment
grade securities which are rated BBB by S&P or an equivalent rating by
any other nationally recognized statistical rating organization, are
somewhat riskier than higher rated obligations because they are
regarded as having only an adequate capacity to pay principal and
interest, are considered to lack outstanding investment
characteristics, and may be speculative.
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 risk will tend to be compounded.
SECURITIES LENDING RISK: This Portfolio may make secured loans of its portfolio
securities. 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.
PORTFOLIO PERFORMANCE
The bar chart below illustrates the Portfolio's annual total returns for each of
the last ten calendar years. The table below shows the Portfolio's average
annual total returns for the past one, five and ten years. The table also
compares the Portfolio's performance to the returns of an index of funds with
similar investment objectives, the returns of a blend of fixed income and equity
securities indices and the returns of a broad-based equity securities market
index. The bar chart and table below includes the performance of the predecessor
(registered investment company) to this Portfolio, which was managed by the
Adviser using the same investment strategy as the Portfolio. Both the bar chart
and table assume reinvestment of dividends and distributions. Past performance
is not an indication of future performance. In addition, holders of Contracts
representing interests in the Portfolio will be subject to charges and expenses
relating to
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<PAGE>
such insurance contracts. The performance results presented below do
not reflect any insurance related expenses and if reflected the results would be
reduced. For these purposes, the Portfolio is considered to be the successor
entity to the predecessor (registered investment company) whose inception date
is January 27, 1986.
Best quarter (% and time period) Worst quarter (% and time period)
15.07% (1991 4th Quarter) -8.35% (1990 3rd Quarter)
CALENDAR YEAR ANNUAL TOTAL RETURN*
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
25.6% 0.0% 41.0% -3.1% 12.0% -8.3% 19.5% 11.4% 14.8% 17.8%
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR FIVE YEARS TEN YEARS
ALLIANCE BALANCED PORTFOLIO - 17.82% 10.56% 12.25%
CLASS IB SHARES
LIPPER BALANCED MUTUAL FUNDS
AVERAGE** 13.48% 13.84% 12.97%
50% S&P 500 INDEX/50% LEHMAN 19.02% 16.88% 15.21%
GOV'T CORP.**
S&P 500 INDEX** 28.58% 24.06% 19.21%
- --------------------------------------------------------------------------------
* For periods prior to the inception of Class IB Shares (July 8, 1998),
performance information shown is the performance of Class IA shares adjusted to
reflect the 12b-1 fees paid by Class IB shares. The average annual total return
for Class IB since its actual inception date was 4.92%. Index return for the
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<PAGE>
comparable period (which dates from month-end of the Class IB inception date)
was 14.89%.
** For more information on this index, see the preceding section "The
Benchmarks."
WHO MANAGES THE PORTFOLIO
ALLIANCE CAPITAL MANAGEMENT, L.P. ("Alliance"), 1345 Avenue of the Americas, New
York, New York 10105. Alliance has been the Adviser to the Portfolios since it
commenced operations. Alliance, a publicly traded limited partnership, is
indirectly majority-owned by Equitable. Alliance manages investment companies,
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.
ROBERT G. HEISTERBERG has been responsible for the day-to-day management of the
Portfolio since February 12, 1996. Mr. Heisterberg, a Senior Vice President of
Alliance and Global Economic Policy Analysis, has been associated with Alliance
since 1977.
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<PAGE>
ALLIANCE CONSERVATIVE INVESTORS PORTFOLIO
INVESTMENT OBJECTIVE: Seeks to achieve a high total return without, in the
opinion of the Adviser, undue risk to principal.
THE INVESTMENT STRATEGY
The Portfolio invests varying portions of its assets in 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.
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 the
Adviser, that is less than that of a 10-year Treasury bond (the "fixed income
core"). 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.
SIDEBAR: Duration is a measure of the weighted average maturity of the bonds
held by the Portfolio and can be used by the Adviser as a measure of the
sensitivity of the market value of the Portfolio to changes in interest rates.
Generally, the longer the duration of the Portfolio, the more sensitive its
market value will be to changes in interest rates.
SIDEBAR: In some cases, the Adviser'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 Adviser considered the duration of a
10-year Treasury bond to be 4.68 years. The Portfolio's investments will
generally have a final maturity of not more than ten years or a duration not
exceeding that of a 10-year Treasury note.
All debt securities held by the Portfolio will be of investment grade (i.e.,
rated at least BBB by S&P or Baa by Moody's) or unrated securities of comparable
quality as determined by the Adviser. The equity securities invested in by the
Portfolio will consist primarily of common stocks, including convertible
securities. No more than 15% of the Portfolio's assets will be invested in
securities of non-U.S. issuers.
The Portfolio may also make use of various other investment strategies,
including securities lending and the derivatives.
THE PRINCIPAL RISKS
This Portfolio invests in common stocks, therefore, its performance may go up or
down depending on general market conditions. Other principal risks include:
ASSET ALLOCATION RISK: In addition to the risks associated with the securities
in which the Portfolio invests, the Portfolio is subject to the risk that the
Adviser's allocation of the Portfolio's assets between debt and equity
securities may adversely affect the Portfolio's value.
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<PAGE>
FIXED INCOME RISKS: This Portfolio invests primarily in fixed income securities,
therefore, the Portfolio's performance will be affected by changes in interest
rates, credit risks of the issuer, the duration and maturity of the Portfolio's
fixed income holdings, and adverse market and economic conditions. Other risks
that relate to the Portfolio's investment in fixed income securities include:
INTEREST RATE RISK: When interest rates rise, the value (i.e., share
price and total return) of the Portfolio's fixed income securities,
particularly those with longer durations or maturities, will go down.
When interest rates fall, the reverse is true.
INVESTMENT-GRADE SECURITIES RISK: The Portfolio could lose money if the
issuer or guarantor of a debt security or counterparty to a Portfolio's
transaction is unable or unwilling to make timely principal and/or
interest payments, or to honor its financial obligations. Investment
grade securities which are rated BBB by S&P or an equivalent rating by
any other nationally recognized statistical rating organization, are
somewhat riskier than higher rated obligations because they are
regarded as having only an adequate capacity to pay principal and
interest, are considered to lack outstanding investment
characteristics, and may be speculative.
MORTGAGE-BACKED SECURITIES RISK: Rising interest rates may cause the
duration of mortgage-backed securities to increase, making them even
more susceptible to interest rate changes. Falling interest rates may
cause the value and yield of mortgage-backed securities to fall.
Falling interest rates also may encourage borrowers to pay off their
mortgages sooner than anticipated (pre-payment). The Portfolio would
need to reinvest the pre-paid funds at the newer, lower interest rates.
CONVERTIBLE SECURITIES RISK: Convertible securities generally enable the
Portfolio to benefit from increases in the market price of the underlying common
stock and provide higher yields than the underlying common stocks, but generally
offer lower yields than nonconvertible securities of similar quality. Like
bonds, the value of convertible securities fluctuates both in relation to
changes in interest rates and changes in the value of the underlying common
stock.
SECURITIES LENDING RISK: This Portfolio may make secured loans of its portfolio
securities. 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.
DERIVATIVES RISK: The Portfolio's investments in derivatives can significantly
increase the Portfolio's exposure to market risk or credit risk of the
counterparty. Derivatives also involve the risk of mispricing or improper
valuation and the risk that changes in value of the derivative may not correlate
perfectly with the relevant assets, rates and indices.
FOREIGN SECURITIES RISKS: The Portfolio's investments in foreign securities
involve risks not associated with investing in U.S. securities, which can
adversely affect the Portfolio's performance. Foreign markets, particularly
emerging markets, may be less liquid, more volatile, and subject to less
government supervision than domestic markets. There may be difficulties
enforcing contractual obligations, and it may take more time for trades to clear
and settle. In addition, the value of foreign investments can be adversely
affected by: unfavorable currency exchange rates (relative to the U.S. dollar
for securities denominated in foreign currencies); inadequate or inaccurate
information about foreign companies; higher transaction, brokerage and custody
costs; expropriation or nationalization; adverse changes in foreign economic and
tax policies; and foreign government instability, war or other adverse political
or economic actions.
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<PAGE>
LIQUIDITY RISK: Certain securities held by the Portfolio may be difficult (or
impossible) to sell at the time and at the price the seller would like which may
cause the Portfolio to lose money or be prevented from earning capital gains.
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 risk will tend to be compounded.
PORTFOLIO PERFORMANCE
The bar chart below illustrates the Portfolio's annual total returns for each of
the last nine calendar years. The table below shows the Portfolio's average
annual total returns for the past one and five years and since inception. The
table also compares the Portfolio's performance to the returns of an index of
funds with similar investment objectives, the returns of a blend of fixed income
and equity securities indices and the returns of a broad-based equity securities
market index. The bar chart and table below includes the performance of the
predecessor (registered investment company) to this Portfolio, which was managed
by the Adviser using the same investment strategy as the Portfolio. Both the bar
chart and table assume reinvestment of dividends and distributions. Past
performance is not an indication of future performance. In addition, holders of
Contracts representing interests in the Portfolio will be subject to charges and
expenses relating to such insurance contracts. The performance results presented
below do not reflect any insurance related expenses and if reflected the results
would be reduced. For these purposes, the Portfolio is considered to be the
successor entity to the predecessor (registered investment company) whose
inception date is October 2, 1989.
CALENDAR YEAR ANNUAL TOTAL RETURN*
1990 1991 1992 1993 1994 1995 1996 1997 1998
6.2% 19.6% 5.5% 10.5% -4.4% 20.2% 5.0% 13.0% 13.6%
Best quarter (% and time period) Worst quarter (% and time period)
7.59% (1998 4th Quarter) -3.27% (1994 1st Quarter)
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<PAGE>
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS*
ONE YEAR FIVE YEARS SINCE INCEPTION
ALLIANCE CONSERVATIVE INVESTORS 13.60% 9.13% 9.71%
PORTFOLIO - CLASS IB SHARES
LIPPER FLEXIBLE PORTFOLIO
AVERAGE** 14.20% 14.31% 12.55%
70% LEHMAN TREASURY/30% S&P 500
INDEX** 15.59% 13.37% 12.08%
S&P 500 INDEX** 28.58% 24.06% 17.62%
- --------------------------------------------------------------------------------
* For periods prior to the inception of Class IB Shares (May 2, 1997),
performance information shown is the performance of Class IA shares adjusted to
reflect the 12b-1 fees paid by Class IB shares. The average annual total return
for Class IB since its actual inception date was 15.42%. Index return for the
comparable period (which dates from month-end of the Class IB inception date)
was 17.64%.
** For more information on this index, see the preceding section "The
Benchmarks."
WHO MANAGES THE PORTFOLIO
ALLIANCE CAPITAL MANAGEMENT, L.P. ("Alliance"), 1345 Avenue of the Americas, New
York, New York 10105. Alliance has been the Adviser to the Portfolios since it
commenced operations. Alliance, a publicly traded limited partnership, is
indirectly majority-owned by Equitable. Alliance manages investment companies,
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.
ROBERT G. HEISTERBERG has been responsible for the day-to-day management of the
Portfolio since February 12, 1996. Mr. Heisterberg, a Senior Vice President of
Alliance and Global Economic Policy Analysis, has been associated with Alliance
since 1977.
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<PAGE>
ALLIANCE GROWTH INVESTORS PORTFOLIO
INVESTMENT OBJECTIVE: Seeks to achieve the highest total return consistent with
the Adviser's determination of reasonable risk.
THE INVESTMENT STRATEGY
The Portfolio allocates varying portions of its assets to a number of asset
classes. 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. Over time, the Portfolio's holdings, on average, are expected to be
allocated 70% to equity securities and 30% to debt securities. Actual asset
mixes will be adjusted in response to economic and credit market cycles.
The Portfolio's investments in equity securities will include both
exchange-traded and over-the counter common stocks and other equity securities,
including foreign stocks, preferred stocks, convertible debt instruments, as
well as securities issued by small-and mid-sized companies that have favorable
growth prospects.
The Portfolio's debt securities may include foreign debt securities, investment
grade fixed income securities (including cash and money market instruments) as
well as lower quality, higher yielding debt securities (junk bonds). The
Portfolio may also make use of various other investment strategies, including
securities lending of up to 50% of its total assets and derivatives. No more
than 30% of the Portfolio's assets will be invested in securities of foreign
issuers.
When market or financial conditions warrant, the Portfolio may invest in U.S.
Government or Government agency securities, money market securities or cash for
temporary or defensive purposes. Such investment strategies could result in the
Portfolio not achieving its investment objective.
THE PRINCIPAL RISKS
This Portfolio invests in common stocks, therefore, its performance may go up or
down depending on general market conditions. Other principal risks include:
ASSET ALLOCATION RISK: In addition to the risks associated with the securities
in which the Portfolio invests, the Portfolio is subject to the risk that the
Adviser's allocation of the Portfolio's assets between debt and equity
securities may adversely affect the Portfolio's value.
FIXED INCOME RISKS: To the extent that a substantial amount of the Portfolio's
assets are invested in fixed income securities, that portion of the Portfolio's
performance will be affected by changes in interest rates, the credit risk of
the issuer, the duration or maturity of the Portfolio's fixed income holdings,
and adverse market or economic conditions. When interest rates rise, the value
of the Portfolio's fixed income securities, particularly those with longer
durations or maturities, will go down. When interest rates fall, the reverse is
true. In addition, to the extent that the Portfolio invests in investment-grade
securities which are rated BBB by S&P or an equivalent rating by any other
NRSRO, it will be exposed to greater risk than if it invested in higher-rated
obligations because BBB-rated securities are regarded as having only an adequate
capacity to pay principal and interest, are considered to lack outstanding
investment characteristics, and may be speculative. Other risks that relate to
the Portfolio's investment in fixed income securities include:
INTEREST RATE RISK: When interest rates rise, the value (i.e., share
price and total return) of the Portfolio's fixed income securities,
particularly those with longer durations or maturities, will go
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<PAGE>
down. When interest rates fall, the reverse is true.
MORTGAGE-BACKED SECURITIES RISK: Rising interest rates may cause the
duration of mortgage-backed securities to increase, making them even
more susceptible to interest rate changes. Falling interest rates may
cause the value and yield of mortgage-backed securities to fall.
Falling interest rates also may encourage borrowers to pay off their
mortgages sooner than anticipated (pre-payment). The Portfolio would
need to reinvest the pre-paid funds at the newer, lower interest rates.
JUNK BOND RISK: The Portfolio may invest a portion of its assets in
"junk bonds" or lower-rated securities rated BB or lower by S&P or an
equivalent rating by any other NRSRO or unrated securities of similar
quality. Therefore, credit risk is particularly significant for this
Portfolio. Junk bonds have speculative elements or are predominantly
speculative credit risks. This Portfolio may also be subject to greater
credit risk because it 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 or principal,
or in default.
SMALL CAP AND MID-CAP COMPANY RISK: The Portfolio's investments in small-cap and
mid-cap companies may be subject to more abrupt or erratic movements in price
than are those of larger, more established companies because: the securities of
such companies are less well-known, held primarily by insiders or institutional
investors and may trade less frequently and in lower volume; such companies are
more likely to experience greater or more unexpected changes in their earnings
and growth prospects; such companies have limited financial resources or may
depend on a few key employees; and the products of technologies of such
companies may be at a relatively early stage of development or not fully tested.
LIQUIDITY RISK: Certain securities held by the Portfolio may be difficult (or
impossible) to sell at the time and at the price the seller would like which may
cause the Portfolio to lose money or be prevented from earning capital gains.
CONVERTIBLE SECURITIES RISK: Convertible securities generally enable the
Portfolio to benefit from increases in the market price of the underlying common
stock and provide higher yields than the underlying common stocks, but generally
offer lower yields than nonconvertible securities of similar quality. Like
bonds, the value of convertible securities fluctuates both in relation to
changes in interest rates and changes in the value of the underlying common
stock.
DERIVATIVES RISK: The Portfolio's investments in derivatives can significantly
increase the Portfolio's exposure to market risk or credit risk of the
counterparty. Derivatives also involve the risk of mispricing or improper
valuation and the risk that changes in value of the derivative may not correlate
perfectly with the relevant assets, rates and indices.
FOREIGN SECURITIES RISKS: The Portfolio's investments in foreign securities
involve risks not associated with investing in U.S. securities, which can
adversely affect the Portfolio's performance. Foreign markets, particularly
emerging markets, may be less liquid, more volatile, and subject to less
government supervision than domestic markets. There may be difficulties
enforcing contractual obligations, and it may take more time for trades to clear
and settle. In addition, the value of foreign investments can be adversely
affected by: unfavorable currency exchange rates (relative to the U.S. dollar
for securities denominated in foreign currencies); inadequate or inaccurate
information about foreign companies; higher transaction, brokerage and custody
costs; expropriation or nationalization; adverse changes in foreign economic and
tax policies; and foreign government instability, war or other adverse political
or economic actions.
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<PAGE>
SECURITIES LENDING RISK: This Portfolio may make secured loans of its portfolio
securities. 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.
PORTFOLIO PERFORMANCE
The bar chart below illustrates the Portfolio's annual total returns for each of
the last nine calendar years. The table below shows the Portfolio's average
annual total returns for the past one and five years and since inception. The
table also compares the Portfolio's performance to the returns of an index of
funds with similar investment objectives, the returns of a blend of fixed income
and equity securities indices and the returns of a broad-based equity securities
market index. The bar chart and table below includes the performance of the
predecessor (registered investment company) to this Portfolio, which was managed
by the Adviser The bar chart and table below includes the performance of the
predecessor (registered investment company) to this Portfolio, which was managed
by the Adviser using the same investment strategy as the Portfolio. Both the bar
chart and table assume reinvestment of dividends and distributions. Past
performance is not an indication of future performance. In addition, holders of
Contracts representing interests in the Portfolio will be subject to charges and
expenses relating to such insurance contracts. The performance results presented
below do not reflect any insurance related expenses and if reflected the results
would be reduced. For these purposes, the Portfolio is considered to be the
successor entity to the predecessor (registered investment company) whose
inception date is October 2, 1989.
CALENDAR YEAR ANNUAL TOTAL RETURN*
1990 1991 1992 1993 1994 1995 1996 1997 1998
10.4% 48.7% 4.7% 15.0% -3.4% 26.1% 12.4% 16.6% 18.8%
Best quarter (% and time period) Worst quarter (% and time period)
18.10% (1998 4th Quarter) -10.66% (1990 3rd Quarter)
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS*
- --------------------------------------------------------------------------------
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<PAGE>
- --------------------------------------------------------------------------------
ONE YEAR FIVE YEARS SINCE INCEPTION
ALLIANCE GROWTH INVESTORS 18.83% 13.36% 15.81%
PORTFOLIO - CLASS IB SHARES
LIPPER FLEXIBLE PORTFOLIO
AVERAGE** 14.20% 14.31% 12.55%
70% S&P 500 INDEX/30% LEHMAN
GOV'T CORP.** 22.85% 19.96% 15.55%
S&P 500 INDEX** 28.58% 24.06% 17.62%
- --------------------------------------------------------------------------------
* For periods prior to the inception of Class IB Shares (October 1, 1996),
performance information shown is the performance of Class IA shares adjusted to
reflect the 12b-1 fees paid by Class IB shares. The average annual total return
for Class IB since its actual inception date was 17.94%. Index return for the
comparable period (which dates from month-end of the Class IB inception date)
was 25.17%.
** For more information on this index, see the preceding section "The
Benchmarks."
WHO MANAGES THE PORTFOLIO
ALLIANCE CAPITAL MANAGEMENT, L.P. ("Alliance"), 1345 Avenue of the Americas, New
York, New York 10105. Alliance has been the Adviser to the Portfolios since it
commenced operations. Alliance, a publicly traded limited partnership, is
indirectly majority-owned by Equitable. Alliance manages investment companies,
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.
ROBERT G. HEISTERBERG has been responsible for the day-to-day management of the
Portfolio since February 12, 1996. Mr. Heisterberg, a Senior Vice President of
Alliance and Global Economic Policy Analysis, has been associated with Alliance
since 1977.
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<PAGE>
DOMESTIC EQUITY PORTFOLIOS
ALLIANCE COMMON STOCK PORTFOLIO
INVESTMENT OBJECTIVE: Seeks to achieve long-term growth of its capital and
increase income.
THE INVESTMENT STRATEGY
The Portfolio invests primarily in common stocks and other equity-type
securities (such as preferred stocks or convertible debt) that the Adviser
believes will share in the growth of the nation's economy over a long period.
Most of the time, the 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.
Current income is an incidental consideration. The Portfolio generally will not
invest more than 20% of its total assets in foreign securities.
The Portfolio may also make use of various other investment strategies,
including making secured loans of up to 50% of its total assets. The Portfolio
may also use derivatives, including: writing covered call and put options,
buying 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.
When market or financial conditions warrant or it appears that the Portfolio's
investment objective will not be achieved by purchasing equity securities, the
Portfolio may invest a portion of its assets in debt securities, including
nonparticipating and nonconvertible preferred stocks, investment-grade debt
securities and junk bonds, e.g., rated BB or lower by S&P or Ba or lower by
Moody's. The Portfolio also may make temporary investments in high-quality U.S.
dollar-denominated money market instruments. Such investment strategies could
result in the Portfolio not achieving its investment objective.
THE PRINCIPAL RISKS
This Portfolio invests in common stocks, therefore, its performance may go up or
down depending on general market conditions. Other principal risks include:
DERIVATIVES RISK: The Portfolio's investments in derivatives can significantly
increase the Portfolio's exposure to market risk or credit risk of the
counterparty. Derivatives also involve the risk of mispricing or improper
valuation and the risk that changes in value of the derivative may not correlate
perfectly with the relevant assets, rates and indices.
FOREIGN SECURITIES RISKS: The Portfolio's investments in foreign securities
involve risks not associated with investing in U.S. securities, which can
adversely affect the Portfolio's performance. Foreign markets, particularly
emerging markets, may be less liquid, more volatile, and subject to less
government supervision than domestic markets. There may be difficulties
enforcing contractual obligations, and it may take more time for trades to clear
and settle. In addition, the value of foreign investments can be adversely
affected by: unfavorable currency exchange rates (relative to the U.S. dollar
for securities denominated in foreign currencies); inadequate or inaccurate
information about foreign companies; higher transaction, brokerage and custody
costs; expropriation or nationalization; adverse changes in foreign economic and
tax policies; and foreign government instability, war or other adverse political
or economic actions.
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<PAGE>
CONVERTIBLE SECURITIES RISK: Convertible securities generally enable the
Portfolio to benefit from increases in the market price of the underlying common
stock and provide higher yields than the underlying common stocks, but generally
offer lower yields than nonconvertible securities of similar quality. Like
bonds, the value of convertible securities fluctuates both in relation to
changes in interest rates and changes in the value of the underlying common
stock.
SMALL-CAP AND MID-CAP COMPANY RISK: The Portfolio's investments in small-cap and
mid-cap companies may be subject to more abrupt or erratic movements in price
than are those of larger, more established companies because: the securities of
such companies are less well-known, held primarily by insiders or institutional
investors and may trade less frequently and in lower volume; such companies are
more likely to experience greater or more unexpected changes in their earnings
and growth prospects; such companies have limited financial resources or may
depend on a few key employees; and the products of technologies of such
companies may be at a relatively early stage of development or not fully tested.
FIXED INCOME RISKS: To the extent that a substantial amount of the Portfolio's
assets are invested in fixed income securities, that portion of the Portfolio's
performance will be affected by changes in interest rates, the credit risk of
the issuer, the duration or maturity of the Portfolio's fixed income holdings,
and adverse market or economic conditions. When interest rates rise, the value
of the Portfolio's fixed income securities, particularly those with longer
durations or maturities, will go down. When interest rates fall, the reverse is
true. In addition, to the extent that the Portfolio invests in investment-grade
securities which are rated BBB by S&P or an equivalent rating by any other
nationally recognized statistical rating organization, it will be exposed to
greater risk than if it invested in higher-rated obligations because BBB-rated
securities are regarded as having only an adequate capacity to pay principal and
interest, are considered to lack outstanding investment characteristics, and may
be speculative.
JUNK BOND RISK: The Portfolio may invest a portion of its assets in "junk bonds"
or lower-rated securities rated BB or lower by S&P or an equivalent rating by
any other NRSRO or unrated securities of similar quality. Junk bonds have
speculative elements or are predominantly speculative credit risks, therefore,
credit risk is particularly significant for this Portfolio. This Portfolio may
also be subject to greater credit risk because it 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 or principal, or in
default.
LEVERAGING RISK. When a portfolio borrows money or otherwise leverages its
portfolio, the value of an investment in that Portfolio will be more volatile
and all other risk 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.
PORTFOLIO PERFORMANCE
The bar chart below illustrates the Portfolio's annual total returns for each of
the last ten calendar years. The table below shows the Portfolio's average
annual total returns for the past one, five and ten years. The table also
compares the Portfolio's performance to the returns of an index of funds with
similar investment objectives and the returns of a broad-based equity securities
market index. The bar chart and table below includes the performance of the
predecessor (registered investment company) to this Portfolio, which was managed
by the Adviser using the same investment strategy as the Portfolio. Both the bar
chart and table assume reinvestment of dividends and distributions. Past
performance is not an indication of future performance. In addition, holders of
Contracts representing interests in the Portfolio will be subject to charges and
expenses relating to such insurance contracts. The performance results presented
below do not reflect any insurance related expenses and if reflected the results
would be reduced.
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<PAGE>
For these purposes, the Portfolio is considered to be the successor entity to
the predecessor (registered investment company) whose inception date is June 16,
1975.
CALENDAR YEAR ANNUAL TOTAL RETURN
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
25.3% -8.4% 37.6% 3.0% 24.6% -2.4% 32.2% 24.0% 29.1% 29.1%
Best quarter (% and time period) Worst quarter (% and time period)
28.36% (1998 4th Quarter) -20.28% (1990 3rd Quarter)
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS*
ONE YEAR FIVE YEARS TEN YEARS
ALLIANCE COMMON STOCK RETURN 29.06% 21.67% 18.38%
PORTFOLIO - CLASS IB SHARES
LIPPER GROWTH EQUITY MUTUAL FUNDS
AVERAGE** 22.86% 18.63% 16.72%
S&P 500 INDEX** 28.58% 24.06% 19.21%
- --------------------------------------------------------------------------------
* For periods prior to the inception of Class IB Shares (October 1, 1998),
performance information shown is the performance of Class IA shares adjusted to
reflect the 12b-1 fees paid by Class IB shares. The average annual total return
for Class IB since its actual inception date was 30.09%. Index return for the
comparable period (which dates from month-end of the Class IB inception date)
was 31.69%.
** For more information on this index, see the preceding section "The
Benchmarks."
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<PAGE>
WHO MANAGES THE PORTFOLIO
ALLIANCE CAPITAL MANAGEMENT, L.P. ("Alliance"), 1345 Avenue of the Americas, New
York, New York 10105. Alliance has been the Adviser to the Portfolios since it
commenced operations. Alliance, a publicly traded limited partnership, is
indirectly majority-owned by Equitable. Alliance manages investment companies,
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.
TYLER J. SMITH has been responsible for the day-to-day management of the
Portfolio since 1977. Mr. Smith, a Senior Vice President of Alliance, has been
associated with Alliance since 1970.
-46-
<PAGE>
ALLIANCE EQUITY INDEX PORTFOLIO
INVESTMENT OBJECTIVE: Seeks a total return before expenses that approximates the
total return performance of the S&P 500 Index, including reinvestment of
dividends, at a risk level consistent with that of the S&P 500 Index.
THE INVESTMENT STRATEGY
The Adviser will not utilize customary economic, financial or market analyses or
other traditional investment techniques in managing the Portfolio. Rather, the
Adviser will use proprietary modeling techniques to construct a portfolio that
it believes will, in the aggregate, approximate the performance results of the
S&P 500 Index. The Adviser will first select from the largest capitalization
securities in the S&P 500 on a capitalization-weighted basis. Generally, the
largest capitalization securities reasonably track the S&P 500 because the S&P
500 is significantly influenced by a small number of securities. However, in the
Adviser's view, selecting securities on the basis of their capitalization alone
would distort the Portfolio's industry diversification, and therefore economic
events could potentially have a dramatically different impact on the performance
of the Portfolio from that of the S&P 500. Recognizing this fact, the modeling
techniques also consider industry diversification when selecting investments for
the Portfolio. The Adviser also seeks to diversify the Portfolio's assets with
respect to market capitalization. As a result, the Portfolio will include
securities of smaller and medium-sized capitalization companies in the S&P 500.
The Portfolio may invest in foreign securities to the extent such securities are
included in the S&P 500 Index.
Cash may be accumulated in the Portfolio until it reaches approximately 1% of
the value of the Portfolio at which time such cash will be invested in common
stocks as described above. Accumulation of cash increases tracking error. The
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 Portfolio.
In order to reduce brokerage costs, maintain liquidity to meet shareholder
redemptions or minimize tracking error when the Portfolio holds cash, the
Portfolio may from time to time buy and hold futures contracts on the S&P 500
Index and options on such futures contracts. The contract value of futures
contracts purchased by the Portfolio plus the contract value of futures
contracts underlying call options purchased by the Portfolio will not exceed 20%
of the Portfolio's total assets. The Portfolio may seek to increase income by
lending its portfolio securities with a value of up to 50% of its total assets
to brokers-dealers.
THE PRINCIPAL RISKS
This Portfolio invests in common stocks, therefore, its performance may go up or
down depending on general market conditions. Other principal risks include:
INDEX-FUND RISK: The Portfolio is not actively managed and invests in securities
included in the index regardless of their investment merit. Therefore, the
Portfolio cannot modify its investment strategies to respond to changes in the
economy and may be particularly susceptible to a general decline in the U.S. or
global stock market segment relating to the index. Although the Portfolio's
modeling techniques are intended to produce performance that approximates that
of the S&P 500 (before expenses), there can be no assurance that these
techniques will reduce "tracking error" (i.e., the difference between the
Portfolio's investment results (before expenses) and the S&P 500's). Tracking
error may arise as a result of brokerage costs, fees and operating expenses and
a lack of correlation between the Portfolio's investments and the S&P 500.
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<PAGE>
DERIVATIVES RISK: The Portfolio's investments in derivatives can significantly
increase the Portfolio's exposure to market risk or credit risk of the
counterparty. Derivatives also involve the risk of mispricing or improper
valuation and the risk that changes in value of the derivative may not correlate
perfectly with the relevant assets, rates and indices.
LEVERAGING RISK. When a portfolio borrows money or otherwise leverages its
portfolio, the value of an investment in that Portfolio will be more volatile
and all other risk 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.
FOREIGN SECURITIES RISKS: The Portfolio's investments in foreign securities
involve risks not associated with investing in U.S. securities, which can
adversely affect the Portfolio's performance. Foreign markets, particularly
emerging markets, may be less liquid, more volatile, and subject to less
government supervision than domestic markets. There may be difficulties
enforcing contractual obligations, and it may take more time for trades to clear
and settle. In addition, the value of foreign investments can be adversely
affected by: unfavorable currency exchange rates (relative to the U.S. dollar
for securities denominated in foreign currencies); inadequate or inaccurate
information about foreign companies; higher transaction, brokerage and custody
costs; expropriation or nationalization; adverse changes in foreign economic and
tax policies; and foreign government instability, war or other adverse political
or economic actions.
PORTFOLIO PERFORMANCE
The bar chart below illustrates the Portfolio's annual total returns for each of
the last four calendar years. The table below shows the Portfolio's average
annual total returns for the past year and since inception. The table also
compares the Portfolio's performance to the returns of an index of funds with
similar investment objectives and the returns of a broad-based equity securities
market index. The bar chart and table below includes the performance of the
predecessor (registered investment company) to this Portfolio, which was managed
by the Adviser using the same investment strategy as the Portfolio. Both the bar
chart and table assume reinvestment of dividends and distributions. Past
performance is not an indication of future performance. In addition, holders of
variable insurance contracts representing interests in the Portfolio will be
subject to charges and expenses relating to such insurance contracts. The
performance results presented below do not reflect any insurance related
expenses and if reflected the results would be reduced. For these purposes, the
Portfolio is considered to be the successor entity to the predecessor
(registered investment company) whose inception date is March 1, 1994.
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<PAGE>
CALENDAR YEAR ANNUAL TOTAL RETURN
1995 1996 1997 1998
36.2% 22.1% 32.3% 27.7%
Best quarter (% and time period) Worst quarter (% and time period)
21.07% (1998 4th Quarter) 10.03% (1998 3rd Quarter)
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS*
ONE YEAR SINCE INCEPTION
ALLIANCE EQUITY INDEX
PORTFOLIO - CLASS IB SHARES 27.74% 24.07%
LIPPER S&P 500 INDEX FUNDS
AVERAGE** 28.05% 24.31%
S&P 500 INDEX** 28.58% 24.79%
- --------------------------------------------------------------------------------
* For periods prior to the inception of Class IB Shares (May 2, 1997),
performance information shown is the performance of Class IA shares adjusted to
reflect the 12b-1 fees paid by Class IB shares. The average annual total return
for Class IB since its actual inception date was 30.61%. Index return for the
comparable period (which dates from month-end of the Class IB inception date)
was 31.38%.
** For more information on this index, see the preceding section "The
Benchmarks."
WHO MANAGES THE PORTFOLIO
ALLIANCE CAPITAL MANAGEMENT, L.P. ("Alliance"), 1345 Avenue of the Americas, New
York, New York 10105. Alliance has been the Adviser to the Portfolios since it
commenced operations. Alliance, a publicly traded limited partnership, is
indirectly majority-owned by Equitable. Alliance manages other investment
companies, 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.
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<PAGE>
JUDITH A. DEVIVO has been responsible for the day-to-day management of the
portfolio since its inception. Ms. DeVivo, a Vice President of Alliance, has
been associated with Alliance since 1970.
ALLIANCE GROWTH AND INCOME PORTFOLIO
INVESTMENT OBJECTIVE: 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.
THE INVESTMENT STRATEGY
The Portfolio seeks to maintain a portfolio yield above that of issuers
comprising the S&P 500 and to achieve (in the long run) a rate of growth in
Portfolio income that exceeds the rate of inflation. The Portfolio will
generally invest in common stocks of "blue chip" issuers, i.e., those:
o that have a total market capitalization of at least $1 billion;
o that pay periodic dividends; and
o whose common stock is in the highest four issuer ratings for S&P (i.e., A+,
A, Ab or B+) or Moody's (i.e., high grade, investment grade, upper medium
grade or medium grade) or, if unrated, is determined to be of comparable
quality by the Adviser.
It is expected that on average the dividend rate of these issuers will exceed
the average rate of issuers constituting the S&P 500.
The Portfolio may also invest without limit in securities convertible into
common stocks, which include convertible bonds, convertible preferred stocks and
convertible warrants. The Portfolio may also 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 BB or lower by S&P or Ba or lower
by Moody's or determined by the Adviser to be of comparable quality).
The 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.
The Portfolio may also 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 Portfolio may also purchase and sell securities index futures
contracts and may write and purchase options thereon for hedging purposes.
When market or financial conditions warrant, the Portfolio may invest in certain
money market instruments for temporary or defensive purposes. Such investment
strategies could result in the Portfolio not achieving its investment objective.
THE PRINCIPAL RISKS
This Portfolio invests in common stocks, therefore, its performance may go up or
down depending on general market conditions. Other principal risks include:
CONVERTIBLE SECURITIES RISK: Convertible securities generally enable the
Portfolio to benefit from increases in the market price of the underlying common
stock and provide higher yields than the underlying common stocks, but generally
offer lower yields than nonconvertible securities of similar quality. Like
bonds, the value of convertible securities fluctuates both in relation to
changes in interest
-50-
<PAGE>
rates and changes in the value of the underlying common stock.
DERIVATIVES RISK: The Portfolio's investments in derivatives can significantly
increase the Portfolio's exposure to market risk or credit risk of the
counterparty. Derivatives also involve the risk of mispricing or improper
valuation and the risk that changes in value of the derivative may not correlate
perfectly with the relevant assets, rates and indices.
FIXED INCOME RISKS: To the extent that a substantial amount of the Portfolio's
assets are invested in fixed income securities, that portion of the Portfolio's
performance will be affected by changes in interest rates, the credit risk of
the issuer, the duration or maturity of the Portfolio's fixed income holdings,
and adverse market or economic conditions. When interest rates rise, the value
of the Portfolio's fixed income securities, particularly those with longer
durations or maturities, will go down. When interest rates fall, the reverse is
true. In addition, to the extent that the Portfolio invests in investment-grade
securities which are rated BBB by S&P or an equivalent rating by any other
nationally recognized statistical rating organization, it will be exposed to
greater risk than if it invested in higher-rated obligations because BBB-rated
securities are regarded as having only an adequate capacity to pay principal and
interest, are considered to lack outstanding investment characteristics, and may
be speculative.
JUNK BOND RISK: The Portfolio may invest a portion of its assets in "junk bonds"
or lower-rated securities rated BB or lower by S&P or an equivalent rating by
any other NRSRO or unrated securities of similar quality. Therefore, credit risk
is particularly significant for this Portfolio. Junk bonds have speculative
elements or are predominantly speculative credit risks. This Portfolio may also
be subject to greater credit risk because it 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 or principal, or in
default.
FOREIGN SECURITIES RISKS: The Portfolio's investments in foreign securities
involve risks not associated with investing in U.S. securities, which can
adversely affect the Portfolio's performance. Foreign markets, particularly
emerging markets, may be less liquid, more volatile, and subject to less
government supervision than domestic markets. There may be difficulties
enforcing contractual obligations, and it may take more time for trades to clear
and settle. In addition, the value of foreign investments can be adversely
affected by: unfavorable currency exchange rates (relative to the U.S. dollar
for securities denominated in foreign currencies); inadequate or inaccurate
information about foreign companies; higher transaction, brokerage and custody
costs; expropriation or nationalization; adverse changes in foreign economic and
tax policies; and foreign government instability, war or other adverse political
or economic actions.
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 risk will tend to be compounded.
PORTFOLIO PERFORMANCE
The bar chart below illustrates the Portfolio's annual total returns for each of
the last five calendar years. The table below shows the Portfolio's average
annual total returns for the past one and five years and since inception. The
table also compares the Portfolio's performance to the returns of an index of
funds with similar investment objectives, the returns of a blend of convertible
and equity securities indices and the returns of a broad-based equity securities
market index. The bar chart and table below includes the performance of the
predecessor (registered investment company) to this Portfolio, which was managed
by the Adviser using the same investment strategy as the Portfolio. Both the bar
chart and table assume reinvestment of dividends and distributions. Past
performance is not an indication of future performance. In addition, holders of
Contracts representing interests in the Portfolio will be subject to charges and
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expenses relating to such insurance contracts. The performance results presented
below do not reflect any insurance related expenses and if reflected the results
would be reduced. For these purposes, the Portfolio is considered to be the
successor entity to the predecessor (registered investment company) whose
inception date is October 1, 1993.
CALENDAR YEAR ANNUAL TOTAL RETURN*
1994 1995 1996 1997 1998
-0.8% 23.8% 19.8% 26.6% 20.6%
Best quarter (% and time period) Worst quarter (% and time period)
26.22% (1998 4th Quarter) -15.09% (1998 3rd Quarter)
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS*
ONE YEAR FIVE YEARS SINCE INCEPTION
ALLIANCE GROWTH & INCOME 20.56% 17.57% 16.56%
PORTFOLIO - CLASS IB SHARES
LIPPER GROWTH AND INCOME FUNDS
AVERAGE* 15.61% 18.35% 17.89%
75% S&P 500 INDEX/25% VALUE
LINE CONVERTIBLE** 20.10% 21.07% 20.48%
S&P 500 INDEX** 28.58% 24.06% 23.32%
- --------------------------------------------------------------------------------
* For periods prior to the inception of Class IB Shares (May 2, 1997),
performance information shown is the performance of Class IA shares adjusted to
reflect the 12b-1 fees paid by Class IB shares. The average annual total return
for Class IB since its actual inception date was 26.25%. Index return for the
comparable period (which dates from month-end of the Class IB inception date)
was 25.94%.
** For more information on this index, see the preceding section "The
Benchmarks."
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WHO MANAGES THE PORTFOLIO
ALLIANCE CAPITAL MANAGEMENT, L.P. ("Alliance"), 1345 Avenue of the Americas, New
York, New York 10105. Alliance has been the Adviser to the Portfolios since it
commenced operations. Alliance, a publicly traded limited partnership, is
indirectly majority-owned by Equitable. Alliance manages other investment
companies, 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.
PAUL RISSMAN AND W. THEODORE KUCK have been the persons responsible for the
day-to-day management of the Portfolio, Mr. Rissman since 1996 and Mr. Kuck
since the Portfolio's inception. Mr. Rissman, a Senior Vice President of
Alliance, has been associated with Alliance since 1989. Mr. Kuck, a Vice
President of Alliance, has been associated with Alliance since 1971.
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AGGRESSIVE EQUITY PORTFOLIOS
ALLIANCE AGGRESSIVE STOCK PORTFOLIO
INVESTMENT OBJECTIVE: Seeks to achieve long-term growth of capital.
THE INVESTMENT STRATEGY
The Portfolio invests primarily in common stocks and other equity securities of
small and medium-sized companies that, in the opinion of the Adviser, have
favorable growth prospects. 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 also invest up to 20% of its total assets in foreign
securities and may also make use of various other investment strategies,
including investments in debt securities and making secured loans of up to 50%
of its total portfolio securities. The Portfolio may also use derivatives,
including: writing covered call options and purchasing call and put options on
individual equity securities, securities indexes and foreign currencies. The
Portfolio may also purchase and sell stock index and foreign currency futures
contracts and options thereon.
When market or financial conditions warrant, or it appears that the Portfolio's
investment objective will not be achieved primarily through investments in
common stocks, the Portfolio may invest in other equity-type securities (such as
preferred stocks and convertible debt instruments) and protective options. The
Portfolio may also make temporary investments in corporate fixed income
securities, which will generally be investment grade, or invest part its assets
in cash or cash equivalents, including high-quality money market instruments for
liquidity or defensive purposes . Such investments could result in the Portfolio
not achieving its investment objective.
THE PRINCIPAL RISKS
This Portfolio invests in common stocks, therefore, its performance may go up or
down depending on general market conditions. Other principal risks include:
GROWTH INVESTING RISK: As noted above, this Portfolio uses a growth oriented
approach to stock selection. The price of growth stocks may be more sensitive to
changes in current or expected earnings than the prices of other stocks. The
price of growth stocks is also subject to the risk that the stock price of one
or more companies will fall or will fail to appreciate as anticipated by the
Adviser, regardless of movements in the securities market.
SMALL-CAP AND MID-CAP COMPANY RISK: The Portfolio's investments in small-cap and
mid-cap companies may be subject to more abrupt or erratic movements in price
than are those of larger, more established companies because: the securities of
such companies are less well-known, held primarily by insiders or institutional
investors and may trade less frequently and in lower volume; such companies are
more likely to experience greater or more unexpected changes in their earnings
and growth prospects; such companies have limited financial resources or may
depend on a few key employees; and the products of technologies of such
companies may be at a relatively early stage of development or not fully tested.
LIQUIDITY RISK: Certain securities held by the Portfolio may be difficult (or
impossible) to sell at the time and at the price the seller would like which may
cause the Portfolio to lose money or be prevented from earning capital gains.
DERIVATIVES RISK: The Portfolio's investments in derivatives can significantly
increase the Portfolio's
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<PAGE>
exposure to market risk or credit risk of the counterparty. Derivatives also
involve the risk of mispricing or improper valuation and the risk that changes
in value of the derivative may not correlate perfectly with the relevant assets,
rates and indices.
FOREIGN SECURITIES RISKS: The Portfolio's investments in foreign securities
involve risks not associated with investing in U.S. securities, which can
adversely affect the Portfolio's performance. Foreign markets, particularly
emerging markets, may be less liquid, more volatile, and subject to less
government supervision than domestic markets. There may be difficulties
enforcing contractual obligations, and it may take more time for trades to clear
and settle. In addition, the value of foreign investments can be adversely
affected by: unfavorable currency exchange rates (relative to the U.S. dollar
for securities denominated in foreign currencies); inadequate or inaccurate
information about foreign companies; higher transaction, brokerage and custody
costs; expropriation or nationalization; adverse changes in foreign economic and
tax policies; and foreign government instability, war or other adverse political
or economic actions.
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 risk will tend to be compounded.
PORTFOLIO PERFORMANCE
The bar chart below illustrates the Portfolio's annual total returns for each of
the last ten calendar years. The table below shows the Portfolio's average
annual total returns for the past one, five and ten years. The table also
compares the Portfolio's performance to the returns of an index of funds with
similar investment objectives, the returns of a blend of two securities indices
and the returns of a broad-based equity securities market index. The bar chart
and table below includes the performance of the predecessor (registered
investment company) to this Portfolio, which was managed by the Adviser using
the same investment strategy as the Portfolio. Both the bar chart and table
assume reinvestment of dividends and distributions. Past performance is not an
indication of future performance. In addition, holders of Contracts representing
interests in the Portfolio will be subject to charges and expenses relating to
such insurance contracts. The performance results presented below do not reflect
any insurance related expenses and if reflected the results would be reduced.
For these purposes, the Portfolio is considered to be the successor entity to
the predecessor (registered investment company) whose inception date is January
27, 1986.
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<PAGE>
CALENDAR YEAR ANNUAL TOTAL RETURN*
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
43.2% 7.9% 86.6% -3.4% 16.5% -4.1% 31.4% 22.1% 10.7% 0.1%
Best quarter (% and time period) Worst quarter (% and time period)
40.04% (1991 1st Quarter) -27.25% (1998 3rd Quarter)
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS*
ONE YEAR FIVE YEARS TEN YEARS
ALLIANCE AGGRESSIVE STOCK 0.10% 11.25% 18.65%
PORTFOLIO - CLASS IB SHARES
LIPPER MIDCAP GROWTH FUNDS
AVERAGE* 12.16% 14.87% 15.44%
50% S&P 400 MIDCAP INDEX/50%
RUSSELL 2000** 8.28% 15.56% 16.49%
S&P 400 MIDCAP INDEX** 19.11% 18.84% 19.29%
- --------------------------------------------------------------------------------
* For periods prior to the inception of Class IB Shares (October 1, 1996),
performance information shown is the performance of Class IA shares adjusted to
reflect the 12b-1 fees paid by Class IB shares. The average annual total return
for Class IB since its actual inception date was 5.70%. Index return for the
comparable period (which dates from month-end of the Class IB inception date)
was 18.11%.
** For more information on this index, see the preceding section "The
Benchmarks."
WHO MANAGES THE PORTFOLIO
ALLIANCE CAPITAL MANAGEMENT, L.P. ("Alliance"), 1345 Avenue of the Americas, New
York, New York 10105. Alliance has been the Adviser to the Portfolios since it
commenced operations.
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<PAGE>
Alliance, a publicly traded limited partnership, is indirectly majority-owned by
Equitable. Alliance manages other investment companies, 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.
ALDEN M. STEWART AND RANDALL E. HAASE have been the persons principally
responsible for the day-to-day management of the Portfolio 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.
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<PAGE>
ALLIANCE SMALL CAP GROWTH PORTFOLIO
INVESTMENT OBJECTIVE: Seeks to achieve long-term growth of capital.
THE INVESTMENT STRATEGY
The Portfolio invests primarily in U.S. common stocks and other equity-type
securities issued by smaller companies with favorable growth prospects. 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.
Under normal market conditions, the Portfolio intends to invest at least 65% of
its total assets in securities of smaller capitalization companies (currently
considered by the Adviser to mean companies with market capitalization at or
below $2 billion).
The Portfolio may invest in foreign securities and may also make use of various
other investment strategies, including making secured loans of up to 50% of its
total portfolio securities. The Portfolio may also use derivatives including:
writing covered call options and purchasing call and put options on individual
equity securities, securities indexes and foreign currencies. The Portfolio may
also purchase and sell stock index and foreign currency futures contracts and
options thereon.
The Portfolio will invest up to 20% of its net asset value, measured at the time
of investment, in securities principally traded on foreign securities markets
(other than commercial paper).
When market or financial conditions warrant, the Portfolio may invest in other
equity-type securities (such as preferred stocks and convertible debt
instruments) and investment-grade corporate fixed income securities. For
temporary or defensive purposes, the Portfolio may invest without limitation in
cash or cash equivalents or high-quality money market instruments. Such
investments could result in the Portfolio not achieving its investment
objective.
THE PRINCIPAL RISKS
This Portfolio invests in common stocks, therefore, its performance may go up or
down depending on general market conditions. Other principal risks include:
GROWTH INVESTING RISK: As noted above, this Portfolio uses a growth oriented
approach to stock selection. The price of growth stocks may be more sensitive to
changes in current or expected earnings than the prices of other stocks. The
price of growth stocks is also subject to the risk that the stock price of one
or more companies will fall or will fail to appreciate as anticipated by the
Adviser, regardless of movements in the securities market.
SMALL-CAP AND MID-CAP COMPANY RISK: The Portfolio's investments in small-cap and
mid-cap companies may be subject to more abrupt or erratic movements in price
than are those of larger, more established companies because: the securities of
such companies are less well-known, held primarily by insiders or institutional
investors and may trade less frequently and in lower volume; such companies are
more likely to experience greater or more unexpected changes in their earnings
and growth prospects; such companies have limited financial resources or may
depend on a few key employees; and the products of technologies of such
companies may be at a relatively early stage of development or not fully tested.
LIQUIDITY RISK: Certain securities held by the Portfolio may be difficult (or
impossible) to sell at the time and at the price the seller would like which may
cause the Portfolio to lose money or be prevented
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<PAGE>
from earning capital gains.
DERIVATIVES RISK: The Portfolio's investments in derivatives can significantly
increase the Portfolio's exposure to market risk or credit risk of the
counterparty. Derivatives also involve the risk of mispricing or improper
valuation and the risk that changes in value of the derivative may not correlate
perfectly with the relevant assets, rates and indices.
FOREIGN SECURITIES RISKS: The Portfolio's investments in foreign securities
involve risks not associated with investing in U.S. securities, which can
adversely affect the Portfolio's performance. Foreign markets, particularly
emerging markets, may be less liquid, more volatile, and subject to less
government supervision than domestic markets. There may be difficulties
enforcing contractual obligations, and it may take more time for trades to clear
and settle. In addition, the value of foreign investments can be adversely
affected by: unfavorable currency exchange rates (relative to the U.S. dollar
for securities denominated in foreign currencies); inadequate or inaccurate
information about foreign companies; higher transaction, brokerage and custody
costs; expropriation or nationalization; adverse changes in foreign economic and
tax policies; and foreign government instability, war or other adverse political
or economic actions.
LEVERAGING RISK: When a portfolio is borrows money or otherwise leverages its
portfolio, the value of an investment in that Portfolio will be more volatile
and all other risk 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.
PORTFOLIO PERFORMANCE
The bar chart below illustrates the Portfolio's annual total returns for 1998,
the Portfolio's first year of existence. The table below shows the Portfolio's
average annual total returns for one year and since inception. The table also
compares the Portfolio's performance to the returns of an index of funds with
similar investment objectives and the returns of a broad-based equity securities
market index. The bar chart and table below includes the performance of the
predecessor (registered investment company) to this Portfolio, which was managed
by the Adviser using the same investment strategy as the Portfolio. Both the bar
chart and table assume reinvestment of dividends and distributions. Past
performance is not an indication of future performance. In addition, holders of
Contracts representing interests in the Portfolio will be subject to charges and
expenses relating to such insurance contracts. The performance results presented
below do not reflect any insurance related expenses and if reflected the results
would be reduced. For these purposes, the Portfolio is considered to be the
successor entity to the predecessor (registered investment company) whose
inception date is May 1, 1997.
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<PAGE>
CALENDAR YEAR ANNUAL TOTAL RETURN
1998
-4.4%
Best quarter (% and time period) Worst quarter (% and time period)
22.92 (1998 4th Quarter) -28.13% (1998 3rd Quarter)
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR SINCE INCEPTION
ALLIANCE SMALL CAP GROWTH -4.44% 12.06%
PORTFOLIO - CLASS IB SHARES
LIPPER SMALL COMPANY GROWTH
FUNDS AVERAGE* -0.33% 16.72%
RUSSELL 2000 GROWTH INDEX* 1.23% 16.58%
- --------------------------------------------------------------------------------
* For more information on this index, see the preceding section "The
Benchmarks." Index returns are from the end of the month of inception.
WHO MANAGES THE PORTFOLIO
ALLIANCE CAPITAL MANAGEMENT, L.P. ("Alliance"), 1345 Avenue of the Americas, New
York, New York 10105. Alliance has been the Adviser to the Portfolios since it
commenced operations. Alliance, a publicly traded limited partnership, is
indirectly majority-owned by Equitable. Alliance manages other investment
companies, 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.
MARK J. CUNNEEN has been responsible for the day-to-day management of Portfolio
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.
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<PAGE>
GLOBAL/INTERNATIONAL PORTFOLIOS
ALLIANCE GLOBAL PORTFOLIO
INVESTMENT OBJECTIVE: Seeks long-term growth of capital.
THE INVESTMENT STRATEGY
The Portfolio invests primarily in a diversified mix of established foreign
companies and equity securities of U.S. These equity securities are selected
principally to permit participation in established U.S. non-U.S. companies that
the Adviser believes have prospects for growth. The Portfolio intends to make
investments in several countries and to have represented in the Portfolio
business activities in not less than three different countries (including the
United States).
Sidebar: These non-U.S. companies may have operations in the United States, in
their country of incorporation or in other countries.
The Portfolio may invest in any type of security including, but not limited to,
common and preferred stock, as well as shares of mutual funds that 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 Portfolio intends under normal
conditions to invest in equity securities.
The Portfolio may also make use of various other investment strategies,
including making secured loans of up to 50% of its total assets. The Portfolio
may also use derivatives including: writing covered call and put options,
purchasing call and put options on individual equity securities, securities
indexes, and foreign currencies. The 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
When market or financial conditions warrant, the 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 for temporary or defensive purposes. Such investment strategies could
result in the Portfolio not achieving its investment objective.
THE PRINCIPAL RISKS
This Portfolio invests in common stocks, therefore, its performance may go up or
down depending on general market conditions. Other principal risks include:
FOREIGN SECURITIES RISKS: Investing in foreign securities involves risks not
associated with investing in U.S. securities that can adversely affect the
Portfolio's performance. Foreign markets, particularly emerging markets, may be
less liquid, more volatile and subject to less government supervision than
domestic markets. There may be difficulties enforcing contractual obligations,
and it may take more time for trades to clear and settle. In addition, foreign
investments can be adversely affected by: unfavorable currency exchange rates
(relative to the U.S. dollar for securities denominated in a foreign
currencies); inadequate or inaccurate information about foreign companies;
higher transaction, brokerage and custody costs; expropriation or
nationalization; adverse changes in foreign economic and tax policies; and
foreign government instability, war or other adverse political or economic
actions. Other specific risks of investing in foreign securities include:
EMERGING MARKET RISK: There are greater risks involved in investing in
emerging markets
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countries and/or their securities markets, such as less diverse and
less mature economic structures, less stable political systems, more
restrictive foreign investment policies, smaller-sized securities
markets and low trading volumes. Such risks can make investments
illiquid and more volatile than investments in developed countries and
such securities may be subject to abrupt and severe price declines.
EURO RISK: The Portfolio invests in securities issued by European
issuers that that may be adversely impacted by the introduction of the
"Euro" as a common currency in 11 European Monetary Union member
states. The Euro may result in various legal and accounting
differences, tax treatments, the creation and implementation of
suitable clearing and settlement systems and other operational
problems, that may cause market disruptions that could adversely affect
investments quoted in the Euro.
REGULATORY RISK: In general, foreign companies are also not subject to
uniform accounting, auditing and financial reporting standards or to
other regulatory practices and requirements as are U.S. companies,
which could adversely affect their value.
LIQUIDITY RISK: Certain securities held by the Portfolio may be difficult (or
impossible) to sell at the time and at the price the seller would like which may
cause the Portfolio to lose money or be prevented from earning capital gains.
DERIVATIVES RISK: The Portfolio's investments in derivatives can significantly
increase the Portfolio's exposure to market risk or credit risk of the
counterparty. Derivatives also involve the risk of mispricing or improper
valuation and the risk that changes in value of the derivative may not correlate
perfectly with the relevant assets, rates and indices.
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 risk will tend to be compounded.
FIXED INCOME RISKS: To the extent that a substantial amount of the Portfolio's
assets are invested in fixed income securities, that portion of the Portfolio's
performance will be affected by changes in interest rates, the credit risk of
the issuer, the duration or maturity of the Portfolio's fixed income holdings,
and adverse market or economic conditions. When interest rates rise, the value
of the Portfolio's fixed income securities, particularly those with longer
durations or maturities, will go down. When interest rates fall, the reverse is
true. In addition, to the extent that the Portfolio invests in investment-grade
securities which are rated BBB by S&P or an equivalent rating by any other
nationally recognized statistical rating organization, it will be exposed to
greater risk than if it invested in higher-rated obligations because BBB-rated
securities are regarded as having only an adequate capacity to pay principal and
interest, are considered to lack outstanding investment characteristics, and may
be speculative.
PORTFOLIO PERFORMANCE
The bar chart below illustrates the Portfolio's annual total returns for each of
the last ten calendar years. The table below shows the Portfolio's average
annual total returns for the past one, five and ten years. The table also
compares the Portfolio's performance to the returns of an index of funds with
similar investment objectives and the returns of a broad-based equity securities
market index. The bar chart and table below includes the performance of the
predecessor (registered investment company) to this Portfolio, which was managed
by the Adviser using the same investment strategy as the Portfolio. Both the bar
chart and table assume reinvestment of dividends and distributions. Past
performance is not an indication of future performance. In addition, holders of
Contracts representing interests in the Portfolio will be subject to charges and
expenses relating to such insurance contracts. The performance results
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<PAGE>
presented below do not reflect any insurance related expenses and if reflected
the results would be reduced. For these purposes, the Portfolio is considered to
be the successor entity to the predecessor (registered investment company) whose
inception date is August 27, 1987.
CALENDAR YEAR ANNUAL TOTAL RETURN*
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
26.5% -6.3% 30.2% -0.7% 31.9% 5.0% 18.6% 14.4% 11.4% 21.5%
Best quarter (% and time period) Worst quarter (% and time period)
26.53% (1998 4th Quarter) -17.05% (1998 3rd Quarter)
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS*
ONE YEAR FIVE YEARS TEN YEARS
ALLIANCE GLOBAL PORTFOLIO - 21.50% 14.01% 14.55%
CLASS IB SHARES
LIPPER GLOBAL MUTUAL FUNDS
AVERAGE** 14.34% 11.98% 11.21%
MSCI WORLD INDEX** 24.34% 15.68% 10.66%
- --------------------------------------------------------------------------------
* For periods prior to the inception of Class IB Shares (October 1, 1996),
performance information shown is the performance of Class IA shares adjusted to
reflect the 12b-1 fees paid by Class IB shares. The average annual total return
for Class IB since its actual inception date was 16.89%. Index return for the
comparable period (which dates from month-end of the Class IB inception date)
was 20.40%. **For more information on this index, see the preceding section "The
Benchmarks."
WHO MANAGES THE PORTFOLIO
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<PAGE>
ALLIANCE CAPITAL MANAGEMENT, L.P. ("Alliance"), 1345 Avenue of the Americas, New
York, New York 10105. Alliance has been the Adviser to the Portfolios since it
commenced operations. Alliance, a publicly traded limited partnership, is
indirectly majority-owned by Equitable. Alliance manages other investment
companies, 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.
SANDRA L. YEAGER has been responsible for the day-to-day management of the
Portfolio's investment program since 1998. Ms. Yeager, a Senior Vice President
of Alliance Capital Management L.P. ("Alliance"), has been associated with
Alliance since 1990.
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<PAGE>
ALLIANCE INTERNATIONAL PORTFOLIO
INVESTMENT OBJECTIVE: 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.
THE INVESTMENT STRATEGY
The Portfolio invests primarily in a diversified portfolio of equity securities
selected principally to permit participation in non-U.S. companies or foreign
governmental enterprises that the Adviser believes have prospects for growth.
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.
SIDEBAR: These non-U.S. companies may have operations in the United States, in
their country of incorporation and/or in other countries.
The Portfolio intends to have represented in the Portfolio business activities
in not less than three different countries.
The Portfolio may also 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. Although no particular proportion of stocks,
bonds or other securities is required to be maintained, the Portfolio intends
under normal market conditions to invest primarily in equity securities.
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 making loans of up to 50%
of its portfolio securities. The Portfolio may also use derivatives, including:
writing covered call and put options, purchasing purchase call and put options
on individual equity securities, securities indexes, and foreign currencies. The
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.
For temporary or defensive purposes, when market or financial conditions
warrant, the 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. In addition, the Portfolio may 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. Such
investments could result in the Portfolio not achieving its investment
objective.
THE PRINCIPAL RISKS
This Portfolio invests in common stocks, therefore, its performance may go up or
down depending on general market conditions. Other principal risks include:
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<PAGE>
FOREIGN SECURITIES RISKS: Investing in foreign securities involves risks not
associated with investing in U.S. securities that can adversely affect the
Portfolio's performance. Foreign markets, particularly emerging markets, may be
less liquid, more volatile and subject to less government supervision than
domestic markets. There may be difficulties enforcing contractual obligations,
and it may take more time for trades to clear and settle. In addition, foreign
investments can be adversely affected by: unfavorable currency exchange rates
(relative to the U.S. dollar for securities denominated in a foreign
currencies); inadequate or inaccurate information about foreign companies;
higher transaction, brokerage and custody costs; expropriation or
nationalization; adverse changes in foreign economic and tax policies; and
foreign government instability, war or other adverse political or economic
actions. Other specific risks of investing in foreign securities include:
EMERGING MARKET RISK: There are greater risks involved in investing in
emerging markets countries and/or their securities markets, such as
less diverse and less mature economic structures, less stable political
systems, more restrictive foreign investment policies, smaller-sized
securities markets and low trading volumes. Such risks can make
investments illiquid and more volatile than investments in developed
countries and such securities may be subject to abrupt and severe price
declines.
EURO RISK: The Portfolio invests in securities issued by European
issuers that that may be adversely impacted by the introduction of the
"Euro" as a common currency in 11 European Monetary Union member
states. The Euro may result in various legal and accounting
differences, tax treatments, the creation and implementation of
suitable clearing and settlement systems and other operational
problems, that may cause market disruptions that could adversely affect
investments quoted in the Euro.
REGULATORY RISK: In general, foreign companies are also not subject to
uniform accounting, auditing and financial reporting standards or to
other regulatory practices and requirements as are U.S. companies,
which could adversely affect their value.
LIQUIDITY RISK: Certain securities held by the Portfolio may be difficult (or
impossible) to sell at the time and at the price the seller would like which may
cause the Portfolio to lose money or be prevented from earning capital gains.
GROWTH INVESTING RISK: As noted above, this Portfolio uses a growth oriented
approach to stock selection. The price of growth stocks may be more sensitive to
changes in current or expected earnings than the prices of other stocks. The
price of growth stocks is also subject to the risk that the stock price of one
or more companies will fall or will fail to appreciate as anticipated by the
Adviser, regardless of movements in the securities market.
DERIVATIVES RISK: The Portfolio's investments in derivatives can significantly
increase the Portfolio's exposure to market risk or credit risk of the
counterparty. Derivatives also involve the risk of mispricing or improper
valuation and the risk that changes in value of the derivative may not correlate
perfectly with the relevant assets, rates and indices.
FIXED INCOME RISKS: To the extent that a substantial amount of the Portfolio's
assets are invested in fixed income securities, that portion of the Portfolio's
performance will be affected by changes in interest rates, the credit risk of
the issuer, the duration or maturity of the Portfolio's fixed income holdings,
and adverse market or economic conditions. When interest rates rise, the value
of the Portfolio's fixed income securities, particularly those with longer
durations or maturities, will go down. When interest rates fall, the reverse is
true. In addition, to the extent that the Portfolio invests in investment-grade
securities which are rated BBB by S&P or an equivalent rating by any other
nationally recognized statistical rating organization, it will be exposed to
greater risk than if it invested in higher-rated
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obligations because BBB-rated securities are regarded as having only an adequate
capacity to pay principal and interest, are considered to lack outstanding
investment characteristics, and may be speculative.
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 risk will tend to be compounded.
PORTFOLIO PERFORMANCE
The bar chart below illustrates the Portfolio's annual total returns for each of
the last three calendar years. The table below shows the Portfolio's average
annual total returns for the past year and since inception. The table also
compares the Portfolio's performance to the returns of an index of funds with
similar investment objectives and the returns of a broad-based equity securities
market index. The bar chart and table below includes the performance of the
predecessor (registered investment company) to this Portfolio, which was managed
by the Adviser using the same investment strategy as the Portfolio. Both the bar
chart and table assume reinvestment of dividends and distributions. Past
performance is not an indication of future performance. In addition, holders of
Contracts representing interests in the Portfolio will be subject to charges and
expenses relating to such insurance contracts. The performance results presented
below do not reflect any insurance related expenses and if reflected the results
would be reduced. For these purposes, the Portfolio is considered to be the
successor entity to the predecessor (registered investment company) whose
inception date is April 3, 1995.
CALENDAR YEAR ANNUAL TOTAL RETURN*
1996 1997 1998
9.6 -3.2% 10.3%
Best quarter (% and time period) Worst quarter (% and time period)
16.49% (1998 4th Quarter) -15.74% (1998 3rd Quarter)
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- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS*
ONE YEAR SINCE INCEPTION
ALLIANCE INTERNATIONAL PORTFOLIO 10.30% 7.22%
- - CLASS IB SHARES
LIPPER INTERNATIONAL MUTUAL FUNDS
AVERAGE** 13.02% 10.74%
MSCI EAFE INDEX** 20.00% 9.68%
- --------------------------------------------------------------------------------
** For periods prior to the inception of Class IB Shares (May 1, 1997),
performance information shown is the performance of Class IA shares adjusted to
reflect the 12b-1 fees paid by Class IB shares. The average annual total return
for Class IB since its actual inception date was 4.42%. Index return for the
comparable period (which dates from month-end of the Class IB inception date)
was 13.77%.
** For more information on this index, see the preceding section "The
Benchmarks."
WHO MANAGES THE PORTFOLIO
ALLIANCE CAPITAL MANAGEMENT, L.P. ("Alliance"), 1345 Avenue of the Americas, New
York, New York 10105. Alliance has been the Adviser to the Portfolios since it
commenced operations. Alliance, a publicly traded limited partnership, is
indirectly majority-owned by Equitable. Alliance manages other investment
companies, 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.
SANDRA L. YEAGER has been responsible for the day-to-day management of the
Portfolio since January 1999. Ms. Yeager, a Senior Vice President of Alliance
Capital Management L.P. ("Alliance"), has been associated with Alliance since
1990.
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MORE INFORMATION ON PRINCIPAL RISKS
Risk is the chance that you will lose money on your investment or that it will
not earn as much as you expect. In general, the greater the risk, the more money
your investment can earn for you - and the more you can lose. Like other
investment companies, the value of each Portfolio's shares may be affected by
the Portfolio's investment objective(s), principal investment strategies and
particular risk factors. Consequently, each Portfolio may be subject to
different principal risks. Some of the principal risks of investing in the
Portfolios are discussed below. However, other factors may also affect each
Portfolio's net asset value.
There is no guarantee that a Portfolio will achieve its investment objective(s)
or that it will not lose principal value.
GENERAL INVESTMENT RISKS: Each Portfolio is subject to the following risks:
ASSET CLASS RISK: There is the possibility that the returns from the
types of securities in which a Portfolio invests will underperform
returns from the various general securities markets or different asset
classes. Different types of securities tend to go through cycles of
outperformance and underperformance in comparison to the general
securities markets.
MARKET RISK: Each Portfolio's share price moves up and down over the
short term in reaction to stock or bond market movements. This means
that you could lose money over short periods, and perhaps over longer
periods during extended market downturns.
SECURITY SELECTION RISK: The Advisers for each Portfolio rely on the
insights of different specialists in making investment decisions based
on each Portfolio's particular investment objective(s) and investment
strategies. There is the possibility that the specific securities held
by a Portfolio will underperform other funds in the same asset class or
benchmarks that are representative of the general performance of the
asset class because of the Adviser's choice of portfolio securities.
YEAR 2000 RISK: Like other mutual funds, financial and business
organizations and individuals around the world, the Trust and its
Portfolios could be adversely affected if the computer systems used by
the Advisers, other service providers, or persons with whom they deal,
do not properly process and calculate date-related information and data
dated on and after January 1, 2000. This possibility is commonly known
as the "Year 2000 Problem." Virtually all operations of the Trust and
its Portfolios are computer reliant. The Manager, Advisers,
administrator, transfer agent, distributors and custodian have informed
the Trust that they are actively taking steps to address the Year 2000
Problem with regard to their respective computer systems and the
interfaces between their respective computer systems. The Trust is also
taking measures to obtain assurances from necessary persons that
comparable steps are being taken by the key service providers to the
Trust's Advisers, administrator, transfer agent, distributors, and
custodian. There can be no assurance that the Trust and the Portfolios'
key service providers will be Year 2000 compliant. If not adequately
addressed, the Year 2000 Problem could result in the inability of the
Trust to perform its mission critical functions, including trading and
settling trades of Portfolio securities, pricing of portfolio
securities and processing shareholder transactions, and the net asset
value of its Portfolios' shares may be materially affected.
In addition, because the Year 2000 Problem affects virtually all
issuers, the companies or entities in which the Portfolios may invest
also could be adversely impacted by the Year 2000 Problem. For example,
issuers may incur substantial costs to address the Year 2000 problem.
The extent of such impact cannot be predicted and there can be no
assurances that the Year 2000 Problem will
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not have an adverse effect on the issuers whose securities are held by
the Portfolios. The Advisers have assured the Trust that they consider
such issues in making investment decisions for the Portfolios.
Furthermore, certain of the Portfolios make international investments
thereby exposing these Portfolios to operations, custody and settlement
processes outside the United States. In many countries outside the
United States the Year 2000 Problem has not been adequately addressed
and concerns have been raised that capital flight, among other issues,
may be triggered by full disclosure of the Year 2000 Problem on
countries outside the United States. Additional information on the
impact of the Year 2000 Problem on emerging market countries is
provided in this section, under "FOREIGN SECURITIES RISKS--EMERGING
MARKET RISK."
As indicated in "Summary Information Concerning EQ Advisors Trust" and "About
the Investment Portfolios," a particular Portfolio may also be subject to the
following risks:
CONVERTIBLE SECURITIES RISK: Convertible securities may include both convertible
debt and convertible preferred stock. Such securities may be converted into
shares of the underlying common stock at either a stated price or stated rate.
Therefore, convertible securities generally enable you to benefit from increases
in the market price of the underlying common stock. Convertible securities
provide higher yields than the underlying common stocks, but generally offer
lower yields than nonconvertible securities of similar quality. Like bonds, the
value of convertible securities fluctuates in relation to changes in interest
rates and, in addition, fluctuates in relation to the underlying common stock.
Subsequent to purchase by a Portfolio, convertible securities may cease to be
rated or a rating may be reduced below the minimum required for purchase by that
Portfolio. Each Adviser will consider such event in its determination of whether
a Portfolio should continue to hold the securities.
DERIVATIVES RISK: Derivatives are financial contracts whose value depends on, or
is derived from the value of an underlying asset, reference rate or index.
Derivatives include stock options, securities index options, currency options,
forward currency exchange contracts, futures contracts, swaps and options on
futures contracts. Certain Portfolios can use derivatives involving U.S.
Government and foreign government securities and currencies. Investments in
derivatives can significantly increase your exposure to market risk, or credit
risk of the counterparty. Derivatives also involve the risk of mispricing or
improper valuation and the risk that changes in value of the derivative may not
correlate perfectly with the relevant assets, rates and indices.
FIXED INCOME RISKS: To the extent that any of the Portfolios invests a
substantial amount of its assets in fixed income securities, it may be subject
to the following risks:
CREDIT RISK: Credit risk is the risk that the issuer or guarantor of a
debt security or counterparty to a Portfolio's transactions will be
unable or unwilling to make timely principal and/or interest payments,
or otherwise will be unable or unwilling to honor its financial
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 or repurchase agreements, which
involve a promise by a third party to honor an obligation to the
Portfolio.
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 "JUNK
BONDS" or lower-rated securities (i.e., rated BB or lower by S&P or an
equivalent rating by any other NRSRO or unrated securities of similar
quality). These debt securities and similar unrated securities have
speculative elements or are predominantly speculative credit risks.
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 or principal, or in
default.
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INTEREST RATE RISK: The price of a bond or a fixed income security is
dependent upon interest rates. Therefore, the share price and total
return of a Portfolio investing a significant portion of its assets in
bonds or fixed income securities will vary in response to changes in
interest rates. A rise in interest rates causes the value of a bond to
decrease, and vice versa. There is the possibility that the value of a
Portfolio's investment in bonds or fixed income securities may fall
because bonds or fixed income securities generally fall in value when
interest rates rise. The longer the term of a bond or fixed income
instrument, the more sensitive it will be to fluctuations in value from
interest rate changes. Changes in interest rates may have a significant
effect on Portfolios holding a significant portion of their assets in
fixed income securities with long term maturities.
MORTGAGE-BACKED SECURITIES RISK: In the case of mortgage-backed
securities, rising interest rates tend to extend the term to maturity
of the securities, making them even more susceptible to interest rate
changes. When interest rates drop, not only can the value of fixed
income securities drop, but the yield can drop, particularly where the
yield on the fixed income securities is tied to changes in interest
rates, such as adjustable mortgages. Also when interest rates drop, the
holdings of mortgage-backed securities by a Portfolio can reduce
returns if the owners of the underlying mortgages pay off their
mortgages sooner than anticipated since the funds prepaid will have to
be reinvested at the then lower prevailing rates. This is known as
prepayment risk. When interest rates rise, the holdings of
mortgage-backed securities by a Portfolio can reduce returns if the
owners of the underlying mortgages pay off their mortgages later than
anticipated. This is known as extension risk.
INVESTMENT-GRADE SECURITIES RISK: Debt securities are rated by national
bond ratings agencies. Securities rated BBB by S&P or Baa by Moody's
are considered investment grade securities, but are somewhat riskier
than higher rated obligations because they are regarded as having only
an adequate capacity to pay principal and interest, and are considered
to lack outstanding investment characteristics and may be speculative.
JUNK BONDS OR LOWER RATED SECURITIES RISK: Bonds rated below investment
grade by S&P and Moody's are speculative in nature, may be subject to
certain risks with respect to the issuing entity and to greater market
fluctuations than higher rated fixed-income securities. They are
usually issued by companies without long track records of sales and
earnings, or by those companies with questionable credit strength.
These bonds are considered "below investment grade." The retail
secondary market for these "junk bonds" may be less liquid than that of
higher rated securities and adverse conditions could make it difficult
at times to sell certain securities or could result in lower prices
than those used in calculating the Portfolio's net asset value.
FOREIGN SECURITIES RISKS: A Portfolio's investments in foreign securities,
including depositary receipts, involve risks not associated with investing in
U.S. securities and can affect a Portfolio's performance. Foreign markets,
particularly emerging markets, may be less liquid, more volatile and subject to
less government supervision than domestic markets. There may be difficulties
enforcing contractual obligations, and it may take more time for trades to clear
and settle. The specific risks of investing in foreign securities, among others,
include:
CURRENCY RISK: The risk that changes in currency exchange rates will
negatively affect securities denominated in, and/or receiving revenues
in, foreign currencies. Adverse changes in currency exchange rates
(relative to the U.S. dollar) may erode or reverse any potential gains
from a Portfolio's investment in securities denominated in a foreign
currency or may widen existing losses.
EMERGING MARKET RISK: There are greater risks involved in investing in
emerging markets
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countries and/or their securities markets. Generally, economic
structures in these countries are less diverse and mature than those in
developed countries, and their political systems are less stable.
Investments in emerging markets countries may be affected by national
policies that restrict foreign investment in certain issuers or
industries. The small size of their securities markets and low trading
volumes can make investments illiquid and more volatile than
investments in developed countries and such securities may be subject
to abrupt and severe price declines. As a result, a Portfolio investing
in emerging markets countries may be required to establish special
custody or other arrangements before investing.
The YEAR 2000 PROBLEM may also be especially acute in emerging market
countries. Many emerging market countries are currently lagging behind
more developed countries in their Year 2000 preparedness because they
lack the financial resources to undertake the necessary remedial
actions. A lack of Year 2000 preparedness may adversely affect the
health, security and economic well-being of emerging market countries
and could, obviously, adversely affect the value of a Portfolio's
investments in emerging market countries. More information on the Year
2000 Problem is provided in this section, under "GENERAL INVESTMENT
RISKS--YEAR 2000 RISK."
EURO RISK: Certain of the Portfolios invests in securities issued by
European issuers. On January 1, 1999, 11 of the 15 member states of the
European Monetary Union ("EMU") introduced the "Euro" as a common
currency. During a three-year transitional period, the Euro will
coexist with each participating state's currency and, on July 1, 2002,
the Euro is expected to become the sole currency of the participating
states. The introduction of the Euro will result in the redenomination
of European debt and equity securities over a period of time, which may
result in various legal and accounting differences and/or tax
treatments that otherwise would not likely occur. During this period,
the creation and implementation of suitable clearing and settlement
systems and other operational problems may cause market disruptions
that could adversely affect investments quoted in the Euro.
The consequences of the Euro conversion for foreign exchange rates,
interest rates and the value of European securities eligible for
purchase by the Portfolios are presently unclear and it is not possible
to predict the eventual impact of the Euro implementation plan on the
Portfolios. There are a number of significant risks associated with
EMU. Monetary and economic union on this scale has never been attempted
before. There is a significant degree of uncertainty as to whether
participating countries will remain committed to EMU in the face of
changing economic conditions. The conversion may adversely affect a
Portfolio if the Euro does not take effect as planned or if a
participating state withdraws from the EMU. Such actions may adversely
affect the value and/or increase the volatility of securities held by
the Portfolios.
POLITICAL/ECONOMIC RISK: Changes in economic and tax policies,
expropriation or nationalization; government instability, war or other
political or economic actions or factors may have an adverse effect on
a Portfolio's foreign investments.
REGULATORY RISK: Less information may be available about foreign
companies. In general, foreign companies are not subject to uniform
accounting, auditing and financial reporting standards or to other
regulatory practices and requirements as are U.S. companies.
TRANSACTION COSTS RISK: The costs of buying and selling foreign
securities, including tax, brokerage and custody costs, generally are
higher than those involving domestic transactions.
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GROWTH INVESTING RISK: Growth investing generally focuses on companies that, due
to their strong earnings and revenue potential, offer above-average prospects
for capital growth, with less emphasis on dividend income. Earnings
predictability and confidence in earnings forecasts are an important part of the
selection process. As a result, the price of growth stocks may be more sensitive
to changes in current or expected earnings than the prices of other stocks.
Advisers using this approach generally seek out companies experiencing some or
all of the following: high sales growth, high unit growth, high or improving
returns on assets and equity, and a strong balance sheet. Such Advisers also
prefer companies with a competitive advantage such as unique management,
marketing or research and development. Growth investing is also subject to the
risk that the stock price of one or more companies will fall or will fail to
appreciate as anticipated by the Advisers, regardless of movements in the
securities market.
INDEX-FUND RISK: The Alliance Equity Index Portfolio is not actively managed
(which involves buying and selling of securities based upon economic, financial
and market analysis and investment judgment). Rather, the Portfolio utilizes a
"passive" or "indexing" investment approach and attempts to duplicate the
investment performance of the particular index the Portfolio is tracking (i.e.,
S&P 500 Index), through statistical procedures. Therefore, the Portfolio will
invest in securities included in the relevant index or substantially identical
securities regardless of market trends. The Portfolio cannot modify its
investment strategies to respond to changes in the economy, which means it may
be particularly susceptible to a general decline in the U.S. or global stock
market segment relating to the relevant index.
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 in collateral from securities loans and by
borrowing money to meet redemption requests.
LIQUIDITY RISK: Certain securities held by a Portfolio may be difficult (or
impossible) to sell at the time and at the price the seller would like. A
Portfolio may have to hold these securities longer than it would like and may
forego other investment opportunities. There is the possibility that a Portfolio
may lose money or be prevented from earning capital gains if it can not sell a
security at the time and price that is most beneficial to the Portfolio.
Portfolios that invest in privately-placed securities, derivatives, high-yield
bonds, mortgage-backed securities or foreign or emerging markets securities,
which have all experienced periods of illiquidity, are subject to liquidity
risks. A particular Portfolio may be more susceptible to some of these risks
than others, as noted in the description of each Portfolio.
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 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 yield. In addition, the Portfolio is still subject to the risk that
the value of an investment may be eroded over time by inflation.
SECURITIES LENDING RISK: 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 the
Adviser to be of good standing and will not be made unless, in the judgment of
the Adviser, the consideration to be earned from such loans would justify the
risk.
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PORTFOLIO TURNOVER RISK: Consistent with their investment policies, the
Portfolios also will purchase and sell securities without regard to the effect
on portfolio turnover. Higher portfolio turnover (e.g., over 100% per year) will
cause a Portfolio to incur additional transaction costs and may result in
taxable gains being passed through to shareholders.
SMALL-CAP AND MID-CAP COMPANY RISK: A Portfolio's investments in small-cap and
mid-cap companies may involve greater risks than investments in larger, more
established issuers. Smaller companies may have narrower product lines, more
limited financial resources and more limited trading markets for their stock, as
compared with larger companies. Their securities may be less well-known, held
primarily by insiders or institutional investors and trade less frequently and
in more limited volume than the securities of larger, more established
companies. In addition, small-cap and mid-cap companies are typically subject to
greater changes in earnings and business prospects than are those of larger
companies. Consequently, the prices of small company stocks tend to rise and
fall in value more frequently than the stocks of larger companies. Although
investing in small-cap and mid-cap companies offers potential for above-average
returns, the companies may not succeed and the value of their stock could
decline significantly.
VALUE INVESTING RISK: Value investing attempts to identify strong companies
selling at a discount from their perceived true worth. Advisers using this
approach generally select stocks at prices, in their view, that are temporarily
low relative to the company's earnings, assets, cash flow and dividends. Value
investing is subject to the risk that the stocks' intrinsic value may never be
fully recognized or realized by the market, or their prices may go down. In
addition, there is the risk that a stock judged to be undervalued may actually
be appropriately priced. Value investing generally emphasizes companies that,
considering their assets and earnings history, are attractively priced and may
provide dividend income.
The Trust's Portfolios are not insured by the FDIC or any other government
agency. Each Portfolio is not a deposit or other obligation of any financial
institution or bank and is not guaranteed. Each Portfolio is subject to
investment risks and possible loss of principal invested.
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MANAGEMENT OF THE TRUST
This section gives you information on the Trust, the Manager and the Advisers
for the Portfolios. More detailed information concerning each of the Advisers
and portfolio managers is included in the description for each Portfolio in the
section "About The Investment Portfolios."
THE TRUST
The Trust is organized as a Delaware business trust and is registered with the
Securities and Exchange Commission ("SEC") as an open-end management investment
company. The Trust issues shares of beneficial interest that are currently
divided among thirty-nine (39) Portfolios, each of which has authorized Class IA
and Class IB shares. Each Portfolio has its own objectives, investment
strategies and risks, which have been previously described in this prospectus.
THE MANAGER
EQ Financial Consultants, Inc. ("Manager"), 1290 Avenue of the Americas, New
York, New York 10104, serves as the Manager of the Trust, subject to the
supervision and direction of the Board of Trustees. The Manager has overall
responsibility for the general management and administration of the Trust.
In the exercise of that responsibility, the Manager, without obtaining
shareholder approval but subject to the review and approval by the Board of
Trustees, may: (i) select the Advisers for the Portfolios; (ii) enter into and
materially modify existing investment advisory agreements; and (iii) terminate
and replace the Advisers. The Manager also monitors each Adviser's investment
program and results, reviews brokerage matters, oversees compliance by the Trust
with various federal and state statutes, and carries out the directives of the
Board of Trustees. The Manager also supervises the provision of services by
third parties such as the Trust's custodian and administrator.
The Manager is an investment adviser registered under the 1940 Act and a
broker-dealer registered under the Securities Exchange Act of 1934, as amended.
The Manager is a wholly-owned subsidiary of Equitable. During 1999, the Manager
plans to change its name to AXA Advisors, Inc.
The Portfolios will commence operations ______________, 1999. The table below
shows the annual rate of the management fees (as a percentage of each
Portfolio's average daily net assets) that the Manager is entitled to receive in
1999 for managing each of these Portfolios.
ANNUAL RATE OF MANAGEMENT FEES
- ---------------------------------------------------------------------------
PORTFOLIOS ANNUAL RATE
- ---------------------------------------------------------------------------
Alliance Money Market Portfolio ____%
- ---------------------------------------------------------------------------
Alliance Intermediate Government Securities ____%
Portfolio
- ---------------------------------------------------------------------------
Alliance Quality Bond Portfolio ____%
- ---------------------------------------------------------------------------
Alliance High Yield Portfolio ____%
- ---------------------------------------------------------------------------
Alliance Balanced Portfolio ____%
- ---------------------------------------------------------------------------
Alliance Conservative Investors Portfolio ____%
- ---------------------------------------------------------------------------
Alliance Growth Investors Portfolio ____%
- ---------------------------------------------------------------------------
Alliance Common Stock Portfolio ____%
- ---------------------------------------------------------------------------
Alliance Equity Index Portfolio ____%
- ---------------------------------------------------------------------------
Alliance Growth And Income Portfolio ____%
- ---------------------------------------------------------------------------
Alliance Aggressive Stock Portfolio ____%
- ---------------------------------------------------------------------------
Alliance Small Cap Growth Portfolio ____%
- ---------------------------------------------------------------------------
Alliance Global Portfolio ____%
- ---------------------------------------------------------------------------
Alliance International Portfolio ____%
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EXPENSE LIMITATION AGREEMENT
In the interest of limiting expenses of each Portfolio, the Manager has entered
into an expense limitation agreement with the Trust with respect to each
Portfolio ("Expense Limitation Agreement"). Pursuant to that Expense Limitation
Agreement, the Manager has agreed to waive or limit its fees and to assume other
expenses so that the total annual operating expenses of each Portfolio other
than interest, taxes, brokerage commissions, other expenditures which are
capitalized in accordance with generally accepted accounting principles, other
extraordinary expenses not incurred in the ordinary course of each Portfolio's
business and amounts payable pursuant to a plan adopted in accordance with Rule
12b-1 under the 1940 Act, are limited to the following rates:
MANAGEMENT EXPENSE LIMITATION FEES
- --------------------------------------------------------------------------------
PORTFOLIOS AMOUNT EXPENSES LIMITED TO
(% of daily net assets)
- --------------------------------------------------------------------------------
Alliance Money Market Portfolio ____%
- --------------------------------------------------------------------------------
Alliance Intermediate Government Securities Portfolio ____%
- --------------------------------------------------------------------------------
Alliance Quality Bond Portfolio ____%
- --------------------------------------------------------------------------------
Alliance High Yield Portfolio ____%
- --------------------------------------------------------------------------------
Alliance Balanced Portfolio ____%
- --------------------------------------------------------------------------------
Alliance Conservative Investors Portfolio ____%
- --------------------------------------------------------------------------------
Alliance Growth Investors Portfolio ____%
- --------------------------------------------------------------------------------
Alliance Common Stock Portfolio ____%
- --------------------------------------------------------------------------------
Alliance Equity Index Portfolio ____%
- --------------------------------------------------------------------------------
Alliance Growth And Income Portfolio ____%
- --------------------------------------------------------------------------------
Alliance Aggressive Stock Portfolio ____%
- --------------------------------------------------------------------------------
Alliance Small Cap Growth Portfolio ____%
- --------------------------------------------------------------------------------
Alliance Global Portfolio ____%
- --------------------------------------------------------------------------------
Alliance International Portfolio ____%
- --------------------------------------------------------------------------------
Each Portfolio may at a later date reimburse to the Manager the management fees
waived or limited and other expenses assumed and paid by the Manager pursuant to
the Expense Limitation Agreement provided such Portfolio has reached a
sufficient asset size to permit such reimbursement to be made without causing
the total annual expense ratio of each Portfolio to exceed the percentage limits
stated above. Consequently, no reimbursement by a Portfolio will be made unless:
(i) the Portfolio's assets exceed $100 million; (ii) the Portfolio's total
annual expense ratio is less than the respective percentages stated above; and
(iii) the payment of such reimbursement has been approved by the Trust's Board
of Trustees on a quarterly basis.
THE ADVISERS
Each Portfolio has an Adviser that furnishes an investment program for the
Portfolio pursuant to an investment advisory agreement with the Manager. Each
Adviser makes investment decisions on behalf of the Portfolio, places all orders
for the purchase and sale of investments for the Portfolio's account with
brokers or dealers selected by such Adviser and may perform certain limited
related administrative functions in connection therewith.
The Manager has received an exemptive order from the SEC that permits the
Manager, subject to certain conditions, including board approval, and without
the approval of shareholders to: (a) employ a new Adviser or Advisers for any
Portfolio pursuant to the terms of a new Advisory Agreement, in each case either
as a replacement for an existing Adviser or as an additional Adviser; (b) change
the terms of any Advisory Agreement; and (c) continue the employment of an
existing Adviser on the same advisory contract terms where a contract has been
assigned because of a change in control of the Adviser. In such circumstances,
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shareholders would receive notice of such action, including the information
concerning the Adviser that normally is provided in the Prospectus.
The Manager pays each Adviser a fee based on the Portfolio's average daily net
assets. No Portfolio is responsible for the fees paid on its behalf to the
relevant Adviser.
THE ADMINISTRATOR
Pursuant to an agreement, Chase Global Funds Services Company ("Administrator")
assists the Manager in the performance of its administrative responsibilities to
the Trust and provides the Trust with other necessary administrative, fund
accounting and compliance services. In addition, the Administrator makes
available the office space, equipment, personnel and facilities required to
provide such services to the Trust. For these services, the Trust pays the
Administrator a monthly fee at the annual rate of .0525 of 1% of the total Trust
assets, plus $25,000 for each Portfolio, until the total Trust assets reach $2.0
billion, and when the total Trust assets exceed $2.0 billion: .0425 of 1% of the
next $0.5 billion of the total Trust assets; .035 of 1% of the next $2.0 billion
of the total Trust assets; .025 of 1% of the next $1.0 billion of the total
Trust assets; .015 of 1% of the next $2.5 billion of the total Trust assets; .01
of 1% of the total Trust assets in excess of $8.0 billion; provided, however,
that the annual fee payable to Chase with respect to any Portfolio which
commenced operations after July 1, 1997 and whose assets do not exceed $200
million shall be computed at the annual rate of .0525% of 1% of the Portfolio's
total assets plus $25,000.
THE TRANSFER AGENT
Equitable serves as the transfer agent and dividend disbursing agent of the
Trust and receives no compensation for serving in such capacity.
BROKERAGE PRACTICES
In selecting brokers and dealers, the Manager and each Adviser may consider
research and brokerage services furnished to either company and their
affiliates. Subject to seeking the most favorable net price and execution
available, the Manager and each Adviser may also consider sales of shares of the
Trust as a factor in the selection of brokers and dealers.
BROKERAGE TRANSACTIONS WITH AFFILIATES
To the extent permitted by law, the Trust may engage in securities and other
transactions with entities that may be affiliated with the Manager or the
Advisers. The 1940 Act generally prohibits the Trust from engaging in principal
securities transactions with an affiliate of the Manager or Advisers unless
pursuant to an exemptive order from the SEC. For these purposes, however, the
Trust has considered this issue and believes that a broker-dealer affiliate of
an Adviser to one Portfolio should not be treated as an affiliate of the Adviser
to another Portfolio for which such Adviser does not provide investment advice.
The Trust has adopted procedures that are reasonably designed to provide that
any commission it pays to affiliates of the Manager or Advisers does not exceed
the usual and customary broker's commission. The Trust has also adopted
procedures permitting it to purchase securities, under certain restrictions
prescribed by a rule under the 1940 Act, in a public offering in which an
affiliate of the Manager or Advisers is an underwriter.
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FUND DISTRIBUTION ARRANGEMENTS
The Trust offers two classes of shares on behalf of each Portfolio: Class IA
shares and Class IB shares. The Manager, serves as one of the distributors for
the Class IB shares of the Trust offered by this Prospectus as well as one of
the distributors for the Class IA shares. Equitable Distributors, Inc. serves as
the other distributor for the Class IB shares of the Trust as well as the Class
IA shares. Both classes of shares are offered and redeemed at their net asset
value without any sales load.
The Trust has adopted a Distribution Plan under Rule 12b-1 under the 1940 Act
for the Trust's Class IB shares. Under the Class IB Distribution Plan the Class
IB shares of the Trust pay each of the distributors an annual fee to compensate
them for promoting, selling and servicing shares of the Portfolios. The annual
fees equal 0.25% of each Portfolio's average daily net assets. Over time, the
fees will increase your cost of investing and may cost you more than other types
of charges.
PURCHASE AND REDEMPTION
The price at which a purchase or redemption is effected is based on the next
calculation of net asset value after an order is placed by an insurance company
or qualified retirement plan investing in or redeeming from 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 and class related expenses, which are
accrued daily), by the total number of outstanding shares of that Portfolio. The
net asset value per share of each Portfolio is determined each business day at
4:00 p.m. Eastern time. Net asset value per share is not calculated on days on
which the New York Stock Exchange ("NYSE")is closed for trading.
All shares are purchased and redeemed in accordance with the Trust's Amended and
Restated Declaration of Trust and By-Laws. Sales and redemptions of shares of
the same class by the same shareholder on the same day will be netted for each
Portfolio. All redemption requests will be processed and payment with respect
thereto will normally be made within seven days after tenders.
The Trust may suspend redemption, if permitted by the 1940 Act, for any period
during which NYSE 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. If the Board of Trustees determines that it would be detrimental
to the best interest of the Trust's remaining shareholders to make payment in
cash, the Trust may pay redemption proceeds in whole or in part by a
distribution-in-kind of readily marketable securities.
HOW ASSETS ARE VALUED
Values are determined according to accepted practices and all laws and
regulations that apply. The assets of each Portfolio are generally valued as
follows:
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 Depository Receipt or
similar form, in the United States are valued at representative quoted
prices in the currency in 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 NYSE, the value of a Portfolio's share may change on days
when shareholders are not able to buy or sell them. If events materially
affecting the values of the Portfolios foreign investments occur between the
close
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of foreign markets and the close of regular trading on the NYSE, 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 of the Trust using its
best judgment.
TAX INFORMATION
Each Portfolio of the Trust is a separate regulated investment company for
federal income tax purposes. Regulated investment companies are usually not
taxed at the entity (Portfolio) level. They pass through their income and gains
to their shareholders by paying dividends. Their shareholders include this
income on their respective tax returns. A Portfolio will be treated as a
regulated investment company if it meets specified federal income tax rules,
including types of investments, limits on investments, calculation of income,
and dividend payment requirements. Although the Trust intends that it and each
Portfolio will be operated to have no federal tax liability, if they have any
federal tax liability, that could hurt the investment performance of the
Portfolio in question. Also, any Portfolio investing in foreign securities or
holding foreign currencies could be subject to foreign taxes which could reduce
the investment performance of the Portfolio.
It is important for each Portfolio to maintain its federal income tax regulated
investment company status because the shareholders of the Portfolio that are
insurance company separate accounts will then be able to use a favorable federal
income tax investment diversification testing rule in figuring out whether the
Contracts indirectly funded by the Portfolio meet tax qualification rules for
variable insurance contracts. If a Portfolio fails to meet specified investment
diversification requirements, owners of non-pension plan Contracts funded
through the Trust could be taxed immediately on the accumulated investment
earnings under their Contracts and could lose any benefit of tax deferral. The
Administrator and the Manager therefore carefully monitor compliance with all of
the regulated investment company rules and variable insurance contract
investment diversification rules.
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BACK COVER
If you wish to know more, you will find additional information about the Trust
and its Portfolios in the following documents:
ANNUAL REPORTS
The Annual Report includes more information about the Trust's performance and is
available upon request free of charge. The reports usually include performance
information, a discussion of market conditions and the investment strategies
that affected the Portfolios' performance during the last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI, dated September 1, 1999, is incorporated into this Prospectus by
reference and is available upon request free of charge by calling our toll free
number at 1-888-555-5100.
You may visit the SEC's website at www.sec.gov to view the SAI and other
information about the Trust.
You can also review and copy information about the Trust, including the SAI, at
the SEC's Public Reference Room in Washington, D.C. You may have to pay a
duplicating fee. To find out more about the Public Reference Room, call the SEC
at 800-SEC-0330.
Investment Company Act File Number: 811-07953
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EQ ADVISORS TRUST
STATEMENT OF ADDITIONAL INFORMATION
SEPTEMBER 1, 1999
This Statement of Additional Information is not a prospectus. It should be read
in conjunction with the Prospectus for the EQ Advisors Trust ("Trust") dated
SEPTEMBER 1, 1999, which may be obtained without charge by writing to the
Trust at 1290 Avenue of the Americas, New York, New York 10104. Unless otherwise
defined herein, capitalized terms have the meanings given to them in the
Prospectus.
TABLE OF CONTENTS
TRUST HISTORY.............................................................. 2
DESCRIPTION OF THE TRUST AND ITS INVESTMENTS AND RISKS..................... 2
TRUST POLICIES............................................................. 3
INVESTMENT STRATEGIES AND RISKS............................................ 8
MANAGEMENT OF THE TRUST.................................................... 39
INVESTMENT MANAGEMENT AND OTHER SERVICES................................... 43
BROKERAGE ALLOCATION AND OTHER STRATEGIES.................................. 52
PURCHASE AND PRICING OF SHARES............................................. 56
REDEMPTION OF SHARES....................................................... 58
TAXATION................................................................... 58
PORTFOLIO PERFORMANCE...................................................... 59
OTHER SERVICES............................................................. 61
FINANCIAL STATEMENTS....................................................... 61
THE INFORMATION IN THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT COMPLETE AND
MAY BE CHANGED. EQ ADVISORS TRUST MAY NOT SELL THESE SECURITIES UNTIL THE
REGISTATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS
EFFECTIVE. THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT AN OFFER TO SELL
THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITES IN ANY
STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
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TRUST HISTORY
EQ Advisors Trust (the "Trust") is an open-end management investment company and
is registered as such under the Investment Company Act of 1940, as amended
("1940 Act"). The Trust is organized as a Delaware business trust and was formed
on October 31, 1996 under the name "787 Trust." The Trust changed its name to
"EQ Advisors Trust" effective November 25, 1996.
DESCRIPTION OF THE TRUST AND ITS INVESTMENTS AND RISKS
The Trust currently offers two classes of shares on behalf of EACH OF THE
FOLLOWING PORTFOLIOS: THE ALLIANCE AGGRESSIVE STOCK PORTFOLIO, ALLIANCE BALANCED
PORTFOLIO, ALLIANCE COMMON STOCK PORTFOLIO, ALLIANCE CONSERVATIVE INVESTORS
PORTFOLIO, ALLIANCE EQUITY INDEX PORTFOLIO, ALLIANCE GLOBAL PORTFOLIO, ALLIANCE
GROWTH AND INCOME PORTFOLIO, ALLIANCE GROWTH INVESTORS PORTFOLIO, ALLIANCE HIGH
YIELD PORTFOLIO, ALLIANCE INTERMEDIATE GOVERNMENT SECURITIES PORTFOLIO, ALLIANCE
INTERNATIONAL PORTFOLIO, ALLIANCE MONEY MARKET PORTFOLIO, ALLIANCE QUALITY BOND
PORTFOLIO, AND ALLIANCE SMALL CAP GROWTH PORTFOLIO (COLLECTIVELY REFERRED TO
HEREIN AS THE "ALLIANCE PORTFOLIOS"), T. Rowe Price International Stock
Portfolio, T. Rowe Price Equity Income Portfolio, EQ/Putnam Growth & Income
Value Portfolio, EQ/Putnam International Equity Portfolio, EQ/Putnam Investors
Growth Portfolio, EQ/Putnam Balanced Portfolio, MFS Research Portfolio, MFS
Emerging Growth Companies Portfolio, MFS Growth with Income Portfolio, Morgan
Stanley Emerging Markets Equity Portfolio, Warburg Pincus Small Company Value
Portfolio, Merrill Lynch World Strategy Portfolio, Merrill Lynch Basic Value
Equity Portfolio, Lazard Large Cap Value Portfolio, Lazard Small Cap Value
Portfolio, JPM Core Bond Portfolio, BT Small Company Index Portfolio, BT
International Equity Index Portfolio, BT Equity 500 Index Portfolio,
EQ/Evergreen Foundation Portfolio, EQ/Evergreen Portfolio, EQ/Alliance Premier
Growth Portfolio, Capital Guardian Research Portfolio, Capital Guardian U.S.
Equity Portfolio, and Capital Guardian International Portfolio (COLLECTIVELY,
TOGETHER WITH THE ALLIANCE PORTFOLIOS, REFERRED TO HEREIN AS the "Portfolios").
Class IA shares are offered at net asset value and are not subject to
distribution fees imposed pursuant to a distribution plan. Class IB shares are
offered at net asset value and are subject to distribution fees imposed under a
distribution plan ("Class IB Distribution Plan") adopted pursuant to Rule 12b-1
under the 1940 Act.
Both classes of shares are offered under the Trust's multi-class distribution
system, which is designed to allow promotion of insurance products investing in
the Trust through alternative distribution channels. Under the Trust's
multi-class distribution system, shares of each class of a Portfolio represent
an equal pro rata interest in that Portfolio and, generally, will have identical
voting, dividend, liquidation, and other rights, preferences, powers,
restrictions, limitations, qualifications and terms and conditions, except that:
(a) each class shall have a different designation; (b) each class of shares
shall bear its "Class Expenses;" (c) each class shall have exclusive voting
rights on any matter submitted to shareholders that relates solely to its
distribution arrangements; (d) 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; (e) each class may have separate exchange
privileges, although exchange privileges are not currently contemplated; and (f)
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 made to the Distributors for the Class IB shares
pursuant to the Class IB Distribution Plan adopted pursuant to Rule 12b-1 under
the 1940 Act.
THE TRUST'S SHARES ARE CURRENTLY SOLD TO: (I) INSURANCE COMPANY SEPARATE
ACCOUNTS IN CONNECTION WITH VARIABLE LIFE INSURANCE CONTRACTS AND VARIABLE
ANNUITY CERTIFICATES AND CONTRACTS (THE "CONTRACT" OR COLLECTIVELY, THE
"CONTRACTS") ISSUED BY THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
("EQUITABLE") AND EQUITABLE OF COLORADO, INC. ("EOC"); AS WELL AS INSURANCE
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COMPANY SEPARATE ACCOUNTS OF: INTEGRITY LIFE INSURANCE COMPANY; AMERICAN
FRANKLIN LIFE INSURANCE COMPANY; AND TRANSAMERICA OCCIDENTAL LIFE INSURANCE
COMPANY, EACH OF WHICH IS UNAFFILIATED WITH EQUITABLE AND (II) TO THE EQUITABLE
INVESTMENT PLAN FOR EMPLOYEES, MANAGERS AND AGENTS ("EQUITABLE PLAN").
THE TRUST DOES NOT CURRENTLY FORESEE ANY DISADVANTAGE 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 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 MIGHT FORCE THE TRUST TO SELL PORTFOLIO
SECURITIES AT DISADVANTAGEOUS PRICES.
LEGAL CONSIDERATIONS
Under Delaware law, annual election of Trustees is not required, and, in the
normal course, the Trust does not expect to hold annual meetings of
shareholders. There will normally be no meetings of shareholders for the purpose
of electing Trustees unless and until such time as less than a majority of the
Trustees holding office have been elected by shareholders, at which time the
Trustees then in office will call a shareholders' meeting for the election of
Trustees. Pursuant to the procedures set forth in Section 16(c) of the 1940 Act,
shareholders of record of not less than two-thirds of the outstanding shares of
the Trust may remove a Trustee by a vote cast in person or by proxy at a meeting
called for that purpose.
Except as set forth above, the Trustees will 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.
The Amended and Restated Declaration of Trust of the Trust requires the
affirmative vote of a majority of the outstanding shares of the Trust.
The shares of each Portfolio, when issued, will be fully paid and non-assessable
and will have no preference, preemptive, conversion, exchange or similar rights.
TRUST POLICIES
FUNDAMENTAL RESTRICTIONS
Each Portfolio has also adopted certain investment restrictions THAT are
fundamental and may not be changed without approval by a "majority" vote of the
Portfolio's shareholders. Such majority is defined in the 1940 Act as the lesser
of: (i) 67% or more of the voting securities of such Portfolio present in person
or by proxy at a meeting, if the holders of more than 50% of the outstanding
voting securities are present or represented by proxy; or (ii) more than 50% of
the outstanding voting securities of such Portfolio. Set forth below are each of
the fundamental restrictions adopted by each of the Portfolios. Fundamental
policies (5) and (6) below shall not apply to the Morgan Stanley Emerging
Markets Equity Portfolio, the Merrill Lynch World Strategy Portfolio and the
Lazard Small Cap Value Portfolio. Certain non-fundamental operating policies are
also described in this section because of their direct relevance to the
fundamental restrictions adopted by the Portfolios.
Each Portfolio, except as described directly above, may not as a matter of
fundamental policy:
(1) Borrow money, except that:
a. each Portfolio may (i) borrow for non-leveraging,
temporary or emergency purposes (except the Lazard
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Large Cap Value Portfolio, which may also borrow
for leveraging purposes) and (ii) engage in reverse
repurchase agreements, make other investments or
engage in other transactions, which may involve a
borrowing, in a manner consistent with the
Portfolios' respective investment objective and
program, provided that the combination of (i) and
(ii) shall not exceed 33 1/3% of the value of the
Portfolios' respective total assets (including the
amount borrowed) less liabilities (other than
borrowings) or such other percentage permitted by
law (except that the Merrill Lynch World Strategy
Portfolio and the Merrill Lynch Basic Value Equity
Portfolio may purchase securities on margin to the
extent permitted by applicable law). Any
borrowings which come to exceed this amount will be
reduced in accordance with applicable law. Each
Portfolio may borrow from banks or other persons to
the extent permitted by applicable law. In
addition, the Lazard Large Cap Value Portfolio may
borrow for leveraging purposes (in order to
increase its investment in portfolio securities) to
the extent that the amount so borrowed does not
exceed 33 1/3% of the Portfolio's total assets
(including the amount borrowed) less liabilities
(other than borrowings);
b. as a matter of non-fundamental operating policy, no
Portfolio, except the Lazard Large Cap Value
Portfolio, will purchase additional securities when
money borrowed exceeds 5% of its total assets;
c. the EQ/Putnam Growth & Income Value Portfolio,
EQ/Putnam International Equity Portfolio, EQ/Putnam
Investors Growth Portfolio, EQ/Putnam Balanced
Portfolio, and Lazard Large Cap Value Portfolio
each, as a matter of non-fundamental operating
policy, may borrow only from banks (i) as a
temporary measure to facilitate the meeting of
redemption requests (not for leverage) which might
otherwise require the untimely disposition of
portfolio investments or (ii) for extraordinary or
emergency purposes, provided that the combination
of (i) and (ii) shall not exceed 10% of the
applicable Portfolio's net assets (taken at lower
of cost or current value), not including the amount
borrowed, at the time the borrowing is made. Each
Portfolio will repay borrowings made for the
purposes specified above before any additional
investments are purchased;
d. the Merrill Lynch World Strategy Portfolio, as a
matter of fundamental policy, and the Merrill Lynch
Basic Value Equity Portfolio, as a matter of
non-fundamental operating policy, may, to the
extent permitted by applicable law, borrow up to an
additional 5% of their respective total assets for
temporary purposes;
e. the Lazard Small Cap Value Portfolio, as a matter
of non-fundamental operating policy, may borrow
only from banks (i) as a temporary measure to
facilitate the meeting of redemption requests (not
for leverage) which might otherwise require the
untimely disposition of portfolio investments or
(ii) for extraordinary or emergency purposes,
provided that the combination of (i) and (ii) shall
not exceed 15% of the Portfolio's net assets, not
including the amount borrowed, at the time the
borrowing is made. The Lazard Small Cap Value
Portfolio will repay borrowings before any
additional investments are purchased;
f. the Warburg Pincus Small Company Value Portfolio
and JPM Core Bond Portfolio, each as a matter of
non-fundamental operating policy, may borrow only
from banks for extraordinary or emergency purposes,
provided such amount shall not exceed 30% of the
respective Portfolio's total assets, not including
the amount borrowed, at the time the borrowing is
made;
g. EQ/Evergreen Portfolio and EQ/Evergreen Foundation
Portfolio, each as a matter of non-fundamental
policy, may, in addition to the amount specified
above, also borrow up to an additional 5% of its
total assets from banks or other lenders;
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h. the MFS Growth with Income Portfolio, as a matter
of non-fundamental policy, may borrow up to 10% of
its total assets (taken at cost), or its net assets
(taken at market value), whichever is less, but
only as a temporary measure for extraordinary or
emergency purposes;
i. the EQ/Alliance Premier Growth Portfolio, Capital
Guardian Research Portfolio, Capital Guardian U.S.
Equity Portfolio and Capital Guardian International
Portfolio, as a matter of non-fundamental operating
policy, may only borrow for temporary or emergency
purposes, provided such amount shall not exceed 5%
of the Portfolio's total assets at the time the
borrowing is made;
j. THE ALLIANCE PORTFOLIOS, AS A MATTER OF
NON-FUNDAMENTAL OPERATING POLICY, MAY BORROW MONEY
ONLY FROM BANKS: (I) FOR TEMPORARY PURPOSES; (II)
TO PLEDGE ASSETS TO BANKS IN ORDER TO TRANSFER
FUNDS FOR VARIOUS PURPOSES AS REQUIRED WITHOUT
INTERFERING WITH THE ORDERLY LIQUIDATION OF
SECURITIES IN A PORTFOLIO (BUT NOT FOR LEVERAGING
PURPOSES); (III) TO MAKE MARGIN PAYMENTS OR PLEDGES
IN CONNECTION WITH OPTIONS, FUTURES CONTRACTS,
OPTIONS ON FUTURES CONTRACTS, FORWARD CONTRACTS OR
OPTIONS ON FOREIGN CURRENCIES; OR (IV) WITH RESPECT
TO ALLIANCE QUALITY BOND PORTFOLIO, TO TRANSACTIONS
IN INTEREST RATE SWAPS, CAPS AND FLOORS.
(2) Purchase or sell physical commodities, except that it may (i) enter into
futures contracts and options thereon in accordance with applicable law and (ii)
purchase or sell physical commodities if acquired as a result of ownership of
securities or other instruments. No Portfolio will consider stock index futures
contracts, currency contracts, hybrid investments, swaps or other similar
instruments to be commodities;
(3) Purchase the securities of any issuer if, as a result, more than 25% of the
value of the Portfolio's total assets would be invested in the securities of
issuers having their principal business activities in the same industry.
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. IN ADDITION, THE United States, state or local governments, or
related agencies or instrumentalities are not considered an industry. Industries
are determined by reference to the classifications of industries set forth in
each Portfolio's semi-annual and annual reports;
(4) Make loans, except that:
a. THIS RESTRICTION SHALL NOT APPLY TO THE ALLIANCE
HIGH YIELD PORTFOLIO AND ALLIANCE INTERMEDIATE
GOVERNMENT SECURITIES PORTFOLIO AND EACH MAY MAKE
SECURED LOANS, INCLUDING LENDING CASH OR PORTFOLIO
SECURITIES WITHOUT LIMITATION.
b. EACH OTHER Portfolio may: (i) lend portfolio
securities provided that no such loan may be made
if, as a result, the aggregate of such loans would
exceed 33 1/3% (50% IN THE CASE OF EACH OF THE
OTHER ALLIANCE PORTFOLIOS) of the value of the
Portfolio's total assets; (ii) purchase money
market securities and enter into repurchase
agreements; and (iii) acquire publicly-distributed
or privately-placed debt securities and purchase
debt securities. Each Portfolio will consider the
acquisition of a debt security to include the
execution of a note or other evidence of an
extension of credit with a term of more than nine
months. For purposes of this restriction, each
Portfolio will treat purchases of loan
participations and other direct indebtedness,
including investments in mortgages, as not subject
to this limitation;
c. the EQ/Putnam Growth & Income Value Portfolio and
EQ/Putnam International Equity Portfolio, as a
matter of non-fundamental operating policy, may
purchase debt obligations consistent with the
respective investment objectives and policies of
each of those Portfolios: (i) by entering into
repurchase agreements with respect to not more than
25% of the
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Portfolios' respective total assets (taken at
current value) or (ii) through the lending of the
Portfolios' portfolio securities with respect to
not more than 25% of the Portfolios' respective
total assets (taken at current value);
d. the MFS Emerging Growth Companies Portfolio, BT
Small Company Index Portfolio, BT International
Equity Index Portfolio, and BT Equity 500 Index
Portfolio, as a matter of non-fundamental operating
policy, may each lend its portfolio securities
provided that no such loan may be made if, as a
result, the aggregate of such loans would exceed
30% of such Portfolio's total assets (taken at
market value); and
e. the Warburg Pincus Small Company Value Portfolio,
the Merrill Lynch World Strategy Portfolio, and the
Merrill Lynch Basic Value Equity Portfolio, as a
matter of non-fundamental policy, may each lend its
portfolio securities provided that no such loan may
be made if, as a result, the aggregate of such
loans would exceed 20% of such Portfolio's total
assets (taken at market value);
f. the Lazard Large Cap Value Portfolio and the Lazard
Small Cap Value Portfolio, as a matter of
non-fundamental policy, may each lend its portfolio
securities provided that no such loan may be made
if, as a result, the aggregate of such loans would
exceed 10% of such Portfolio's total assets (taken
at market value);
g. MFS Growth with Income Portfolio, as a matter of
non-fundamental operating policy, may lend its
portfolio securities provided that no such loan may
be made if, as a result, the aggregate of such
loans would exceed 25% of its net assets (taken at
market value);
h. the EQ/Alliance Premier Growth Portfolio, as a
matter of non-fundamental policy, may not make
loans except through the purchase of debt
obligations in accordance with its investment
objectives, BUT MAY LEND ITS PORTFOLIO SECURITIES
TO THE EXTENT PERMITTED IN (4)(B) ABOVE;
i. the Capital Guardian Research Portfolio, Capital
Guardian U.S. Equity Portfolio and Capital Guardian
International Portfolio, as a matter of
NON-fundamental policy, will not make loans, BUT
EACH MAY LEND ITS PORTFOLIO SECURITIES TO THE
EXTENT PERMITTED IN (4)(B) ABOVE;
j. THE ALLIANCE PORTFOLIOS, AS A MATTER OF
NON-FUNDAMENTAL POLICY, WILL ALSO TREAT THIS
RESTRICTION AS NOT PREVENTING ANY SUCH PORTFOLIO
FROM PURCHASING DEBT OBLIGATIONS AS CONSISTENT WITH
ITS INVESTMENT POLICIES, GOVERNMENT OBLIGATIONS,
SHORT-TERM COMMERCIAL PAPER, OR PUBLICLY-TRADED
DEBT, INCLUDING BONDS, NOTES, DEBENTURES,
CERTIFICATES OF DEPOSIT, AND EQUIPMENT TRUST
CERTIFICATES AND LOANS MADE UNDER INSURANCE
POLICIES;
(5) Purchase a security if, as a result, with respect to 75% of the value of its
total assets, more than 5% of the value of the Portfolio's total assets would be
invested in the securities of a single issuer, except securities issued or
guaranteed by the United States Government, its agencies or instrumentalities:*
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* The Morgan Stanley Emerging Markets Equity, Merrill Lynch World Strategy and
Lazard Small Cap Value Portfolios are classified as non-diversified investment
companies under the 1940 Act and therefore, these restrictions are not
applicable to these Portfolios.
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a. 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 OBLIGATIONS ISSUED OR
GUARANTEED BY THE UNITED STATES GOVERNMENT, ITS
AGENCIES OR INSTRUMENTALITIES;
b. THE ALLIANCE MONEY MARKET PORTFOLIO, AS A MATTER OF
NON-FUNDAMENTAL POLICY, WILL NOT INVEST MORE THAN
5% OF ITS TOTAL ASSETS IN SECURITIES OF ANY ONE
ISSUER, OTHER THAN U.S. GOVERNMENT SECURITIES,
EXCEPT THAT IT MAY INVEST UP TO 25% OF ITS TOTAL
ASSETS IN FIRST TIER SECURITIES (AS DEFINED IN RULE
2A-7 OF THE 1940 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;
(6) Purchase a security if, as a result, with respect to 75% of the value of the
Portfolio's total assets, more than 10% of the outstanding voting securities of
any issuer would be held by the Portfolio (other than obligations issued or
guaranteed by the United States Government, its agencies or instrumentalities);*
(7) Purchase or sell real estate, except that:
a. each Portfolio, except the JPM Core Bond Portfolio,
may purchase securities of issuers which deal in
real estate, securities which are directly or
indirectly secured by interests in real estate, and
securities which represent interests in real
estate, and each Portfolio may acquire and dispose
of real estate or interests in real estate acquired
through the exercise of its rights as a holder of
debt obligations secured by real estate or
interests therein;
b. the JPM Core Bond Portfolio may (i) invest in
securities of issuers that invest in real estate or
interests therein, (ii) invest in securities that
are secured by real estate or interests therein
(iii) make direct investments in mortgages, (iv)
purchase and sell mortgage-related securities and
(v) hold and sell real estate acquired by the
Portfolio as a result of the ownership of
securities including mortgages;
(8) Issue senior securities except in compliance with the 1940 Act; or
(9) Underwrite securities issued by other persons, except to the extent that the
Portfolio may be deemed to be an underwriter within the meaning of the
Securities Act of 1933, as amended (the "1933 Act"), in connection with the
purchase and sale of its portfolio securities in the ordinary course of pursuing
its investment objective, policies and program.
NON-FUNDAMENTAL RESTRICTIONS
The following investment restrictions apply to each Portfolio, but are not
fundamental. They may be changed for any Portfolio without a vote of that
Portfolio's shareholders.
Each Portfolio may not:
(1) Purchase a futures contract or an option thereon if, with respect to
positions in futures or options on futures which do not represent bona fide
hedging, the aggregate initial margin and premiums on such options would exceed
5% of the Portfolio's net asset value. As a matter of operating policy, the
ALLIANCE MONEY MARKET PORTFOLIO, MFS Research Portfolio, the Lazard Large Cap
Value Portfolio, the Lazard
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Small Cap Portfolio, the Capital Guardian Research Portfolio, the Capital
Guardian U.S. Equity Portfolio and the Capital Guardian International Portfolio
may not invest in commodities or commodity contracts including futures
contracts. As a matter of operating policy, the ALLIANCE AGGRESSIVE STOCK
PORTFOLIO, ALLIANCE BALANCED PORTFOLIO, ALLIANCE COMMON STOCK PORTFOLIO,
ALLIANCE CONSERVATIVE INVESTORS PORTFOLIO, ALLIANCE EQUITY INDEX PORTFOLIO,
ALLIANCE GLOBAL PORTFOLIO, ALLIANCE GROWTH AND INCOME PORTFOLIO, ALLIANCE GROWTH
INVESTORS PORTFOLIO, ALLIANCE HIGH YIELD PORTFOLIO, ALLIANCE INTERMEDIATE
GOVERNMENT SECURITIES PORTFOLIO, ALLIANCE INTERNATIONAL PORTFOLIO, ALLIANCE
QUALITY BOND PORTFOLIO, ALLIANCE SMALL CAP GROWTH PORTFOLIO, AND EQ/Alliance
Premier Growth Portfolio may purchase and sell exchange-traded index options and
stock index futures contracts.
(2) Purchase: (a) illiquid securities; (b) securities restricted as to resale
(excluding securities determined by the Board of Trustees to be readily
marketable); and (c) repurchase agreements maturing in more than seven days
if, as a result, more than 15% of each Portfolio's net assets (10% for the
ALLIANCE MONEY MARKET PORTFOLIO, Warburg Pincus Small Company Value Portfolio,
Lazard Large Cap Value Portfolio and Lazard Small Cap Value Portfolio) would be
invested in such securities. Securities purchased in accordance with Rule 144A
under the 1933 Act and determined to be liquid by the Trust's Board are not
subject to the limitations set forth in this investment restriction;
(3) Purchase securities on margin, except that each Portfolio may: (a) make use
of any short-term credit necessary for clearance of purchases and sales of
portfolio securities; and (b) make initial or variation margin deposits in
connection with futures contracts, options, currencies, or other permissible
investments;
(4) Mortgage, pledge, hypothecate or, in any manner, transfer any security owned
by the Portfolio as security for indebtedness, except as may be necessary in
connection with permissible borrowings or investments; and then such mortgaging,
pledging or hypothecating may not exceed 33 1/3% of the respective total assets
of each Portfolio (except as specified below for the EQ/Putnam International
Equity Portfolio, Merrill Lynch World Strategy Portfolio, Merrill Lynch Basic
Value Equity Portfolio and MFS Investor Portfolio). Such mortgaging, pledging or
hypothecating may not exceed 15% of EQ/Putnam International Equity Portfolio's
total assets; 10% of each of the Merrill Lynch World Strategy Portfolio's and
Merrill Lynch Basic Value Equity Portfolio's total assets, (taken at the lower
of cost or market value); and 15% of MFS Investor Portfolio's gross assets
(taken at cost), each taken at the time of the permissible borrowing or
investment. THE ALLIANCE PORTFOLIOS WILL NOT PLEDGE ASSETS FOR LEVERAGING
PURPOSES. The deposit of underlying securities and other assets in escrow and
collateral arrangements with respect to margin accounts for futures contracts,
options, currencies or other permissible investments are not deemed to be
mortgages, pledges, or hypothecations for these purposes;
(5) Purchase participations or other direct interests in or enter into leases
with respect to, oil, gas, or other mineral exploration or development programs,
except that the MFS Emerging Growth Companies Portfolio, Warburg Pincus Small
Company Value Portfolio, Merrill Lynch World Strategy Portfolio, Merrill Lynch
Basic Value Equity Portfolio, JPM Core Bond Portfolio, EQ/Evergreen Foundation
Portfolio, EQ/Evergreen Portfolio, EQ/Alliance Premier Growth Portfolio, Capital
Guardian Research Portfolio, Capital Guardian U.S. Equity Portfolio and Capital
Guardian International Portfolio may invest in securities issued by companies
that engage in oil, gas or other mineral exploration or development activities
or hold mineral leases acquired as a result of its ownership of securities;
(6) Invest in puts, calls, straddles, spreads, swaps or any combination thereof,
except to the extent permitted by the Portfolio's Prospectus and Statement of
Additional Information, as may be amended from time to time.
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(7) Effect short sales of securities unless at all times when a short position
is open the Portfolio owns an equal amount of such securities or owns securities
which, without payment of any further consideration, are convertible into or
exchangeable for securities of the same issue as, and at least equal in amount
to, the securities sold short. Permissible futures contracts, options, or
currency transactions will not be deemed to constitute selling securities short.
As a matter of operating policy, the Capital Guardian Research Portfolio,
Capital Guardian U.S. Equity Portfolio and Capital Guardian International
Portfolio will not effect short sales of securities or property.
INVESTMENT STRATEGIES AND RISKS
In addition to the Portfolios' principal investment strategies discussed in the
Prospectus, each Portfolio may engage in other types of investment strategies as
further described in the descriptions below. Each Portfolio may invest in or
utilize any of these investment strategies and instruments or engage in any of
these practices except where otherwise prohibited by law or the Portfolio's own
investment restrictions. Portfolios that anticipate committing 5% or more of
their net assets to a particular type of investment strategy or instrument are
specifically referred to in the descriptions below of such investment strategy
or instrument.
ASSET-BACKED SECURITIES. As indicated in Appendix A, certain OF THE PORTFOLIOS
may invest in asset-backed securities. Asset-backed securities, issued by trusts
and special purpose corporations, are collateralized by a pool of assets, such
as credit card or automobile loans, home equity loans or computer leases, and
represent the obligations of a number of different parties. Asset-backed
securities present certain risks. For instance, in the case of credit card
receivables, these securities are generally unsecured and the debtors are
entitled to the protection of a number of state and federal consumer credit
laws, many of which give such debtors the right to set off certain amounts owed
on the credit cards, thereby reducing the balance due. In the case of automobile
loans, most issuers of automobile receivables permit the servicers to retain
possession of the underlying obligations. If the servicer were to sell these
obligations to another party, there is a risk that the purchaser would acquire
an interest superior to that of the holders of the related automobile
receivables. In addition, because of the large number of vehicles involved in a
typical issuance and technical requirements under state laws, the trustee for
the holders of the automobile receivables may not have a proper security
interest in all of the obligations backing such receivables. Therefore, there is
the possibility that recoveries on repossessed collateral may not, in some
cases, be available to support payments on these securities.
To lessen the effect of failures by obligors on underlying assets to make
payments, the securities may contain elements of credit support which fall into
two categories: (i) liquidity protection and (ii) protection against losses
resulting from ultimate default by an obligor on the underlying assets.
Liquidity protection refers to the provision of advances, generally by the
entity administering the pool of assets, to ensure that the receipt of payments
on the underlying pool occurs in a timely fashion. Protection against losses
resulting from ultimate default ensures payment through insurance policies or
letters of credit obtained by the issuer or sponsor from third parties. A
Portfolio will not pay any additional or separate fees for credit support. The
degree of credit support provided for each issue is generally based on
historical information respecting the level of credit risk associated with the
underlying assets. Delinquency or loss in excess of that anticipated or failure
of the credit support could adversely affect the return on an investment in such
a security.
Due to the possibility that prepayments (on automobile loans and other
collateral) will alter the cash flow on asset-backed securities, it is not
possible to determine in advance the actual final maturity date or average life.
Faster prepayment will shorten the average life and slower prepayments will
lengthen it. However, it is possible to determine what the range of that
movement could be and to calculate the effect that it will have on the price of
the security. In selecting these securities, the Adviser will look for those
securities that offer a higher yield to compensate for any variation in average
maturity.
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BRADY BONDS. As indicated in Appendix A, certain OF THE Portfolios may invest
in Brady Bonds. Brady Bonds are fixed income securities created through the
exchange of existing commercial bank loans to foreign entities for new
obligations in connection with debt restructuring under a plan introduced by
Nicholas F. Brady when he was the United States Secretary of the Treasury. Brady
Bonds have been issued only recently, and, accordingly, do not have a long
payment history. They may be collateralized or uncollateralized and issued in
various currencies (although most are United States dollar-denominated) and they
are actively traded in the over-the-counter secondary market. Each Portfolio
will invest in Brady Bonds only if they are consistent with quality
specifications established from time to time by the Adviser to that Portfolio.
CONVERTIBLE SECURITIES. AS INDICATED IN APPENDIX A, CERTAIN of the Portfolios
may invest in convertible securities, including both convertible debt and
convertible preferred stock. Such securities may be converted into shares of the
underlying common stock at either a stated price or stated rate, which enable an
investor to benefit from increases in the market price of the underlying common
stock. Convertible securities provide higher yields than the underlying common
stocks, but generally offer lower yields than nonconvertible securities of
similar quality. Like bonds, the value of convertible securities fluctuates in
relation to changes in interest rates and, in addition, fluctuates in relation
to the underlying common stock. Subsequent to purchase by a Portfolio,
convertible securities may cease to be rated or a rating may be reduced below
the minimum required for purchase by that Portfolio. Neither event will require
sale of such securities, although each Adviser will consider such event in its
determination of whether a Portfolio should continue to hold the securities.
DEPOSITARY RECEIPTS. As indicated in Appendix A, certain OF THE PORTFOLIOS may
invest in depositary receipts. Depositary receipts exist for many foreign
securities and are securities representing ownership interests in securities of
foreign companies (an "underlying issuer") and are deposited with a securities
depositary. Depositary receipts are not necessarily denominated in the same
currency as the underlying securities. Depositary receipts include American
Depositary Receipts ("ADRs"), Global Depositary Receipts ("GDRs") and other
types of depositary receipts (which, together with ADRs and GDRs, are
hereinafter collectively referred to as "Depositary Receipts"). ADRs are
dollar-denominated depositary receipts typically issued by a United States
financial institution which evidence ownership interests in a security or pool
of securities issued by a foreign issuer. ADRs are listed and traded in the
United States. GDRs and other types of depositary receipts are typically issued
by foreign banks or trust companies, although they also may be issued by United
States financial institutions, and evidence ownership interests in a security or
pool of securities issued by either a foreign or a United States corporation.
Generally, depositary receipts in registered form are designed for use in the
United States securities market and depositary receipts in bearer form are
designed for use in securities markets outside the United States. Although there
may be more reliable information available regarding issuers of certain ADRs
that are issued under so-called "sponsored" programs and ADRs do not involve
foreign currency risks, ADRs and other depositary receipts are subject to the
risks of other investments in foreign securities, as described directly above.
Depositary receipts may be "sponsored" or "unsponsored". Sponsored depositary
receipts are established jointly by a depositary and the underlying issuer,
whereas unsponsored depositary receipts may be established by a depositary
without participation by the underlying issuer. Holders of an unsponsored
depositary receipt generally bear all the costs associated with establishing the
unsponsored depositary receipt. In addition, the issuers of the securities
underlying unsponsored depositary receipts are not obligated to disclose
material information in the United States and, therefore, there may be less
information available regarding such issuers and there may not be a correlation
between such information and the market value of the depositary receipts. For
purposes of a Portfolio's investment policies, the Portfolio's investment in
depositary receipts will be deemed to be investments in the underlying
securities except as noted.
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DERIVATIVES. Each Portfolio (except the MFS Research PORTFOLIO AND THE ALLIANCE
MONEY MARKET Portfolio) may invest in one or more types of derivatives.
Derivatives are financial products or instruments that derive their value from
the value of one or more underlying assets, reference rates or indices.
Derivatives include, but are not limited to, the following: asset-backed
securities, floaters and inverse floaters, hybrid instruments, mortgage-backed
securities, options and future transactions, stripped mortgage-backed
securities, structured notes and swaps. Further information about these
instruments and the risks involved in their use are contained under the
description of each of these instruments in this section.
EURODOLLAR AND YANKEE DOLLAR OBLIGATIONS. Eurodollar bank obligations are United
States dollar-denominated certificates of deposit and time deposits issued
outside the United States capital markets by foreign branches of United States
banks and by foreign banks. Yankee dollar bank obligations are United States
dollar-denominated obligations issued in the United States capital markets by
foreign banks.
Eurodollar and Yankee dollar obligations are subject to the same risks that
pertain to domestic issues, notably credit risk, market risk and liquidity risk.
Additionally, Eurodollar (and to a limited extent, Yankee dollar) obligations
are subject to certain sovereign risks. One such risk is the possibility that a
sovereign country might prevent capital, in the form of dollars, from flowing
across its borders. Other risks include adverse political and economic
developments; the extent and quality of government regulation of financial
markets and institutions; the imposition of foreign withholding taxes; and the
expropriation or nationalization of foreign issuers.
FLOATERS AND INVERSE FLOATERS. As indicated in Appendix A, certain OF THE
PORTFOLIOS may invest in Floaters and Inverse Floaters. Floaters and Inverse
Floaters are fixed income securities with a floating or variable rate of
interest, i.e., the rate of interest varies with changes in specified market
rates or indices, such as the prime rate, or at specified intervals. Certain
floaters may carry a demand feature that permits the holder to tender them back
to the issuer of the underlying instrument, or to a third party, at par value
prior to maturity. When the demand feature of certain floaters represents an
obligation of a foreign entity, the demand feature will be subject to certain
risks discussed under "Foreign Securities ".
In addition, the Morgan Stanley Emerging Markets Equity Portfolio may invest in
inverse floating rate obligations which are fixed income securities that have
coupon rates that vary inversely at a multiple of a designated floating rate,
such as London Inter-Bank Offered Rate ("LIBOR"). Any rise in the reference rate
of an inverse floater (as a consequence of an increase in interest rates) causes
a drop in the coupon rate while any drop in the reference rate of an inverse
floater causes an increase in the coupon rate. Inverse floaters may exhibit
substantially greater price volatility than fixed rate obligations having
similar credit quality, redemption provisions and maturity, and inverse floater
collateralized mortgage obligations ("CMOs") exhibit greater price volatility
than the majority of mortgage-related securities. In addition, some inverse
floater CMOs exhibit extreme sensitivity to changes in prepayments. As a result,
the yield to maturity of an inverse floater CMO is sensitive not only to changes
in interest rates but also to changes in prepayment rates on the related
underlying mortgage assets.
FOREIGN CURRENCY TRANSACTIONS. As indicated in Appendix A, certain OF THE
PORTFOLIOS may purchase securities denominated in foreign currencies, including
the purchase of foreign currency on a spot (or cash) basis. A change in the
value of any such currency against the United States dollar will result in a
change in the United States dollar value of a Portfolio's assets and income. In
addition, although a portion of a Portfolio's investment income may be received
or realized in such currencies, the Portfolio will be required to compute and
distribute its income in United States dollars. Therefore, if the exchange rate
for any such currency declines after a Portfolio's income has been earned and
computed in United States dollars but before conversion and payment, the
Portfolio could be required to liquidate portfolio securities to make such
distributions.
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Currency exchange rates may be affected unpredictably by intervention (or the
failure to intervene) by United States or foreign governments or central banks,
by currency controls or political developments in the United States or abroad.
For example, significant uncertainty surrounds the recent introduction of the
Euro (a common currency for the European Union) in January 1999 and its effect
on the value of securities denominated in local European currencies. These and
other currencies in which a Portfolio's assets are denominated may be devalued
against the United States dollar, resulting in a loss to the Portfolio. Certain
Portfolios may also invest in the following types of foreign currency
transactions:
FORWARD FOREIGN CURRENCY TRANSACTIONS. As indicated in Appendix A,
certain OF THE PORTFOLIOS may engage in forward foreign currency exchange
transactions. A forward foreign currency exchange contract ("forward contract")
involves an obligation to purchase or sell a specific currency at a future date,
which may be any fixed number of days from the date of the contract agreed upon
by the parties, at a price set at the time of the contract. These contracts are
principally traded in the interbank market conducted directly between currency
traders (usually large, commercial banks) and their customers. A forward
contract generally has no margin deposit requirement, and no commissions are
charged at any stage for trades.
A Portfolio may enter into forward contracts for a variety of purposes in
connection with the management of the foreign securities portion of its
portfolio. A Portfolio's use of such contracts will include, but not be
limited to, the following situations.
First, when the Portfolio enters into a contract for the purchase or sale of a
security denominated in a foreign currency, it may desire to "lock in" the
United States dollar price of the security. By entering into a forward contract
for the purchase or sale, for a fixed amount of dollars, of the amount of
foreign currency involved in the underlying security transactions, the Portfolio
will be able to protect itself against a possible loss resulting from an adverse
change in the relationship between the United States dollar and the subject
foreign currency during the period between the date the security is purchased or
sold and the date on which payment is made or received.
Second, when a Portfolio's Adviser believes that one currency may experience a
substantial movement against another currency, including the United States
dollar, it may enter into a forward contract to sell or buy the amount of the
former foreign currency, approximating the value of some or all of the
Portfolio's portfolio securities denominated in such foreign currency.
Alternatively, where appropriate, the Portfolio may hedge all or part of its
foreign currency exposure through the use of a basket of currencies,
multinational currency units, or a proxy currency where such currency or
currencies act as an effective proxy for other currencies. In such a case, the
Portfolio may enter into a forward contract where the amount of the foreign
currency to be sold exceeds the value of the securities denominated in such
currency. The use of this basket hedging technique may be more efficient and
economical than entering into separate forward contracts for each currency held
in the Portfolio.
The precise matching of the forward contract amounts and the value of the
securities involved will not generally be possible since the future value of
such securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the forward contract
is entered into and the date it matures. The projection of short-term currency
market movement is extremely difficult, and the successful execution of a
short-term hedging strategy is highly uncertain. Under normal circumstances,
consideration of the prospect for currency parities will be incorporated into
the diversification strategies. However, the Adviser to the Portfolio believes
that it is important to have the flexibility to enter into such forward
contracts when it determines that the best interests of the Portfolio will be
served.
A Portfolio may enter into forward contracts for any other purpose consistent
with the Portfolio's investment objective and program. However, the Portfolio
will not enter into a forward contract, or
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maintain exposure to any such contract(s), if the amount of foreign currency
required to be delivered thereunder would exceed the Portfolio's holdings of
liquid, securities and currency available for cover of the forward contract(s).
In determining the amount to be delivered under a contract, the Portfolio may
net offsetting positions.
At the maturity of a forward contract, a Portfolio may sell the portfolio
security and make delivery of the foreign currency, or it may retain the
security and either extend the maturity of the forward contract (by "rolling"
that contract forward) or may initiate a new forward contract. If a Portfolio
retains the portfolio security and engages in an offsetting transaction, the
Portfolio will incur a gain or a loss (as described below) to the extent that
there has been movement in forward contract prices. If the Portfolio engages in
an offsetting transaction, it may subsequently enter into a new forward contract
to sell the foreign currency.
Should forward prices decline during the period between the Portfolio's entering
into a forward contract for the sale of a foreign currency and the date it
enters into an offsetting contract for the purchase of the foreign currency, the
Portfolio will realize a gain to the extent the price of the currency it has
agreed to sell exceeds the price of the currency it has agreed to purchase.
Should forward prices increase, the Portfolio will suffer a loss to the extent
the price of the currency it has agreed to purchase exceeds the price of the
currency it has agreed to sell.
Although EACH Portfolio values its assets daily in terms of United States
dollars, it does not intend to convert its holdings of foreign currencies into
United States dollars on a daily basis. The A Portfolio will do so from time
to time, and investors should be aware of the costs of currency conversion.
Although foreign exchange dealers do not charge a fee for conversion, they do
realize a profit based on the difference ("spread") between the prices at which
they are buying and selling various currencies. Thus, a dealer may offer to sell
a foreign currency to a Portfolio at one rate, while offering a lesser rate of
exchange should the Portfolio desire to resell that currency to the dealer.
FOREIGN CURRENCY OPTIONS, FOREIGN CURRENCY FUTURES CONTRACTS AND
OPTIONS ON FUTURES. As indicated in Appendix A, certain OF THE PORTFOLIOS may
also purchase and sell foreign currency futures contracts and may purchase and
write exchange-traded call and put options on foreign currency futures contracts
and on foreign currencies. Each Portfolio, if permitted in the Prospectus, may
purchase or sell exchange-traded 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 currency or on foreign currency futures contracts only
if they are "covered." A put on a foreign currency or on a foreign currency
futures contract written by a Portfolio will be considered "covered" if, so long
as the Portfolio is obligated as the writer of the put, it segregates with the
Portfolio's custodian cash, United States Government securities or other liquid
high-grade debt securities equal at all times to the aggregate exercise price of
the put. A call on a foreign currency or on a foreign currency 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-United States
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 United States
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.
OVER THE COUNTER OPTIONS ON FOREIGN CURRENCY TRANSACTIONS. AS
INDICATED IN APPENDIX A CERTAIN OF THE PORTFOLIOS MAY ENGAGE IN OVER-THE-COUNTER
OPTIONS ON FOREIGN CURRENCY
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TRANSACTIONS. EACH ALLIANCE PORTFOLIO (OTHER THAN THE ALLIANCE EQUITY INDEX
PORTFOLIO, ALLIANCE MONEY MARKET PORTFOLIO, AND ALLIANCE INTERMEDIATE GOVERNMENT
SECURITIES PORTFOLIO) AND THE Merrill Lynch World Strategy Portfolio will
engage in over-the-counter options on foreign currency transactions only with
financial institutions that have capital of at least $50 million or whose
obligations are guaranteed by an entity having capital of at least $50 million.
The MFS Emerging Growth Companies Portfolio may only enter into forward
contracts on currencies in the over-the-counter market. The Advisers may engage
in these transactions to protect against uncertainty in the level of future
exchange rates in connection with the purchase and sale of portfolio securities
("transaction hedging") and to protect the value of specific portfolio positions
("position hedging"). 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. A futures
contract on a foreign currency is an agreement between two parties to buy and
sell a specified amount of the currency for a set price on a future date.
Futures contracts and listed options on futures contracts are traded on boards
of trade or futures exchanges. Options traded in the over-the-counter market may
not be as actively traded as those on an exchange, so it may be more difficult
to value such options. In addition, it may be difficult to enter into closing
transactions with respect to options traded over-the-counter.
Hedging transactions involve costs and may result in losses. As indicated in
Appendix A, certain of the Portfolios may also write covered call options on
foreign currencies to offset some of the costs of hedging those currencies. A
Portfolio will engage in over-the-counter options transactions on foreign
currencies only when appropriate exchange traded transactions are unavailable
and when, in the Adviser's opinion, the pricing mechanism and liquidity are
satisfactory and the participants are responsible parties likely to meet their
contractual obligations. A Portfolio's ability to engage in hedging and related
option transactions may be limited by tax considerations.
Transactions and position hedging do not eliminate fluctuations in the
underlying prices of the securities which the Portfolios own or intend to
purchase or sell. They simply establish a rate of exchange which one can achieve
at some future point in time. Additionally, although these techniques tend to
minimize the risk of loss due to a decline in the value of the hedged currency,
they tend to limit any potential gain which might result from the increase in
the value of such currency.
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.
For additional information concerning the risks associated with utilizing
options, forward foreign currency exchange contracts, please see "Risks of
Transactions in Options, Futures Contracts and Forward Currency CONTRACTS" in
this SECTION.
FOREIGN SECURITIES. As indicated in Appendix A, certain OF THE Portfolios may
also invest in other types of foreign securities or engage in the certain types
of transactions related to foreign securities, such as Brady Bonds, Depositary
Receipts, Eurodollar and Yankee Dollar Obligations and Foreign Currency
Transactions, including forward foreign currency transactions, foreign currency
options and foreign currency futures contracts and options on futures. Further
information about these instruments and the risks involved in their use are
contained under the description of each of these instruments in this section.
Foreign investments involve certain risks that are not present in domestic
securities. For example, foreign securities may be subject to currency risks or
to foreign government taxes which reduce their
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attractiveness. There may be less information publicly available about a foreign
issuer than about a United States issuer, and a foreign issuer is not generally
subject to uniform accounting, auditing and financial reporting standards and
practices comparable to those in the United States. 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. 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.
Foreign stock markets are generally not as developed or efficient as, and may be
more volatile than, those in the United States. While growing in volume, they
usually have substantially less volume than United States markets and a
Portfolio's investment securities may be less liquid and subject to more rapid
and erratic price movements than securities of comparable United States
companies. Equity securities may trade at price/earnings multiples higher than
comparable United States securities and such levels may not be sustainable.
There is generally less government supervision and regulation of foreign stock
exchanges, brokers, banks and listed companies abroad than in the United States.
Moreover, settlement practices for transactions in foreign markets may differ
from those in United States markets. Such differences may include delays beyond
periods customary in the United States and practices, such as delivery of
securities prior to receipt of payment, which increase the likelihood of a
"failed settlement", which can result in losses to a Portfolio.
The value of foreign investments and the investment income derived from them may
also be affected unfavorably by changes in currency exchange control
regulations. Although the Portfolios will invest only in securities denominated
in foreign currencies that are fully exchangeable into United States dollars
without legal restriction at the time of investment, there can be no assurance
that currency controls will not be imposed subsequently. In addition, the value
of foreign fixed income investments may fluctuate in response to changes in
United States and foreign interest rates.
Foreign brokerage commissions, custodial expenses and other fees are also
generally higher than for securities traded in the United States. Consequently,
the overall expense ratios of international or global funds are usually somewhat
higher than those of typical domestic stock funds.
Moreover, investments in foreign government debt securities, particularly those
of emerging market country governments, involve special risks. Certain emerging
market countries have historically experienced, and may continue to experience,
high rates of inflation, high interest rates, exchange rate fluctuations, large
amounts of external debt, balance of payments and trade difficulties and extreme
poverty and unemployment. SEE "EMERGING MARKET SECURITIES" BELOW FOR ADDITIONAL
RISKS.
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Fluctuations in exchange rates may also affect the earning power and asset value
of the foreign entity issuing a security, even one denominated in United States
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.
In less liquid and well developed stock markets, such as those in some Eastern
European, Southeast Asian, and Latin American countries, volatility may be
heightened by actions of a few major investors. For example, substantial
increases or decreases in cash flows of mutual funds investing in these markets
could significantly affect stock prices and, therefore, share prices.
Additionally, investments in emerging market regions or the following geographic
regions are subject to more specific risks, as discussed below:
EMERGING MARKET SECURITIES. Investments in emerging market country
securities involve special risks. The economies, markets and political
structures of a number of the emerging market countries in which the Portfolios
can invest do not compare favorably with the United States and other mature
economies in terms of wealth and stability. Therefore, investments in these
countries may be riskier, and will be subject to erratic and abrupt price
movements. Some economies are less well developed and less diverse (for example,
Latin America, Eastern Europe and certain Asian countries), and more vulnerable
to the ebb and flow of international trade, trade barriers and other
protectionist or retaliatory measures. Similarly, many of these countries,
particularly in Southeast Asia, Latin America, and Eastern Europe, are grappling
with severe inflation or recession, high levels of national debt, currency
exchange problems and government instability. Investments in countries that have
recently begun moving away from central planning and state-owned industries
toward free markets, such as the Eastern European or Chinese economies, should
be regarded as speculative.
Certain emerging market countries have historically experienced, and may
continue to experience, high rates of inflation, high interest rates, exchange
rate fluctuations, large amounts of external debt, balance of payments and trade
difficulties and extreme poverty and unemployment. The issuer or governmental
authority that controls the repayment of an emerging market country's debt may
not be able or willing to repay the principal and/or interest when due in
accordance with the terms of such debt. A DEBTOR'S WILLINGNESS OR ABILITY TO
REPAY PRINCIPAL AND INTEREST DUE IN A TIMELY MANNER MAY BE AFFECTED BY, AMONG
OTHER FACTORS, ITS CASH FLOW SITUATION, AND, IN THE CASE OF A GOVERNMENT DEBTOR,
THE EXTENT OF ITS FOREIGN RESERVES, THE AVAILABILITY OF SUFFICIENT FOREIGN
EXCHANGE ON THE DATE A PAYMENT IS DUE, THE RELATIVE SIZE OF THE DEBT SERVICE
BURDEN TO THE ECONOMY AS A WHOLE AND THE POLITICAL CONSTRAINTS TO WHICH A
GOVERNMENT DEBTOR MAY BE SUBJECT. GOVERNMENT DEBTORS MAY DEFAULT ON THEIR DEBT
AND MAY ALSO BE DEPENDENT ON EXPECTED DISBURSEMENTS FROM FOREIGN GOVERNMENTS,
MULTILATERAL AGENCIES AND OTHERS ABROAD TO REDUCE PRINCIPAL AND INTEREST
ARREARAGES ON THEIR DEBT. HOLDERS OF GOVERNMENT DEBT MAY BE REQUESTED TO
PARTICIPATE IN THE RESCHEDULING OF SUCH DEBT AND TO EXTEND FURTHER LOANS TO
GOVERNMENT DEBTORS.
If such an event occurs, a Portfolio may have limited legal recourse against
the issuer and/or guarantor. Remedies must, in some cases, be pursued in the
courts of the defaulting party itself, and the ability of the holder of foreign
government fixed income securities to obtain recourse may be subject to the
political climate in the relevant country. In addition, no assurance can be
given that the holders of commercial bank debt will not contest payments to the
holders of other foreign government debt obligations in the event of default
under their commercial bank loan agreements.
The economies of individual emerging market countries may differ favorably or
unfavorably from the United States economy in such respects as growth of gross
domestic product, rate of inflation, currency depreciation, capital
reinvestment, resource self-sufficiency and balance of payments position.
Further, the economies of developing countries generally are heavily dependent
upon international trade and, accordingly, have been, and may continue to be,
adversely affected by trade barriers, exchange controls,
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managed adjustments in relative currency values and other protectionist measures
imposed or negotiated by the countries with which they trade. These economies
also have been, and may continue to be, adversely affected by economic
conditions in the countries with which they trade.
Investing in emerging market countries may entail purchasing securities issued
by or on behalf of entities that are insolvent, bankrupt, in default or
otherwise engaged in an attempt to reorganize or reschedule their obligations,
and in entities that have little or no proven credit rating or credit history.
In any such case, the issuer's poor or deteriorating financial condition may
increase the likelihood that the investing Portfolio will experience losses or
diminution in available gains due to bankruptcy, insolvency or fraud.
EASTERN EUROPEAN AND RUSSIAN SECURITIES. The economies of Eastern
European countries are currently suffering both from the stagnation resulting
from centralized economic planning and control and the higher prices and
unemployment associated with the transition to market economics. Unstable
economic and political conditions may adversely affect security values. Upon the
accession to power of Communist regimes approximately 40 years ago, the
governments of a number of Eastern European countries expropriated a large
amount of property. The claims of many property owners against those governments
were never finally settled. In the event of the return to power of the Communist
Party, there can be no assurance that a Portfolio's investments in Eastern
Europe would not be expropriated, nationalized or otherwise confiscated.
The registration, clearing and settlement of securities transactions involving
Russian issuers are subject to significant risks not normally associated with
securities transactions in the United States and other more developed markets.
Ownership of equity securities in Russian companies is evidenced by entries in a
company's share register (except where shares are held through depositories that
meet the requirements of the 1940 Act) and the issuance of extracts from the
register or, in certain limited cases, by formal share certificates. However,
Russian share registers are frequently unreliable and a Portfolio could possibly
lose its registration through oversight, negligence or fraud. Moreover, Russia
lacks a centralized registry to record shares and companies themselves maintain
share registers. Registrars are under no obligation to provide extracts to
potential purchasers in a timely manner or at all and are not necessarily
subject to effective state supervision. In addition, while registrars are liable
under law for losses resulting from their errors, it may be difficult for a
Portfolio to enforce any rights it may have against the registrar or issuer of
the securities in the event of loss of share registration. For example, Russian
companies with more than 1,000 shareholders are required by law to employ an
independent company to maintain share registers, in practice, such companies
have not always followed this law. Because of this lack of independence of
registrars, management of a Russian company may be able to exert considerable
influence over who can purchase and sell the company's shares by illegally
instructing the registrar to refuse to record transactions on the share
register. Furthermore, these practices could cause a delay in the sale of
Russian securities by a Portfolio if the company deems a purchaser unsuitable,
which may expose a Portfolio to potential loss on its investment.
In light of the risks described above, the Board of Trustees of the Trust has
approved certain procedures concerning a Portfolio's investments in Russian
securities. Among these procedures is a requirement that a Portfolio will not
invest in the securities of a Russian company unless that issuer's registrar has
entered into a contract with a Portfolio's custodian containing certain
protective conditions, including, among other things, the custodian's right to
conduct regular share confirmations on behalf of a Portfolio. This requirement
will likely have the effect of precluding investments in certain Russian
companies that a Portfolio would otherwise make.
PACIFIC BASIN REGION. Many Asian countries may be subject to a greater
degree of social, political and economic instability than is the case in the
United States and European countries. Such instability may result from (i)
authoritarian governments or military involvement in political and economic
decision-making; (ii) popular unrest associated with demands for improved
political, economic
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and social conditions; (iii) internal insurgencies; (iv) hostile relations with
neighboring countries; and (v) ethnic, religious and racial disaffection.
The economies of most of the Asian countries are heavily dependent on
international trade and are accordingly affected by protective trade barriers
and the economic conditions of their trading partners, principally, the United
States, Japan, China and the European Community. The enactment by the United
States or other principal trading partners of protectionist trade legislation,
reduction of foreign investment in the local economies and general declines in
the international securities markets could have a significant adverse effect
upon the securities markets of the Asian countries.
The securities markets in Asia are substantially smaller, less liquid and more
volatile than the major securities markets in the United States. A high
proportion of the shares of many issuers may be held by a limited number of
persons and financial institutions, which may limit the number of shares
available for investment by a Portfolio. Similarly, volume and liquidity in the
bond markets in Asia are less than in the United States and, at times, price
volatility can be greater than in the United States. A limited number of issuers
in Asian securities markets may represent a disproportionately large percentage
of market capitalization and trading value. The limited liquidity of securities
markets in Asia may also affect a Portfolio's ability to acquire or dispose of
securities at the price and time it wishes to do so. In addition, the Asian
securities markets are susceptible to being influenced by large investors
trading significant blocks of securities.
Many stock markets are undergoing a period of growth and change which may result
in trading volatility and difficulties in the settlement and recording of
transactions, and in interpreting and applying the relevant law and regulations.
With respect to investments in the currencies of Asian countries, changes in the
value of those currencies against the United States dollar will result in
corresponding changes in the United States dollar value of a Portfolio's assets
denominated in those currencies.
FORWARD COMMITMENTS, WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. Forward
commitments, when-issued and delayed delivery transactions arise when securities
are purchased by a Portfolio with payment and delivery taking place in the
future in order to secure what is considered to be an advantageous price or
yield to the Portfolio at the time of entering into the transaction. However,
the price of or yield on a comparable security available when delivery takes
place may vary from the price of or yield on the security at the time that the
forward commitment or when-issued or delayed delivery transaction was entered
into. Agreements for such purchases might be entered into, for example, when a
Portfolio anticipates a decline in interest rates and is able to obtain a more
advantageous price or yield by committing currently to purchase securities to be
issued later. When a Portfolio purchases securities on a forward commitment,
when-issued or delayed delivery basis it does not pay for the securities until
they are received, and the Portfolio is required to create a segregated account
with the Trust's custodian and to maintain in that account cash or other liquid
securities 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.
Each Portfolio (except the Warburg Pincus Small Company Value Portfolio) may
make contracts to purchase forward commitments if it holds, and maintains until
the settlement date in a segregated account, cash or liquid securities in an
amount sufficient to meet the purchase price, or if it enters into offsetting
contracts for the forward sale of other securities it owns. Forward commitments
may be considered securities in themselves and involve a risk of loss if the
value of the security to be purchased declines prior to the settlement date,
which risk is in addition to the risk of decline in value of the Portfolio's
other assets. Where such purchases are made through dealers, a Portfolio relies
on the dealer to consummate the sale. The dealer's failure to do so may result
in the loss to a Portfolio of an advantageous yield or price.
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A Portfolio will only enter into forward commitments and make commitments to
purchase securities on a when-issued or delayed delivery basis with the
intention of actually acquiring the securities. However, the Portfolio may sell
these securities before the settlement date if it is deemed advisable as a
matter of investment strategy. Forward commitments and when-issued and delayed
delivery transactions are generally expected to settle within three months from
the date the transactions are entered into, although the Portfolio may close out
its position prior to the settlement date by entering into a matching sales
transaction.
Although none of the Portfolios intends to make such purchases for speculative
purposes and each Portfolio intends to adhere to the policies of the Securities
and Exchange Commission ("SEC"), purchases of securities on such a basis may
involve more risk than other types of purchases. For example, by committing to
purchase securities in the future, a Portfolio subjects itself to a risk of loss
on such commitments as well as on its portfolio securities. Also, a Portfolio
may have to sell assets which have been set aside in order to meet redemptions.
In addition, if a Portfolio determines it is advisable as a matter of investment
strategy to sell the forward commitment or when-issued or delayed delivery
securities before delivery, that Portfolio may incur a gain or loss because of
market fluctuations since the time the commitment to purchase such securities
was made. Any such gain or loss would be treated as a capital gain or loss and
would be treated for tax purposes as such. When the time comes to pay for the
securities to be purchased under a forward commitment or on a when-issued or
delayed delivery basis, a Portfolio will meet its obligations from the then
available cash flow or the sale of securities, or, although it would not
normally expect to do so, from the sale of the forward commitment or when-issued
or delayed delivery securities themselves (which may have a value greater or
less than a Portfolio's payment obligation).
FUTURES TRANSACTIONS. For information on "Futures Transactions," see the
discussion in this section under "Options and Futures Transactions."
HYBRID INSTRUMENTS. As indicated in Appendix A, certain OF THE Portfolios may
invest in hybrid instruments (a type of potentially high-risk derivative).
Hybrid instruments have recently been developed and combine the elements of
futures contracts or options with those of debt, preferred equity or a
depositary instrument. Generally, a hybrid instrument will be a debt security,
preferred stock, depositary share, trust certificate, certificate of deposit or
other evidence of indebtedness on which a portion of or all interest payments,
and/or the principal or stated amount payable at maturity, redemption or
retirement, is determined by reference to prices, changes in prices, or
differences between prices, of securities, currencies, intangibles, goods,
articles or commodities (collectively "Underlying Assets") or by another
objective index, economic factor or other measure, such as interest rates,
currency exchange rates, commodity indices, and securities indices (collectively
"Benchmarks"). Thus, hybrid instruments may take a variety of forms, including,
but not limited to, debt instruments with interest or principal payments or
redemption terms determined by reference to the value of a currency or commodity
or securities index at a future point in time, preferred stock with dividend
rates determined by reference to the value of a currency, or convertible
securities with the conversion terms related to a particular commodity rates.
Under certain conditions, the redemption value of such an instrument could be
zero. Hybrid instruments can have volatile prices and limited liquidity and
their use by a Portfolio may not be successful.
Hybrid instruments may bear interest or pay preferred dividends at below market
(or even relatively nominal) rates. Alternatively, hybrid instruments may bear
interest at above market rates but bear an increased risk of principal loss (or
gain). The latter scenario may result if "leverage" is used to structure the
hybrid instrument. Leverage risk occurs when the hybrid instrument is structured
so that a given change in a Benchmark or Underlying Asset is multiplied to
produce a greater value change in the hybrid instrument, thereby magnifying the
risk of loss as well as the potential for gain.
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Hybrid instruments can be an efficient means of creating exposure to a
particular market, or segment of a market, with the objective of enhancing total
return. For example, a Portfolio may wish to take advantage of expected declines
in interest rates in several European countries, but avoid the transaction costs
associated with buying and currency-hedging the foreign bond positions. One
solution would be to purchase a United States dollar-denominated hybrid
instrument whose redemption price is linked to the average three year interest
rate in a designated group of countries. The redemption price formula would
provide for payoffs of greater than par if the average interest rate was lower
than a specified level, and payoffs of less than par if rates were above the
specified level. Furthermore, a Portfolio could limit the downside risk of the
security by establishing a minimum redemption price so that the principal paid
at maturity could not be below a predetermined minimum level if interest rates
were to rise significantly. The purpose of this arrangement, known as a
structured security with an embedded put option, would be to give the Portfolio
the desired European bond exposure while avoiding currency risk, limiting
downside market risk, and lowering transaction costs. Of course, there is no
guarantee that the strategy will be successful and a Portfolio could lose money
if, for example, interest rates do not move as anticipated or credit problems
develop with the issuer of the hybrid instrument.
Although the risks of investing in hybrid instruments reflect a combination of
the risks of investing in securities, options, futures and currencies, hybrid
instruments are potentially more volatile and carry greater market risks than
traditional debt instruments. The risks of a particular hybrid instrument will,
of course, depend upon the terms of the instrument, but may include, without
limitation, the possibility of significant changes in the Benchmarks or the
prices of Underlying Assets to which the instrument is linked. Such risks
generally depend upon factors which are unrelated to the operations or credit
quality of the issuer of the hybrid instrument and which may not be readily
foreseen by the purchaser, such as economic and political events, the supply and
demand for the Underlying Assets and interest rate movements. In recent years,
various Benchmarks and prices for Underlying Assets have been highly volatile,
and such volatility may be expected in the future.
Hybrid instruments may also carry liquidity risk since the instruments are often
"customized" to meet the portfolio needs of a particular investor, and
therefore, the number of investors that are willing and able to buy such
instruments in the secondary market may be smaller than that for more
traditional debt securities. In addition, because the purchase and sale of
hybrid instruments could take place in an over-the-counter market without the
guarantee of a central clearing organization or in a transaction between the
portfolio and the issuer of the hybrid instrument, the creditworthiness of the
counter party or issuer of the hybrid instrument would be an additional risk
factor which the Portfolio would have to consider and monitor. Hybrid
instruments also may not be subject to regulation of the CFTC, which generally
regulates the trading of commodity futures by persons in the United States, the
SEC, which regulates the offer and sale of securities by and to persons in the
United States, or any other governmental regulatory authority. The various risks
discussed above, particularly the market risk of such instruments, may in turn
cause significant fluctuations in the net asset value of the Portfolio.
ILLIQUID SECURITIES OR NON-PUBLICLY TRADED SECURITIES. AS INDICATED IN APPENDIX
A, CERTAIN PORTFOLIOS MAY INVEST IN ILLIQUID SECURITIES OR NON-PUBLICLY TRADED
SECURITIES. The inability of a Portfolio to dispose of illiquid or not readily
marketable investments readily or at a reasonable price could impair A
Portfolio's ability to raise cash for redemptions or other purposes. The
liquidity of securities purchased by a Portfolio which are eligible for resale
pursuant to Rule 144A will be monitored by each Portfolio's Adviser on an
ongoing basis, subject to the oversight of the Board of Trustees of the Trust.
In the event that such a security is deemed to be no longer liquid, a
Portfolio's holdings will be reviewed to determine what action, if any, is
required to ensure that the retention of such security does not result in a
Portfolio's having more than 10% or 15% of its assets invested in illiquid or
not readily marketable securities.
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Rule 144A Securities will be considered illiquid and therefore subject to a
Portfolio's limit on the purchase of illiquid securities unless the Board or its
delegates determines that the Rule 144A Securities are liquid. In reaching
liquidity decisions, the Board of Trustees and its delegates may consider, inter
alia, the following factors: (i) the unregistered nature of the security; (ii)
the frequency of trades and quotes for the security; (iii) the number of dealers
wishing to purchase or sell the security and the number of other potential
purchasers; (iv) dealer undertakings to make a market in the security; and (v)
the nature of the security and the nature of the marketplace trades (e.g., the
time needed to dispose of the security, the method of soliciting offers and the
mechanics of the transfer).
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the 1933 Act, securities which are otherwise not readily
marketable and repurchase agreements having a maturity of longer than seven
days. Securities which have not been registered under the 1933 Act are referred
to as private placements or restricted securities and are purchased directly
from the issuer or in the secondary market. Mutual funds do not typically hold a
significant amount of these restricted or other illiquid securities because of
the potential for delays on resale and uncertainty in valuation. Limitations on
resale may have an adverse effect on the marketability of portfolio securities
and a mutual fund might be unable to dispose of restricted or other illiquid
securities promptly or at reasonable prices and might thereby experience
difficulty satisfying redemptions within seven days. A mutual fund might also
have to register such restricted securities in order to dispose of them
resulting in additional expense and delay. Adverse market conditions could
impede such a public offering of securities.
In recent years, however, a large institutional market has developed for certain
securities that are not registered under the 1933 Act including repurchase
agreements, commercial paper, foreign securities, municipal securities and
corporate bonds and notes. Institutional investors depend on an efficient
institutional market in which the unregistered security can be readily resold or
on an issuer's ability to honor a demand for repayment. The fact that there are
contractual or legal restrictions on resale to the general public or to certain
institutions may not be indicative of the liquidity of such investments.
INVESTMENT COMPANY SECURITIES. Investment company securities are securities of
other open-end or closed-end investment companies. The 1940 Act generally
prohibits a Portfolio from acquiring more than 3% of the outstanding voting
shares of an investment company and limits such investments to no more than 5%
of the Portfolio's total assets in any investment company and no more than 10%
in any combination of unaffiliated investment companies. The 1940 Act also
prohibits a Portfolio from acquiring shares of an open-end investment company
whose investment manager or investment adviser is the Adviser or an affiliate of
the Adviser to the Portfolio purchasing such securities. The 1940 Act further
prohibits a Portfolio from acquiring in the aggregate more than 10% of the
outstanding voting shares of any registered closed-end investment company.
INVESTMENT GRADE AND LOWER QUALITY FIXED INCOME SECURITIES. As indicated in
Appendix A, certain OF THE Portfolios may invest in or hold investment grade
securities, but not lower quality fixed income securities. Investment grade
securities are securities rated Baa or higher by Moody's Investors Service Inc.
("Moody's") or BBB or higher by Standard & Poor's Rating Services, a division of
McGraw-Hill Companies, Inc. ("STANDARD & POOR'S") or comparable quality
unrated securities. Investment grade securities while normally exhibiting
adequate protection parameters, have speculative characteristics, and,
consequently, changes in economic conditions or other circumstances are more
likely to lead to a weakened capacity of such issuers to make principal and
interest payments than is the case for higher grade fixed income securities.
Lower quality fixed income securities are securities that are rated in the lower
categories by nationally recognized statistical rating organizations ("NRSRO")
(i.e., Ba or lower by Moody's and BB or lower by STANDARD & POOR'S) or
comparable quality unrated securities. Such lower quality securities are
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known as "junk bonds" and are regarded as predominantly speculative with respect
to the issuer's continuing ability to meet principal and interest payments.
(Each NRSRO's descriptions of these bond ratings are set forth in the Appendix
to this Statement of Additional Information.) Because investment in lower
quality securities involves greater investment risk, achievement of a
Portfolio's investment objective will be more dependent on the Adviser's
analysis than would be the case if that Portfolio were investing in higher
quality bonds. In addition, lower quality securities may be more susceptible to
real or perceived adverse economic and individual corporate developments than
would investment grade bonds. Moreover, the secondary trading market for lower
quality securities may be less liquid than the market for investment grade
bonds. This potential lack of liquidity may make it more difficult for an
Adviser to value accurately certain portfolio securities.
It is the policy of each Portfolio's Adviser to not rely exclusively on ratings
issued by credit rating agencies but to supplement such ratings with the
Adviser's own independent and ongoing review of credit quality. Junk bonds may
be issued as a consequence of corporate restructuring, such as leveraged
buyouts, mergers, acquisitions, debt recapitalizations, or similar events or by
smaller or highly leveraged companies. When economic conditions appear to be
deteriorating, junk bonds may decline in market value due to investors'
heightened concern over credit quality, regardless of prevailing interest rates.
Although the growth of the high yield securities market in the 1980s had
paralleled a long economic expansion, many issuers have been affected by adverse
economic and market conditions. It should be recognized that an economic
downturn or increase in interest rates is likely to have a negative effect on:
(i) the high yield bond market; (ii) the value of high yield securities; and
(iii) the ability of the securities' issuers to service their principal and
interest payment obligations, to meet their projected business goals or to
obtain additional financing. The market for junk bonds, especially during
periods of deteriorating economic conditions, may be less liquid than the market
for investment grade bonds. In periods of reduced market liquidity, junk bond
prices may become more volatile and may experience sudden and substantial price
declines. Also, there may be significant disparities in the prices quoted for
junk bonds by various dealers. Under such conditions, a Portfolio may find it
difficult to value its junk bonds accurately. Under such conditions, a Portfolio
may have to use subjective rather than objective criteria to value its junk bond
investments accurately and rely more heavily on the judgment of the Trust's
Board of Trustees. Prices for junk bonds also may be affected by legislative and
regulatory developments. For example, federal rules require that savings and
loans gradually reduce their holdings of high-yield securities. Also, from time
to time, Congress has considered legislation to restrict or eliminate the
corporate tax deduction for interest payments or to regulate corporate
restructuring such as takeovers, mergers or leveraged buyouts. Such legislation,
if enacted, could depress the prices of outstanding junk bonds.
LOAN PARTICIPATIONS AND OTHER DIRECT INDEBTEDNESS. As indicated in Appendix A,
certain OF THE Portfolios may invest a portion of each of their assets in loan
participations and other direct indebtedness. These loans are made generally to
finance internal growth, mergers, acquisitions, stock repurchases, leveraged
buy-outs and other corporate activities. In purchasing a loan, a Portfolio
acquires some or all of the interest of a bank or other lending institution in a
loan to a corporate borrower. Many such loans are secured, although some may be
unsecured. Such loans may be in default at the time of purchase. Loans and other
direct indebtedness that are fully secured offer a Portfolio more protection
than an unsecured loan in the event of non-payment of scheduled interest or
principal. However, there is no assurance that the liquidation of collateral
from a secured loan or other direct indebtedness would satisfy the corporate
borrower's obligation, or that the collateral can be liquidated.
Certain of the loans and other direct indebtedness acquired by the Portfolio may
involve revolving credit facilities or other standby financing commitments which
obligate the Portfolio to pay additional cash on a certain date or on demand.
The highly leveraged nature of many such loans and other direct indebtedness may
make such loans especially vulnerable to adverse changes in economic or market
conditions. Loans
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and other direct indebtedness may not be in the form of securities or may be
subject to restrictions on transfer, and only limited opportunities may exist to
resell such instruments. As a result, the Portfolio may be unable to sell such
investments at an opportune time or may have to resell them at less than fair
market value. These commitments may have the effect of requiring a Portfolio to
increase its investment in a company at a time when a Portfolio might not
otherwise decide to do so (including at a time when the company's financial
condition makes it unlikely that such amounts will be repaid). To the extent
that a Portfolio is committed to advance additional funds, it will at all times
hold and maintain in a segregated account cash or assets in an amount sufficient
to meet such commitments.
Such loans and other direct indebtedness loans are typically made by a syndicate
of lending institutions, represented by an agent lending institution which has
negotiated and structured the loan and is responsible for collecting interest,
principal and other amounts due on its own behalf and on behalf of the others in
the syndicate, and for enforcing its rights and the rights of other loan
participants against the borrower. Alternatively, such loans and other direct
indebtedness may be structured as a "novation" (i.e., a new loan) pursuant to
which a Portfolio would assume all of the rights of the lending institution in a
loan, or as an assignment, pursuant to which a Portfolio would purchase an
assignment of a portion of a lender's interest in a loan or other direct
indebtedness either directly from the lender or through an intermediary. A
Portfolio may also purchase trade or other claims against companies, which
generally represent money owed by the company to a supplier of goods or
services. These claims may also be purchased at a time when the company is in
default.
A Portfolio's ability to receive payment of principal, interest and other
amounts due in connection with these investments will depend primarily on the
financial condition of the borrower. In selecting the loans and other direct
indebtedness that a Portfolio will purchase, the Adviser will rely upon its own
credit analysis of the borrower. As a Portfolio may be required to rely upon
another lending institution to collect and pass on to a Portfolio amounts
payable with respect to the loan and to enforce a Portfolio's rights under the
loan and other direct indebtedness, an insolvency, bankruptcy or reorganization
of the lending institution may delay or prevent a Portfolio from receiving such
amounts. In such cases, a Portfolio will also evaluate the creditworthiness of
the lending institution and will treat both the borrower and the lending
institutions as an "issuer" of the loan for purposes of certain investment
restrictions pertaining to the diversification of a Portfolio's portfolio
investments.
Investments in such loans and other direct indebtedness may involve additional
risks to a Portfolio. For example, if a loan or other direct indebtedness is
foreclosed, a 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, a Portfolio could be held liable. It is unclear whether loans
and other forms of direct indebtedness offer securities law protections against
fraud and misrepresentation. In the absence of definitive regulatory guidance, a
Portfolio relies on the Adviser's research in an attempt to avoid situations
where fraud and misrepresentation could adversely affect a Portfolio. In
addition, loans and other direct investments may not be in the form of
securities or may be subject to restrictions on transfer, and only limited
opportunities may exist to resell such instruments. As a result, a Portfolio may
be unable to sell such investments at an opportune time or may have to resell
them at less than fair market value. To the extent that the Adviser determines
that any such investments are illiquid, a Portfolio will include them in the
investment limitations described ABOVE.
MORTGAGE-BACKED OR MORTGAGE-RELATED SECURITIES. As indicated in Appendix A,
certain OF THE Portfolios may invest in mortgage-related securities (i.e.,
mortgage-backed securities). A mortgage-backed security may be an obligation of
the issuer backed by a mortgage or pool of mortgages or a direct interest in an
underlying pool of mortgages. Certain Portfolios may invest in collateralized
mortgage obligations ("CMOs") and stripped mortgage-backed securities that
represent a participation in, or are secured by, mortgage loans. Some
mortgage-backed securities, such as CMOs, make payments of both
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principal and interest at a variety of intervals; others make semiannual
interest payments at a predetermined rate and repay principal at maturity (like
a typical bond). Mortgage-backed securities are based on different types of
mortgages including those on commercial real estate or residential properties.
CMOs may be issued by a United States Government agency or instrumentality or by
a private issuer. Although payment of the principal of, and interest on, the
underlying collateral securing privately issued CMOs may be guaranteed by the
United States Government or its agencies or instrumentalities, these CMOs
represent obligations solely of the private issuer and are not insured or
guaranteed by the United States Government, its agencies or instrumentalities or
any other person or entity. Prepayments could cause early retirement of CMOs.
CMOs are designed to reduce the risk of prepayment for investors by issuing
multiple classes of securities (or "tranches"), each having different
maturities, interest rates and payment schedules, and with the principal and
interest on the underlying mortgages allocated among the several classes in
various ways. Payment of interest or principal on some classes or series of CMOs
may be subject to contingencies or some classes or series may bear some or all
of the risk of default on the underlying mortgages. CMOs of different classes or
series are generally retired in sequence as the underlying mortgage loans in the
mortgage pool are repaid. If enough mortgages are repaid ahead of schedule, the
classes or series of a CMO with the earliest maturities generally will be
retired prior to their maturities. Thus, the early retirement of particular
classes or series of a CMO held by a Portfolio would have the same effect as the
prepayment of mortgages underlying other mortgage-backed securities. Conversely,
slower than anticipated prepayments can extend the effective maturities of CMOs,
subjecting them to a greater risk of decline in market value in response to
rising interest rates than traditional debt securities, and, therefore,
potentially increasing the volatility of a Portfolio that invests in CMOs.
The value of mortgage-backed securities may change due to shifts in the market's
perception of issuers. In addition, regulatory or tax changes may adversely
affect the mortgage securities market as a whole. Non-government mortgage-backed
securities may offer higher yields than those issued by government entities, but
also may be subject to greater price changes than government issues.
Mortgage-backed securities have yield and maturity characteristics corresponding
to the underlying assets. Unlike traditional debt securities, which may pay a
fixed rate of interest until maturity, when the entire principal amount comes
due, payments on certain mortgage-backed securities include both interest and a
partial repayment of principal. Besides the scheduled repayment of principal,
repayments of principal may result from the voluntary prepayment, refinancing,
or foreclosure of the underlying mortgage loans.
Mortgage-backed securities are subject to prepayment risk. Prepayment, which
occurs when unscheduled or early payments are made on the underlying mortgages,
may shorten the effective maturities of these securities and may lower their
returns. If property owners make unscheduled prepayments of their mortgage
loans, these prepayments will result in early payment of the applicable
mortgage-related securities. In that event, the Portfolios may be unable to
invest the proceeds from the early payment of the mortgage-related securities in
an investment that provides as high a yield as the mortgage-related securities.
Consequently, early payment associated with mortgage-related securities may
cause these securities to experience significantly greater price and yield
volatility than that experienced by traditional fixed-income securities. The
occurrence of mortgage prepayments is affected by factors including the level of
interest rates, general economic conditions, the location and age of the
mortgage and other social and demographic conditions. During periods of falling
interest rates, the rate of mortgage prepayments tends to increase, thereby
tending to decrease the life of mortgage-related securities. During periods of
rising interest rates, the rate of mortgage prepayments usually decreases,
thereby tending to increase the life of mortgage-related securities. If the life
of a mortgage-related security is inaccurately predicted, a Portfolio may not be
liable to realize the rate of return it expected.
Mortgage-backed securities are less effective than other types of securities as
a means of "locking in" attractive long-term interest rates. One reason is the
need to reinvest prepayments of principal; another is the possibility of
significant unscheduled prepayments resulting from declines in interest rates.
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Prepayments may cause losses on securities purchased at a premium. At times,
some of the mortgage-backed securities in which a Portfolio may invest will have
higher than market interest rates and, therefore, will be purchased at a premium
above their par value. Unscheduled prepayments, which are made at par, will
cause a Portfolio to experience a loss equal to any unamortized premium.
Stripped mortgage-backed securities are created when a United States government
agency or a financial institution separates the interest and principal
components of a mortgage-backed security and sells them as individual
securities. The securities may be issued by agencies or instrumentalities of the
United States Government and private originators of, or investors in, mortgage
loans, including savings and loan associations, mortgage banks, commercial
banks, investment banks and special purpose entities of the foregoing. Stripped
mortgage-backed securities are usually structured with two classes that receive
different portions of the interest and principal distributions on a pool of
mortgage loans. The holder of the "principal-only" security ("PO") receives the
principal payments made by the underlying mortgage-backed security, while the
holder of the "interest-only" security ("IO") receives interest payments from
the same underlying security. The Portfolios may invest in both the IO class and
the PO class. The prices of stripped mortgage-backed securities may be
particularly affected by changes in interest rates. The yield to maturity on an
IO class of stripped mortgage-backed securities is extremely sensitive not only
to changes in prevailing interest rates but also to the rate of principal
payments (including prepayments) on the underlying assets. As interest rates
fall, prepayment rates tend to increase, which tends to reduce prices of IOs and
increase prices of POs. Rising interest rates can have the opposite effect.
Prepayments may also result in losses on stripped mortgage-backed securities. A
rapid rate of principal prepayments may have a measurable adverse effect on a
Portfolio's yield to maturity to the extent it invests in IOs. If the assets
underlying the IO experience greater than anticipated prepayments of principal,
a Portfolio may fail to recoup fully its initial investments in these
securities. Conversely, POs tend to increase in value if prepayments are greater
than anticipated and decline if prepayments are slower than anticipated. The
secondary market for stripped mortgage-backed securities may be more volatile
and less liquid than that for other mortgage-backed securities, potentially
limiting the Portfolios' ability to buy or sell those securities at any
particular time.
The JPM Core Bond Portfolio may also invest in directly placed mortgages
including residential mortgages, multifamily mortgages, mortgages on cooperative
apartment buildings, commercial mortgages, and sale-leasebacks. These
investments are backed by assets such as office buildings, shopping centers,
retail stores, warehouses, apartment buildings and single-family dwellings. In
the event that the Portfolio forecloses on any non-performing mortgage, it could
end up acquiring a direct interest in the underlying real property and the
Portfolio would then be subject to the risks generally associated with the
ownership of real property. There may be fluctuations in the market value of the
foreclosed property and its occupancy rates, rent schedules and operating
expenses. Investment in direct mortgages involve many of the same risks as
investments in mortgage-related securities. In addition, in the event that the
Portfolio forecloses on any non-performing mortgage, and acquires a direct
interest in the real property, the Portfolio will be subject to the risks
generally associated with the ownership of real property. There may also be
adverse changes in local, regional or general economic conditions, deterioration
of the real estate market and the financial circumstances of tenants and
sellers, unfavorable changes in zoning, building, environmental and other laws,
increased real property taxes, rising interest rates, reduced availability and
increased cost of mortgage borrowings, the need for anticipated renovations,
unexpected increases in the cost of energy, environmental factors, acts of God
and other factors which are beyond the control of the Portfolio or the Adviser.
Hazardous or toxic substances may be present on, at or under the mortgaged
property and adversely affect the value of the property. In addition, the owners
of the property containing such substances may be held responsible, under
various laws, for containing, monitoring, removing or cleaning up such
substances. The presence of such substances may also provide a basis for other
claims by third parties. Costs of clean-up or of liabilities to
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third parties may exceed the value of the property. In addition, these risks may
be uninsurable. In light of these and similar risks, it may be impossible to
dispose profitably of properties in foreclosure.
MORTGAGE DOLLAR ROLLS. The JPM Core Bond Portfolio may enter into mortgage
dollar rolls in which the Portfolio sells securities for delivery in the current
month and simultaneously contracts with the same counterparty to repurchase
similar (same type, coupon and maturity) but not identical securities on a
specified future date. During the roll period, the Portfolio loses the right to
receive principal (including prepayments of principal) and interest paid on the
securities sold. However, the Portfolio may benefit from the interest earned on
the cash proceeds of the securities sold until the settlement date of the
forward purchase. The Portfolio will hold and maintain in a segregated account
until the settlement date cash or liquid securities in an amount equal to the
forward purchase price. The benefits derived from the use of mortgage dollar
rolls depend upon the Adviser's ability to manage mortgage prepayments. There is
no assurance that mortgage dollar rolls can be successfully employed.
MUNICIPAL SECURITIES. As indicated in Appendix A, certain OF THE Portfolios
may invest in municipal securities ("municipals"), which are debt obligations
issued by local, state and regional governments that provide interest income
that is exempt from federal income taxes. Municipals include both municipal
bonds (those securities with maturities of five years or more) and municipal
notes (those with maturities of less than five years). Municipal bonds are
issued for a wide variety of reasons: to construct public facilities, such as
airports, highways, bridges, schools, hospitals, mass transportation, streets,
water and sewer works; to obtain funds for operating expenses; to refund
outstanding municipal obligations; and to loan funds to various public
institutions and facilities. Certain industrial development bonds are also
considered municipal bonds if their interest is exempt from federal income tax.
Industrial development bonds are issued by or on behalf of public authorities to
obtain funds for various privately-operated manufacturing facilities, housing,
sports arenas, convention centers, airports, mass transportation systems and
water, gas or sewer works. Industrial development bonds are ordinarily dependent
on the credit quality of a private user, not the public issuer.
OPTIONS AND FUTURES TRANSACTIONS. As indicated in Appendix A, the BT Small
Company Index Portfolio, BT International Equity Index Portfolio and BT Equity
500 Index Portfolio each may not at any time commit more than 20% of its assets
to options and futures contracts. The MFS Emerging Growth Companies Portfolio
and Morgan Stanley Emerging Markets Equity Portfolio will not enter a futures
contract if the obligations underlying all such futures contracts would exceed
50% of the value of each such Portfolio's total assets.
Each Portfolio may buy and sell futures and options contracts for any number of
reasons, including: to manage its exposure to changes in securities prices and
foreign currencies; as an efficient means of adjusting its overall exposure to
certain markets; in an effort to enhance income; to protect the value of
portfolio securities and to adjust the duration of fixed income investments.
Each Portfolio may purchase, sell, or write call and put options and futures
contracts on securities, financial indices, and foreign currencies and options
on futures contracts.
The risk of loss in trading futures contracts can be substantial because of the
low margin deposits required and the extremely high degree of leveraging
involved in futures pricing. As a result, a relatively small price movement in a
futures contract may cause an immediate and substantial loss or gain. The
primary risks associated with the use of futures contracts and options are: (i)
imperfect correlation between the change in market value of the stocks held by a
Portfolio and the prices of futures contracts and options; and (ii) possible
lack of a liquid secondary market for a futures contract or an over-the-counter
option and the resulting inability to close a futures position or
over-the-counter option prior to its maturity date.
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Following is a description of specific Options and Futures Transactions,
followed by a discussion concerning the risks associated with utilizing options,
futures contracts, and forward foreign currency exchange contracts.
FUTURES TRANSACTIONS. As indicated in Appendix A, certain OF THE
Portfolios may utilize futures contracts. Futures contracts (a type of
potentially high-risk security) enable the investor to buy or sell an asset in
the future at an agreed upon price. 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. Futures
contracts are designated by boards of trade which have been designated
"contracts markets" by the Commodities Futures Trading Commission ("CFTC").
No purchase price is paid or received when the contract is entered into.
Instead, a Portfolio upon entering into a futures contract (and to maintain the
Portfolio's open positions in futures contracts) would be required to deposit
with its custodian in a segregated account in the name of the futures broker an
amount of cash, United States government securities, suitable money market
instruments, or liquid, high-grade debt securities, known as "initial margin."
The margin required for a particular futures contract is set by the exchange on
which the contract is traded, and may be significantly modified from time to
time by the exchange during the term of the contract. Futures contracts are
customarily purchased and sold on margin that may range upward from less than 5%
of the value of the contract being traded. By using futures contracts as a risk
management technique, given the greater liquidity in the futures market than in
the cash market, it may be possible to accomplish certain results more quickly
and with lower transaction costs.
If the price of an open futures contract changes (by increase in the case of a
sale or by decrease in the case of a purchase) so that the loss on the futures
contract reaches a point at which the margin on deposit does not satisfy margin
requirements, the broker will require an increase in the margin. However, if the
value of a position increases because of favorable price changes in the futures
contract so that the margin deposit exceeds the required margin, the broker will
pay the excess to the Portfolio. These subsequent payments called "variation
margin," to and from the futures broker, are made on a daily basis as the price
of the underlying assets fluctuate making the long and short positions in the
futures contract more or less valuable, a process known as "marking to the
market. The Portfolios expect to earn interest income on their initial and
variation margin deposits.
A Portfolio will incur brokerage fees when it purchases and sells futures
contracts. 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 for 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.
OPTIONS ON FUTURES CONTRACTS. As indicated in Appendix A, certain OF
THE Portfolios may purchase and write exchange-traded call and put options on
futures contracts of the type which the particular Portfolio is authorized to
enter into. These options are traded on exchanges that are licensed and
regulated by the CFTC for the purpose of options trading. A call option on a
futures contract gives the purchaser the right, in return for the premium paid,
to purchase a futures contract (assume a "long" position) at a specified
exercise price at any time before the option expires. A put option gives the
purchaser the right, in return for the premium paid, to sell a futures contract
(assume a "short" position), for a specified exercise price, at any time before
the option expires.
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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 Portfolios will write only options on futures contracts which are "covered."
A Portfolio will be considered "covered" with respect to a put option it has
written if, so long as it is obligated as a writer of the put, the Portfolio
segregates with its custodian cash, United States Government securities or
liquid securities at all times equal to or greater than the aggregate exercise
price of the puts it has written (less any related margin deposited with the
futures broker). A Portfolio will be considered "covered" with respect to a call
option it has written on a debt security future if, so long as it is obligated
as a writer of the call, the Portfolio owns a security deliverable under the
futures contract. A Portfolio will be considered "covered" with respect to a
call option it has written on a securities index future if the Portfolio owns,
so long as the Portfolio is obligated as the writer of the call, a portfolio of
securities the price changes of which are, in the opinion of its Adviser,
expected to replicate substantially the movement of the index upon which the
futures contract is based.
Upon the exercise of a call option, the writer of the option is obligated to
sell the futures contract (to deliver a "long" position to the option holder) at
the option exercise price, which will presumably be lower than the current
market price of the contract in the futures market. Upon exercise of a put, the
writer of the option is obligated to purchase the futures contract (deliver a
"short" position to the option holder) at the option exercise price which will
presumably be higher than the current market price of the contract in the
futures market. When the holder of an option exercises it and assumes a long
futures position, in the case of a call, or a short futures position, in the
case of a put, its gain will be credited to its futures margin account, while
the loss suffered by the writer of the option will be debited to its account and
must be immediately paid by the writer. However, as with the trading of futures,
most participants in the options markets do not seek to realize their gains or
losses by exercise of their option rights. Instead, the holder of an option will
usually realize a gain or loss by buying or selling an offsetting option at a
market price that will reflect an increase or a decrease from the premium
originally paid.
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.
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. In addition, 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
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contracts or the writing of put options thereon by a Portfolio, an amount of
cash and cash equivalents, equal to the cost of such futures contracts or
options written (less any related margin deposits), will be deposited in a
segregated account with its custodian, thereby insuring that the use of such
futures contracts and options is unleveraged. In instances involving the sale of
futures contracts or the writing of call options thereon by a Portfolio, the
securities underlying such futures contracts or options will at all times be
maintained by the Portfolio or, in the case of index futures and related
options, the Portfolio will own securities the price changes of which are, in
the opinion of its Adviser, expected to replicate substantially the movement of
the index upon which the futures contract or option is based.
For information concerning the risks associated with utilizing options, futures
contracts, and forward foreign currency exchange contracts, please see "Risks of
Transactions in Options, Futures Contracts and Forward Currency Contracts" on
page ____.
As indicated in Appendix A, certain OF THE Portfolios may also write and
purchase put and call options. Options (another type of potentially high-risk
security) give the purchaser of an option the right, but not the obligation, to
buy or sell in the future an asset at a predetermined price during the term of
the option. (The writer of a put or call option would be obligated to buy or
sell the underlying asset at a predetermined price during the term of the
option.) Each Portfolio will write put and call options only if such options are
considered to be "covered". A call option on a security is covered, for example,
when the writer of the call option owns throughout the option period the
security on which the option is written (or a security convertible into such a
security without the payment of additional consideration). A put option on a
security is covered, for example, when the writer of the put has deposited and
maintained in a segregated account throughout the option period sufficient cash
or other liquid assets in an amount equal to or greater than the exercise price
of the put option.
As indicated in Appendix A, certain OF THE Portfolios will not commit more
than 5% of THEIR total assets to premiums when purchasing call or put options.
In addition, the total market value of securities against which a Portfolio has
written call or put options may not exceed 25% of its total assets. The Warburg
Pincus Small Company Value Portfolio may commit up to 10% of its total assets to
premiums when purchasing put or call options. The Merrill Lynch Basic Value
Equity Portfolio will not write covered call options on underlying securities
exceeding 15% of the value of its total assets. THE EQ/ALLIANCE PREMIER GROWTH
PORTFOLIO MAY WRITE COVERED EXCHANGE-TRADED CALL OPTIONS ON ITS SECURITIES OF UP
TO 15% OF ITS TOTAL ASSETS, AND PURCHASE AND SELL EXCHANGE-TRADED CALL AND PUT
OPTIONS ON COMMON STOCKS WRITTEN BY OTHERS OF UP TO, FOR ALL OPTIONS, 10% OF ITS
TOTAL ASSETS.
WRITING CALL OPTIONS. 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 call option on a security is covered, for example, when the
writer of the call option owns the security on which the option is written (or
on a security convertible into such a security without additional consideration)
throughout the option period.
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.
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,
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except insofar as the premium represents a profit. Moreover, in writing the call
option, the Portfolio will retain the risk of loss should the price of the
security decline. The premium is intended to offset that loss in whole or in
part. Unlike the situation in which the Portfolio owns securities not subject to
a call option, the Portfolio, in writing call options, must assume that the call
may be exercised at any time prior to the expiration of its obligation as a
writer, and that in such circumstances the net proceeds realized from the sale
of the underlying securities pursuant to the call may be substantially below the
prevailing market price.
A Portfolio may terminate its obligation under an option it has written by
buying an identical option. Such a transaction is called a "closing purchase
transaction." The Portfolio will realize a gain or loss from a closing purchase
transaction if the amount paid to purchase a call option is less or more than
the amount received from the sale of the corresponding call option. Also,
because increases in the market price of a call option will generally reflect
increases in the market price of the underlying security, any loss resulting
from the exercise or closing out of a call option is likely to be offset in
whole or part by unrealized appreciation of the underlying security owned by the
Portfolio. When an underlying security is sold from the Portfolio's securities
portfolio, the Portfolio will effect a closing purchase transaction so as to
close out any existing covered call option on that underlying security.
WRITING PUT OPTIONS. The writer of a put option becomes obligated to
purchase the underlying security at a specified price during the option period
if the buyer elects to exercise the option before its expiration date. A
Portfolio which writes a put option will be required to "cover" it, for example,
by depositing and maintaining in a segregated account with its custodian cash,
United States Government securities or other liquid securities having a value
equal to or greater than the exercise price of the option. The Portfolios may
write put options either to earn additional income in the form of option
premiums (anticipating that the price of the underlying security will remain
stable or rise during the option period and the option will therefore not be
exercised) or to acquire the underlying security at a net cost below the current
value (e.g., the option is exercised because of a decline in the price of the
underlying security, but the amount paid by the Portfolio, offset by the option
premium, is less than the current price). The risk of either strategy is that
the price of the underlying security may decline by an amount greater than the
premium received. The premium which a Portfolio receives from writing a put
option will reflect, among other things, the current market price of the
underlying security, the relationship of the exercise price to that market
price, the historical price volatility of the underlying security, the option
period, supply and demand and interest rates.
A Portfolio may effect a closing purchase transaction to realize a profit on an
outstanding put option or to prevent an outstanding put option from being
exercised.
PURCHASING PUT AND CALL OPTIONS. A Portfolio may purchase put options
on securities to protect their holdings against a substantial decline in market
value. The purchase of put options on securities will enable a Portfolio to
preserve, at least partially, unrealized gains in an appreciated security in its
portfolio without actually selling the security. In addition, the Portfolio will
continue to receive interest or dividend income on the security. The Portfolios
may also purchase call options on securities to protect against substantial
increases in prices of securities that Portfolios intend to purchase pending
their ability to invest in an orderly manner in those securities. The Portfolios
may sell put or call options they have previously purchased, which could result
in a net gain or loss depending on whether the amount received on the sale is
more or less than the premium and other transaction costs paid on the put or
call option which was bought.
SECURITIES INDEX FUTURES CONTRACTS. Purchases or sales of securities
index futures contracts may be used in an attempt to protect a Portfolio's
current or intended investments from broad fluctuations in securities prices. A
securities index futures contract does not require the physical delivery of
securities,
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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 future is based.
By establishing an appropriate "short" position in index futures, a Portfolio
may also seek to protect the value of its portfolio against an overall decline
in the market for such securities. Alternatively, in anticipation of a generally
rising market, a Portfolio can seek to avoid losing the benefit of apparently
low current prices by establishing a "long" position in securities index futures
and later liquidating that position as particular securities are in fact
acquired. To the extent that these hedging strategies are successful, the
Portfolio will be affected to a lesser degree by adverse overall market price
movements than would otherwise be the case.
SECURITIES INDEX OPTIONS. A Portfolio 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 a Portfolio's Adviser, expected to replicate substantially the
movement of the index or indexes upon which the options written by the Portfolio
are based. A put on a securities index written by a Portfolio will be considered
covered if, so long as it is obligated as the writer of the put, the Portfolio
segregates with its custodian cash, United States Government securities or other
liquid high-grade debt obligations having a value equal to or greater than the
exercise price of the option. Unlike a stock option, which gives the holder the
right to purchase or sell a specified stock at a specified price, an option on a
securities index gives the holder the right to receive a cash "exercise
settlement amount" equal to (i) the difference between the exercise price of the
option and the value of the underlying stock index on the exercise date,
multiplied by (ii) a fixed "index multiplier."
A securities index fluctuates with changes in the market value of the securities
so included. For example, some securities index options are based on a broad
market index such as the STANDARD & POOR'S 500 or the NYSE Composite Index, or
a narrower market index such as the STANDARD & POOR'S 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.
OVER-THE-COUNTER OPTIONS. As indicated in Appendix A, certain OF THE
Portfolios may engage in over-the-counter put and call option transactions. The
Warburg Pincus Small Company Value Portfolio may utilize up to 10% of its total
assets to purchase exchange-listed and over-the-counter put and call options on
stock indexes. Options traded in the over-the-counter market may not be as
actively traded as those on an exchange, so it may be more difficult to value
such options. In addition, it may be difficult to enter into closing
transactions with respect to such options. Such over-the-counter options, and
the securities used as "cover" for such options, may be considered illiquid
securities. Certain Portfolios may enter into contracts (or amend existing
contracts) with primary dealers with whom they write over-the-counter options.
The contracts will provide that each Portfolio has the absolute right to
repurchase an option it writes at any time at a repurchase price which
represents the fair market value, as determined in good faith through
negotiation between the parties, but which in no event will exceed a price
determined pursuant to a formula contained in the contract. Although the
specific details of the formula may vary between contracts with different
primary dealers, the formula will generally be based on a multiple of the
premium received by each Portfolio for writing the option, plus the amount, if
any, of the option's intrinsic value (i.e., the amount the option is
"in-the-money"). The formula will also include a factor to account for the
difference between the price of the security and the strike price of the option
if the option is written "out-of-the-money." Although the specific details of
the formula may vary with
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different primary dealers, each contract will provide a formula to determine the
maximum price at which each Portfolio can repurchase the option at any time. The
Portfolios have established standards of creditworthiness for these primary
dealers, although the Portfolios may still be subject to the risk that firms
participating in such transactions will fail to meet their obligations. In
instances in which a Portfolio has entered into agreements with respect to the
over-the-counter options it has written, and such agreements would enable the
Portfolio to have an absolute right to repurchase at a pre-established formula
price the over-the-counter option written by it, the Portfolio would treat as
illiquid only securities equal in amount to the formula price described above
less the amount by which the option is "in-the-money," i.e., the amount by which
the price of the option exceeds the exercise price.
RISKS OF TRANSACTIONS IN OPTIONS, FUTURES CONTRACTS AND FORWARD CURRENCY
CONTRACTS
OPTIONS. 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 a
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.
Options traded in the over-the-counter market may not be as actively traded as
those on an exchange. Accordingly, it may be more difficult to value such
options. In addition, it may be difficult to enter into closing transactions
with respect to options traded over-the-counter. The Portfolios will engage in
such transactions only with firms of sufficient credit so as to minimize these
risks. Such options and the securities used as "cover" for such options may be
considered illiquid securities.
The effectiveness of hedging through the purchase of securities index options
will depend upon the extent to which price movements in the portion of the
securities portfolio being hedged correlate with price movements in the selected
securities index. Perfect correlation is not possible because the securities
held or to be acquired by a Portfolio will not exactly match the composition of
the securities indexes on which options are written. In the purchase of
securities index options the principal risk is that the premium and transaction
costs paid by a Portfolio in purchasing an option will be lost if the changes
(increase in the case of a call, decrease in the case of a put) in the level of
the index do not exceed the cost of the option.
FUTURES. The prices of futures contracts are volatile and are influenced, among
other things, by actual and anticipated changes in the market and interest
rates, which in turn are affected by fiscal and monetary policies and national
and international political and economic events.
Most United States futures exchanges limit the amount of fluctuation permitted
in futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of a
trading session. Once the daily limit has been reached in a particular type of
futures contract, no trades may be made on that day at a price beyond that
limit. The daily limit governs only price movement during a particular trading
day and therefore does not limit potential losses, because the limit may prevent
the liquidation of unfavorable positions. Futures contract prices have
occasionally moved to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of futures positions
and subjecting some futures traders to substantial losses.
Because of the low margin deposits required, futures trading involves an
extremely high degree of leverage. As a result, a relatively small price
movement in a futures contract may result in immediate and substantial loss, as
well as gain, to the investor. For example, if at the time of purchase, 10% of
the value of the futures contract is deposited as margin, a subsequent 10%
decrease in the value of the futures contract would result in a total loss of
the margin deposit, before any deduction for the transaction costs,
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if the account were then closed out. A 15% decrease would result in a loss equal
to 150% of the original margin deposit, if the contract were closed out. Thus, a
purchase or sale of a futures contract may result in losses in excess of the
amount invested in the futures contract.
A decision of whether, when, and how to hedge involves skill and judgment, and
even a well-conceived hedge may be unsuccessful to some degree because of
unexpected market behavior, market trends or interest rate trends. There are
several risks in connection with the use by a Portfolio of futures contracts as
a hedging device. One risk arises because of the imperfect correlation between
movements in the prices of the futures contracts and movements in the prices of
the underlying instruments which are the subject of the hedge. A Portfolio's
Adviser will, however, attempt to reduce this risk by entering into futures
contracts whose movements, in its judgment, will have a significant correlation
with movements in the prices of the Portfolio's underlying instruments sought to
be hedged.
Successful use of futures contracts by a Portfolio for hedging purposes is also
subject to a Portfolio's ability to correctly predict movements in the direction
of the market. It is possible that, when a Portfolio has sold futures to hedge
its portfolio against a decline in the market, the index, indices, or
instruments underlying futures might advance and the value of the underlying
instruments held in the Portfolio's portfolio might decline. If this were to
occur, the Portfolio would lose money on the futures and also would experience a
decline in value in its underlying instruments.
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,
specified in the Prospectus, 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 variation 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 OPTIONS AND FUTURES. Participation in foreign futures and
foreign options transactions involves the execution and clearing of trades on or
subject to the rules of a foreign board of trade. Neither the National Futures
Association nor any domestic exchange regulates activities of any foreign boards
of trade, including the execution, delivery and clearing of transactions, or has
the power to compel enforcement of the rules of a foreign board of trade or any
applicable foreign law. This is true even if the exchange is formally linked to
a domestic market so that a position taken on the market may be liquidated by a
transaction on another market. Moreover, such laws or regulations will vary
depending on the foreign country in which the foreign futures or foreign options
transaction occurs. For these reasons, when a Portfolio trades foreign futures
or foreign options contracts, it may not be afforded certain of the protective
measures provided by the Commodity Exchange Act, the CFTC's regulations and the
rules of the National Futures Association and any domestic exchange, including
the right to use reparations proceedings before the CFTC and arbitration
proceedings provided by the National Futures Association or any domestic futures
exchange. In particular, funds received from a Portfolio for foreign futures or
foreign options transactions may not be provided the same protections as funds
received in respect of transactions on United States futures exchanges. In
addition, the price of any foreign futures or foreign options contract and,
therefore, the potential profit and loss thereon, may be affected by any
variance in the foreign exchange rate between the time the Portfolio's order is
placed and the time it is liquidated, offset or exercised.
FOREIGN CURRENCY CONTRACTS. 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
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currency should rise. Whether a currency hedge benefits a Portfolio will depend
on the ability of a Portfolio's Adviser to predict future currency exchange
rates.
The writing of an option on foreign currency will constitute only a partial
hedge, up to the amount of the premium received, and a 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 a Portfolio's position, it
may forfeit the entire amount of the premium plus related transaction costs.
PASSIVE FOREIGN INVESTMENT COMPANIES. As indicated in Appendix A, certain OF
THE Portfolios may purchase the securities of certain foreign investment funds
or trusts called passive foreign investment companies ("PFICs"). Such entities
have been the only or primary way to invest in certain countries because some
foreign countries limit, or prohibit, all direct foreign investment in the
securities of companies domiciled therein. However, the governments of some
countries have authorized the organization of investment funds to permit
indirect foreign investment in such securities. For tax purposes these funds may
be known as passive foreign investment companies.
The Portfolios are subject to certain percentage limitations under the 1940 Act
relating to the purchase of securities of investment companies, and,
consequently, each Portfolio may have to subject any of its investments in other
investment companies, including PFICS, to the limitation that no more than 10%
of the value of the Portfolio's total assets may be invested in such securities.
In addition to bearing their proportionate share of a Portfolio's expenses
(management fees and operating expenses), shareholders will also indirectly bear
similar expenses of such entities. Like other foreign securities, interests in
passive foreign investment companies also involve the risk of foreign
securities, as described above.
PAYMENT-IN-KIND BONDS. As indicated in Appendix A, certain OF THE Portfolios
may invest in payment-in-kind bonds. Payment-in-kind bonds allow the issuer, at
its option, to make current interest payments on the bonds either in cash or in
additional bonds. The value of payment-in-kind bonds is subject to greater
fluctuation in response to changes in market interest rates than bonds which pay
interest in cash currently. Payment-in-kind bonds allow an issuer to avoid the
need to generate cash to meet current interest payments. Accordingly, such bonds
may involve greater credit risks than bonds paying interest currently. Even
though such bonds do not pay current interest in cash, the Portfolios are
nonetheless required to accrue interest income on such investments and to
distribute such amounts at least annually to shareholders. Thus, the Portfolios
could be required, at times, to liquidate other investments in order to satisfy
its distribution requirements.
REPURCHASE AGREEMENTS. Each PORTFOLIO OTHER THAN THE ALLIANCE EQUITY INDEX
Portfolio may enter into repurchase agreements with qualified and Board approved
banks, broker-dealers or other financial institutions as a means of earning a
fixed rate of return on its cash reserves for periods as short as overnight. A
repurchase agreement is a contract pursuant to which a Portfolio, against
receipt of securities of at least equal value including accrued interest, agrees
to advance a specified sum to the financial institution which agrees to
reacquire the securities at a mutually agreed upon time (usually one day) and
price. Each repurchase agreement entered into by a Portfolio will provide that
the value of the collateral underlying the repurchase agreement will always be
at least equal to the repurchase price, including any accrued interest. A
Portfolio's right to liquidate such securities in the event of a default by the
seller could involve certain costs, losses or delays and, to the extent that
proceeds from any sale upon a default of the obligation to repurchase are less
than the repurchase price, the Portfolio could suffer a loss.
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
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repurchase and the Portfolio to resell the instrument at a fixed price and time,
thereby determining the yield during the Portfolio's holding period. This
results in a fixed rate of return insulated from market fluctuation during that
holding period.
Repurchase agreements may have the characteristics of loans by a Portfolio.
During the term of the repurchase agreement, a 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 agreements falls below the resale amount
provided under the repurchase agreement. A Portfolio will enter into repurchase
agreements (with respect to United States Government obligations, certificates
of deposit, or bankers' acceptances) with registered brokers-dealers, United
States Government securities dealers or domestic banks whose creditworthiness is
determined to be satisfactory by the Portfolio's Adviser, 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 SEC
currently takes the position that repurchase agreements maturing in more than
seven days are 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 repurchase 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 of the
collateral may be delayed or limited and a loss may be incurred.
REAL ESTATE INVESTMENT TRUSTS. As indicated in Appendix A, certain OF THE
Portfolios may each invest up to 15% of its respective net assets in investments
related to real estate, including real estate investment trusts ("REITS"). Risks
associated with investments in securities of companies in the real estate
industry include: decline in the value of real estate; risks related to general
and local economic conditions; overbuilding and increased competition; increases
in property taxes and operating expenses; changes in zoning laws; casualty or
condemnation losses; variations in rental income; changes in neighborhood
values; the appeal of properties to tenants; and increases in interest rates. In
addition, equity REITS may be affected by changes in the values of the
underlying property owned by the trusts, while mortgage real estate investment
trusts may be affected by the quality of credit extended. REITS are dependent
upon management skills, may not be diversified and are subject to the risks of
financing projects. Such REITS are also subject to heavy cash flow dependency,
defaults by borrowers, self liquidation and the possibility of failing to
qualify for tax-free pass-through of income under the Code and to maintain
exemption from the 1940 Act. In the event an issuer of debt securities
collateralized by real estate defaults, it is conceivable that the REITS could
end up holding the underlying real estate.
REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS. As indicated in Appendix A,
certain OF THE Portfolios may each enter into reverse repurchase agreements
with brokers, dealers, domestic and foreign banks or other financial
institutions. In a reverse repurchase agreement, the Portfolio sells a security
and agrees to repurchase it at a mutually agreed upon date and price, reflecting
the interest rate effective for the term of the agreement. It may also be viewed
as the borrowing of money by the Portfolio. The Portfolio's investment of the
proceeds of a reverse repurchase agreement is the speculative factor known as
leverage. The Portfolio may enter into a reverse repurchase agreement only if
the interest income from investment of the proceeds is greater than the interest
expense of the transaction and the proceeds are invested for a period no longer
than the term of the agreement. At the time a Portfolio enters into a reverse
repurchase agreement, it will establish and maintain a segregated account with
an approved custodian containing cash or other liquid securities having a value
not less than the repurchase price (including accrued interest). If interest
rates rise during a reverse repurchase agreement, it may adversely
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affect the Portfolio's net asset value. See "Fundamental Restrictions" for more
information concerning restrictions on borrowing by each Portfolio. REVERSE
REPURCHASE AGREEMENTS ARE CONSIDERED TO BE BORROWINGS UNDER THE 1940 ACT.
The assets contained in the segregated account will be marked-to-market daily
and additional assets will be placed in such account on any day in which the
assets fall below the repurchase price (plus accrued interest). A Portfolio's
liquidity and ability to manage its assets might be affected when it sets aside
cash or portfolio securities to cover such commitments. Reverse repurchase
agreements involve the risk that the market value of the securities retained in
lieu of sale may decline below the price of the securities a Portfolio has sold
but is obligated to repurchase. In the event the buyer of securities under a
reverse repurchase agreement files for bankruptcy or becomes insolvent, such
buyer or its trustee or receiver may receive an extension of time to determine
whether to enforce a Portfolio's obligation to repurchase the securities, and a
Portfolio's use of the proceeds of the reverse repurchase agreement may
effectively be restricted pending such decision.
In "dollar ROLL" transactions, a Portfolio sells fixed-income securities for
delivery in the current month and simultaneously contracts to repurchase similar
but not identical (same type, coupon and maturity) securities on a specified
future date. During the roll period, a Portfolio would forego principal and
interest paid on such securities. A Portfolio would be compensated by the
difference between the current sales price and the forward price for the future
purchase, as well as by the interest earned on the cash proceeds of the initial
sale. At the time a Portfolio enters into a dollar roll transaction, it will
place in a segregated account maintained with an approved custodian cash or
other liquid securities having a value not less than the repurchase price
(including accrued interest) and will subsequently monitor the account to ensure
that its value is maintained.
SECURITIES LOANS. All securities loans will be made pursuant to agreements
requiring the loans to be continuously secured by collateral in cash or high
grade debt obligations at least equal at all times to the market value of the
loaned securities. The borrower pays to the Portfolios an amount equal to any
dividends or interest received on loaned securities. The Portfolios retain all
or a portion of the interest received on investment of cash collateral or
receive a fee from the borrower. Lending portfolio securities involves risks of
delay in recovery of the loaned securities or in some cases loss of rights in
the collateral should the borrower fail financially.
Securities loans are made to broker-dealers or institutional investors or other
persons, pursuant to agreements requiring that the loans be continuously secured
by collateral at least equal at all times to the value of the loaned securities
marked to market on a daily basis. The collateral received will consist of cash,
United States Government securities, letters of credit or such other collateral
as may be permitted under a Portfolio's investment program. While the securities
are being loaned, a Portfolio will continue to receive the equivalent of the
interest or dividends paid by the issuer on the securities, as well as interest
on the investment of the collateral or a fee from the borrower. A Portfolio has
a right to call each loan and obtain the securities on five business days'
notice or, in connection with securities trading on foreign markets, within such
longer period for purchases and sales of such securities in such foreign
markets. A Portfolio will generally not have the right to vote securities while
they are being loaned, but its Manager or Adviser will call a loan in
anticipation of any important vote. 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 a Portfolio's Adviser to be of good
standing and will not be made unless, in the judgment of the Adviser, the
consideration to be earned from such loans would justify the risk.
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SHORT SALES AGAINST THE BOX. As indicated in Appendix A, certain OF THE
Portfolios may enter into a "short sale" of securities in circumstances in
which, at the time the short position is open, the Portfolio owns an equal
amount of the securities sold short or owns preferred stocks or debt securities,
convertible or exchangeable without payment of further consideration, into an
equal number of securities sold short. This kind of short sale, which is
referred to as one "against the box," may be entered into by each Portfolio to,
for example, lock in a sale price for a security the Portfolio does not wish to
sell immediately. Each Portfolio will deposit, in a segregated account with its
custodian or a qualified subcustodian, the securities sold short or convertible
or exchangeable preferred stocks or debt securities sold in connection with
short sales against the box. Each Portfolio will endeavor to offset transaction
costs associated with short sales against the box with the income from the
investment of the cash proceeds. Not more than 10% of a Portfolio's net assets
(taken at current value) may be held as collateral for short sales against the
box at any one time. The extent to which a Portfolio may make short sales may be
limited by Code requirements for qualification as a regulated investment
company.
SMALL COMPANY SECURITIES. As indicated in Appendix A, certain OF THE
Portfolios may invest in the securities of smaller capitalization companies.
Investing in securities of small companies may involve greater risks since these
securities may have limited marketability and, thus, may be more volatile.
Because smaller companies normally have fewer shares outstanding than larger
companies, it may be more difficult for a Portfolio to buy or sell significant
amounts of shares without an unfavorable impact on prevailing prices. In
addition, small companies often have limited product lines, markets or financial
resources and are typically subject to greater changes in earnings and business
prospects than are larger, more established companies. There is typically less
publicly available information concerning smaller companies than for larger,
more established ones and smaller companies may be dependent for management on
one or a few key persons. Therefore, an investment in these Portfolios may
involve a greater degree of risk than an investment in other Portfolios that
seek capital appreciation by investing in better known, larger companies.
STRUCTURED NOTES. The ALLIANCE PORTFOLIOS AND THE Morgan Stanley Emerging
Markets Equity Portfolio may invest in structured notes, which are derivatives
on which the amount of principal repayment and/or interest payments is based
upon the movement of one or more factors. Structured notes are interests in
entities organized and operated solely for the purpose of restructuring the
investment characteristics of debt obligations. This type of restructuring
involves the deposit with or purchase by an entity, such as a corporation or
trust, of specified instruments (such as commercial bank loans) and the issuance
by that entity of one or more classes of securities and the issuance by that
entity of one or more classes of securities backed by, or representing interests
in, the underlying instruments. The cash flow on the underlying instruments may
be apportioned among the newly issued structured notes to create securities with
different investment characteristics such as varying maturities, payment
priorities and interest rate provisions, and the extent of the payment made with
respect to structured notes is dependent on the extent of the cash flow on the
underlying instruments. Because structured notes of the type in which the Morgan
Stanley Emerging Markets Equity Portfolio may invest typically involve no credit
enhancement, their credit risk generally will be equivalent to that of the
underlying instruments. The Morgan Stanley Emerging Markets Equity Portfolio may
invest in a class of structured notes that is either subordinated or
unsubordinated to the right of payment of another class. Subordinated structured
notes typically have higher yields and present greater risks than unsubordinated
structured notes. Certain issuers of structured notes may be deemed to be
"investment companies" as defined in the 1940 Act. As a result, the Morgan
Stanley Emerging Markets Equity Portfolio's investment in these structured notes
may be limited by restrictions contained in the 1940 Act. Structured notes are
typically sold in private placement transactions, and there currently is no
active trading market for structured notes.
SWAPS. As indicated in Appendix A, certain OF THE Portfolios may each invest
in swap contracts, which are derivatives in the form of a contract or other
similar instrument which is an agreement to exchange the return generated by one
instrument for the return generated by another instrument. The payment streams
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are calculated by reference to a specified index and agreed upon notional
amount. The term "specified index" includes, but is not limited to, currencies,
fixed interest rates, prices and total return on interest rate indices, fixed
income indices, stock indices and commodity indices (as well as amounts derived
from arithmetic operations on these indices). For example, a Portfolio may agree
to swap the return generated by a fixed income index for the return generated by
a second fixed income index. The currency swaps in which a Portfolio may enter
will generally involve an agreement to pay interest streams in one currency
based on a specified index in exchange for receiving interest streams
denominated in another currency. Such swaps may involve initial and final
exchanges that correspond to the agreed upon notional amount.
A Portfolio will usually enter into swaps on a net basis, i.e., the two payment
streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Portfolio receiving or paying, as the case
may be, only the net amount of the two payments. A Portfolio's obligations under
a swap agreement will be accrued daily (offset against any amounts owing to the
Portfolio) and any accrued but unpaid net amounts owed to a swap counterparty
will be covered by the maintenance of a segregated account consisting of
unencumbered liquid assets, to avoid any potential leveraging of a Portfolio. To
the extent that these swaps are entered into for hedging purposes, the Advisers
believe such obligations do not constitute "senior securities" under the 1940
Act and, accordingly, the Adviser will not treat them as being subject to a
Portfolio's borrowing restrictions. A Portfolio may enter into OTC swap
transactions with counterparties that are approved by the Advisers in accordance
with guidelines established by the Board of Trustees. These guidelines provide
for a minimum credit rating for each counterparty and various credit enhancement
techniques (for example, collateralization of amounts due from counterparties)
to limit exposure to counterparties that have lower credit ratings.
The Portfolio will usually enter into swaps on a net basis, i.e., the two return
streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Portfolio receiving or paying, as the case
may be, only the net amount of the two returns. The Portfolio's obligations
under a swap agreement will be accrued daily (offset against any amounts owing
to the Portfolio) and any accrued but unpaid net amounts owed to a swap
counterparty will be covered by the maintenance of a segregated account
consisting of cash, United States Government securities, or high grade debt
obligations. No Portfolio will enter into any swap agreement unless the
counterparty meets the rating requirements set forth in guidelines established
by the Trust's Board of Trustees. The swap market has grown substantially in
recent years with a large number of banks and investment banking firms acting
both as principals and as agents utilizing standardized swap documentation. As a
result, the swap market has become relatively liquid. Swaps that include more
recent innovations for which standardized documentation has not yet been fully
developed are less liquid than "traditional" swaps. The use of swaps is a highly
specialized activity that involves investment techniques and risks different
from those associated with ordinary portfolio securities transactions. If an
Adviser is incorrect in its forecasts of market values, interest rates, and
currency exchange rates, the investment performance of the Portfolio would be
less favorable than it would have been if this investment technique were not
used.
The swaps in which a Portfolio may engage may include instruments under which
one party pays a single or periodic fixed amount(s) (or premium), and the other
party pays periodic amounts based on the movement of a specified index. Swaps do
not involve the delivery of securities, other underlying assets, or principal.
Accordingly, the risk of loss with respect to swaps is limited to the net amount
of payments the Portfolio is contractually obligated to make. If the other party
to a swap defaults, the Portfolio's risk of loss consists of the net amount of
payments that the Portfolio contractually is entitled to receive. Currency swaps
usually involve the delivery of the entire principal value of one designated
currency in exchange for the other designated currency. Therefore, the entire
principal value of a currency swap is subject to the risk that the other party
to the swap will default on its contractual delivery obligations. If there is a
default by the counterparty, a Portfolio may have contractual remedies pursuant
to the agreements related to the transaction. The swap market has grown
substantially in recent years with a large number of banks and investment
banking firms acting both as principals and as agents utilizing
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<PAGE>
standardized swap documentation. As a result, the swap market has become
relatively liquid. Certain swap transactions involve more recent innovations for
which standardized documentation has not yet been fully developed and,
accordingly, they are less liquid than traditional swap transactions.
The use of swaps is a highly specialized activity which involves investment
techniques and risks different from those associated with ordinary portfolio
securities transactions. If an Adviser is incorrect in its forecasts of market
values, interest rates, and currency exchange rates, the investment performance
of the Portfolio would be less favorable than it would have been if this
investment technique were not used.
UNITED STATES GOVERNMENT SECURITIES. Each Portfolio may invest in debt
obligations of varying maturities issued or guaranteed by the United States
Government, its agencies or instrumentalities ("United States Government
securities"). Direct obligations of the United States Treasury include a variety
of securities that differ in their interest rates, maturities and dates of
issuance. United States Government securities also include securities issued or
guaranteed by government agencies that are supported by the full faith and
credit of the United States (e.g., securities issued by the Federal Housing
Administration, Export-Import Bank of the United States, Small Business
Administration, and Government National Mortgage Association); securities issued
or guaranteed by government agencies that are supported by the ability to borrow
from the United States Treasury (e.g., securities issued by the Federal National
Mortgage Association); and securities issued or guaranteed by government
agencies that are only supported by the credit of the particular agency (e.g.,
Interamerican Development Bank, the International Bank for Reconstruction and
Development, and the Tennessee Valley Authority).
WARRANTS. ALL OF THE ALLIANCE PORTFOLIOS, EXCEPT THE ALLIANCE MONEY MARKET
PORTFOLIO, MAY PURCHASE WARRANTS AND SIMILAR RIGHTS. WARRANTS are securities
that give the holder the right, but not the obligation to purchase equity issues
of the company issuing the warrants, or a related company, at a fixed price
either on a date certain or during a set period. At the time of issue, the cost
of a warrant is substantially less than the cost of the underlying security
itself, and price movements in the underlying security are generally magnified
in the price movements of the warrant. This effect enables the investor to gain
exposure to the underlying security with a relatively low capital investment but
increases an investor's risk in the event of a decline in the value of the
underlying security and can result in a complete loss of the amount invested in
the warrant. In addition, the price of a warrant tends to be more volatile than,
and may not correlate exactly to, the price of the underlying security. If the
market price of the underlying security is below the exercise price of the
warrant on its expiration date, the warrant will generally expire without value.
The equity security underlying a warrant is authorized at the time the warrant
is issued or is issued together with the warrant. Investing in warrants can
provide a greater potential for profit or loss than an equivalent investment in
the underlying security, and, thus, can be a speculative investment. The value
of a warrant may decline because of a decline in the value of the underlying
security, the passage of time, changes in interest rates or in the dividend or
other policies of the company whose equity underlies the warrant or a change in
the perception as to the future price of the underlying security, or any
combination thereof. Warrants generally pay no dividends and confer no voting or
other rights other than to purchase the underlying security.
ZERO-COUPON BONDS. As indicated in Appendix A, certain OF THE Portfolios may
invest in zero-coupon bonds. Zero-coupon bonds are issued at a significant
discount from their principal amount and pay interest only at maturity rather
than at intervals during the life of the security. The value of zero-coupon
bonds is subject to greater fluctuation in response to changes in market
interest rates than bonds which pay interest in cash currently. Zero-coupon
bonds allow an issuer to avoid the need to generate cash to meet current
interest payments. Accordingly, such bonds may involve greater credit risks than
bonds paying interest currently. Even though such bonds do not pay current
interest in cash, a Portfolio is nonetheless required to accrue interest income
on such investments and to distribute such amounts at least
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<PAGE>
annually to investors in such instruments. Thus, each Portfolio could be
required, at times, to liquidate other investments in order to satisfy its
distribution requirements.
PORTFOLIO TURNOVER. The length of time a Portfolio has held a particular
security is not generally a consideration in investment decisions. A change in
the securities held by a Portfolio is known as "portfolio turnover." A high
turnover rate (100% or more) increases transaction costs (e.g., brokerage
commissions) which must be born by the Portfolio and its shareholders and
increases realized gains and losses. See "Financial Highlights" in the
Prospectus for the actual portfolio turnover rates of the Portfolios through
December 31, 1998.
MANAGEMENT OF THE TRUST
The Board has the responsibility for the overall management of the Trust and its
Portfolios, including general supervision and review of the investment
activities and the conformity with Delaware Law and the stated policies of the
Trust's Portfolios. The Board elects the officers of the Trust who are
responsible for administering the Trust's day-to-day operations. Trustees and
officers of the Trust, together with information as to their principal business
occupations during the last five years, and other information are shown below.
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>
Peter D. Noris* (43) Executive Vice President and Chief Investment Officer, Equitable Life since May
Equitable Life 1995; prior thereto, Vice President, Salomon Brothers Inc., 1992 to 1995.
1290 Avenue of the Americas Principal, Equity Division, Morgan Stanley & Co., Inc., 1984 to 1992. Director,
New York, New York 10104 Alliance Capital Management Co. since July 1995. Trustee, Hudson River Trust
(investment company) since July 1995. Executive Vice President, EQ Financial
Consultants, Inc. since November 1996.
Jettie M. Edwards (52) Partner and Consultant, Syrus Associates since 1986. Trustee, Provident
Syrus Associates Investment Counsel Trust (investment company) since 1992. Director, The PBHG
880 Third Avenue Funds, Inc. (investment company) since 1995.
New York, NY 10022
William M. Kearns, Jr. (63) President, W.M. Kearns & Co., Inc., a private investment company, since 1994;
W.M. Kearns & Co., Inc. Director, Kuhlman Corporation, Malibu Entertainment Worldwide, Inc., Selective
310 South Street Insurance Group, Inc., as well as a number of private and venture-backed
Morristown, NJ 07960 companies; Managing Director, Lehman Brothers, Inc. and predecessor firms,
1969-1992; Advisory Director, Lehman Brothers, Inc. 1992-1994.
Christopher P.A. Komisarjevsky (54) President and Chief Executive Officer, Burson-Marsteller USA since 1996.
Burson-Marsteller President and Chief Executive Officer, Burson-Marsteller New York, 1995 to 1996.
230 Park Avenue South President and Chief Executive Officer, Gavin Anderson & Company New York, 1994
New York, NY 10003-1566 to 1995. Prior thereto, he held various positions with Hill and Knowlton, Inc.
for twenty years.
Harvey Rosenthal (56) Independent Director and Investor, CVS Corporation (formerly Melville
60 State Street Corporation) since 1996. President and Chief Operating Officer, CVS Corporation
Suite 700 from 1994 to 1996. Prior thereto, he held various positions with CVS division of
Boston, MA 02109 Melville Corporation, for twenty-seven years.
William T. McCaffrey* (62) Director, Senior Executive Vice President and Chief Operating Officer, Equitable
89-25 63rd Avenue Life, to March 1998. Executive Vice President and Chief Administrative Officer,
Rego Park, NY 11374 The Equitable Companies Incorporated since 1994. Director, Equitable Foundation
and Equitable Distributors, Inc. since May 1996.
Michael Hegarty* (54) Director, President and Chief Operating Officer, Equitable Life since April 1,
Equitable Life 1998. Vice Chairman, Chase Manhattan Corporation from 1996 to 1998. Vice
Chairman, Chemical Bank, 1995 to 1996 (Chase
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<PAGE>
1290 Avenue of the Americas Manhattan Corporation and Chemical Bank merged in 1996). Senior Executive Vice
New York, New York 10104 President, Chemical Bank, 1991-1995. Executive Vice President, Group Executive
and other various positions, Manufacturers Hanover Trust.
</TABLE>
- ----------
* Mr. Noris, Mr. McCaffrey and Mr. Hegarty are "interested persons" (as defined
in the 1940 Act) of the Trust. Mr. Noris, Mr. McCaffrey and Mr. Hegarty are
deemed "interested persons" of the Trust by virtue of their position as officers
of Equitable Life.
COMMITTEES OF THE BOARD
The Trust has a standing audit committee consisting of all of the Trust's
disinterested Trustees. The audit committee's function is to recommend to the
Board of Trustees a firm of independent accountants 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 accountants for professional services. In addition, the
committee meets with the independent accountants and representatives of
management to review accounting activities and areas of financial reporting and
control.
The Trust has a valuation committee consisting of Peter D. Noris, Harvey Blitz,
Kevin Byrne, Brian O'Neil, and such other officers of the Trust, the Manager,
and Chase Global Funds Services Company, as well as such officers of any Adviser
to any Portfolio as are deemed necessary by Mr. Noris or Mr. Blitz from time to
time, each of whom shall serve at the pleasure of the Board of Trustees as
members of the Valuation Committee. This committee determines the value of any
of the Trust's securities and assets for which market quotations are not readily
available or for which valuation cannot otherwise be provided.
The Trust has a compensation committee consisting of Jettie M. Edwards, William
K. Kearns, Jr., Christopher P.A. Komisarjevsky and Harvey Rosenthal. The
compensation committee's function is to review the Trustees' compensation
arrangements.
The Trust has a conflicts committee consisting of Peter D. Noris and William T.
McCaffrey. The conflicts committee's function is to take any action necessary to
resolve conflicts among shareholders.
COMPENSATION OF THE TRUSTEES
Each Trustee, other than those who are "interested persons" of the Trust (as
defined in the 1940 Act), receives from the Trust an annual fee of $25,000 plus
an additional fee of $1,000 per Board meeting and $500 per committee meeting
attended in person or by telephone.
TRUSTEE COMPENSATION TABLE*
<TABLE>
<CAPTION>
TRUSTEE AGGREGATE PENSION OR TOTAL
COMPENSATION RETIREMENT COMPENSATION
FROM THE TRUST BENEFITS ACCRUED FROM TRUST
AS PART OF PAID TO TRUSTEES
TRUST EXPENSES
<S> <C> <C> <C>
Peter D. Noris $-0- $-0- $-0-
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<PAGE>
TRUSTEE AGGREGATE PENSION OR TOTAL
COMPENSATION RETIREMENT COMPENSATION
FROM THE TRUST BENEFITS ACCRUED FROM TRUST
AS PART OF PAID TO TRUSTEES
TRUST EXPENSES
<S> <C> <C> <C>
Jettie M. Edwards $30,000 $-0- $30,000
William M. Kearns, Jr. $30,000 $-0- $30,000
Christopher P.A. Komisarjevsky $30,000** $-0- $30,000**
Harvey Rosenthal $30,000 $-0- $30,000
William T. McCaffrey $-0- $-0- $-0-
Michael Hegarty $-0- $-0- $-0-
</TABLE>
- ----------
*For the initial fiscal year.
**Mr. Komisarjevsky has elected to participate in the Trust's deferred
compensation plan. As of December 31, 1998, Mr. Komisarjevsky had accrued
$32,424 (including interest).
A deferred compensation plan for the benefit of the Trustees has been adopted by
the Trust. Under the deferred compensation plan, each Trustee may defer payment
of all or part of the fees payable for such Trustee's services. Each Trustee may
defer payment of such fees until his or her retirement as a Trustee or until the
earlier attainment of a specified age. Fees deferred under the deferred
compensation 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 the Manager, Equitable Distributors, Inc.
("EDI"), Equitable or Chase Global Funds Services Company. The Trust's principal
officers are:
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<PAGE>
<TABLE>
<CAPTION>
NAME, AGE AND POSITION WITH TRUST PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
<S> <C>
Peter D. Noris (43) (see above)
President
Harvey Blitz (52) Senior Vice President, Equitable Life since September 1987. Senior Vice
Vice President and Chief Financial Officer President, The Equitable Companies Incorporated since July 1992. Director, The
Equitable of Colorado, Inc. since September 1992. Director and Chairman,
Frontier Trust Company since April 1993 and September 1995, respectively.
Director, Equitable Distributors, Inc., February 1995 to May 1996. Director and
Senior Vice President, EquiSource since October 1992 and June 1993,
respectively. Director and Executive Vice President, EQ Financial Consultants,
Inc. since September 1992 and November 1996, respectively.
Brian O'Neil (47) Executive Vice President, Equitable Life since November 1998. Chief Investment
Vice President Officer, AXA Investment Management Paris since July 1995. Executive Vice
President and Chief Investment Officer, Equitable Life since 1992.
Kevin R. Byrne (42) Vice President and Treasurer, The Equitable Companies Incorporated and Equitable
Vice President and Treasurer Life. Treasurer, Frontier Trust Company and EquiSource. Vice President and
Treasurer, Equitable Casualty Insurance Company.
Robin K. Murray (43) Vice President, Office of the Chief Investment Officer, and First Vice
First Vice President President, Equitable Financial Consultants, Inc. since May 1997. Vice President,
Office of the President, Equitable Life since 1996. Vice President, Income
Management Group, Equitable Life since 1994; Assistant Vice President of
Marketing, Equitable Life from 1989 to 1994.
Martin J. Telles (50) Executive Vice President and Chief Marketing Officer, Equico Securities since 1993.
Vice President Director, Royal Alliance.
Mary Joan Hoene, Esq. (49) Vice President and Counsel, Insurance Division, Equitable Life since 1998.
Vice President Divisional Senior Vice President, Financial Institution and Government Affairs,
AIG Technical Services from 1994 to 1998. General Counsel, Mitchell Hutchins
Asset Management Inc., from 1988 to 1994.
Allen T. Zabusky (47) Vice President and Deputy Controller, Equitable Life since 1990. Controller, The
Vice President and Controller Equitable of Colorado, Inc. since 1996.
Mary E. Cantwell (37) Assistant Vice President, Office of the Chief Investment Officer, Equitable Life
Assistant Vice President since September 1997. Assistant Vice President, Equitable Financial Consultants,
Inc. since September 1997. Marketing Director, Income Management Group,
Equitable Life since 1994. Marketing Manager, Equitable Life since 1991.
Paul Roselli (34) Vice President, Fund Administration, Chase Global Funds Services Company since
Assistant Treasurer March 1997. Assistant Manager of Fund Accounting , Brown Brothers Harriman from
July 1993 to March 1997.
Karl O. Hartmann (43) Senior Vice President, SECRETARY and General Counsel OF Chase Global Funds
Assistant Secretary Services Company SINCE NOVEMBER 1991.
Lloyd Lipsett (34) Vice President and Associate General Counsel, Chase Global Funds Services
Assistant Secretary Company since 1997. Associate, Hale and Dorr (law firm), 1995 to 1997.
Associate, Choate, Hall & Stewart (law firm), 1993 to 1995.
</TABLE>
CONTROL PERSON AND PRINCIPAL HOLDERS OF SECURITIES
The Trust continuously offers its shares to separate accounts of insurance
companies in connection with variable life insurance contracts and variable
annuity certificates and contracts (the "Contracts") and to participants in
tax-qualified retirement plans. THE TRUST'S shares currently are sold TO: (I)
INSURANCE COMPANY SEPARATE ACCOUNTS IN CONNECTION WITH CONTRACTS ISSUED BY
EQUITABLE EOC; (II) TO THE EQUITABLE PLAN; AND (III) INSURANCE COMPANY separate
accounts of : INTEGRITY LIFE INSURANCE COMPANY; AMERICAN FRANKLIN LIFE
INSURANCE COMPANY; AND TRANSAMERICA OCCIDENTAL
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<PAGE>
LIFE INSURANCE COMPANY, EACH OF WHICH IS UNAFFILIATED WITH EQUITABLE. Equitable
may be deemed to be a control person with respect to the Trust by virtue of its
ownership of ___% of the Trust's shares as of MAY 1, 1999. Equitable is
organized as a New York Stock life insurance company and is a wholly owned
subsidiary of The Equitable Companies, Incorporated, a subsidiary of AXA, a
French insurance holding company. During 1999, The Equitable Companies,
Incorporated plans to change its name to AXA Financial, Inc.
As a "series" type of mutual fund, the Trust issues separate series of shares of
beneficial interest with respect to each Portfolio. Each Portfolio resembles a
separate fund issuing a separate class of stock. Because of current federal
securities law requirements, the Trust expects that its shareholders will offer
to owners of the Contracts (the "Contract owners") and participants in the
Equitable Plan the opportunity to instruct them as to how shares allocable to
their Contracts or to the Equitable Plan will be voted with respect to certain
matters, such as approval of investment advisory agreements. To the Trust's
knowledge, as of the date of this Statement of Additional Information ("SAI"),
no Contract owners owned Contracts entitling such persons to give voting
instructions regarding more than 5% of the outstanding shares of any Portfolio.
As of the date of this SAI, no participant in the Equitable Plan had interests
in the Equitable Plan entitling such person to give voting instructions
regarding more than 5% of the outstanding shares of any Portfolio.
The Trust may in the future offer its shares to separate accounts of insurance
companies unaffiliated with Equitable, as well as to tax-qualified retirement
plans in addition to the Equitable Plan. The Trust does not currently foresee
any disadvantages to Contract owners or participants in the Equitable Plan
arising from offering the Trust's shares to separate accounts of insurance
companies that are unaffiliated with each other or to tax-qualified retirement
plans in addition to the Equitable Plan. However, it is theoretically possible
that, at some time, the interests of various Contract owners participating in
the Trust through their separate accounts and tax-qualified retirement plans
might conflict. In the case of a material irreconcilable conflict, one or more
separate accounts or tax-qualified retirement plans might withdraw their
investments in the Trust, which would possibly force the Trust to sell portfolio
securities at disadvantageous prices. The Trustees of the Trust intend to
monitor events for the existence of any material irreconcilable conflicts
between or among such separate accounts and tax-qualified retirement plans and
will take whatever remedial action may be necessary.
INVESTMENT MANAGEMENT AND OTHER SERVICES
THE MANAGER
EQ Financial Consultants, Inc. ("EQFC" or "Manager") is the investment manager
for each Portfolio. T. Rowe Price Associates, Inc. ("T. Rowe Price"), Rowe
Price-Fleming International, Inc. ("Price Fleming"), Putnam Investment
Management, Inc. ("Putnam Management"), Massachusetts Financial Services Company
("MFS"), Morgan Stanley Asset Management Inc. ("MSAM"), Warburg Pincus Asset
Management, Inc. ("Warburg"), Merrill Lynch Asset Management, L.P. ("MLAM"),
Lazard Asset Management ("LAM"), a division of Lazard Freres and Company, LLC,
J.P. Morgan Investment Management Inc. ("J.P. Morgan"), Bankers Trust Company
("Bankers Trust"), Evergreen Asset Management Corp. ("Evergreen"), Alliance
Capital Management, L.P. ("Alliance"), and Capital Guardian Trust Company
("Capital Guardian") (each an "Adviser," and together the "Advisers") serve as
investment advisers to one or more of the Portfolios, as described more fully in
the Prospectus.
The Manager is an investment adviser registered with the SEC under the 1940 Act
and a broker-dealer registered with the SEC under the Securities Exchange Act of
1934, as amended ("1934 Act"). The Manager has served as an investment manager
to each Portfolio of the Trust since its inception. The Manager currently
furnishes specialized investment advice to individuals, pension and profit
sharing plans, trusts, charitable organizations, corporations and other business
entities. The Manager is a wholly-
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<PAGE>
owned subsidiary of Equitable Holding Corporation, a wholly-owned subsidiary of
Equitable. During 1999, the Manager plans to change its name to AXA Advisors,
Inc.
Equitable, which is a New York life insurance company and one of the largest
life insurance companies in the United States, is a wholly-owned subsidiary of
The Equitable Companies Incorporated ("The Equitable Companies"), a
publicly-owned holding company. The principal offices of The Equitable Companies
and Equitable are located at 1290 Avenue of the Americas, New York, New York
10104.
AXA is the largest shareholder of The Equitable Companies. On March 1, 1999, AXA
owned, directly or indirectly through its affiliates, 58.4% of the outstanding
common stock of The Equitable Companies. AXA is the 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 and, to a lesser extent, in Africa and South America. 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.
The Trust and Manager have entered into an investment management agreement
("Management Agreement"). This was initially approved by the Board of Trustees
on March 31, 1997. The Management Agreement obligates the Manager to: (i)
provide investment management services to the Trust; (ii) select the Adviser for
each Portfolio; (iii) monitor the Adviser's investment programs and results;
(iv) review brokerage matters; (v) oversee compliance by the Trust with various
federal and state statutes; and (vi) carry out the directives of the Board of
Trustees. The Management Agreement requires the Manager to provide the Trust
with office space, office equipment, and personnel necessary to operate and
administer the Trust's business, and also to supervise the provision of services
by third parties. The continuance of the Management Agreement, with respect to
each Portfolio, after the first two years must be specifically approved at least
annually (i) by the Trust's Board of Trustees or by vote of a majority of the
outstanding voting securities (as defined in the 1940 Act) of such Portfolio and
(ii) by the affirmative vote of a majority of the Trustees who are not parties
to the Management Agreement or "interested persons" (as defined in the 1940 Act)
of any such party by votes cast in person at a meeting called for such purpose.
The Management Agreement with respect to each Portfolio may be terminated (i) at
any time, without the payment of any penalty, by the Trust upon the vote of a
majority of the Trustees or by vote of the majority of the outstanding voting
securities (as defined in the 1940 Act) of such Portfolio upon sixty (60) days'
written notice to the Manager or (ii) by the Manager at any time without penalty
upon sixty (60) days' written notice to the Trust. The Management Agreement will
also terminate automatically in the event of its assignment (as defined in the
1940 Act).
Each Portfolio pays a fee to the Manager as described below for the investment
management services the Manager provides each Portfolio. The Manager and the
Trust have also entered into an expense limitation agreement with respect to
each Portfolio ("Expense Limitation Agreement"), pursuant to which the Manager
has agreed to waive or limit its fees and to assume other expenses so that the
total annual operating expenses (with certain exceptions described in the
Prospectus) of each Portfolio are limited to the extent described in the
"Management of the Trust -- Expense Limitation Agreement" section of the
Prospectus.
In addition to the management fees, the Trust pays all expenses not assumed by
the Manager, including, without limitation: the fees and expenses of its
independent accountants and of its legal counsel; the costs of printing and
mailing annual and semi-annual reports to shareholders, proxy statements,
prospectuses, prospectus supplements and statements of additional information,
all to the extent they are sent to existing Contract owners; the costs of
printing registration statements; bank transaction charges and custodian's fees;
any proxy solicitors' fees and expenses; filing fees; any federal, state or
local income or other taxes;
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<PAGE>
any interest; any membership fees of the Investment Company Institute and
similar organizations; fidelity bond and Trustees' liability insurance premiums;
and any extraordinary expenses, such as indemnification payments or damages
awarded in litigation or settlements made. All general Trust expenses are
allocated among and charged to the assets of the Portfolios of the Trust on a
basis that the Trustees deem fair and equitable, which may be on the basis of
relative net assets of each Portfolio or the nature of the services performed
and relative applicability to each Portfolio. As discussed in greater detail
below, under "Distribution of the Trust's Shares," the Class IB shares may pay
for certain distribution related expenses in connection with activities
primarily intended to result in the sale of its shares.
The TABLES below SHOW the fees paid by each Portfolio to the Manager during
the YEARS ended December 31, 1997 AND 1998, RESPECTIVELY. The first column
shows each fee without fee waivers, the second column shows the fees actually
paid to the Manager after fee waivers and the third column shows the total
amount of fees waived by the Manager and other expenses of each Portfolio
assumed by the Manager pursuant to the Expense Limitation Agreement.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31, 1997*
PORTFOLIO MANAGEMENT MANAGEMENT FEE TOTAL AMOUNT OF
FEE PAID TO MANAGER FEES WAIVED AND
AFTER FEE WAIVER OTHER EXPENSES
ASSUMED BY MANAGER
<S> <C> <C> <C>
MERRILL LYNCH BASIC VALUE EQUITY PORTFOLIO $73,477 $0 $123,460
MERRILL LYNCH WORLD STRATEGY PORTFOLIO $49,425 $0 $115,763
MFS EMERGING GROWTH COMPANIES PORTFOLIO $169,781 $0 $280,111
MFS RESEARCH PORTFOLIO $186,533 $0 $292,185
EQ/PUTNAM BALANCED PORTFOLIO $50,946 $0 $137,739
EQ/PUTNAM GROWTH & INCOME VALUE PORTFOLIO $227,936 $0 $350,861
EQ/PUTNAM INTERNATIONAL EQUITY PORTFOLIO $130,202 $0 $228,427
EQ/PUTNAM INVESTORS GROWTH PORTFOLIO $67,578 $0 $141,578
T. ROWE PRICE EQUITY INCOME PORTFOLIO $166,401 $0 $250,098
T. ROWE PRICE INTERNATIONAL STOCK PORTFOLIO $213,839 $0 $365,096
WARBURG PINCUS SMALL COMPANY VALUE PORTFOLIO $252,178 $5,693 $246,485
MORGAN STANLEY EMERGING MARKETS EQUITY PORTFOLIO $66,404 $23,496 $42,908
</TABLE>
- ----------
* EXCEPT FOR MORGAN STANLEY EMERGING MARKETS EQUITY PORTFOLIO, EACH OF THE
PORTFOLIOS ABOVE COMMENCED OPERATIONS ON MAY 1, 1997. MORGAN STANLEY
EMERGING MARKETS EQUITY PORTFOLIO COMMENCED OPERATIONS ON AUGUST 20, 1997.
THE BT EQUITY 500 INDEX, BT INTERNATIONAL EQUITY INDEX, BT SMALL COMPANY
INDEX, JPM CORE BOND, LAZARD LARGE CAP VALUE AND LAZARD SMALL CAP
PORTFOLIOS ARE NOT INCLUDED IN THE ABOVE TABLE BECAUSE THEY HAD NO
OPERATIONS DURING THE FISCAL YEAR ENDED DECEMBER 31, 1997 EXCEPT FOR THE
ISSUANCE OF CLASS IB SHARES.
<TABLE>
<CAPTION>
CALENDAR YEAR ENDED DECEMBER 31, 1998*
PORTFOLIO MANAGEMENT MANAGEMENT FEE TOTAL AMOUNT OF
FEE PAID TO MANAGER FEES WAIVED AND
AFTER FEE WAIVER OTHER EXPENSES
ASSUMED BY MANAGER
<S> <C> <C> <C>
Merrill Lynch Basic Value Equity Portfolio $632,783 $396,615 $236,168
Merrill Lynch World Strategy Portfolio $179,486 $75,018 $104,468
MFS Emerging Growth Companies Portfolio $1,351,932 $881,342 $470,590
MFS Research Portfolio $1,319,969 $842,389 $477,580
EQ/Putnam Balanced Portfolio $269,939 $99,960 $169,979
EQ/Putnam Growth & Income Value Portfolio $1,654,313 $1,069,169 $585,144
EQ/Putnam International Equity Portfolio $673,315 $421,928 $251,387
EQ/Putnam Investors Growth Portfolio $497,899 $282,976 $214,923
T. Rowe Price Equity Income Portfolio $1,000,224 $661,278 $338,946
T. Rowe Price International Stock Portfolio $788,805 $573,446 $215,359
Warburg Pincus Small Company Value Portfolio $1,012,129 $738,570 $273,559
Morgan Stanley Emerging Markets Equity Portfolio $364,795 $105,117 $259,678
BT Equity 500 Index Portfolio $210,001 $0 $232,207
-46-
<PAGE>
CALENDAR YEAR ENDED DECEMBER 31, 1998*
PORTFOLIO MANAGEMENT MANAGEMENT FEE TOTAL AMOUNT OF
FEE PAID TO MANAGER FEES WAIVED AND
AFTER FEE WAIVER OTHER EXPENSES
ASSUMED BY MANAGER
BT International Equity Index Portfolio $98,039 $0 $180,103
BT Small Company Index Portfolio $45,728 $0 $220,614
JPM Core Bond Portfolio $172,507 $86,266 $86,241
Lazard Large Cap Value Portfolio $160,570 $73,011 $87,559
Lazard Small Cap Portfolio $194,797 $111,500 $83,297
</TABLE>
* THE ALLIANCE AGGRESSIVE STOCK, ALLIANCE BALANCED, ALLIANCE COMMON STOCK,
ALLIANCE CONSERVATIVE INVESTORS PORTFOLIO, ALLIANCE EQUITY INDEX,
ALLIANCE GLOBAL, ALLIANCE GROWTH AND INCOME, ALLIANCE GROWTH INVESTORS,
ALLIANCE HIGH YIELD, ALLIANCE INTERMEDIATE GOVERNMENT SECURITIES PORTFOLIO,
ALLIANCE INTERNATIONAL, ALLIANCE MONEY MARKET, ALLIANCE QUALITY BOND,
ALLIANCE SMALL CAP GROWTH, EQ/Evergreen Foundation, EQ/Evergreen, MFS
Growth with Income, EQ/Alliance Premier Growth, Capital Guardian Research,
Capital Guardian U.S. Equity and Capital Guardian International Portfolios
are not included in the above TABLES because they had no operations
BEFORE the year ended December 31, 1998.
THE ADVISERS
On behalf of the T. Rowe Price Equity Income Portfolio and the T. Rowe Price
International Stock Portfolio, the Manager has entered into investment advisory
agreements ("Advisory Agreements") with T. Rowe Price and Price Fleming,
respectively. Additionally, the Manager has entered into an Advisory Agreement
on behalf of EQ/Putnam Growth & Income Value Portfolio, EQ/Putnam International
Equity Portfolio, EQ/Putnam Investors Growth Portfolio and EQ/Putnam Balanced
Portfolio with Putnam Management. The Manager has entered into an Advisory
Agreement on behalf of MFS Research Portfolio, MFS Emerging Growth Companies
Portfolio and MFS Growth with Income Portfolio with MFS. The Manager has entered
into Advisory Agreements on behalf of Morgan Stanley Emerging Markets Equity
Portfolio and Warburg Pincus Small Company Value Portfolio with MSAM and
Warburg, respectively. The Manager has entered into an Advisory Agreement on
behalf of Merrill Lynch World Strategy Portfolio and Merrill Lynch Basic Value
Equity Portfolio with MLAM. The Manager has entered into an Advisory Agreement
on behalf of Lazard Large Cap Value Portfolio and Lazard Small Cap Value
Portfolio with LAM. The Manager has entered into an Advisory Agreement on behalf
of the JPM Core Bond Portfolio with J.P. Morgan. The Manager has entered into an
Advisory Agreement on behalf of BT Small Company Index Portfolio, BT
International Equity Index Portfolio and BT Equity 500 Index Portfolio with
Bankers Trust. The Manager has entered into an Advisory Agreement on behalf of
EQ/Evergreen Foundation Portfolio and EQ/Evergreen Portfolio with Evergreen. The
Manager has entered into an Advisory Agreement on behalf of EQ/Alliance Premier
Growth Portfolio with Alliance. Finally, the Manager has entered into an
Advisory Agreement on behalf Capital Guardian Research Portfolio, Capital
Guardian U.S. Equity Portfolio, and Capital Guardian International Portfolio
with Capital Guardian. The Advisory Agreements obligate T. Rowe Price, Price
Fleming, Putnam Management, MFS, Warburg, MSAM, MLAM, LAM, J.P. Morgan, Bankers
Trust, Evergreen, Alliance, and Capital Guardian to: (i) make investment
decisions on behalf of their respective Portfolios; (ii) place all orders for
the purchase and sale of investments for their respective Portfolios with
brokers or dealers selected by the Manager or an Adviser; and (iii) perform
certain limited related administrative functions in connection therewith.
During the YEARS ended December 31, 1997 AND 1998, RESPECTIVELY, the
Manager paid the following fees to each Adviser with respect to the Portfolios
listed below pursuant to the Investment Advisory Agreements:
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<PAGE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31, 1997*
PORTFOLIO ADVISORY FEE PAID
<S> <C>
MERRILL LYNCH BASIC VALUE EQUITY PORTFOLIO $53,462
MERRILL LYNCH WORLD STRATEGY PORTFOLIO $35,301
MFS EMERGING GROWTH COMPANIES PORTFOLIO $123,543
MFS RESEARCH PORTFOLIO $135,730
EQ/PUTNAM BALANCED PORTFOLIO $46,342
EQ/PUTNAM GROWTH & INCOME VALUE PORTFOLIO $207,320
EQ/PUTNAM INTERNATIONAL EQUITY PORTFOLIO $120,864
EQ/PUTNAM INVESTORS GROWTH PORTFOLIO $61,471
T. ROWE PRICE EQUITY INCOME PORTFOLIO $121,142
T. ROWE PRICE INTERNATIONAL STOCK PORTFOLIO $185,338
WARBURG PINCUS SMALL COMPANY VALUE PORTFOLIO $193,934
MORGAN STANLEY EMERGING MARKETS EQUITY PORTFOLIO $66,277
</TABLE>
* EXCEPT FOR MORGAN STANLEY EMERGING MARKETS EQUITY PORTFOLIO, EACH OF THE
PORTFOLIOS ABOVE COMMENCED OPERATIONS ON MAY 1, 1997. MORGAN STANLEY
EMERGING MARKETS EQUITY PORTFOLIO COMMENCED OPERATIONS ON AUGUST 20, 1997.
NO ADVISORY FEES WERE PAID TO BANKERS TRUST, JP MORGAN, LAM, EVERGREEN, MFS
ON BEHALF OF MFS GROWTH WITH INCOME PORTFOLIO, ALLIANCE OR CAPITAL GUARDIAN
DURING THE FISCAL YEAR ENDED DECEMBER 31, 1997.
<TABLE>
<CAPTION>
CALENDAR YEAR ENDED DECEMBER 31, 1998*
PORTFOLIO ADVISORY FEE PAID
<S> <C>
Merrill Lynch Basic Value Equity Portfolio $454,234
Merrill Lynch World Strategy Portfolio $128,253
MFS Emerging Growth Companies Portfolio $955,058
MFS Research Portfolio $935,189
EQ/Putnam Balanced Portfolio $245,492
EQ/Putnam Growth & Income Value Portfolio $1,395,817
EQ/Putnam International Equity Portfolio $625,984
EQ/Putnam Investors Growth Portfolio $453,137
T. Rowe Price Equity Income Portfolio $727,501
T. Rowe Price International Stock Portfolio $506,294
Warburg Pincus Small Company Value Portfolio $778,163
Morgan Stanley Emerging Markets Equity Portfolio $364,354
BT Equity 500 Index Portfolio $42,047
BT International Equity Index Portfolio $42,067
BT Small Company Index Portfolio $9,143
JPM Core Bond Portfolio $15,022
Lazard Large Cap Value Portfolio $123,634
Lazard Small Cap Value Portfolio $158,214
</TABLE>
* No advisory fees were paid to Evergreen, MFS on behalf of MFS Growth with
Income Portfolio, Alliance, or Capital Guardian during the year ended
December 31, 1998.
The Manager recommends Advisers for each Portfolio to the Trustees based upon
its continuing quantitative and qualitative evaluation of each Adviser's skills
in managing assets pursuant to specific investment styles and strategies. Unlike
many other mutual funds, the Portfolios are not associated with any one
portfolio manager, and benefit from independent specialists carefully selected
from the investment management industry. Short-term investment performance, by
itself, is not a significant factor in selecting or terminating an Adviser, and
the Manager does not expect to recommend frequent changes of Advisers. The Trust
has received an exemptive order from the SEC that permits the Manager, subject
-48-
<PAGE>
to certain conditions, to enter into Advisory Agreements with Advisers approved
by the Trustees, but without the requirement of shareholder approval. Pursuant
to the terms of the SEC order, the Manager is able, subject to the approval of
the Trustees but without shareholder approval, to employ new Advisers for new or
existing Portfolios, change the terms of particular Advisory Agreements or
continue the employment of existing Advisers after events that under the 1940
Act and the Advisory Agreements would cause an automatic termination of the
agreement. Although shareholder approval would not be required for the
termination of Advisory Agreements, shareholders of a Portfolio would continue
to have the right to terminate such agreements for the Portfolio at any time by
a vote of a majority of outstanding voting securities of the Portfolio.
When a Portfolio has more than one Adviser, the assets of each Portfolio are
allocated by the Manager among the Advisers selected for the Portfolio. Each
Adviser has discretion, subject to oversight by the Trustees, and the Manager,
to purchase and sell portfolio assets, consistent with each Portfolio's
investment objectives, policies and restrictions and specific investment
strategies developed by the Manager.
Generally, no Adviser provides any services to any Portfolio except asset
management and related recordkeeping services. However, an Adviser or its
affiliated broker-dealer may execute portfolio transactions for a Portfolio and
receive brokerage commissions in connection therewith as permitted by Section
17(e) of the 1940 Act.
THE ADMINISTRATOR
Pursuant to an administrative agreement ("Mutual Funds Services Agreement"),
Chase Global Funds Services Company ("Administrator") provides the Trust with
necessary administrative services. In addition, the Administrator makes
available the office space, equipment, personnel and facilities required to
provide such administrative services to the Trust.
The Administrator was organized as a Delaware corporation. Its principal place
of business is at 73 Tremont Street, Boston, Massachusetts 02108. The Mutual
Funds Services Agreement was reapproved by the Board of Trustees on March 3,
1998 and will continue in effect from year to year unless terminated by any
party upon not less than ninety (90) days' prior written notice to the other
party.
During the YEARS ended December 31, 1997 AND 1998, RESPECTIVELY the
Administrator was paid the following fees, by the TRUST with
respect to each Portfolio:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31, 1997*
PORTFOLIO ADVISORY FEE PAID
<S> <C>
MERRILL LYNCH BASIC VALUE EQUITY PORTFOLIO $11,213
MERRILL LYNCH WORLD STRATEGY PORTFOLIO $13,633
MFS EMERGING GROWTH COMPANIES PORTFOLIO $17,902
MFS RESEARCH PORTFOLIO $18,033
EQ/PUTNAM BALANCED PORTFOLIO $12,451
EQ/PUTNAM GROWTH & INCOME VALUE PORTFOLIO $199,904
EQ/PUTNAM INTERNATIONAL EQUITY PORTFOLIO $16,721
EQ/PUTNAM INVESTORS GROWTH PORTFOLIO $11,247
T. ROWE PRICE EQUITY INCOME PORTFOLIO $17,376
T. ROWE PRICE INTERNATIONAL STOCK PORTFOLIO $30,599
WARBURG PINCUS SMALL COMPANY VALUE PORTFOLIO $17,213
MORGAN STANLEY EMERGING MARKETS EQUITY PORTFOLIO $9,652
</TABLE>
* EXCEPT FOR MORGAN STANLEY EMERGING MARKETS EQUITY PORTFOLIO, EACH OF
THE PORTFOLIOS ABOVE COMMENDED OPERATIONS ON MAY 1, 1997. MORGAN
STANLEY EMERGING EQUITY PORTFOLIO COMMENCED OPERATIONS ON AUGUST 20,
1997. THE BT EQUITY 500 INDEX, BT INTERNATIONAL EQUITY
-49-
<PAGE>
INDEX, BT SMALL COMPANY INDEX, JPM CORE BOND, LAZARD LARGE CAP VALUE,
LAZARD SMALL CAP VALUE PORTFOLIOS DID NOT PAY A FEE TO THE ADMINISTRATOR
DURING THE FISCAL YEAR ENDED DECEMBER 31, 1997.
<TABLE>
<CAPTION>
CALENDAR YEAR ENDED DECEMBER 31, 1998*
PORTFOLIO ADMINISTRATION FEE
<S> <C>
Merrill Lynch Basic Value Equity Portfolio $92,138
Merrill Lynch World Strategy Portfolio $48,992
MFS Emerging Growth Companies Portfolio $166,093
MFS Research Portfolio $160,767
EQ/Putnam Balanced Portfolio $65,412
EQ/Putnam Growth & Income Value Portfolio $191,609
EQ/Putnam International Equity Portfolio $92,040
EQ/Putnam Investors Growth Portfolio $80,365
T. Rowe Price Equity Income Portfolio $131,283
T. Rowe Price International Stock Portfolio $120,081
Warburg Pincus Small Company Value Portfolio $113,472
Morgan Stanley Emerging Markets Equity Portfolio $58,490
BT Equity 500 Index Portfolio $91,209
BT International Equity Index Portfolio $89,083
BT Small Company Index Portfolio $97,220
JPM Core Bond Portfolio $52,546
Lazard Large Cap Value Portfolio $47,035
Lazard Small Cap Value Portfolio $45,857
</TABLE>
* THE ALLIANCE AGGRESSIVE STOCK, ALLIANCE BALANCED , ALLIANCE COMMON STOCK,
ALLIANCE CONSERVATIVE INVESTORS, ALLIANCE EQUITY INDEX, ALLIANCE GLOBAL,
ALLIANCE GROWTH AND INCOME, ALLIANCE GROWTH INVESTORS, ALLIANCE HIGH YIELD,
ALLIANCE INTERMEDIATE GOVERNMENT SECURITIES, ALLIANCE INTERNATIONAL,
ALLIANCE MONEY MARKET, ALLIANCE QUALITY BOND, ALLIANCE SMALL CAP GROWTH,
EQ/Evergreen Foundation, EQ/Evergreen, MFS Growth with Income, EQ/Alliance
Premier Growth, Capital Guardian Research, Capital Guardian U.S. Equity and
Capital Guardian International Portfolios did not pay a fee to the
Administrator during the year ended December 31, 1998.
THE DISTRIBUTORS
The Trust has distribution agreements with EQFC and EDI (each also referred to
as a "Distributor," and together "Distributors"), each an indirect wholly-owned
subsidiary of Equitable. The address for both EQFC and EDI is 1290 Avenue of the
Americas, New York, New York 10104. EQFC is one of the Distributors for the
Trust's Class IA shares and Class IB shares and also serves as the Manager of
the Trust. EDI serves as one of the Distributors for the Trust's Class IA shares
and Class IB shares.
The Trust's distribution agreements with respect to the Class IA shares and
Class IB shares ("Distribution Agreements") were reapproved by the Board of
Trustees at a Board meeting held on April 12, 1999. The Distribution Agreements
will remain in effect from year to year provided each Distribution Agreement's
continuance is approved annually by (i) a majority of the Trustees who are not
parties to such agreement or "interested persons" (as defined in the 1940 Act)
of the Trust or a Portfolio and, if applicable, who have no direct or indirect
financial interest in the operation of the Class IB Distribution Plan or any
such related agreement ("Independent Trustees") and (ii) either by vote of a
majority of the Trustees or a majority of the outstanding voting securities (as
defined in the 1940 Act) of the Trust.
The Distributors or their affiliates for the Class IA shares will pay for
printing and distributing prospectuses or reports prepared for their use in
connection with the offering of the Class IA shares to prospective Contract
owners and preparing, printing and mailing any other literature or advertising
in connection with the offering of the Class IA shares to prospective Contract
owners.
-50-
<PAGE>
Pursuant to the Class IB Distribution Plan the Trust compensates the
Distributors 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 the Trust's 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, and 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 Class IB Distribution Plan provides that the Trust, on behalf of each
Portfolio, may pay annually up to 0.50% of the average daily net assets of a
Portfolio attributable to its Class IB shares in respect of activities primarily
intended to result in the sale of Class IB shares. However, under the
Distribution Agreements, payments to the Distributors for activities pursuant to
the Class IB Distribution Plan are limited to payments at an annual rate equal
to 0.25% of average daily net assets of a Portfolio attributable to its Class IB
shares. Under terms of the Class IB Distribution Plan and the Distribution
Agreements, each Portfolio is authorized to make payments monthly to the
Distributors that 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 Class IB 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 either the Class IB Distribution Plan and in
connection with their annual consideration of the Class IB Distribution 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 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 Trust Class
IB shares; (d) obtaining information and providing explanations to wholesale and
retail distributors of Contracts regarding Trust investment objectives and
policies and other information about the Trust and its Portfolios, including the
performance of the Portfolios; (e) training sales personnel regarding the Class
IB shares of the Trust; and (f) financing any other activity that the
Distributors determine is primarily intended to result in the sale of Class IB
shares.
The Distributors for each class of shares will pay all fees and expenses in
connection with their respective qualification and registration as a broker or
dealer under federal and state laws. In the capacity of agent, each Distributor
currently offers shares of each Portfolio on a continuous basis to the separate
accounts of insurance companies offering the Contracts in all states in which
the Portfolio or the Trust may from time to time be registered or where
permitted by applicable law. EQFC also serves as the Distributor for shares of
the Trust to the Equitable Plan. Each Distribution Agreement provides that the
Distributors shall accept orders for shares at net asset value without sales
commission or load being charged. The Distributors have made no firm commitment
to acquire shares of any Portfolio.
A description of the Class IB Distribution Plan with respect to the Class IB
shares and related services and fees thereunder is provided in the Prospectus
for the Class IB shares of the Portfolios. On April 12, 1999, the Board of
Trustees of the Trust, including the Independent Trustees, considered the
reapproval of the Class IB Distribution Plan. In connection with its
consideration of the Class IB Distribution Plan, the Board of Trustees was
furnished with a copy of the Class IB Distribution Plan and the related
materials, including information related to the advantages and disadvantages of
the Class IB Distribution Plan.
-51-
<PAGE>
Legal counsel for the Independent Trustees discussed the legal and regulatory
considerations in readopting the Class IB Distribution Plan.
The Board of Trustees considered various factors in connection with its decision
as to whether to reapprove the Class IB Distribution Plan, including: (i) the
nature and causes of the circumstances which makes continuation of the Class IB
Distribution Plan, necessary and appropriate; (ii) the way in which the Class IB
Distribution Plan would continue to address those circumstances, including the
nature and potential amount of expenditures; (iii) the nature of the anticipated
benefits; (iv) the possible benefits of the Class IB Distribution Plan to any
other person relative to those of the Trust; (v) the effect of the Class IB
Distribution Plan on existing owners of Contracts; (vi) the merits of possible
alternative plans or pricing structures; (vii) competitive conditions in the
variable products industry; and (viii) the relationship of the Class IB
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 the 1940 Act, the Board of
Trustees, including the Independent Trustees, unanimously determined, in the
exercise of its business judgment, that the Class IB Distribution Plan is
reasonably likely to continue to benefit the Trust and the shareholders of its
Portfolios and approved its continuance.
The Class IB Distribution Plan and any Rule 12b-1 related agreement that is
entered into by the Trust or the Distributors of the Class IB shares in
connection with the Class IB Distribution Plan will continue in effect for a
period of more than one year only so long as continuance is specifically
approved at least annually by a vote of a majority of the Trust's Board of
Trustees, and of a majority of the Independent Trustees, cast in person at a
meeting called for the purpose of voting on the Class IB Distribution Plan or
any Rule 12b-1 related agreement, as applicable. In addition, the Class IB
Distribution Plan and any Rule 12b-1 related agreement may be terminated as to
Class IB shares of a Portfolio at any time, without penalty, by vote of a
majority of the outstanding Class IB shares of the Portfolio or by vote of a
majority of the Independent Trustees. The Class IB Distribution Plan also
provides that it may not be amended to increase materially the amount (up to
.50% of average daily net assets annually) that may be spent for distribution of
Class IB shares of any Portfolio without the approval of Class IB shareholders
of that Portfolio.
The table below shows the amount paid by each Portfolio to each of the
Distributors pursuant to the Distribution Plan for the year ended December 31,
1998:
<TABLE>
<CAPTION>
PORTFOLIO DISTRIBUTION FEE DISTRIBUTION FEE TOTAL
PAID TO EQF PAID TO EDI DISTRIBUTION FEES
<S> <C> <C> <C>
Merrill Lynch Basic Value Equity Portfolio $190,254 $97,374 $287,628
Merrill Lynch World Strategy Portfolio $46,865 $17,237 $64,102
MFS Emerging Growth Companies Portfolio $376,888 $236,809 $613,697
MFS Research Portfolio $255,532 $344,454 $599,986
EQ/Putnam Balanced Portfolio $115,264 $7,435 $122,699
EQ/Putnam Growth & Income Value Portfolio $221,883 $530,078 $751,961
EQ/Putnam International Equity Portfolio $0 $240,470 $240,470
EQ/Putnam Investors Growth Portfolio $0 $226,318 $226,318
T. Rowe Price Equity Income Portfolio $433,183 $21,464 $454,647
T. Rowe Price International Stock Portfolio $250,434 $12,461 $262,895
Warburg Pincus Small Company Value Portfolio $364,576 $24,617 $389,193
Morgan Stanley Emerging Markets Equity Portfolio $64,145 $15,158 $79,303
BT Equity 500 Index Portfolio $41,616 $168,385 $210,001
BT International Equity Index Portfolio $4,446 $65,476 $69,922
BT Small Company Index Portfolio $4,113 $41,615 $45,728
JPM Core Bond Portfolio $0 $95,837 $95,837
Lazard Large Cap Value Portfolio $0 $72,986 $72,986
-52-
<PAGE>
PORTFOLIO DISTRIBUTION FEE DISTRIBUTION FEE TOTAL
PAID TO EQF PAID TO EDI DISTRIBUTION FEES
Lazard Small Cap Value Portfolio $0 $60,874 $60,874
</TABLE>
The ALLIANCE AGGRESSIVE STOCK, ALLIANCE BALANCED, ALLIANCE COMMON STOCK,
ALLIANCE CONSERVATIVE INVESTORS, ALLIANCE EQUITY INDEX, ALLIANCE GLOBAL,
ALLIANCE GROWTH AND INCOME, ALLIANCE GROWTH INVESTORS, ALLIANCE HIGH YIELD,
ALLIANCE INTERMEDIATE GOVERNMENT SECURITIES, ALLIANCE INTERNATIONAL, ALLIANCE
MONEY MARKET, ALLIANCE QUALITY BOND, ALLIANCE SMALL CAP GROWTH, EQ/Evergreen
Foundation, EQ/Evergreen, MFS Growth with Income, EQ/Alliance Premier Growth,
Capital Guardian Research, Capital Guardian U.S. Equity and Capital Guardian
International Portfolios did not pay any distribution fees or expenses during
the year ended December 31, 1998.
BROKERAGE ALLOCATION AND OTHER STRATEGIES
BROKERAGE COMMISSIONS
The Portfolios are charged for securities brokers' commissions, transfer taxes
and similar fees relating to securities transactions. The Manager and each of
the Advisers, as appropriate, seek to obtain the best net price and execution on
all orders placed for the Portfolios, considering all the circumstances except
to the extent they 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 commission
or mark-up. In underwritten offerings, the price generally includes a disclosed
fixed commission or discount.
The Manager and Advisers may, as appropriate, in the allocation of brokerage
business, take into consideration research and other brokerage services provided
by brokers and dealers to Equitable, the Manager or Advisers. 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 addition, the Manager and Advisers may
allocate brokerage business to brokers and dealers that have made or are
expected to make significant efforts in facilitating the distribution of the
Trust's shares.
Commissions charged by brokers that provide research services may be somewhat
higher than commissions charged by brokers that do not provide research
services. As permitted by Section 28(e) of the 1934 Act and by policies adopted
by the Trustees, the Manager and Advisers may cause the Trust to pay a
broker-dealer that provides brokerage and research services to the Manager and
Advisers 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.
The Manager and Advisers do not engage brokers and dealers whose commissions are
believed to be unreasonable in relation to brokerage and research 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
-53-
<PAGE>
account such factors as price, promptness, size of order and difficulty of
execution. The research services obtained will, in general, be used by the
Manager and Advisers for the benefit of all accounts for which the responsible
party makes investment decisions. The receipt of research services from brokers
will tend to reduce the Manager's and Advisers' expenses in managing the
Portfolios.
During the YEARS ended December 31, 1997 AND 1998 RESPECTIVELY, the
Portfolios paid the amounts indicated in brokerage commissions:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31, 1997*
PORTFOLIO BROKERAGE COMMISSIONS PAID
<S> <C>
MERRILL LYNCH BASIC VALUE EQUITY PORTFOLIO $75,654
MERRILL LYNCH WORLD STRATEGY PORTFOLIO $43,547
MFS EMERGING GROWTH COMPANIES PORTFOLIO $146,321
MFS RESEARCH PORTFOLIO $146,977
EQ/PUTNAM BALANCED PORTFOLIO $15,797
EQ/PUTNAM GROWTH & INCOME VALUE PORTFOLIO $109,815
EQ/PUTNAM INTERNATIONAL EQUITY PORTFOLIO $164,293
EQ/PUTNAM INVESTORS GROWTH PORTFOLIO $25,284
T. ROWE PRICE EQUITY INCOME PORTFOLIO $67,627
T. ROWE PRICE INTERNATIONAL STOCK PORTFOLIO $244,072
WARBURG PINCUS SMALL COMPANY VALUE PORTFOLIO $220,138
MORGAN STANLEY EMERGING MARKETS EQUITY PORTFOLIO $64,176
</TABLE>
- ----------
* EXCEPT FOR MORGAN STANLEY EMERGING MARKETS EQUITY PORTFOLIO, EACH OF THE
PORTFOLIOS ABOVE COMMENCED OPERATIONS ON MAY 1, 1998. MORGAN STANLEY
EMERGING MARKETS EQUITY PORTFOLIO COMMENCED OPERATIONS ON AUGUST 20, 1997.
THE BT EQUITY 500 INDEX, BT INTERNATIONAL EQUITY INDEX, BT SMALL COMPANY
INDEX, JPM CORE BOND, LAZARD LARGE CAP VALUE AND LAZARD SMALL CAP
PORTFOLIOS ARE NOT INCLUDED IN THE ABOVE TABLE BECAUSE THEY HAD NO
OPERATIONS DURING THE FISCAL YEAR ENDED DECEMBER 31, 1997 EXCEPT FOR THE
ISSUANCE OF CLASS IB SHARES.
<TABLE>
<CAPTION>
CALENDAR YEAR ENDED DECEMBER 31, 1998*
PORTFOLIO BROKERAGE COMMISSIONS PAID
<S> <C>
Merrill Lynch Basic Value Equity Portfolio $397,472
Merrill Lynch World Strategy Portfolio $ 89,702
MFS Emerging Growth Companies Portfolio $572,677
MFS Research Portfolio $602,002
EQ/Putnam Balanced Portfolio $ 62,166
EQ/Putnam Growth & Income Value Portfolio $529,088
EQ/Putnam International Equity Portfolio $502,896
EQ/Putnam Investors Growth Portfolio $141,031
T. Rowe Price Equity Income Portfolio $143,543
T. Rowe Price International Stock Portfolio $179,993
Warburg Pincus Small Company Value Portfolio $690,305
Morgan Stanley Emerging Markets Equity Portfolio $246,559
BT Equity 500 Index Portfolio $ 87,608
BT International Equity Index Portfolio $ 26,510
BT Small Company Index Portfolio $ 38,914
JPM Core Bond Portfolio $ 7,380
Lazard Large Cap Value Portfolio $ 95,425
Lazard Small Cap Value Portfolio $ 79,393
</TABLE>
- ----------
* THE ALLIANCE AGGRESSIVE STOCK PORTFOLIO, ALLIANCE BALANCED PORTFOLIO,
ALLIANCE COMMON STOCK PORTFOLIO, ALLIANCE CONSERVATIVE INVESTORS PORTFOLIO,
ALLIANCE EQUITY INDEX PORTFOLIO, ALLIANCE GLOBAL PORTFOLIO, ALLIANCE GROWTH
AND INCOME PORTFOLIO, ALLIANCE GROWTH INVESTORS PORTFOLIO, ALLIANCE HIGH
YIELD PORTFOLIO, ALLIANCE INTERMEDIATE GOVERNMENT SECURITIES PORTFOLIO,
ALLIANCE INTERNATIONAL PORTFOLIO, ALLIANCE MONEY MARKET PORTFOLIO, ALLIANCE
QUALITY BOND PORTFOLIO, ALLIANCE SMALL CAP GROWTH PORTFOLIO, EQ/Evergreen
Foundation, EQ/Evergreen, MFS Growth with Income, EQ/Alliance Premier
Growth, Capital Guardian Research, Capital
-54-
<PAGE>
Guardian U.S. Equity and Capital Guardian International Portfolios did not
pay any brokerage commissions during the year ended December 31, 1998.
BROKERAGE TRANSACTIONS WITH AFFILIATES
In December 1984, Equitable acquired Donaldson, Lufkin & Jenrette, Inc. ("DLJ").
A DLJ subsidiary, Donaldson, Lufkin & Jenrette Securities Corporation, is one of
the nation's largest investment banking and securities firms. Another DLJ
subsidiary, Autranet, Inc., is a securities broker that markets independently
originated research to institutions. Through the Pershing Division of Donaldson,
Lufkin & Jenrette Securities Corporation, DLJ supplies security execution and
clearance services to financial intermediaries including broker-dealers and
banks. To the extent permitted by law, the Trust may engage in securities and
other transactions with those entities or may invest in shares of the investment
companies with which those entities have affiliations. T. Rowe Price and
Price-Fleming, the Advisers to the T. Rowe Price International Stock and T. Rowe
Price Equity Income Portfolios, may execute portfolio transactions through
certain affiliates of Fleming and Jardine Fleming, which are persons indirectly
related to the Advisers, acting as an agent in accordance with procedures
established by the Trust's Board of Trustees. MLAM, the Adviser to the Merrill
Lynch World Strategy Portfolio and Merrill Lynch Basic Value Equity Portfolio,
may execute portfolio transactions through certain affiliates of MLAM. MSAM, the
Adviser to the Morgan Stanley Emerging Markets Equity Portfolio, may execute
portfolio transactions through certain affiliates of MSAM. LAM, the Adviser to
the Lazard Large Cap Value Portfolio, and Lazard Small Cap Value Portfolio, may
execute portfolio transactions through certain affiliates of LAM. J.P. Morgan,
the Adviser to the JPM Core Bond Portfolio, may execute portfolio transactions
through certain affiliates of J.P. Morgan. Bankers Trust, the Adviser to BT
Small Company Index Portfolio, BT International Equity Index Portfolio and BT
Equity 500 Index Portfolio, may execute portfolio transactions through certain
affiliates of Bankers Trust. Evergreen, the Adviser to the EQ/Evergreen
Foundation Portfolio and EQ/Evergreen Portfolio, may execute portfolio
transactions through certain affiliates of Evergreen and First Union, including
Lieber & Company. Alliance, the Adviser to the EQ/Alliance Premier Growth
Portfolio, ALLIANCE AGGRESSIVE STOCK PORTFOLIO, ALLIANCE BALANCED PORTFOLIO,
ALLIANCE COMMON STOCK PORTFOLIO, ALLIANCE CONSERVATIVE INVESTORS PORTFOLIO,
ALLIANCE EQUITY INDEX PORTFOLIO, ALLIANCE GLOBAL PORTFOLIO, ALLIANCE GROWTH AND
INCOME PORTFOLIO, ALLIANCE GROWTH INVESTORS PORTFOLIO, ALLIANCE HIGH YIELD
PORTFOLIO, ALLIANCE INTERMEDIATE GOVERNMENT SECURITIES PORTFOLIO, ALLIANCE
INTERNATIONAL PORTFOLIO, ALLIANCE MONEY MARKET PORTFOLIO, ALLIANCE QUALITY BOND
PORTFOLIO, ALLIANCE SMALL CAP GROWTH PORTFOLIO, may execute portfolio
transactions with certain affiliates of Alliance, including DLJ and the Pershing
Division of Donaldson, Lufkin & Jenrette Securities Corporation. Capital
Guardian, the Adviser to the Capital Guardian Research Portfolio, the Capital
Guardian U.S. Equity Portfolio and the Capital Guardian International Portfolio,
does not have an affiliated broker through which it would execute portfolio
transactions.
To the extent permitted by law, the Trust may engage in brokerage transactions
with brokers that are affiliates of the Manager and Advisers, with brokers who
are affiliates of such brokers, or with unaffiliated brokers who trade or clear
through affiliates of the Manager and Advisers. The 1940 Act generally prohibits
the Trust from engaging in principal securities transactions with brokers that
are affiliates of the Manager and Advisers or affiliates of such brokers, 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 1940 Act,
which are reasonably designed to provide that any commissions or other
remuneration it pays to brokers that are affiliates of the Manager and brokers
that are affiliates of an Adviser to a Portfolio for which that Adviser provides
investment advice do not exceed the usual and customary broker's commission. In
addition, the Trust will adhere to the requirements under the 1934 Act governing
floor trading. Also, because of securities law limitations, the Trust will limit
purchases of securities in a public offering, if such securities are
underwritten by brokers that are affiliates of the Manager and Advisers or their
affiliates.
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<PAGE>
During the YEARS ended December 31, 1997 AND 1998 RESPECTIVELY, the
following Portfolios paid the amounts indicated to the affiliated broker-dealers
of the Manager or affiliates of the Advisers to each Portfolio.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31, 1997*
PERCENTAGE OF
TRANSACTIONS
PORTFOLIO AFFILIATED AGGREGATE PERCENTAGE OF (BASED
BROKER-DEALER BROKERAGE TOTAL BROKERAGE ON DOLLAR
COMMISSIONS PAID COMMISSIONS AMOUNTS)
<S> <C> <C> <C> <C>
MERRILL LYNCH BASIC VALUE EQUITY PORTFOLIO DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION ("DLJ") $1,444 1.91% 1.48%
MERRILL LYNCH, PIERCE FENNER &
SMITH INCORPORATED $7,984 10.55% 10.93%
("MERRILL LYNCH")
MERRILL LYNCH WORLD STRATEGY PORTFOLIO DLJ $166 0.38% 0.74%
MERRILL LYNCH $2,622 6.02% 5.72%
MFS EMERGING GROWTH COMPANIES PORTFOLIO PERSHING TRADING COMPANY, L.P. $72 0.05% 0.05%
EQ/PUTNAM BALANCED PORTFOLIOS EQUICO SECURITIES CORP. $75 0.47% 0.33%
EQ/PUTNAM GROWTH & INCOME VALUE PORTFOLIO EQUICO SECURITIES CORPORATION $363 0.33% 0.23%
T. ROWE PRICE EQUITY INCOME PORTFOLIO DLJ $694 1.03% 0.55%
T. ROWE PRICE INTERNATIONAL STOCK PORTFOLIO JARDINE FLEMING SECURITIES LTD. $454 0.19% 0.18%
ROBERT FLEMING SECURITIES LTD. $2,210 0.91% 1.29%
FLEMING MARTIN LIMITED $69 0.03% 0.04%
</TABLE>
- ----------
* EXCEPT FOR MORGAN STANLEY EMERGING MARKETS EQUITY PORTFOLIO, EACH OF THE
PORTFOLIOS ABOVE COMMENCED OPERATIONS ON MAY 1, 1997. MORGAN STANLEY
EMERGING MARKETS EQUITY PORTFOLIO COMMENCED OPERATIONS ON AUGUST 20, 1997.
THE BT EQUITY 500 INDEX, BT INTERNATIONAL EQUITY INDEX, BT SMALL COMPANY
INDEX, JPM CORE BOND, LAZARD LARGE CAP VALUE, LAZARD SMALL CAP VALUE,
PORTFOLIOS DID NOT PAY ANY BROKERAGE COMMISSIONS DURING THE FISCAL YEAR
ENDED DECEMBER 31, 1997.
<TABLE>
<CAPTION>
CALENDAR YEAR ENDED DECEMBER 31, 1998*
PERCENTAGE OF
TRANSACTIONS
PORTFOLIO AFFILIATED AGGREGATE PERCENTAGE OF (BASED
BROKER-DEALER BROKERAGE TOTAL BROKERAGE ON DOLLAR
COMMISSIONS PAID COMMISSIONS AMOUNTS)
<S> <C> <C> <C> <C>
Merrill Lynch Basic Value Equity Portfolio Donaldson, Lufkin & Jenrette
Securities Corporation ("DLJ") $14,104 3.55% 4.43%
Merrill Lynch and Co. $13,238 3.33% 3.15%
Merrill Lynch World Strategy Portfolio DLJ $ 2,260 2.52% 3.40%
Merrill Lynch and Co. $ 5,171 5.76% 7.31%
MFS Research Portfolio DLJ $ 408 .07% .07%
Pershing Trading Company, L.P. $ 48 .01% .01%
MFS Emerging Growth Companies Portfolio Pershing Trading Company, L.P. $ 600 .10% .12%
T. Rowe Price Equity Income Portfolio DLJ $ 3,544 2.47% 1.53%
T. Rowe Price International Stock Portfolio Jardine Fleming Securities Ltd. $ 1,978 1.10% .72%
Robert Fleming Co. $ 5,249 2.92% 3.41%
Ord Minnett - New Zealand - Ltd. $ 326 .18% .13%
Ord Minnett Group, Ltd. $ 155 .09% .06%
DLJ $ 165 .09% .14%
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<PAGE>
Morgan Stanley Emerging Markets Equity Morgan Stanley & Co. $ 596 .24% .18%
PORTFOLIO
Lazard Small Cap Value Portfolio DLJ $ 150 .19% .15%
</TABLE>
- ----------
* THE ALLIANCE AGGRESSIVE STOCK, ALLIANCE BALANCED, ALLIANCE COMMON
STOCK, ALLIANCE CONSERVATIVE INVESTORS, ALLIANCE EQUITY INDEX, ALLIANCE
GLOBAL, ALLIANCE GROWTH AND INCOME, ALLIANCE GROWTH INVESTORS, ALLIANCE
HIGH YIELD, ALLIANCE INTERMEDIATE GOVERNMENT SECURITIES, ALLIANCE
INTERNATIONAL, ALLIANCE MONEY MARKET, ALLIANCE QUALITY BOND, ALLIANCE SMALL
CAP GROWTH, EQ/Evergreen Foundation, EQ/Evergreen, MFS Growth with Income,
EQ/Alliance Premier Growth, Capital Guardian Research, Capital Guardian
U.S. Equity and Capital Guardian International Portfolios did not pay any
brokerage commissions during the year ended December 31, 1998.
PURCHASE AND PRICING OF SHARES
The Trust will offer and sell its shares at each Portfolio's net asset value per
share, which will be determined in the manner set forth below.
The net asset value of the shares of each class of a 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 class of a Portfolio will be computed by dividing the sum of the
investments held by that Portfolio applicable to that class, plus any cash or
other assets, minus all liabilities, by the total number of outstanding shares
of that class of the Portfolio at such time. All expenses borne by the Trust and
each of its Classes, will be accrued daily.
The net asset value per share of each Portfolio will be determined and computed
as follows, in accordance with generally accepted accounting principles, and
consistent with the 1940 Act:
o The assets belonging to each Portfolio will include (i) all
consideration received by the Trust for the issue or sale of shares of that
particular Portfolio, together with all assets in which such consideration is
invested or reinvested, (ii) all income, earnings, profits, and proceeds
thereof, including any proceeds derived from the sale, exchange or liquidation
of such assets, (iii) any funds or payments derived from any reinvestment of
such proceeds in whatever form the same may be, and (iv) "General Items", if
any, allocated to that Portfolio. "General Items" include any assets, income,
earnings, profits, and proceeds thereof, funds, or payments which are not
readily identifiable as belonging to any particular Portfolio. General Items
will be allocated as the Trust's Board of Trustees considers fair and equitable.
o The liabilities belonging to each Portfolio will include (i) the
liabilities of the Trust in respect of that Portfolio, (ii) all expenses, costs,
changes and reserves attributable to that Portfolio, and (iii) any general
liabilities, expenses, costs, charges or reserves of the Trust which are not
readily identifiable as belonging to any particular Portfolio which have been
allocated as the Trust's Board of Trustees considers fair and equitable.
The value of each Portfolio will be determined at the close of business on each
"business day." Normally, this would be each day that the New York Stock
Exchange is open and would include some federal holidays. For stocks and
options, the close of trading is 4:00 p.m. and 4:15 p.m. Eastern Time,
respectively; for bonds it is the close of business in New York City, and for
foreign securities (other than ADRs) it is the close of business in the
applicable foreign country, with exchange rates determined at 12:00 p.m. Eastern
Time.
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<PAGE>
Values are determined according to accepted accounting practices and all laws
and regulations that apply. The assets of each Portfolio are valued as follows:
o Stocks listed on national securities exchanges and certain
over-the-counter issues traded on the NASDAQ national market system are valued
at the last sale price, or, if there is no sale, at the latest available bid
price. Other unlisted stocks are valued at their last sale price or, if there is
no reported sale during the day, at a bid price estimated by a broker.
o Foreign securities not traded directly, or in ADRs 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 United States dollar
equivalent at current exchange rates.
o United States Treasury securities and other obligations issued or
guaranteed by the United States Government, its agencies or instrumentalities,
are valued at representative quoted prices.
o Long-term corporate bonds are valued at prices obtained from a bond
pricing service of a major dealer in bonds when such prices are available;
however, when such prices are not available, such bonds are valued at a bid
price estimated by a broker.
o Short-term debt securities in the Portfolios OTHER THAN THE ALLIANCE
MONEY MARKET PORTFOLIO, which mature in 60 days or less are valued at amortized
cost, which approximates market value. Short-term debt securities in such
Portfolios which mature in more than 60 days are valued at representative quoted
prices. SECURITIES HELD BY THE ALLIANCE MONEY MARKET PORTFOLIO ARE VALUED AT
PRICES BASED ON EQUIVALENT YIELDS OR YIELD SPREADS.
o Convertible preferred stocks listed on national securities exchanges
are valued as of their last sale price or, if there is no sale, at the latest
available bid price.
o Convertible bonds, and unlisted convertible preferred stocks, are
valued at bid prices obtained from one or more of the major dealers in such
bonds or stocks. Where there is a discrepancy between dealers, values may be
adjusted based on recent premium spreads to the underlying common stocks.
o Mortgage-backed and asset-backed securities are valued at prices
obtained from a bond pricing service where available, or at a bid price obtained
from one or more of the major dealers in such securities. If a quoted price is
unavailable, an equivalent yield or yield spread quotes will be obtained from a
broker and converted to a price.
o Purchased options, including options on futures, are valued at their
last bid price. Written options are valued at their last asked price.
o Futures contracts are valued as of their last sale price or, if there
is no sale, at the latest available bid price.
o Other securities and assets for which market quotations are not
readily available or for which valuation cannot be provided are valued in good
faith by the valuation committee of the Board of Trustees using its best
judgment.
The market value of a put or call option will usually reflect, among other
factors, the market price of the underlying security.
When the Trust writes a call option, an amount equal to the premium received by
the Trust is included in the Trust's financial statements as an asset and an
equivalent liability. The amount of the liability is
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<PAGE>
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.
The Manager and Advisers may, from time to time, under the general supervision
of the Board of Trustees or its valuation committee, utilize the services of one
or more pricing services available in valuing the assets of the Trust. In
addition, there may be occasions when a different pricing provider or
methodology is used. The Manager and Advisers will continuously monitor the
performance of these services.
REDEMPTION OF SHARES
The Trust may suspend redemption privileges or postpone the date of payment on
shares of the Portfolios for more than seven days during any period (i) when the
New York Stock Exchange is closed or trading on the New York Stock Exchange is
restricted as determined by the SEC, (ii) when an emergency exists, as defined
by the SEC, which makes it not reasonably practicable for a Portfolio to dispose
of securities owned by it or fairly to determine the value of its assets, or
(iii) as the SEC may otherwise permit.
The value of the shares on redemption may be more or less than the shareholder's
cost, depending upon the market value of the portfolio securities at the time of
redemption.
TAXATION
Each Portfolio is treated for federal income tax purposes as a separate
taxpayer. The Trust intends that each Portfolio shall qualify each year and
elect to be treated as a regulated investment company under Subchapter M of the
Code. Such qualification does not involve supervision of management or
investment practices or policies by any governmental agency or bureau.
As a regulated investment company, each Portfolio will not be subject to federal
income or excise tax on any of its net investment income or net realized capital
gains which are timely distributed to shareholders under the Code. 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.
A Portfolio investing in foreign securities or currencies may be subject to
foreign taxes which could reduce the investment performance of such Portfolio.
However, if foreign securities comprise more than 50% of the year-end value of a
Portfolio, the Portfolio may elect to pass through such foreign taxes as a
deemed dividend to shareholders. In such a case the shareholder and not the
Portfolio would be entitled to claim a federal tax deduction or credit for
foreign taxes, as appropriate. The deduction or credit will not necessarily
result in a direct or immediate benefit to Contract owners.
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 dispositions of stock or securities.
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<PAGE>
In addition, the Secretary of the Treasury has regulatory authority to exclude
from qualifying income described above foreign currency gains which are not
"directly related" to a regulated investment company's "principal business of
investing" in stock, securities or related options or futures. The Secretary of
the Treasury has not to date exercised this authority.
Generally, in order to avoid a 4% nondeductible excise tax, each Portfolio must
distribute to its shareholders during the calendar year the following amounts:
o 98% of the Portfolio's ordinary income for the calendar year;
o 98% of the Portfolio's capital gain net income (all capital gains,
both long-term and short-term, minus all such capital losses), all computed as
if the Portfolio were on a taxable year ending October 31 of the year in
question and beginning the previous November 1; and
o any undistributed ordinary income or capital gain net income for the
prior year.
The excise tax generally 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 Contracts
will fail to qualify as life insurance and annuities. In general, for a
Portfolio to meet the investment diversification requirements of Subchapter L of
the Code, Treasury regulations require that no more than 55% of the total value
of the assets of the Portfolio may be represented by any one investment, no more
than 70% by two investments, no more than 80% by three investments and no more
than 90% by four investments. Generally, for purposes of the regulations, all
securities of the same issuer are treated as a single investment. In the context
of United States Government securities (including any security that is issued,
guaranteed or insured by the United States or an instrumentality of the United
States) each United States Government agency or instrumentality is treated as a
separate issuer. Compliance with the regulations is tested on the first day of
each calendar year quarter. There is a thirty (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. TH 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.
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<PAGE>
REALIZED CAPITAL GAINS OR LOSSES AND UNREALIZED APPRECIATION OR DEPRECIATION OF
THE PORTFOLIO ARE EXCLUDED FROM THIS CALCULATION. THE NET CHANGE IN SHARE VALUES
ALSO REFLECTS ALL ACCRUED EXPENSES OF THE ALLIANCE MONEY MARKET PORTFOLIO AS
WELL AS THE VALUE OF ADDITIONAL SHARES PURCHASED WITH DIVIDENDS FROM THE
ORIGINAL SHARES AND ANY ADDITIONAL SHARES.
THE EFFECTIVE YIELD IS OBTAINED BY ADJUSTING THE CURRENT YIELD TO GIVE EFFECT TO
THE COMPOUNDING NATURE OF THE ALLIANCE MONEY MARKET PORTFOLIO'S INVESTMENTS, AS
FOLLOWS: THE UNANNUALIZED BASE PERIOD RETURN IS COMPOUNDED BY ADDING ONE TO THE
BASE PERIOD RETURN, RAISING THE SUM TO A POWER EQUAL TO 365 DIVIDED BY 7, AND
SUBTRACTING ONE FROM THE RESULT--I.E., EFFECTIVE YIELD = (BASE PERIOD RETURN +
1)365/7-1.
ALLIANCE MONEY MARKET PORTFOLIO YIELDS WILL FLUCTUATE DAILY. ACCORDINGLY, YIELDS
FOR ANY GIVEN PERIOD ARE NOT NECESSARILY REPRESENTATIVE OF FUTURE RESULTS. YIELD
IS A FUNCTION OF THE TYPE AND QUALITY OF THE INSTRUMENTS IN THE ALLIANCE MONEY
MARKET PORTFOLIO, MATURITIES AND RATES OF RETURN ON INVESTMENTS, AMONG OTHER
FACTORS. IN ADDITION, THE VALUE OF SHARES OF THE ALLIANCE MONEY MARKET PORTFOLIO
WILL FLUCTUATE AND NOT REMAIN CONSTANT.
THE ALLIANCE MONEY MARKET PORTFOLIO YIELD MAY BE COMPARED WITH YIELDS OF OTHER
INVESTMENTS. HOWEVER, IT SHOULD NOT BE COMPARED TO THE RETURN OF 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.
COMPUTATION OF TOTAL RETURN
Each Portfolio may provide average annual total return information calculated
according to a formula prescribed by the SEC. According to that formula, average
annual total return figures represent the average annual compounded rate of
return for the stated period. Average annual total return quotations reflect the
percentage change between the beginning value of a static account in the
Portfolio and the ending value of that account measured by the then current net
asset value of that Portfolio assuming that all dividends and capital gains
distributions during the stated period were invested in shares of the Portfolio
when paid. Total return is calculated by finding the average annual compounded
rates of return of a hypothetical investment that would equate the initial
amount invested to the ending redeemable value of such investment, according to
the following formula:
T = (ERV/P)1/n
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.
Each Portfolio's total return will vary from time to time depending upon market
conditions, the composition of each Portfolio's investment portfolio and
operating expenses of the Trust allocated to each Portfolio. Total return 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 total return figures do not reflect insurance company
expenses and fees applicable to the Contracts. At
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<PAGE>
any time in the future, total return may be higher or lower than in the past and
there can be no assurance that any historical results will continue.
NON-STANDARD PERFORMANCE
In addition to the performance information described above, each Portfolio may
provide total return information with respect to the Portfolios for designated
periods, such as for the most recent six months or most recent twelve months.
This total return information is computed as described under "Computation of
Total Return" above except that no annualization is made.
OTHER SERVICES
INDEPENDENT ACCOUNTANT
PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York, New York
10036, serves as the Trust's independent accountants. PricewaterhouseCoopers LLP
is responsible for auditing the annual financial statements of the Trust.
CUSTODIAN
The Chase Manhattan Bank, 1211 Avenue of the Americas, New York, New York 10036
serves as custodian of the Trust's portfolio securities and other assets. Under
the terms of the custody agreement between the Trust and The Chase Manhattan
Bank, The Chase Manhattan Bank maintains and deposits in separate accounts,
cash, securities and other assets of the Portfolios. The Chase Manhattan Bank is
also required, upon the order of the Trust, to deliver securities held by The
Chase Manhattan Bank, and to make payments for securities purchased by the
Trust. The Chase Manhattan Bank has also entered into sub-custodian agreements
with a number of foreign banks and clearing agencies, pursuant to which
portfolio securities purchased outside the United States are maintained in the
custody of these entities.
TRANSFER AGENT
Equitable serves as the transfer agent and dividend disbursing agent for the
Trust. Equitable receives no compensation for providing such services for the
Trust.
COUNSEL
Dechert Price & Rhoads, 1775 Eye Street, N.W. Washington, D.C. 20006, serves as
counsel to the Trust.
Sullivan & Worcester LLP, 1025 Connecticut Avenue, N.W., Suite 1000,
Washington, D.C. 20036, serves as counsel to the independent Trustees of the
Trust.
FINANCIAL STATEMENTS
The audited financial statements for the period ended December 31, 1998,
including the financial highlights, appearing in the Trust's Annual Report to
Shareholders, filed electronically with the SEC on March 16, 1999, IS
incorporated by reference and made a part of this document.
-62-
<PAGE>
EQ ADVISORS TRUST
INVESTMENT STRATEGIES SUMMARY
<TABLE>
<CAPTION>
Borrowings Borrowings
Asset-backed (emergencies, (leveraging Convertible Inverse
PORTFOLIO Securities(A) redemptions) purposes) Securities Floaters(A) Floaters(A)
------------- ------------ --------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
ALLIANCE AGGRESSIVE STOCK Y Y N Y Y Y
ALLIANCE BALANCED Y Y N Y Y Y
ALLIANCE COMMON STOCK Y Y N Y Y Y
ALLIANCE CONSERVATIVE INVESTORS Y Y N Y Y Y
ALLIANCE EQUITY INDEX N Y N Y Y Y
ALLIANCE GLOBAL Y Y N Y Y Y
ALLIANCE GROWTH AND INCOME Y Y N Y Y Y
ALLIANCE GROWTH INVESTORS Y Y N Y Y Y
ALLIANCE HIGH YIELD Y Y N Y Y Y
ALLIANCE INTERMEDIATE GOVERNMENT SECURITIES Y Y N Y Y Y
ALLIANCE INTERNATIONAL Y Y N Y Y Y
ALLIANCE MONEY MARKET Y Y N Y Y Y
ALLIANCE QUALITY BOND Y Y N Y Y Y
ALLIANCE SMALL CAP GROWTH Y Y N Y Y Y
T. Rowe Price International Stock N Y - 33.3% N Y N N
T. Rowe Price Equity Income N Y - 33.3% N Y N N
EQ/Putnam Growth & Income Value N Y - 10.0% N Y N N
EQ/PUTNAM INTERNATIONAL EQUITY N Y - 10.0% N Y N N
EQ/PUTNAM INVESTORS GROWTH N Y - 10.0% N Y N N
EQ/PUTNAM BALANCED Y Y - 10.0% N Y Y N
MFS RESEARCH N Y - 33.3% N Y N N
MFS EMERGING GROWTH COMPANIES Y Y - 33.3% N Y N N
MFS GROWTH WITH INCOME N Y - 10.0% N Y N N
MORGAN STANLEY EMERGING MARKETS EQUITY Y Y - 33.3% N Y Y Y
WARBURG PINCUS SMALL COMPANY VALUE N Y - 30.0% N Y N N
EQ/Putnam International Equity N Y - 10.0% N Y N N
EQ/Putnam Investors Growth N Y - 10.0% N Y N N
EQ/Putnam Balanced Y Y - 10.0% N Y Y N
MFS Research N Y - 33.3% N Y N N
<CAPTION>
Brady Depository Foreign Currency Foreign Currency
PORTFOLIO Bonds(B) Receipts(B) Spot Trans. Forward Trans.
-------- ----------- ----------- --------------
<S> <C> <C> <C> <C>
ALLIANCE AGGRESSIVE STOCK Y Y Y Y
ALLIANCE BALANCED Y Y Y Y
ALLIANCE COMMON STOCK Y Y Y Y
ALLIANCE CONSERVATIVE INVESTORS Y Y Y Y
ALLIANCE EQUITY INDEX N N N N
ALLIANCE GLOBAL Y Y Y Y
ALLIANCE GROWTH AND INCOME Y Y Y Y
ALLIANCE GROWTH INVESTORS Y Y Y Y
ALLIANCE HIGH YIELD Y Y Y Y
ALLIANCE INTERMEDIATE GOVERNMENT SECURITIES Y N Y N
ALLIANCE INTERNATIONAL Y Y Y Y
ALLIANCE MONEY MARKET N Y N N
ALLIANCE QUALITY BOND Y Y Y Y
ALLIANCE SMALL CAP GROWTH Y Y Y Y
T. Rowe Price International Stock N Y Y Y
T. Rowe Price Equity Income N Y Y Y
EQ/Putnam Growth & Income Value N Y Y Y
EQ/PUTNAM INTERNATIONAL EQUITY N Y Y Y
EQ/PUTNAM INVESTORS GROWTH N Y Y Y
EQ/PUTNAM BALANCED Y Y Y Y
MFS RESEARCH N Y Y N
MFS EMERGING GROWTH COMPANIES Y Y Y Y
MFS GROWTH WITH INCOME N Y Y Y
MORGAN STANLEY EMERGING MARKETS EQUITY Y Y Y Y
WARBURG PINCUS SMALL COMPANY VALUE N Y Y Y
EQ/Putnam International Equity N Y Y Y
EQ/Putnam Investors Growth N Y Y Y
EQ/Putnam Balanced Y Y Y Y
MFS Research N Y Y N
<CAPTION>
Foreign Currency Options
PORTFOLIO Futures Trans.(A) (exchange traded)
----------------- -----------------
<S> <C> <C>
ALLIANCE AGGRESSIVE STOCK Y Y
ALLIANCE BALANCED Y Y
ALLIANCE COMMON STOCK Y Y
ALLIANCE CONSERVATIVE INVESTORS Y Y
ALLIANCE EQUITY INDEX N N
ALLIANCE GLOBAL Y Y
ALLIANCE GROWTH AND INCOME Y Y
ALLIANCE GROWTH INVESTORS Y Y
ALLIANCE HIGH YIELD Y Y
ALLIANCE INTERMEDIATE GOVERNMENT SECURITIES N Y
ALLIANCE INTERNATIONAL Y Y
ALLIANCE MONEY MARKET N N
ALLIANCE QUALITY BOND Y Y
ALLIANCE SMALL CAP GROWTH Y Y
T. Rowe Price International Stock
T. Rowe Price Equity Income
EQ/Putnam Growth & Income Value
EQ/PUTNAM INTERNATIONAL EQUITY
EQ/PUTNAM INVESTORS GROWTH
EQ/PUTNAM BALANCED
MFS RESEARCH
MFS EMERGING GROWTH COMPANIES
MFS GROWTH WITH INCOME Y Y
MORGAN STANLEY EMERGING MARKETS EQUITY Y Y
WARBURG PINCUS SMALL COMPANY VALUE Y y
EQ/Putnam International Equity Y Y
EQ/Putnam Investors Growth Y Y
EQ/Putnam Balanced Y Y
MFS Research N N
</TABLE>
-63-
<PAGE>
<TABLE>
<CAPTION>
Borrowings Borrowings
Asset-backed (emergencies, (leveraging Convertible Inverse
PORTFOLIO Securities(A) redemptions) purposes) Securities Floaters(A) Floaters(A)
------------- ------------ --------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
MFS Emerging Growth Companies Y Y - 33.3% N Y N N
MFS Growth with Income N Y - 10.0% N Y N N
Morgan Stanley Emerging Markets Equity Y Y - 33.3% N Y Y Y
Warburg Pincus Small Company Value N Y - 30.0% N Y N N
Merrill Lynch World Strategy N Y - 33.3% N Y N N
Merrill Lynch Basic Value Equity N Y - 33.3% N Y N N
Lazard Large Cap Value N Y - 10.0% Y - 33.3% Y Y N
Lazard Small Cap Value N Y - 15.0% (E) N Y Y N
JPM Core Bond Y Y - 33.3% N Y N N
BT Small Company Index Y Y - 33.3% N Y N N
BT International Equity Index Y Y - 33.3% N Y N N
BT Equity 500 Index Y Y - 33.3% N Y N N
EQ/Evergreen Portfolio N Y - 33.3% N Y N N
EQ/Evergreen Foundation Portfolio N Y - 33.3% N Y N N
EQ/Alliance Premier Growth Portfolio N Y - 5.0% N Y N N
Capital Guardian Research Portfolio N Y - 5.0% N Y N N
Capital Guardian U.S. Equity Portfolio N Y - 5.0% N Y N N
Capital Guardian International Portfolio N Y - 5.0% N Y N N
<CAPTION>
Brady Depository Foreign Currency Foreign Currency
PORTFOLIO Bonds(B) Receipts(B) Spot Trans. Forward Trans.
-------- ----------- ----------- --------------
<S> <C> <C> <C> <C>
MFS Emerging Growth Companies Y Y Y Y
MFS Growth with Income N Y Y Y
Morgan Stanley Emerging Markets Equity Y Y Y Y
Warburg Pincus Small Company Value N Y Y Y
Merrill Lynch World Strategy N Y Y Y
Merrill Lynch Basic Value Equity N Y - 10% Y Y
Lazard Large Cap Value N Y - 10% Y N
Lazard Small Cap Value N N N N
JPM Core Bond Y Y Y Y
BT Small Company Index N N N N
BT International Equity Index N Y Y Y
BT Equity 500 Index N N N N
EQ/Evergreen Portfolio N N N N
EQ/Evergreen Foundation Portfolio N Y Y Y
EQ/Alliance Premier Growth Portfolio N Y Y Y
Capital Guardian Research Portfolio N Y N N
Capital Guardian U.S. Equity Portfolio N Y N N
Capital Guardian International Portfolio N Y Y Y
<CAPTION>
Foreign Currency Options
PORTFOLIO Futures Trans.(A) (exchange traded)
----------------- -----------------
<S> <C> <C>
MFS Emerging Growth Companies Y Y
MFS Growth with Income Y Y
Morgan Stanley Emerging Markets Equity Y Y
Warburg Pincus Small Company Value Y Y
Merrill Lynch World Strategy Y Y
Merrill Lynch Basic Value Equity Y Y
Lazard Large Cap Value N N
Lazard Small Cap Value N N
JPM Core Bond Y Y
BT Small Company Index N N
BT International Equity Index Y Y
BT Equity 500 Index N N
EQ/Evergreen Portfolio N N
EQ/Evergreen Foundation Portfolio Y Y
EQ/Alliance Premier Growth Portfolio Y Y
Capital Guardian Research Portfolio N N
Capital Guardian U.S. Equity Portfolio N N
Capital Guardian International Portfolio Y Y
</TABLE>
- ----------
(A)Considered a derivative security.
(B)Considered a foreign security.
(C)Written options must be "covered."
(D)Certain mortgages are considered derivatives.
(E)May not exceed 15% for temporary or emergency purposes, including to meet
redemptions (otherwise such borrowings may not exceed 5% of total assets).
-64-
<PAGE>
EQ ADVISORS TRUST
INVESTMENT STRATEGIES SUMMARY
<TABLE>
<CAPTION>
Foreign Currency
Foreign Currency (written, covered Foreign Forward Hybrid
PORTFOLIO Options (OTC) call options) Securities Commitments Instruments(A)
------------- ------------- ---------- ----------- --------------
<S> <C> <C> <C> <C> <C>
ALLIANCE AGGRESSIVE STOCK Y Y Y - 20% Y Y
ALLIANCE BALANCED Y Y Y - 20% Y Y
ALLIANCE COMMON STOCK Y Y Y Y Y
ALLIANCE CONSERVATIVE INVESTORS Y Y Y - 15% Y Y
ALLIANCE EQUITY INDEX N N N Y Y
ALLIANCE GLOBAL Y Y Y Y Y
ALLIANCE GROWTH AND INCOME Y Y Y Y N
ALLIANCE GROWTH INVESTORS Y Y Y - 30% Y Y
ALLIANCE HIGH YIELD Y Y Y Y Y
ALLIANCE INTERMEDIATE GOVERNMENT SECURITIES Y N N Y Y
ALLIANCE INTERNATIONAL Y Y Y Y Y
ALLIANCE MONEY MARKET N N Y - 20% Y N
ALLIANCE QUALITY BOND Y Y Y Y Y
ALLIANCE SMALL CAP GROWTH Y Y Y - 20% Y Y
T. Rowe Price International Stock N Y Y Y Y - 10%
T. Rowe Price Equity Income N Y Y Y Y - 10%
EQ/Putnam Growth & Income Value Y Y Y Y N
EQ/Putnam International Equity Y Y Y Y N
EQ/Putnam Investors Growth Y Y Y Y N
EQ/Putnam Balanced Y Y Y Y N
MFS Research N N Y Y N
MFS Emerging Growth Companies Y Y Y Y N
MFS Growth with Income Y Y Y Y N
Morgan Stanley Emerging Markets Equity Y Y Y Y Y
Warburg Pincus Small Company Value N Y Y N N
Merrill Lynch World Strategy Y Y Y Y N
Merrill Lynch Basic Value Equity N Y Y Y N
Lazard Large Cap Value N Y Y Y N
Lazard Small Cap Value N N Y Y N
JPM Core Bond Y Y Y Y N
BT Small Company Index N N N Y N
<CAPTION>
Investment Non-Inv.
Illiquid Grade Grade Loan Mortgage Direct
Securities Fixed Income Fixed Income Participations Related(D) Mortgages
---------- ------------ ------------ -------------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
ALLIANCE AGGRESSIVE STOCK Y - 15% Y N Y Y N
ALLIANCE BALANCED Y - 15% Y N Y Y N
ALLIANCE COMMON STOCK Y - 15% Y N Y Y N
ALLIANCE CONSERVATIVE INVESTORS Y - 15% Y N Y Y N
ALLIANCE EQUITY INDEX Y - 15% Y N Y N N
ALLIANCE GLOBAL Y - 15% Y N Y Y N
ALLIANCE GROWTH AND INCOME Y - 15% Y Y- 30% Y Y N
ALLIANCE GROWTH INVESTORS Y - 15% Y - 60% Y - 15% Y Y N
ALLIANCE HIGH YIELD Y - 15% Y Y Y Y N
ALLIANCE INTERMEDIATE GOVERNMENT SECURITIES Y - 15% Y N Y Y N
ALLIANCE INTERNATIONAL Y - 15% Y N Y Y N
ALLIANCE MONEY MARKET Y - 10% Y N N Y N
ALLIANCE QUALITY BOND Y - 15% Y N Y Y N
ALLIANCE SMALL CAP GROWTH Y - 15% Y N Y Y N
T. Rowe Price International Stock Y - 15% Y N N N N
T. Rowe Price Equity Income Y - 15% Y Y - 10% N N N
EQ/Putnam Growth & Income Value Y - 15% Y Y N N N
EQ/Putnam International Equity Y - 15% Y Y N N N
EQ/Putnam Investors Growth Y - 15% Y Y N N N
EQ/Putnam Balanced Y - 15% Y Y Y Y N
MFS Research Y - 15% Y Y - 10% N N N
MFS Emerging Growth Companies Y - 15% Y Y Y N N
MFS Growth with Income Y - 15% Y Y N N N
Morgan Stanley Emerging Markets Equity Y - 15% Y Y Y Y N
Warburg Pincus Small Company Value Y - 10% Y Y N N N
Merrill Lynch World Strategy Y - 15% Y Y N N N
Merrill Lynch Basic Value Equity Y - 15% Y N N N N
Lazard Large Cap Value Y - 10% Y N Y Y N
Lazard Small Cap Value Y - 10% Y N Y Y N
JPM Core Bond Y - 15% Y N Y Y Y
BT Small Company Index Y - 15% Y N N Y N
<CAPTION>
Security Security
Municipal Futures Options
Securities Trans.(A) Trans.(C)
---------- --------- ----------
<S> <C> <C> <C>
ALLIANCE AGGRESSIVE STOCK N Y Y
ALLIANCE BALANCED N Y Y
ALLIANCE COMMON STOCK N Y Y
ALLIANCE CONSERVATIVE INVESTORS N Y Y
ALLIANCE EQUITY INDEX N Y N
ALLIANCE GLOBAL N Y Y
ALLIANCE GROWTH AND INCOME N Y Y
ALLIANCE GROWTH INVESTORS N Y Y
ALLIANCE HIGH YIELD N Y Y
ALLIANCE INTERMEDIATE GOVERNMENT SECURITIES N Y Y
ALLIANCE INTERNATIONAL N Y Y
ALLIANCE MONEY MARKET N N N
ALLIANCE QUALITY BOND N Y Y
ALLIANCE SMALL CAP GROWTH N Y Y
T. Rowe Price International Stock N Y Y
T. Rowe Price Equity Income N Y Y
EQ/Putnam Growth & Income Value N Y Y
EQ/Putnam International Equity N Y Y
EQ/Putnam Investors Growth N Y Y
EQ/Putnam Balanced N Y Y
MFS Research N N N
MFS Emerging Growth Companies N Y Y
MFS Growth with Income N Y Y
Morgan Stanley Emerging Markets Equity Y Y Y
Warburg Pincus Small Company Value N Y Y
Merrill Lynch World Strategy N Y Y
Merrill Lynch Basic Value Equity N Y Y
Lazard Large Cap Value N N N
Lazard Small Cap Value N N N
JPM Core Bond Y Y Y
BT Small Company Index N Y Y
-65-
<PAGE>
<CAPTION>
Foreign Currency
Foreign Currency (written, covered Foreign Forward Hybrid
PORTFOLIO Options (OTC) call options) Securities Commitments Instruments(A)
------------- ------------- ---------- ----------- --------------
<S> <C> <C> <C> <C> <C>
BT International Equity Index Y Y Y Y N
BT Equity 500 Index N N Y Y N
EQ/Evergreen Portfolio Y Y Y Y N
EQ/Evergreen Foundation Portfolio N Y Y Y N
EQ/Alliance Premier Growth Portfolio Y Y Y Y N
Capital Guardian Research Portfolio N N Y Y Y - 10%
Capital Guardian U.S. Equity Portfolio N N Y Y Y - 10%
Capital Guardian International Portfolio Y Y Y Y Y - 10%
<CAPTION>
Investment Non-Inv.
Illiquid Grade Grade Loan Mortgage Direct
Securities Fixed Income Fixed Income Participations Related(D) Mortgages
---------- ------------ ------------ -------------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
BT International Equity Index Y - 15% Y N N Y N
BT Equity 500 Index Y - 15% Y N N Y N
EQ/Evergreen Portfolio Y - 15% Y N N N N
EQ/Evergreen Foundation Portfolio Y - 15% N Y N Y N
EQ/Alliance Premier Growth Portfolio Y - 15% Y N N N N
Capital Guardian Research Portfolio Y - 15% Y N N N N
Capital Guardian U.S. Equity Portfolio Y - 15% Y N N N N
Capital Guardian International Portfolio Y - 15% Y N N N N
<CAPTION>
Security Security
Municipal Futures Options
Securities Trans.(A) Trans.(C)
---------- --------- ----------
<S> <C> <C> <C>
BT International Equity Index N Y Y
BT Equity 500 Index N Y Y
EQ/Evergreen Portfolio N Y Y
EQ/Evergreen Foundation Portfolio N Y Y
EQ/Alliance Premier Growth Portfolio N Y Y
Capital Guardian Research Portfolio N Y Y
Capital Guardian U.S. Equity Portfolio N Y Y
Capital Guardian International Portfolio N Y Y
</TABLE>
- ----------------------------------------------------------------------------
(A)Considered a derivative security.
(B)Considered a foreign security.
(C)Written options must be "covered."
(D)Certain mortgages are considered derivatives.
(E)May not exceed 15% for temporary or emergency purposes, including to meet
redemptions (otherwise such borrowings may not exceed 5% of total assets).
-66-
<PAGE>
EQ ADVISORS TRUST
INVESTMENT STRATEGIES SUMMARY
<TABLE>
<CAPTION>
Passive Payment Real Estate Reverse
Foreign In-Kind Investment Repurchase Repurchase Securities
PORTFOLIO Inv. Comp. Bonds Trusts Agreements Agreements Lending
---------- ----- ------ ---------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
ALLIANCE AGGRESSIVE STOCK Y Y Y Y N Y - 50.0%
ALLIANCE BALANCED Y Y Y Y N Y - 50.0%
ALLIANCE COMMON STOCK Y Y Y Y N Y - 50.0%
ALLIANCE CONSERVATIVE INVESTORS Y Y Y Y N Y - 50.0%
ALLIANCE EQUITY INDEX Y Y Y N N Y - 50.0%
ALLIANCE GLOBAL Y Y Y Y N Y - 50.0%
ALLIANCE GROWTH AND INCOME Y Y Y Y N Y - 50.0%
ALLIANCE GROWTH INVESTORS Y Y Y Y N Y - 50.0%
ALLIANCE HIGH YIELD Y Y Y Y N Y
ALLIANCE INTERMEDIATE GOVERNMENT SECURITIES Y Y Y Y N Y
ALLIANCE INTERNATIONAL Y Y Y Y N Y - 50.0%
ALLIANCE MONEY MARKET Y Y Y Y N Y - 50.0%
ALLIANCE QUALITY BOND Y Y Y Y N Y - 50.0%
ALLIANCE SMALL CAP GROWTH Y Y Y Y N Y - 50.0%
T. Rowe Price International Stock Y N N Y N Y - 33.3%
T. Rowe Price Equity Income N N N Y N Y - 33.3%
EQ/Putnam Growth & Income Value N Y N Y N Y - 25.0%
EQ/Putnam International Equity Y N N Y N Y - 25.0%
EQ/Putnam Investors Growth N N N Y N Y - 25.0%
EQ/Putnam Balanced N Y Y Y N Y - 25.0%
MFS Research N N N Y N Y - 33.3%
MFS Emerging Growth Companies N N N Y N Y - 30.0%
MFS Growth with Income N N N Y N Y - 25.0%
Morgan Stanley Emerging Markets Equity Y Y Y Y Y Y - 33.3%
Warburg Pincus Small Company Value N N N Y N Y - 20.0%
Merrill Lynch World Strategy N N N Y N Y - 20.0%
Merrill Lynch Basic Value Equity N N N Y N Y - 20.0%
Lazard Large Cap Value N N Y Y Y Y - 10.0%
Lazard Small Cap Value N N Y Y N Y - 10.0%
JPM Core Bond N Y Y Y Y Y - 33.3%
BT Small Company Index N N Y Y Y Y - 30.0%
BT International Equity Index N N Y Y Y Y - 30.0%
<CAPTION>
Short Sales Small Zero
Against- Company Structured Swap U.S. Gov't Coupon
the-box Securities Notes(A) Trans.(A) Securities Bonds
------- ---------- -------- --------- ---------- ------
<S> <C> <C> <C> <C> <C> <C>
ALLIANCE AGGRESSIVE STOCK Y Y Y Y Y Y
ALLIANCE BALANCED Y Y Y Y Y Y
ALLIANCE COMMON STOCK Y Y Y Y Y Y
ALLIANCE CONSERVATIVE INVESTORS Y Y Y Y Y Y
ALLIANCE EQUITY INDEX Y Y Y Y Y Y
ALLIANCE GLOBAL Y Y Y Y Y Y
ALLIANCE GROWTH AND INCOME Y Y Y Y Y Y
ALLIANCE GROWTH INVESTORS Y Y Y Y Y Y
ALLIANCE HIGH YIELD Y Y Y Y Y Y
ALLIANCE INTERMEDIATE GOVERNMENT SECURITIES Y Y Y Y Y Y
ALLIANCE INTERNATIONAL Y Y Y Y Y Y
ALLIANCE MONEY MARKET Y Y Y N Y Y
ALLIANCE QUALITY BOND Y Y Y Y Y Y
ALLIANCE SMALL CAP GROWTH Y Y Y Y Y Y
T. Rowe Price International Stock N N N N Y N
T. Rowe Price Equity Income N N N N Y N
EQ/Putnam Growth & Income Value N N N N Y Y
EQ/Putnam International Equity N Y N N Y N
EQ/Putnam Investors Growth N N N N Y N
EQ/Putnam Balanced N Y N N Y Y
MFS Research N N N N Y N
MFS Emerging Growth Companies N N N N Y N
MFS Growth with Income N N N N Y Y
Morgan Stanley Emerging Markets Equity Y Y Y Y Y Y
Warburg Pincus Small Company Value Y Y N N Y N
Merrill Lynch World Strategy N N N N Y N
Merrill Lynch Basic Value Equity N N N N Y N
Lazard Large Cap Value N N N N Y N
Lazard Small Cap Value N Y N N Y N
JPM Core Bond N N N Y Y Y
BT Small Company Index N Y N N Y N
BT International Equity Index N N N Y Y N
-67-
<PAGE>
<CAPTION>
Passive Payment Real Estate Reverse
Foreign In-Kind Investment Repurchase Repurchase Securities
PORTFOLIO Inv. Comp. Bonds Trusts Agreements Agreements Lending
---------- ----- ------ ---------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
BT Equity 500 Index N N Y Y Y Y - 30.0%
EQ/Evergreen Portfolio N N N Y Y Y - 33.3%
EQ/Evergreen Foundation Portfolio N N Y Y Y Y - 33.3%
EQ/Alliance Premier Growth Portfolio N N Y Y N Y - 25.0%
Capital Guardian Research Portfolio N N Y Y N Y - 33.3%
Capital Guardian U.S. Equity Portfolio N N Y Y N Y - 33.3%
Capital Guardian International Portfolio Y N Y Y N Y - 33.3%
<CAPTION>
Short Sales Small Zero
Against- Company Structured Swap U.S. Gov't Coupon
the-box Securities Notes(A) Trans.(A) Securities Bonds
------- ---------- -------- --------- ---------- ------
<S> <C> <C> <C> <C> <C> <C>
BT Equity 500 Index N N N N Y N
EQ/Evergreen Portfolio Y Y N N Y N
EQ/Evergreen Foundation Portfolio N N N N Y N
EQ/Alliance Premier Growth Portfolio N N N N Y N
Capital Guardian Research Portfolio N Y N N Y N
Capital Guardian U.S. Equity Portfolio N Y N N Y N
Capital Guardian International Portfolio N Y N N Y N
</TABLE>
- ----------------------------------------------------------------------------
(A)Considered a derivative security.
(B)Considered a foreign security.
(C)Written options must be "covered."
(D)Certain mortgages are considered derivatives.
(E)May not exceed 15% for temporary or emergency purposes, including to meet
redemptions (otherwise such borrowings may not exceed 5% of total assets).
-68-
<PAGE>
APPENDIX B
DESCRIPTION OF COMMERCIAL PAPER RATINGS
A-1 AND PRIME-1 COMMERCIAL PAPER RATINGS
The rating A-1 (including A-1+) is the highest commercial paper rating assigned
by STANDARD & POOR'S. Commercial paper rated A-1 by STANDARD & POOR'S
has the following characteristics:
o liquidity ratios are adequate to meet cash requirements;
o long-term senior debt is rated "A" or better;
o the issuer has access to at least two additional channels of
borrowing;
o basic earnings and cash flow have an upward trend with allowance made
for unusual circumstances;
o typically, the issuer's industry is well established and the issuer
has a strong position within the industry; and
o the reliability and quality of management are unquestioned.
Relative strength or weakness of the above factors determines whether the
issuer's commercial paper is rated A-1, A-2 or A-3. Issues rated A-1 that are
determined by STANDARD & POOR'S to have overwhelming safety characteristics
are designated A-1+.
The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Among the factors considered by Moody's in assigning ratings are the following:
o evaluation of the management of the issuer;
o economic evaluation of the issuer's industry or industries and an
appraisal of speculative-type risks which may be inherent in certain
areas;
o evaluation of the issuer's products in relation to competition and
customer acceptance;
o liquidity;
o amount and quality of long-term debt;
o trend of earnings over a period of ten years;
o financial strength of parent company and the relationships which
exist with the issuer; and
o recognition by the management of obligations which may be present or
may arise as a result of public interest questions and preparations
to meet such obligations.
DESCRIPTION OF BOND RATINGS
Bonds are considered to be "investment grade" if they are in one of the top four
ratings.
STANDARD & POOR'S ratings are as follows:
o Bonds rated AAA have the highest rating assigned by STANDARD & POOR'S.
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 although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than bonds in
higher rated categories.
-69-
<PAGE>
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. 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.
o 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 favorably 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 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.
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PART C: OTHER INFORMATION
ITEM 23. EXHIBITS
(a)(1) Agreement and Declaration of Trust.(1)
(a)(2) Amended and Restated Agreement and Declaration of Trust.(2)
(a)(3) Certificate of Trust.(1)
(a)(4) Certificate of Amendment.(2)
(b)(1)(i) By-Laws of the Trust.(1)
(c)(1)(ii) None other than Exhibit (a)(2) and (b)(1)(i).
(d) Investment Advisory Contracts
(d)(1)(i) Investment Management Agreement between EQ Advisors Trust and EQ
Financial Consultants, Inc. dated April 14, 1997.(4)
(d)(1)(ii) Amendment No. 1, dated December 9, 1997 to Investment Management
Agreement between EQ Advisors Trust and EQ Financial Consultants,
Inc. dated April 14, 1997.(7)
(d)(1)(iii) Amendment No. 2, dated as of December 31, 1998 to Investment
Management Agreement between EQ Advisors Trust and EQ Financial
Consultants, Inc. dated April 14, 1997.(11)
(d)(1)(iv) Form of Amendment No. 3, dated as of April 30, 1999, to Investment
Management Agreement between EQ Advisors Trust and EQ Financial
Consultants, INC.(11)
(d)(1)(v) FORM OF AMENDMENT NO. 4, DATED AS OF SEPTEMBER 1, 1999, TO
INVESTMENT MANAGEMENT AGREEMENT BETWEEN EQ ADVISORS TRUST AND EQ
FINANCIAL CONSULTANTS, INC.
(d)(2) Investment Advisory Agreement between EQ Financial Consultants,
Inc. and T. Rowe Price Associates, Inc. dated April 1997.(4)
(d)(3) Investment Advisory Agreement between EQ Financial Consultants,
Inc. and Rowe Price-Fleming International, Inc. dated April
1997.(4)
(d)(4) Investment Advisory Agreement between EQ Financial Consultants,
Inc. and Putnam Investment Management, Inc. dated April 1997.(4)
(d)(5)(i) Investment Advisory Agreement between EQ Financial Consultants,
Inc. and Massachusetts Financial Services Company dated April
1997.(4)
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(d)(5)(ii) Amendment No. 1, dated as of December 31, 1998 to Investment
Advisory Agreement by and between EQ Financial Consultants, Inc.
and Massachusetts Financial Services Company dated April
1997.(11)
(d)(6) Investment Advisory Agreement between EQ Financial Consultants,
Inc. and Morgan Stanley Asset Management Inc. dated April 1997.(4)
(d)(7) Investment Advisory Agreement between EQ Financial Consultants,
Inc. and Warburg, Pincus Counsellors, Inc. dated April 1997.(4)
(d)(8) Investment Advisory Agreement between EQ Financial Consultants,
Inc. and Merrill Lynch Asset Management, L.P. dated April 1997.(4)
(d)(9) Investment Advisory Agreement between EQ Financial Consultants,
Inc. and Lazard Freres & Co. LLC dated December 9, 1997.(7)
(d)(10) Investment Advisory Agreement between EQ Financial Consultants,
Inc. and J.P. Morgan Investment Management, Inc. dated December 9,
1997.(7)
(d)(11) Investment Advisory Agreement between EQ Financial Consultants,
Inc. and Bankers Trust Global Investment Management, a unit of
Bankers Trust Company, dated December 9, 1997.(7)
(d)(12) Investment Advisory Agreement by and between EQ Financial
Consultants, Inc. and Evergreen Asset Management Corp., dated as
of December 31, 1998.(11)
(d)(13)(i) Form of Investment Advisory Agreement between EQ Financial
Consultants, Inc. and Alliance Capital Management L.P., dated as
of April 30, 1999.(11)
d)(13)(ii) AMENDMENT NO. 1, DATED AS OF SEPTEMBER 1, 1999 TO INVESTMENT
ADVISORY AGREEMENT BY AND BETWEEN EQ FINANCIAL CONSULTANTS, INC.
AND ALLIANCE CAPITAL MANAGEMENT L.P., DATED AS OF APRIL 30, 1999.
(d)(14) Form of Investment Advisory Agreement between EQ Financial
Consultants, Inc. and Capital Guardian Trust Company, dated as of
April 30, 1999.(11)
(e) Underwriting Contracts
(e)(1)(i) Distribution Agreement between EQ Advisors Trust and EQ Financial
Consultants, Inc. with respect to the Class IA shares dated April
14, 1997.(4)
(e)(1)(ii) Amendment No. 1 dated December 9, 1997 to the Distribution
Agreement between EQ Advisors Trust and EQ Financial Consultants,
Inc. with respect to the Class IA shares dated April 14, 1997.(7)
(e)(1)(iii) Amendment No. 2 dated as of December 31, 1998 to the Distribution
Agreement between EQ Advisors Trust and EQ Financial Consultants
with respect to the Class 1A shares dated April 14, 1997.(11)
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(e)(1)(iv) Form of Amendment No. 3 dated as of April 30, 1999 to the
Distribution Agreement between EQ Advisors Trust and EQ Financial
Consultants with respect to the Class IA shares dated April 14,
1997.(11)
(e)(1)(v) FORM OF AMENDMENT NO. 4 DATED AS OF SEPTEMBER 1, 1999 TO THE
DISTRIBUTION AGREEMENT BETWEEN EQ ADVISORS TRUST AND EQ FINANCIAL
CONSULTANTS WITH RESPECT TO THE CLASS IA SHARES DATED APRIL 14,
1997.
(e)(2)(i) Distribution Agreement between EQ Advisors Trust and EQ Financial
Consultants, Inc. with respect to the Class IB shares dated April
14, 1997.(4)
(e)(2)(ii) Amendment No. 1 dated December 9, 1997 to the Distribution
Agreement between EQ Advisors Trust and EQ Financial Consultants,
Inc. with respect to the Class IB shares dated April 14, 1997.(7)
(e)(2)(iii) Amendment No. 2 dated as of December 31, 1998 to the Distribution
Agreement between EQ Advisors Trust and EQ Financial Consultants,
Inc. with respect to the Class IB shares dated April 14,
1997.(11)
(e)(2)(iv) FORM OF AMENDMENT NO. 3 DATED AS OF APRIL 30, 1999 TO THE
DISTRIBUTION AGREEMENT BETWEEN EQ ADVISORS TRUST AND EQ FINANCIAL
CONSULTANTS, INC. WITH RESPECT TO THE CLASS IB SHARES DATED APRIL
14, 1997.(11)
(e)(2)(v) Form of Amendment No. 4 dated as of SEPTEMBER 1, 1999 to the
Distribution Agreement between EQ Advisors Trust and EQ Financial
Consultants, Inc. with respect to the Class IB shares dated April
14, 1997.
(e)(3)(i) Distribution Agreement between EQ Advisors Trust and Equitable
Distributors, Inc. with respect to the Class IA shares dated April
14, 1997.(4)
(e)(3)(ii) Amendment No. 1 dated December 9, 1997 to the Distribution
Agreement between EQ Advisors Trust and Equitable Distributors,
Inc. with respect to the Class IA shares dated April 14, 1997.(7)
(e)(3)(iii) Amendment No. 2 dated as of December 31, 1998 to the Distribution
Agreement between EQ Advisors Trust and Equitable Distributors,
Inc. with respect to the Class IA shares dated April 14,
1997.(11)
(e)(3)(iv) Form of Amendment No. 3 dated as of April 30, 1999 to the
Distribution Agreement between EQ Advisors Trust and Equitable
Distributors, Inc. with respect to the Class IA shares dated April
14, 1997.(11)
(e)(3)(v) FORM OF AMENDMENT NO. 4 DATED AS OF SEPTEMBER 1, 1999 TO THE
DISTRIBUTION AGREEMENT BETWEEN EQ ADVISORS TRUST AND EQUITABLE
DISTRIBUTORS, INC. WITH RESPECT TO THE CLASS IA SHARES DATED APRIL
14, 1997.
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(e)(4)(i) Distribution Agreement between EQ Advisors Trust and Equitable
Distributors, Inc. with respect to the Class IB shares dated April
14, 1997.(4)
(e)(4)(ii) Amendment No. 1 dated December 9, 1997 to the Distribution
Agreement between EQ Advisors Trust and Equitable Distributors,
Inc. with respect to the Class IB shares dated April 14, 1997.(7)
(e)(4)(iii) Amendment No. 2 dated as of December 31, 1998 to the Distribution
Agreement between EQ Advisors Trust and Equitable Distributors,
Inc. with respect to the Class IB shares dated April 14,
1997.(11)
(e)(4)(iv) FORM OF AMENDMENT NO. 3 DATED AS OF APRIL 30, 1999 TO THE
DISTRIBUTION AGREEMENT BETWEEN EQ ADVISORS TRUST AND EQUITABLE
DISTRIBUTORS, INC. WITH RESPECT TO THE CLASS IB SHARES DATED APRIL
14, 1997.(11)
(e)(4)(v) Form of Amendment No. 4 dated as of SEPTEMBER 1, 1999 to the
Distribution Agreement between EQ Advisors Trust and Equitable
Distributors, Inc. with respect to the Class IB shares dated April
14, 1997.
(f) Form of Deferred Compensation Plan.(3)
(g) Custodian Agreements
(g)(1)(i) Custodian Agreement between EQ Advisors Trust and The Chase
Manhattan Bank dated April 17, 1997 and Global Custody Rider.(4)
(g)(1)(ii) Amendment No. 1 dated December 9, 1997 to the Custodian Agreement
between EQ Advisors Trust and The Chase Manhattan Bank dated April
17, 1997.(7)
(g)(1)(iii) Amendment No. 2 dated as of December 31, 1998 to the Custodian
Agreement between EQ Advisors Trust and The Chase Manhattan Bank
dated April 17, 1997.(11)
(g)(1)(iv) Form of Amendment No. 3 dated as of April 30, 1999 to the
Custodian Agreement between EQ Advisors Trust and The Chase
Manhattan Bank dated April 17, 1997.(11)
(g)(1)(v) FORM OF AMENDMENT NO. 4 DATED AS OF SEPTEMBER 1, 1999 TO THE
CUSTODIAN AGREEMENT BETWEEN EQ ADVISORS TRUST AND THE CHASE
MANHATTAN BANK DATED APRIL 17, 1997.
(g)(2)(i) Amended and Restated Global Custody Rider to the Domestic Custody
Agreement for Mutual Funds between The Chase Manhattan Bank and EQ
Advisors Trust dated August 31, 1998.(11)
(h) Other Material Contracts
(h)(1) Mutual Fund Services Agreement between EQ Advisors Trust and Chase
Global Funds Services Company dated April 25, 1997.(4)
(h)(2)(i) Amended and Restated Expense Limitation Agreement between EQ
Advisors Trust and EQ Financial Consultants, Inc. dated March 3,
1998.(8)
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(h)(2)(ii) Amended and Restated Expense Limitation Agreement by and between
EQ Financial Consultants, Inc. and EQ Advisors Trust dated as of
December 31, 1998.(11)
(h)(2)(iii) Form of Amended and Restated Expense Limitation Agreement between
EQ Financial Consultants, Inc. and EQ Advisors Trust dated as of
April 30, 1999.(11)
(h)(2)(iv) FORM OF AMENDED AND RESTATED EXPENSE LIMITATION AGREEMENT BETWEEN
EQ FINANCIAL CONSULTANTS, INC. AND EQ ADVISORS TRUST DATED AS OF
SEPTEMBER 1, 1999.
(h)(3)(i) Organizational Expense Reimbursement Agreement by and between EQ
Financial Consultants, Inc. and EQ Advisors Trust, on behalf of
each series of the Trust except for the Lazard Large Cap Value
Portfolio, Lazard Small Cap Value Portfolio, the JPM Core Bond
Portfolio, BT Small Company Index Portfolio, BT International
Equity Index Portfolio and BT Equity 500 Index Portfolio and EQ
Financial Consultants, Inc. dated April 14, 1997.(4)
(h)(3)(ii) Organizational Expense Reimbursement Agreement by and between EQ
Financial Consultants, Inc. and EQ Advisors Trust, on behalf of
the Lazard Large Cap Value Portfolio, Lazard Small Cap Value
Portfolio, JPM Core Bond Portfolio, BT Small Company Index
Portfolio, BT International Equity Index Portfolio, and BT Equity
500 Index Portfolio and EQ Financial Consultants, Inc. dated
December 9, 1997.(7)
(h)(3)(iii) Organizational Expense Reimbursement Agreement by and between EQ
Financial Consultants, Inc. and EQ Advisors Trust, on behalf of
the MFS Income with Growth Portfolio, EQ/Evergreen Foundation
Portfolio and EQ/Evergreen Portfolio dated December 31,
1998.(11)
(h)(4)(i) Participation Agreement by and among EQ Advisors Trust, The
Equitable Life Assurance Society of the United States, Equitable
Distributors, Inc., and EQ Financial Consultants Inc. dated April
14, 1997.(4)
(h)(4)(ii) Amendment No. 1 dated December 9, 1997 to the Participation
Agreement by and among EQ Advisors Trust, The Equitable Life
Assurance Society of the United States, Equitable Distributors,
Inc., and EQ Financial Consultants Inc. dated April 14, 1997.(7)
(h)(4)(iii) Amendment No. 2 dated as of December 31, 1998 to the Participation
Agreement by and among EQ Advisors Trust, The Equitable Life
Assurance Society of the United States, Equitable Distributors,
Inc., and EQ Financial Consultants Inc. dated April 14,
1997.(11)
(h)(4)(iv) Form of Amendment No. 3 dated as of April 30, 1999 to the
Participation Agreement among EQ Advisors Trust, The Equitable
Life Assurance Society of the United States, Equitable
Distributors, Inc., and EQ Financial Consultants Inc. dated April
14, 1997.(11)
(h)(4)(v) FORM OF AMENDMENT NO. 4 DATED AS OF SEPTEMBER 1, 1999 TO THE
PARTICIPATION AGREEMENT AMONG EQ ADVISORS TRUST, THE EQUITABLE
LIFE ASSURANCE SOCIETY OF THE UNITED STATES, EQUITABLE
DISTRIBUTORS, INC., AND EQ FINANCIAL CONSULTANTS INC. DATED APRIL
14, 1997.
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(h)(5) Retirement Plan Participation Agreement dated December 1, 1998
among EQ Advisors Trust, EQ Financial Consultants, Inc., with The
Equitable Investment Plan for Employees, Managers and Agents and
The Equitable Life Assurance Society of the United STATES.(11)
(h)(5)(i) FORM OF AMENDMENT NO. 1 TO THE RETIREMENT PLAN PARTICIPATION
AGREEMENT DATED APRIL 30, 1999 AMONG EQ ADVISORS TRUST, EQ
FINANCIAL CONSULTANTS, INC., WITH THE EQUITABLE INVESTMENT PLAN
FOR EMPLOYEES, MANAGERS AND AGENTS AND THE EQUITABLE LIFE
ASSURANCE SOCIETY OF THE UNITED STATES.(11)
(h)(5)(ii) Form of Amendment No. 2 to the Retirement Plan Participation
Agreement dated SEPTEMBER 1, 1999 among EQ Advisors Trust, EQ
Financial Consultants, Inc., with The Equitable Investment Plan
for Employees, Managers and Agents and The Equitable Life
Assurance Society of the United States.
(h)(7) License Agreement Relating to Use of Name between Merrill Lynch &
Co., Inc., and EQ Advisors Trust dated April 28, 1997.(4)
(i)(1) Opinion and Consent of Katten Muchin & Zavis regarding the
legality of the securities being registered.(1)
(i)(2) Opinion and Consent of Dechert Price & Rhoads regarding the
legality of the securities being registered with respect to the
Lazard Large Cap Value Portfolio, Lazard Small Cap Value
Portfolio, and JPM Core Bond Portfolio.(5)
(i)(3) Opinion and Consent of Dechert Price & Rhoads regarding the
legality of the securities being registered with respect to the BT
Small Company Index Portfolio, BT International Equity Index
Portfolio, and BT Equity 500 Index Portfolio.(6)
(i)(4) Opinion and Consent of Dechert Price & Rhoads regarding the
legality of the securities being registered with respect to the
EQ/Evergreen Foundation Portfolio, EQ/Evergreen Portfolio, and MFS
Growth with Income Portfolio.(9)
(i)(5) Opinion and Consent of Dechert Price & Rhoads regarding the
legality of the securities being registered with respect to the
EQ/Alliance Premier Growth Portfolio, EQ/Capital Research
Portfolio, EQ/Capital U.S. Equities Portfolio and EQ/Capital
International Equities Portfolio.(10)
(i)(6) OPINION AND CONSENT OF DECHERT PRICE & RHOADS REGARDING THE
LEGALITY OF THE SECURITIES BEING REGISTERED WITH RESPECT TO THE
ALLIANCE MONEY MARKET PORTFOLIO, ALLIANCE INTERMEDIATE GOVERNMENT
SECURITIES PORTFOLIO, ALLIANCE QUALITY BOND PORTFOLIO, ALLIANCE
HIGH YIELD PORTFOLIO, ALLIANCE BALANCED PORTFOLIO, ALLIANCE
CONSERVATIVE INVESTORS PORTFOLIO, ALLIANCE GROWTH INVESTORS
PORTFOLIO, ALLIANCE COMMON STOCK PORTFOLIO, ALLIANCE EQUITY INDEX
PORTFOLIO, ALLIANCE GROWTH AND INCOME PORTFOLIO, ALLIANCE
AGGRESSIVE STOCK PORTFOLIO, ALLIANCE SMALL CAP GROWTH PORTFOLIO,
ALLIANCE GLOBAL PORTFOLIO, AND ALLIANCE INTERNATIONAL
PORTFOLIO.
(j) Consent of PricewaterhouseCoopers LLP, Independent Public
Accountants.
(k) None
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(l) Stock Subscription Agreement between the Trust, on behalf of the
T. Rowe Price Equity Income Portfolio, and Separate Account FP.(3)
(m) Distribution Plan Pursuant to Rule 12b-1 for the Trust's Class IB
shares.(4)
(n) Financial Data Schedule
(o) Plan Pursuant to Rule 18f-3 under the 1940 Act.(4)
Other Exhibits:
Power of Attorney.(3)
Power of Attorney for Michael Hegarty.(8)
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1 Incorporated herein by reference to Registrant's Registration Statement on
Form N-1A filed on December 3, 1996 (File No.333-17217).
2 Incorporated herein by reference to Registrant's Registration Statement on
Form N-1A filed on January 23, 1997 (File No. 333-17217).
3 Incorporated herein by reference to Registrant's Registration Statement on
Form N-1A filed on April 7, 1997 (File No. 333-17217).
4 Incorporated herein by reference to Registrant's Registration Statement on
Form N-1A filed on August 28, 1997 (File No. 333-17217).
5 Incorporated herein by reference to Registrant's Registration Statement on
Form N-1A filed on October 15, 1997 (File No. 333-17217).
6 Incorporated herein by reference to Registrant's Registration Statement on
Form N-1A filed on October 31, 1997 (File No. 333-17217).
7 Incorporated herein by reference to Registrant's Registration Statement on
Form N-1A filed on December 29, 1997 (File No. 333-17217).
8 Incorporated herein by reference to Registrant's Registration Statement on
Form N-1A filed on March 5, 1998 (File No. 333-17217).
9. Incorporated herein by reference to Registrant's Registration Statement on
Form N-1A filed on October 15, 1998 (File No. 333-17217).
10. Incorporated herein by reference to Registrant's Registration Statement on
Form N-1A filed on February 16, 1999 (File No. 333-17217).
11. INCORPORATED HEREIN BY REFERENCE TO REGISTRANT'S REGISTRATION STATEMENT ON
FORM N-1A FILED ON APRIL 29, 1999 (FILE NO. 333-17217).
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12. TO BE FILED BY AMENDMENT.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE TRUST
The Equitable Life Assurance Society of the United States ("Equitable")
controls the Trust by virtue of its ownership of ___% of the Trust's shares as
of MAY 1, 1999. All EQ Advisors Trust shareholders are required to solicit
instructions from their respective contract owners as to certain matters. EQ
Advisors Trust may in the future offer 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 ("Equitable Companies"). Equitable Companies continues to own 100%
of Equitable's common stock as well as approximately 72% of the common stock of
Donaldson, Lufkin & Jenrette, Inc., a registered broker-dealer.
AXA is the largest shareholder of Equitable Companies. On March 1, 1999,
AXA owned, directly or indirectly through its affiliates, 58.4% of the
outstanding common stock of Equitable Companies. AXA is the 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 and, to a lesser extent, in Africa and South America.
AXA is also engaged in asset management, investing 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.
ITEM 25. INDEMNIFICATION
Amended and Restated Agreement and Declaration of Trust ("Declaration of
Trust") and By-Laws.
Article VII, Section 2 of the Trust's Declaration of Trust of EQ Advisors
Trust ("Trust") states, in relevant part, that a "Trustee, when acting in such
capacity, shall not be personally liable to any Person, other than the Trust or
a Shareholder to the extent provided in this Article VII, for any act, omission
or obligation of the Trust, of such Trustee or of any other Trustee. The
Trustees shall not be responsible or liable in any event for any neglect or
wrongdoing of any officer, agent, employee, Manager, or Principal Underwriter of
the Trust. The Trust shall indemnify each Person who is serving or has served at
the Trust's request as a director, officer, trustee, employee, or agent of
another organization in which the Trust has any interest as a shareholder,
creditor, or otherwise to the extent and in the manner provided in the By-Laws."
Article VII, Section 4 of the Trust's Declaration of Trust further states, in
relevant part, that the "Trustees shall be entitled and empowered to the fullest
extent permitted by law to purchase with Trust assets insurance for liability
and for all expenses reasonably incurred or paid or expected to be paid by a
Trustee, officer, employee, or agent of the Trust in connection with any claim,
action, suit, or proceeding in which he or she may become involved by virtue of
his or her capacity or former capacity as a Trustee of the Trust."
Article VI, Section 2 of the Trust's By-Laws states, in relevant part,
that "subject to the exceptions and limitations contained in Section 3 of this
Article VI, every Trustee, officer, employee or other agent of the Trust shall
be indemnified by the Trust to the fullest extent permitted by law against all
liabilities and against all expenses reasonably incurred or paid by him or her
in connection with any proceeding in which he or she becomes involved as a party
or otherwise by virtue of his or her being or
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having been an agent." Article VI, Section 3 of the Trust's By-Laws further
states, in relevant part, that "no indemnification shall be provided hereunder
to a Trustee, officer, employee or other agent of the Trust: (a) who shall
have been adjudicated, by the court or other body before which the proceeding
was brought, to be liable to the Trust or its Shareholders by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his or her office (collectively, "disabling
conduct"); or (b) with respect to any proceeding disposed of (whether by
settlement, pursuant to a consent decree or otherwise) without an adjudication
by the court or other body before which the proceeding was brought that such
Trustee, officer, employee or other agent of the Trust was liable to the Trust
or its Shareholders by reason of disabling conduct, unless there has been a
determination that such Trustee, officer, employee or other agent of the Trust
did not engage in disabling conduct: (i) by the court or other body before which
the proceeding was brought; (ii) by at least a majority of those Trustees who
are neither Interested Persons of the Trust nor are parties to the proceeding
based upon a review of readily available facts (as opposed to a full trial-type
inquiry); or (iii) by written opinion of independent legal counsel based upon a
review of readily available facts (as opposed to a full trial-type inquiry);
provided, however, that indemnification shall be provided hereunder to a
Trustee, officer, employee or other agent of the Trust with respect to any
proceeding in the event of (1) a final decision on the merits by the court or
other body before which the proceeding was brought that the Trustee, officer,
employee or other agent of the Trust was not liable by reason of disabling
conduct, or (2) the dismissal of the proceeding by the court or other body
before which it was brought for insufficiency of evidence of any disabling
conduct with which such Trustee, officer, employee or other agent of the Trust
has been charged." Article VI, Section 4 of the Trust's By-Laws also states that
the "rights of indemnification herein provided (i) may be insured against by
policies maintained by the Trust on behalf of any Trustee, officer, employee or
other agent of the Trust, (ii) shall be severable, (iii) shall not be exclusive
of or affect any other rights to which any Trustee, officer, employee or other
agent of the Trust may now or hereafter be entitled and (iv) shall inure to the
benefit of such party's heirs, executors and administrators."
UNDERTAKING
Insofar as indemnification for liability arising under the Securities Act
of 1933 (the "Act") may be permitted to trustees, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a trustee, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such trustee, 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 THE MANAGER AND ADVISERS
The description of EQ Financial Consultants, Inc. under the caption of
"Management of the Trust" in the Prospectus and under the caption "Investment
Management 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 officers of EQ Financial Consultants,
Inc. is set forth in EQ Financial Consultants, Inc.'s Form ADV filed with the
Securities and Exchange Commission on July 1, 1996 (File No. 801-14065) and
amended through the date hereof, is incorporated by reference.
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The information as to the directors and officers of T. Rowe Price Associates,
Inc., is set forth in T. Rowe Price Associates, Inc.'s Form ADV filed with the
Securities and Exchange Commission on March 31, 1997 (File No.
801-00856) and amended through the date hereof, is incorporated by reference.
The information as to the directors and officers of Rowe Price-Fleming
International, Inc. is set forth in Rowe Price-Fleming International, Inc.'s
Form ADV filed with the Securities and Exchange Commission on March 31, 1997
(File No. 801-14713) and amended through the date hereof, is incorporated by
reference.
The information as to the directors and officers of Putnam Investment
Management, Inc. is set forth in Putnam Investment Management, Inc.'s Form ADV
filed with the Securities and Exchange Commission on April 2, 1996 (File No.
801-07974) and amended through the date hereof, is incorporated by reference.
The information as to the directors and officers of Massachusetts Financial
Services Company is set forth in Massachusetts Financial Services Company's Form
ADV filed with the Securities and Exchange Commission on March 31, 1998 (File
No. 801-17352) and amended through the date hereof, is incorporated by
reference.
The information as to the directors and officers of Morgan Stanley Asset
Management Inc. is set forth in Morgan Stanley Asset Management Inc.'s Form ADV
filed with the Securities and Exchange Commission on August 1, 1997 (File No.
801-15757) and amended through the date hereof, is incorporated by reference.
The information as to the directors and officers of Warburg Pincus Asset
Management is set forth in Warburg Pincus Asset Management, Inc.'s Form ADV
filed with the Securities and Exchange Commission on March 31, 1997 (File No.
801-07321) and amended through the date hereof, is incorporated by reference.
The information as to the directors and officers of Merrill Lynch Asset
Management, L.P. is set forth in Merrill Lynch Asset Management, L.P.'s Form ADV
filed with the Securities and Exchange Commission on March 25, 1998 (File No.
801-11583) and amended through the date hereof, is incorporated by reference.
The information as to the directors and officers of Lazard Asset Management (a
division of Lazard Freres & Co. LLC) is set forth in Lazard Freres & Co. LLC's
Form ADV filed with the Securities and Exchange Commission on June 9, 1997 (File
No. 801-6568) and amended through the date hereof, is incorporated by reference.
The information as to the directors and officers of J. P. Morgan Investment
Management Inc. is set forth in J.P. Morgan Investment Management Inc.'s Form
ADV filed with the Securities and Exchange Commission on March 27, 1998 (File
No. 801-21011) and amended through the date hereof, is incorporated by
reference.
The information as to the directors and officers of Evergreen Asset Management
Corp. is set forth in Evergreen Asset Management Corp.'s Form ADV filed with the
Securities and Exchange Commission on March 31, 1998 (File No.
801-46522) and amended through the date hereof, is incorporated by reference.
The information as to the directors and officers of Alliance Capital Management
Corporation, the general partner of Alliance Capital Management L.P., is set
forth in Alliance Capital Management Corporation's
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<PAGE>
Form ADV filed with the SEC on April 21, 1998 (File No. 801-32361) and as
amended through the date hereof, is incorporated by reference.
THE INFORMATION AS TO THE DIRECTORS AND OFFICERS OF BANKERS TRUST COMPANY IS SET
FORTH BELOW. TO THE KNOWLEDGE OF THE TRUST, NONE OF THE DIRECTORS OR OFFICERS OF
BANKERS TRUST, EXCEPT THOSE SET FORTH BELOW, IS OR HAS BEEN AT ANYTIME DURING
THE PAST TWO FISCAL YEARS ENGAGED IN ANY OTHER BUSINESS, PROFESSION, VOCATION OR
EMPLOYMENT OF A SUBSTANTIAL NATURE, EXCEPT THAT CERTAIN DIRECTORS AND OFFICERS
ALSO HOLD VARIOUS POSITIONS WITH AND ENGAGE IN BUSINESS FOR BANKERS TRUST NEW
YORK CORPORATION. SET FORTH BELOW ARE THE NAMES AND PRINCIPAL BUSINESSES OF THE
DIRECTORS AND OFFICERS OF BANKERS TRUST WHO ARE OR DURING THE PAST TWO FISCAL
YEARS HAVE BEEN ENGAGED IN ANY OTHER BUSINESS, PROFESSION, VOCATION OR
EMPLOYMENT OF A SUBSTANTIAL NATURE.
These persons may be contacted c/o Bankers Trust Company, 130 Liberty Street,
New York, New York 10006.
Lee A. Ault III, Director of Bankers Trust Company. Private Investor. Former
Chairman and Chief Executive Officer, Telecredit, Inc. Also a director of
Equifax, Inc., Sunrise Medical Inc., Viking Office Products, Inc., Pacific Crest
Outward Bound School, Saltec International, Inc. and Chief Executives
Organization. President of Lee Ault & Company. General Partner of Badger Ridge
Farm.
Neil R. Austrian, Director of Bankers Trust Company. President and Chief
Operating Officer, National Football League. Also a director of Rafac Technology
and Viking Office Products, Inc., and trustee of Swarthmore College.
George B. Beitzel, Director of Bankers Trust Company. Director of Various
Corporations. Retired Senior Vice President and director, International Business
Machines Corporation. Also a director of Computer Task Group, Phillips Petroleum
Company, Rohm and Haas Company TIG Holdings, chairman emeritus of Amherst
College; and chairman of the Colonial Williamsburg Foundation and Director of
Caliber Systems, Inc.;
Richard H. Daniel, Bankers Trust Company, 130 Liberty Street, New York, New York
10006. Vice chairman and chief financial officer, Bankers Trust Company and
Bankers Trust New York Corporation; Beneficial owner, general partner, Daniel
Brothers, Daniel Lingo & Assoc., Daniel Pelt & Assoc.; and Beneficial owner,
Rhea C. Daniel Trust.
Phillip A. Griffiths, Director of Bankers Trust Company. Director, Institute for
Advanced Study. Chairman, Committee on Science, Engineering and Public Policy of
the National Academies of Sciences and Engineering & the Institute of Medicine;
member, National Academy of Sciences, American Academy of Arts and Sciences and
American Philosophical Society; and trustee of North Carolina School of Science
and Mathematics and member of the Board of Trustees of Woodward Academy. Former
member of the board of director, Research Triangle Institute. Chairman and
member of Nominations Committee and Committee on Science and Engineering
Indicators, National Science Board.
William R. Howell, . Director of Bankers Trust Company. Chairman Emeritus, J.C.
Penney Company, Inc. Also a director of Exxon Corporation, Halliburton Company,
Warner-Lambert Company, Williams, Inc., Central & South West Corp.; and the
National Retail Federation, and National Organization on Disability. Member of
the American Society of Corporation Executives, Beta Gamma Sigma, Directors
Table, the Business Council, Delta Sigma Pi, University of Oklahoma, Dean's
Advisory Board, College of Business Administration. Chairman of Southern
Methodist University Board of Trustees.
Vernon E. Jordan, Jr., Director of Bankers Trust Company. Senior Partner, Akin,
Gump, Strauss, Hauer
C-11
<PAGE>
& Feld, LLP, Attorneys-at-law, Washington, D.C. and Dallas, Texas. Former
President of the National Urban League, Inc. Also a director of American Express
Company, Chancellor Media Corporation, Dow Jones, Inc., J.C. Penney Company,
Inc., Revlon Group Incorporated, Ryder System, Inc., Sara Lee Corporation, Union
Carbide Corporation and Xerox Corporation; and a trustee of Brookings
Institution, The Ford Foundation and Howard University. Director of National
Academy Foundation and Governor for Joint Center for Political and Economic
Studies.
David Marshall, 130 Liberty Street, New York, New York 10006. Chief Information
Officer and Executive Vice President, Bankers Trust New York Corporation; and
Senior Managing Director, Bankers Trust Company.
Hamish Maxwell, Director of Bankers Trust Company. Retired Chairman and Chief
Executive Officer, Philip Morris Companies Inc. Also a director of Sola
International Inc., and chairman of WPP Group plc. Director of AEA Investors
Inc., American Friends of Cambridge University, Cambridge University Development
Office in the United States and the Norton Gallery & School of Art, and a
trustee of Cambridge University Foundation, trustee emeritus of the Institute
for Advance Study, and honorary trustee of The New York Public Library.
Frank N. Newman, Chairman of the Board, Chief Executive Officer and President of
the Bankers Trust New York Corporation and Bankers Trust Company. Former Deputy
Secretary of the United States Treasury and former Vice Chairman of the Board
and director of BankAmerica Corporation and Bank of America NT&SA. Also a
director of Dow Jones, Inc.; Alvin Alley Dance Theatre and Carnegie Hall; and
member, Board of Overseers of Cornell University Medical College and the
Graduate School of Medical Sciences.
N.J. Nicholas Jr., Director of Bankers Trust Company. Investor. Former Co-chief
Executive Officer of Time Warner Inc. Also a director of Boston Scientific
Corporation, Vail Valley Institute, and Xerox Corporation; Chairman of the
Advisory Board of Columbia University Graduate School of Journalism.
Russell E. Palmer, Director of Bankers Trust Company. Chairman and Chief
Executive Officer, The Palmer Group. Former Dean of the Wharton School,
University of Pennsylvania and former Chief Executive Officer of Touche Ross &
Co. (now Deloitte & Touche). Also a director of Allied-Signal Inc., Federal Home
Loan Mortgage Corporation, GTE Corporation, The May Department Stores Company
and Safeguard Scientifics, Inc.; and a trustee, the University of Pennsylvania.
Member of the Conference Board; public member of Hudson Institute; member of
Radnor Ventures Partner Advisory Board and member of Advisory Board of the
Comptroller General of the U.S.
Donald L. Staheli, Director of Bankers Trust Company. Retired Chairman of the
Board and Chief Executive Officer, Continental Grain Company. Also a director of
Continental Grain Company, ContiFinancial Corporation, Prudential Insurance
Company of America, Fresenius Medical Care, A.G., National Committee on United
States-China Relations and America's Promise; member, Council on Foreign
Relations; and director and chairman of The Points of Light Foundation. Chairman
of National Advisory Council of Brigham Young University's Marriott School of
Management.
Patricia Carry Stewart, Director of Bankers Trust Company. Former Vice
President, The Edna McConnell Clark Foundation (a charitable foundation). Also a
director of CVS Corporation and of the Community Foundation for Palm Beach and
Martin Counties; and a trustee emerita of Cornell University.
G. Richard Thoman, Director of Bankers Trust Company. President, Chief Operating
Officer and Director, Xerox Corporation. Also a director of Fuji Xerox Company,
Ltd. and Union Bancaire Privee (Switzerland); member, General Electric
Investments Equity Advisory Board, Yale School of
C-12
<PAGE>
Management Advisory Board, Fletcher School of Law and Diplomacy Advisory Board,
and the INSEAD U.S. Advisory Board; director, The Americas Society; and member,
Council on Foreign Relations. Director of Chrysler Corporation.
George J. Vojta, Vice Chairman of the Board of the Corporation and Bankers Trust
Company. Also a director of Alicorp, S.A., Northwest Airlines and Private Export
Funding Corp.; member of the New York State Banking Board; vice chairman of the
Board of Trustees of St. Luke's-Roosevelt Hospital Center; a partner of New York
City Partnership; chairman, Wharton Financial Services Center; and a member of
the Bretton Woods Committee. and New York City Partnership's Housing and
Economic Development Committees.
Paul A. Volcker, Director of Bankers Trust Company. Director of Various
Corporations. Former Chairman and Chief Executive Officer of Wolfensohn & Co.,
Inc. and former Chairman of the Board of Governors of the Federal Reserve
System. Also a director of the American Stock Exchange, Nestle S.A., Prudential
Insurance Company of America and UAL Corporation and an overseer of TIAA-CREF;
director of American Council on Germany, Council on Foreign Relations and The
Japan Society; trustee of The American Assembly; and member of the advisory
boards of several international corporations.
Melvin A. Yellin, Bankers Trust Company, 130 Liberty Street, New York, New York
10006. Senior Managing Director and General Counsel of Bankers Trust New York
Corporation and Bankers Trust Company; Director, 1136 Tenants Corporation; and
Director, ABA Securities Association.
THE INFORMATION AS TO THE DIRECTORS AND OFFICERS OF CAPITAL GUARDIAN TRUST
COMPANY IS SET FORTH BELOW. TO THE KNOWLEDGE OF THE TRUST, NONE OF THE DIRECTORS
OR OFFICERS OF CAPITAL GUARDIAN IS OR HAS BEEN AT ANYTIME DURING THE PAST TWO
FISCAL YEARS ENGAGED IN ANY OTHER BUSINESS, PROFESSION, VOCATION OR EMPLOYMENT
OF A SUBSTANTIAL NATURE, EXCEPT AS SET FORTH BELOW.
These persons may be contacted c/o Capital Guardian Trust Company, 333 South
Hope Street, Los Angeles, California 90071.
Donnalisa Barnum, Senior Vice President of Capital Guardian Trust Company. Vice
President, Capital International Limited.
Andrew F. Barth, Director of Capital Guardian Trust Company. Executive Vice
President and Research Manager, Capital Guardian Research Company.
Michael D. Beckman, Senior Vice President, Treasurer and Director of Capital
Guardian Trust Company. Director, Capital Guardian Trust Company of Nevada; and
Treasurer, Capital Guardian Research Company.
Elizabeth A. Burns, Senior Vice President of Capital Guardian Trust Company.
Lary P. Clemmensen, Director of Capital Guardian Trust Company and American
Funds Distributors, Inc. Chairman of the Board, American Funds Service Company;
Director and President, The Capital Group Companies, Inc.; Senior Vice President
and Director, Capital Research and Management Company; President and Director,
Capital Management Services, Inc.; Treasurer, Capital Strategy Research, Inc.;
and Senior Vice President, Capital Income Builder, Inc. and Capital World Growth
& Income Fund, Inc.
Roberta A. Conroy, Senior Vice President, Director and Counsel of Capital
Guardian Trust Company. Senior Vice President and Secretary, Capital
International, Inc. and Emerging Markets Growth Fund, Inc.;
C-13
<PAGE>
Assistant General Counsel, The Capital Group Companies, Inc.; and Secretary.
Capital Management Services, Inc.
John B. Emerson, Senior Vice President of Capital Guardian Trust Company. Deputy
Assistant to the President for Intergovernmental Affairs and Deputy Director of
Presidential Personnel, The White House.
Michael E. Ericksen, Senior Vice President of Capital Guardian Trust Company.
Senior Vice President, Capital International, Limited.
David I. Fisher, Chairman and Director of The Capital Group Companies, Inc. and
Capital Guardian Trust Company. Vice Chairman and Director, Capital
International, Inc., Capital International K.K., Capital International Limited
and Emerging Markets Growth Fund, Inc.; President and Director, Capital Group
International, Inc. and Capital International Limited (Bermuda); Presidente du
Conseil, Capital International S.A.; and Director, Capital Group Research, Inc.,
Capital Research International, EuroPacific Growth Fund and New Perspective
Fund.
William Flumenbaum, Senior Vice President of Capital Guardian Trust Company
Personal Investment Management Division. Vice President, Capital Guardian Trust
Company, a Nevada Corporation; Director, Principal Gifts - UCLA Development;
Executive Director, UCLA Jonsson Cancer Center Foundation; and Deputy Director,
UCLA Health Science Development.
Richard N. Havas, Senior Vice President of Capital Guardian Trust Company,
Capital International Limited, Capital Research International and Capital
Guardian Canada, Inc.
Frederick M. Hughes, Jr., Senior Vice President of Capital Guardian Trust
Company.
William H. Hurt, Senior Vice President and Director of Capital Guardian Trust
Company. Chairman, Capital Guardian Trust Company of Nevada and Capital Strategy
Research, Inc.
Robert G. Kirby, Chairman Emeritus of Capital Guardian Trust Company. Senior
Partner, The Capital Group Partners L.P.
Nancy J. Kyle, Senior Vice President and Director of Capital Guardian Trust
Company. President, Capital Guardian Canada, Inc. and Vice President, Emerging
Markets Growth Fund, Inc.
Karin L. Larson, Director of Capital Guardian Trust Company and The Capital
Group Companies, Inc. President, Director and Director of Research, Capital
Guardian Research Company; Chairperson, President and Director, Capital Group
Research, Inc.; and President, Director and Director of International Research,
Capital Research International.
D. James Martin, Director of Capital Guardian Trust Company. Senior Vice
President and Director, Capital Guardian Research Company.
John R. McIlwraith, Senior Vice President and Director of Capital Guardian Trust
Company. Senior Vice President and Director, Capital International Limited.
James R. Mulally, Senior Vice President and Director of Capital Guardian Trust
Company. Senior Vice President, Capital International Limited; Director, Capital
Guardian Research Company; and Vice President, Capital Research Company.
Shelby Notkin, Senior Vice President of Capital Guardian Trust Company.
Director, Capital Guardian
C-14
<PAGE>
Trust Company of Nevada.
Mary M. O'Hern, Senior Vice President of Capital Guardian Trust Company and
Capital International Limited; Vice President, Capital International, Inc.
Jeffrey C. Paster, Senior Vice President of Capital Guardian Trust Company.
Robert V. Pennington, Senior Vice President of Capital Guardian Trust Company;
President, Capital Guardian Trust Company of Nevada.
Jason M. Pilalas, Director of Capital Guardian Trust Company. Senior Vice
President and Director, Capital Guardian Research Company.
Robert Ronus, President and Director of Capital Guardian Trust Company. Chairman
and Director, Capital Guardian Canada, Inc., Capital Guardian Research Company
and Capital Research International; Director, The Capital Group Companies, Inc.,
Capital Group International, Inc. and Capital International Fund S.A.;
Directeur, Capital International S.A.; and Senior Vice President, Capital
International Limited.
Theodore R. Samuels, Senior Vice President and Director of Capital Guardian
Trust Company. Director, Capital Guardian Research Company.
Lionel A. Sauvage, Senior Vice President of Capital Guardian Trust Company.
Director, Capital Guardian Research Company; and Vice President, Capital
International Research, Inc.
John H. Seiter, Executive Vice President of Client Relations & Marketing and
Director of Capital Guardian Trust Company. Senior Vice President, Capital Group
International, Inc.; and Vice President, The Capital Group Companies, Inc.
Robert L. Spare, Senior Vice President of Capital Guardian Trust Company.
Eugene P. Stein, Executive Vice President and Director of Capital Guardian Trust
Company. Director, Capital Guardian Research Company.
Bente L. Strong, Senior Vice President of Capital Guardian Trust Company
Personal Investment Management Division. Publisher, Capital Publishing's The
American Benefactor Magazine.
Philip A. Swan, Senior Vice President of Capital Guardian Trust Company.
Shaw B. Wagener, Director of Capital Guardian Trust Company, Capital
International Asia Pacific Management Company, S.A., Capital International
Management Company, Capital International Emerging Countries Fund and Capital
International Latin American Fund. President and Director, Capital
International, Inc.; and Senior Vice President, Capital Group International,
Inc. and Emerging Markets Growth Fund, Inc.
Eugene M. Waldron, Senior Vice President of Capital Guardian Trust Company. Vice
President, Loomis, Sayles & Company.
N. Dexter Williams, Senior Vice President of Capital Guardian Trust Company
Personal Investment Management Division. Senior Vice President, American Funds
Distributors, Inc.
C-15
<PAGE>
ITEM 27. PRINCIPAL UNDERWRITERS.
(a) EQ Financial Consultants, Inc. is a principal underwriter of the
Trust's Class IA shares and Class IB shares. Equitable Distributors, Inc. is
also a principal underwriter of the Trust's Class IA shares and Class IB shares.
EQ Financial Consultants Inc. also serves as a principal underwriter for the
following entities: the Class IA and IB shares of The Hudson River Trust;
Separate Account Nos. 45, 66 and 301 of Equitable; and Separate Accounts A, I
and FP of Equitable. Equitable Distributors, Inc. serves as the principal
underwriter for the Class IB shares of The Hudson River Trust and Separate
Account FB and Separate Account No. 49 of Equitable.
(b) Set forth below is certain information regarding the directors and
officers of EQ Financial Consultants, Inc., and of Equitable Distributors, Inc.,
the principal underwriters of the Trust's Class IA and 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 660 Newport Center
Drive, Suite 1200, Newport Beach, CA 92660. Mr. Laughlin's business address is
1345 Avenue of the Americas, 39th Floor, New York, New York 10105. Mr.
Kornweiss's business address is 4251 Crums Mill Road, Harrisburg, PA 17112. The
business address of Mr. Bullen and Ms. Fazio is 200 Plaza Drive, Secaucus, New
Jersey 07096.
C-16
<PAGE>
<TABLE>
<CAPTION>
=====================================================================================================================
EQ FINANCIAL CONSULTANTS, INC.
=====================================================================================================================
<S> <C> <C>
NAME AND PRINCIPAL POSITIONS AND OFFICES WITH EQ POSITIONS AND OFFICES WITH
BUSINESS ADDRESS FINANCIAL CONSULTANTS, INC. REGISTRANT (EQ ADVISORS TRUST)
- ---------------------------------------------------------------------------------------------------------------------
DIRECTORS
* Derry E. Bishop Director
* Harvey E. Blitz Director Chief Financial Officer and
Vice President
Michael J. Laughlin Director
* Michael S. Martin Director Vice President
* Michael F. McNelis Director
* Richard V. Silver Director
* Mark R. Wutt Director
- ---------------------------------------------------------------------------------------------------------------------
OFFICERS
* Michael S. Martin Chairman of the Board and Chief Vice President
Executive Officer
* Michael F. McNelis President and Chief Operating
Officer
* Martin J. Telles Executive Vice President and Chief Vice President
Marketing Officer
* Derry E. Bishop Executive Vice President
* Harvey Blitz Executive Vice President Chief Financial Officer and
Vice President
* Thomas J. Duddy, Jr. Executive Vice President
* Fred A. Folco Executive Vice President
* William J. Green Executive Vice President
* Edward J. Hayes Executive Vice President
* Craig A. Junkins Executive Vice President
* Peter D. Noris Executive Vice President President
* Mark A. Silberman Senior Vice President and Chief
Financial Officer
* Theresa A. Nurge-Alws Senior Vice President
* Donna M. Dazzo First Vice President
* Robin K. Murray First Vice President
* Michael Brzozowski Vice President and Compliance First Vice President
Director
* Raymond T. Barry Vice President
* Claire A. Comerford Vice President
* Amy Franceschini Vice President
* Linda Funigiello Vice President
* Mark Generales Vice President
Peter R. Kornweiss Vice President
* Frank Lupo Vice President
* Rosemary Magee Vice President
* Michael McBryan Vice President
* T.S. Narayanan Vice President
* Bill Nestel Vice President
* Laura A. Pellegrini Vice President
* Dan Roebuck Vice President
* Sid Smith Vice President
* Dan Wiley Vice President
=====================================================================================================================
C-17
<PAGE>
<CAPTION>
* Mike Woodhead Vice President
* Mary E. Cantwell Assistant Vice President Assistant Vice President
* Tom C. Gosnell Assistant Vice President
* Ara Klidjian Assistant Vice President
* John T. McCabe Assistant Vice President
* Janet E. Hannon Secretary
* Linda J. Galasso Assistant Secretary
=====================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
=====================================================================================================================
EQUITABLE DISTRIBUTORS, INC.
=====================================================================================================================
POSITIONS AND OFFICES WITH POSITIONS AND OFFICES WITH
NAME AND PRINCIPAL BUSINESS ADDRESS EQUITABLE DISTRIBUTORS, INC. REGISTRANT (EQ ADVISORS TRUST)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
DIRECTORS
** Greg Brakovich Director
* Edward J. Hayes Director
** James A. Shepherdson, III Director
* Jose S. Suquet Director
* Charles Wilder Director
- ---------------------------------------------------------------------------------------------------------------------
OFFICERS
* Jose S. Suquet Chairman of the Board
** Greg Brakovich Co-President and Co-Chief
Executive Officer and
Managing Director
** James A. Shepherdson, III Co-President and Co-Chief
Executive Officer and Managing
Director
** Hunter Allen Senior Vice President
* Elizabeth Forget Senior Vice President
** Jennifer Hall Senior Vice President
** Al Haworth Senior Vice President
** Stuart Hutchins Senior Vice President
** Ken Jaffe Senior Vice President
** Michael McDaniel Senior Vice President
** Debora Buffington Chief Compliance Officer
* Mark A. Silberman Vice President and Chief Financial
Officer
* Raymond T. Barry Vice President
** Mark Brandenberger Vice President
* Thomas D. Bullen Vice President
** Dave Hughes Vice President
** Marty Krager Vice President
** Michelle O'Haren Vice President
</TABLE>
C-18
<PAGE>
<TABLE>
<CAPTION>
=====================================================================================================================
EQUITABLE DISTRIBUTORS, INC.
=====================================================================================================================
POSITIONS AND OFFICES WITH POSITIONS AND OFFICES WITH
NAME AND PRINCIPAL BUSINESS ADDRESS EQUITABLE DISTRIBUTORS, INC. REGISTRANT (EQ ADVISORS TRUST)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
* Ronald R. Quist Treasurer
* Janet Hannon Secretary
* Linda J. Galasso Assistant Secretary
=====================================================================================================================
</TABLE>
(c) Inapplicable.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
Books or other documents required to be maintained by Section 31(a) of the
Investment Company Act of 1940, and the Rules promulgated thereunder, are
maintained as follows:
(a) With respect to Rules 31a-1(a); 31a-1(b)(1); (2)(a) and (b); (3); (6);
(8); (12); and 31a-1(d), the required books and records are maintained at
the offices of Registrant's Custodian:
1211 Avenue of the Americas
New York, New York 10036
(b) With respect to Rules 31a-1(a); 31a-1(b)(1), (4); (2)(C) and (D); (4);
(5); (6); (8); (9); (10); (11) and 31a-1(f), the required books and
records are currently maintained at the offices of the Registrant's
Administrator:
73 Tremont Street
Boston, Massachusetts 02108
(c) With respect to Rules 31a-1(b)(5), (6), (9) and (10) and 31a-1(f), the
required books and records are maintained at the principal offices of the
Registrant's Manager or Advisers:
<TABLE>
<CAPTION>
<S> <C>
EQ Financial Consultants, Inc. T. Rowe Price Associates, Inc.
1290 Avenue of the Americas 100 East Pratt St.
New York, NY 10104 Baltimore, MD 21202
Rowe Price-Fleming International, Inc. Putnam Investment Management, Inc.
100 East Pratt Street One Post Office Square
Baltimore, MD 21202 Boston, MA 02109
Massachusetts Financial Services Company Merrill Lynch Asset Management, L.P.
500 Boylston Street 800 Scudders Mill Road
Boston, MA 02116 Plainsboro, NJ 08543-9011
Warburg Pincus Asset Management, Inc. Morgan Stanley Asset Management Inc.
466 Lexington Avenue 1221 Avenue of the Americas
New York, NY 10017-3147 New York, NY 10020
C-19
<PAGE>
Lazard Asset Management J.P Morgan Investment Management Inc.
30 Rockefeller Plaza 522 Fifth Avenue
New York, NY 10020 New York, NY 10036
Bankers Trust Company Evergreen Asset Management Corp.
130 Liberty Street 2500 Westchester Avenue
One Bankers Trust Plaza Purchase, NY 10577
New York, NY 10006
Alliance Capital Management L.P. Capital Guardian Trust Company
1345 Avenue of the Americas 11100 Santa Monica Boulevard
New York, NY 10105 17th Floor
Los Angeles, CA 90025
</TABLE>
ITEM 29. MANAGEMENT SERVICES: NONE.
ITEM 30. UNDERTAKINGS
Inapplicable.
C-20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, ("1933
Act") and the Investment Company Act of 1940, as amended, the Registrant has
duly caused this Post-Effective Amendment No. 11 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 MAY, 1999.
EQ ADVISORS TRUST
By: /s/
-------------------------
Peter D. Noris
President
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Post-Effective Amendment No. 11 to the Registration Statement has been
signed below by the following persons in the capacities and on the dates
indicated.
Signature Title Date
--------- ----- ----
/s/ President and Trustee MAY 26, 1999
- ---------------------------------
Peter D. Noris
* Trustee MAY 26, 1999
- ---------------------------------
William T. McCaffrey
* Trustee MAY 26, 1999
Michael Hegarty
- ---------------------------------
* Trustee MAY 26, 1999
- ---------------------------------
Jettie M. Edwards
* Trustee MAY 26, 1999
- ---------------------------------
William M. Kearns, Jr.
* Trustee MAY 26, 1999
- ---------------------------------
Christopher P.A. Komisarjevsky
* Trustee MAY 26, 1999
- ---------------------------------
Harvey Rosenthal
* Chief Financial Officer MAY 26, 1999
- ---------------------------------
Harvey Blitz
* By: /s/
--------------------------
Peter D. Noris
(Attorney-in-Fact)
C-21
<PAGE>
EXHIBIT LIST
EXHIBIT
NUMBER DESCRIPTION
(d)(1)(v) Form of Amendment No. 4, dated as of SEPTEMBER 1, 1999, to
Investment Management Agreement between EQ Advisors Trust and EQ
Financial Consultants, Inc.
(d)(13)(ii) FORM OF Amendment No. 1, dated as of SEPTEMBER 1, 1999 to
Investment Advisory Agreement by and between EQ Financial
Consultants, Inc. and Alliance Capital Management, L.P. L.P.,
dated as of May 1, 1999.
(e)(1)(v) Form of Amendment No. 4 dated as of SEPTEMBER 1, 1999 to the
Distribution Agreement between EQ Advisors Trust and EQ Financial
Consultants with respect to the Class IA shares dated April 14,
1997.
(e)(2)(v) Form of Amendment No. 4 dated as of SEPTEMBER 1, 1999 to the
Distribution Agreement between EQ Advisors Trust and EQ Financial
Consultants, Inc. with respect to the Class IB shares dated April
14, 1997.
(e)(3)(v) Form of Amendment No. 4 dated as of SEPTEMBER 1, 1999 to the
Distribution Agreement between EQ Advisors Trust and Equitable
Distributors, Inc. with respect to the Class IA shares dated April
14, 1997.
C-22
<PAGE>
(e)(4)(v) Form of Amendment No. 4 dated as of SEPTEMBER 1, 1999 to the
Distribution Agreement between EQ Advisors Trust and Equitable
Distributors, Inc. with respect to the Class IB shares dated April
14, 1997.
(g)(1)(v) FORM OF Amendment No. 4 dated as of SEPTEMBER 1, 1999 to the
Custodian Agreement between EQ Advisors Trust and The Chase
Manhattan Bank dated April 17, 1997.
(h)(2)(iv) Form of Amended and Restated Expense Limitation Agreement between
EQ Financial Consultants, Inc. and EQ Advisors Trust dated as of
SEPTEMBER 1, 1999.
(h)(4)(v) Form of Amendment No. 4 dated as of SEPTEMBER 1, 1999 to the
Participation Agreement among EQ Advisors Trust, The Equitable
Life Assurance Society of the United States, Equitable
Distributors, Inc., and EQ Financial Consultants Inc. dated April
14, 1997.
(h)(5)(ii) Form of Amendment No. 2 to the Retirement Plan Participation
Agreement dated SEPTEMBER 1, 1999 among EQ Advisors
Trust, EQ Financial Consultants, Inc., with The Equitable
Investment Plan for Employees, Managers and Agents and The
Equitable Life Assurance Society of the United States.
(i)(6) OPINION AND CONSENT OF DECHERT PRICE & RHOADS REGARDING THE
LEGALITY OF THE SECURITIES BEING REGISTERED WITH RESPECT TO THE
ALLIANCE MONEY MARKET PORTFOLIO, ALLIANCE INTERMEDIATE GOVERNMENT
SECURITIES PORTFOLIO, ALLIANCE QUALITY BOND PORTFOLIO, ALLIANCE
HIGH YIELD PORTFOLIO, ALLIANCE BALANCED PORTFOLIO, ALLIANCE
CONSERVATIVE INVESTORS PORTFOLIO, ALLIANCE GROWTH INVESTORS
PORTFOLIO, ALLIANCE COMMON STOCK PORTFOLIO, ALLIANCE EQUITY INDEX
PORTFOLIO, ALLIANCE GROWTH AND INCOME PORTFOLIO, ALLIANCE
AGGRESSIVE STOCK PORTFOLIO, ALLIANCE SMALL CAP GROWTH PORTFOLIO,
ALLIANCE GLOBAL PORTFOLIO, AND ALLIANCE INTERNATIONAL
PORTFOLIO.
(j) Consent of PricewaterhouseCoopers LLP, Independent Public
Accountants.
(n) Financial Data Schedule.
C-23
<PAGE>
Exhibit-(d)(i)(v)
FORM OF AMENDMENT NO. 4
TO
INVESTMENT MANAGEMENT AGREEMENT
FORM OF AMENDMENT NO. 4 to Investment Management Agreement ("Form of
Amendment No. 3"), dated as of ____________, 1999, between EQ Advisors Trust, a
Delaware business trust (the "Trust") and EQ Financial Consultants, Inc., a
Delaware corporation ("EQ Financial")
The Trust and EQ Financial agree to modify and amend the Investment
Management Agreement dated as of April 14, 1997 (the "Original Agreement"), as
amended by Amendment No. 1, dated as of December 9, 1997, Amendment No. 2, dated
as of December 31, 1998 and Amendment No. 3 dated as of April 30, 1999 (the
Original Agreement, together with such Amendments, the "Agreement") as follows:
1. New Portfolios. The Trust hereby appoints EQ Financial as the
investment manager of the Alliance Money Market Portfolio, Alliance Intermediate
Government Securities Portfolio, Alliance Quality Bond Portfolio, Alliance High
Yield Portfolio, Alliance Balanced Portfolio, Alliance Conservative Investors
Portfolio, Alliance Growth Investors Portfolio, Alliance Common Stock Portfolio,
Alliance Equity Index Portfolio, Alliance Growth And Income Portfolio, Alliance
Aggressive Stock Portfolio, Alliance Small Cap Growth Portfolio, Alliance Global
Portfolio, Alliance International Portfolio (the "New Portfolios") on the terms
and conditions contained in the Agreement.
2. Duration of Agreement.
(a) With respect to each Portfolio specified in Appendix A to the
Original Agreement, the Agreement will continue in effect until April 14, 1999
and may be continued thereafter pursuant to subsection (f) below.
(b) With respect to the JPM Core Bond Portfolio, the BT Small
Company Index Portfolio, the BT International Index Portfolio and the BT Equity
500 Index Portfolio, the Agreement will continue in effect until December 31,
1999 and may be continued thereafter pursuant to subsection (f) below.
(c) With respect to the MFS Growth with Income Portfolio, the
EQ/Evergreen Foundation Portfolio and the EQ/Evergreen Portfolio, the Agreement
will continue in effect until December 31, 2000 and may be continued thereafter
pursuant to subsection (f) below.
(d) With respect to the EQ/Alliance Premier Growth Portfolio, the
Capital Guardian Research Portfolio, the Capital Guardian U.S. Equity Portfolio
and the Capital Guardian International Portfolio, the Agreement will continue in
effect until April 30, 2000 and may be continued thereafter pursuant to
subsection (f) below.
(e) With respect to the New Portfolios, the Agreement will continue
in effect until _____________, 2000 and may be continued thereafter pursuant to
subsection (f) below.
1
<PAGE>
(f) With respect to each Portfolio this Agreement shall continue in
effect annually after the date specified in subsection (a), (b), (c) or (d), as
the case may be, only so long as such continuance is specifically approved at
least annually either by the Board of Trustees of the Trust or by a vote of a
majority of the outstanding voting securities of the Trust, provided that in
either event such continuance shall also be approved by a vote of a majority of
the Trustees of the Trust who are not interested persons of any party to the
Agreement, cast in person at a meeting called for the purpose of voting on such
approval.
3. Appendix A. Appendix A to the Agreement, setting forth the
Portfolios of the Trust for which EQ Financial is appointed as the investment
manager, is hereby replaced in its entirety by Appendix A attached hereto.
4. Appendix B. Appendix B to the Agreement, setting forth the fees
payable to EQ Financial with respect to each Portfolio, is hereby replaced in
its entirety by Appendix B attached hereto.
5. Year 2000 Preparedness. EQ Financial represents and warrants that
The Equitable Life Assurance Society of the United States ("Equitable"), EQ
Financial's sole shareholder, has adopted a written plan (the "Plan"), for Year
2000 compliance for the correct operation of its computer systems and the
computer systems, if any, of its subsidiaries, including EQ Financial (the
"Equitable Computer Systems"), that the Plan provides for the identification,
testing and, where appropriate, upgrading of the Equitable Computer Systems in
accordance with reasonable industry standards, so that both the Equitable
Computer Systems and their interfaces with third party computer systems will
function accurately and without interruption before, during and after December
31, 1999, that Equitable is actively in the process of implementing the Plan and
that EQ Financial presently has no reason to believe that the Equitable Computer
Systems and their interfaces with third party computer systems will not be able
to function accurately and without interruption before, during and after such
date. EQ Financial covenants that Equitable will continue to implement the Plan
and take such other steps as may be necessary and appropriate to be Year 2000
compliant in a timely and efficient manner and will promptly notify the Board of
Trustees of the Trust of any Year 2000 compliance problems and the nature
thereof on or before September 1, 1999 if EQ Financial determines that the
Equitable Computer Systems are not or is not likely to be Year 2000 compliant in
a timely and efficient manner. EQ Financial further represents and warrants that
it will provide the Board of Trustees at each Board meeting held during calendar
year 1999 and as appropriate in calendar year 2000 with detailed reports as to
the Year 2000 preparedness of the Equitable Computer Systems. The failure of the
Equitable Computer Systems to be Year 2000 compliant shall not be deemed to be a
force majeure event or provide a defense to performance hereunder.
Except as modified and amended hereby, the Agreement is hereby ratified
and confirmed in full force and effect in accordance with its terms.
3
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this Form
of Amendment No. 3 as of the date first above set forth.
EQ ADVISORS TRUST EQ FINANCIAL CONSULTANTS, INC.
By: By:
---------------------------------- ----------------------------------
Peter D. Noris Michael S. Martin
Peter D. Noris Chairman of the Board and
President and Trustee Chief Executive Officer
3
<PAGE>
APPENDIX A
TO
FORM OF AMENDMENT NO. 4
TO
INVESTMENT MANAGEMENT AGREEMENT
Portfolios
Portfolios In Original Agreement:
EQ/Putnam Balanced Portfolio
EQ/Putnam Growth & Income Value Portfolio
EQ/Putnam International Equity Portfolio
EQ/Putnam Investors Growth Portfolio
Merrill Lynch Basic Value Equity Portfolio
Merrill Lynch World Strategy Portfolio
MFS Emerging Growth Companies Portfolio
MFS Research Portfolio
Morgan Stanley Emerging Markets Equity Portfolio
T. Rowe Price Equity Income Portfolio
T. Rowe Price International Stock Portfolio
Warburg Pincus Small Company Value Portfolio
Portfolios Added by Amendment No. 1:
BT Equity 500 Index Portfolio BT International Equity
Index Portfolio BT Small Company Index Portfolio JPM
Core Bond Portfolio Lazard Large Cap Value Portfolio
Lazard Small Cap Value Portfolio
Portfolios Added by Amendment No. 2:
EQ/Evergreen Foundation Portfolio
EQ/Evergreen Portfolio
MFS Growth with Income Portfolio
Portfolios Added by Amendment No. 3:
EQ/Alliance Premier Growth Portfolio
Capital Guardian Research Portfolio
Capital Guardian U.S. Equity Portfolio
Capital Guardian International Portfolio
1
<PAGE>
Portfolios Added by Form of Amendment No. 4:
Alliance Money Market Portfolio
Alliance Intermediate Government Securities Portfolio
Alliance Quality Bond Portfolio Alliance High Yield
Portfolio Alliance Balanced Portfolio Alliance
Conservative Investors Portfolio Alliance Growth
Investors Portfolio Alliance Common Stock Portfolio
Alliance Equity Index Portfolio Alliance Growth And
Income Portfolio Alliance Aggressive Stock Portfolio
Alliance Small Cap Growth Portfolio Alliance Global
Portfolio Alliance International Portfolio
2
<PAGE>
APPENDIX B
TO
FORM OF AMENDMENT NO. 4
TO
INVESTMENT MANAGEMENT AGREEMENT
The Trust shall pay the Manager, at the end of each calendar month,
compensation computed daily at an annual rate equal to the following:
<TABLE>
<CAPTION>
Portfolio Management Fee
- --------- --------------
<S> <C>
BT Equity 500 Index Portfolio .25% of the Portfolio's average daily net assets
BT International Equity Index Portfolio .35% of the Portfolio's average daily net assets
BT Small Company Index Portfolio .25% of the Portfolio's average daily net assets
EQ/Alliance Premier Growth Portfolio .90% of the Portfolio's average daily net assets
Capital Guardian International Portfolio .75% of the Portfolio's average daily net assets
Capital Guardian Research Portfolio .65% of the Portfolio's average daily net assets
Capital Guardian U.S. Equity Portfolio .65% of the Portfolio's average daily net assets
EQ/Evergreen Foundation Portfolio .63% of the Portfolio's average daily net assets
EQ/Evergreen Portfolio .75% of the Portfolio's average daily net assets
EQ/Putnam Balanced Portfolio .55% of the Portfolio's average daily net assets
EQ/Putnam Growth & Income Value Portfolio .55% of the Portfolio's average daily net assets
EQ/Putnam International Equity Portfolio .70% of the Portfolio's average daily net assets
EQ/Putnam Investors Growth Portfolio .55% of the Portfolio's average daily net assets
JPM Core Bond Portfolio .45% of the Portfolio's average daily net assets
Lazard Large Cap Value Portfolio .55% of the Portfolio's average daily net assets
Lazard Small Cap Value Portfolio .80% of the Portfolio's average daily net assets
Merrill Lynch Basic Value Equity Portfolio .55% of the Portfolio's average daily net assets
Merrill Lynch World Strategy Portfolio .70% of the Portfolio's average daily net assets
MFS Growth with Income Portfolio .55% of the Portfolio's average daily net assets
MFS Emerging Growth Companies Portfolio .55% of the Portfolio's average daily net assets
MFS Research Portfolio .55% of the Portfolio's average daily net assets
Morgan Stanley Emerging Markets Equity Portfolio 1.15% of the Portfolio's average daily net assets
T. Rowe Price Equity Income Portfolio .55% of the Portfolio's average daily net assets
1
<PAGE>
T. Rowe Price International Stock Portfolio .75% of the Portfolio's average daily net assets
Warburg Pincus Small Company Value Portfolio .65% of the Portfolio's average daily net assets
Alliance Money Market Portfolio ____% of the Portfolio's average net daily assets
Alliance Intermediate Government Securities Portfolio ____% of the Portfolio's average net daily assets
Alliance Quality Bond Portfolio ____% of the Portfolio's average net daily assets
Alliance High Yield Portfolio ____% of the Portfolio's average net daily assets
Alliance Balanced Portfolio ____% of the Portfolio's average net daily assets
Alliance Conservative Investors Portfolio ____% of the Portfolio's average net daily assets
Alliance Growth Investors Portfolio ____% of the Portfolio's average net daily assets
Alliance Common Stock Portfolio ____% of the Portfolio's average net daily assets
Alliance Equity Index Portfolio ____% of the Portfolio's average net daily assets
Alliance Growth And Income Portfolio ____% of the Portfolio's average net daily assets
Alliance Aggressive Stock Portfolio ____% of the Portfolio's average net daily assets
Alliance Small Cap Growth Portfolio ____% of the Portfolio's average net daily assets
Alliance Global Portfolio ____% of the Portfolio's average net daily assets
Alliance International Portfolio ____% of the Portfolio's average net daily assets
</TABLE>
2
<PAGE>
Exhibit (d)(13)(ii)
FORM OF
AMENDMENT NO. 1
TO
INVESTMENT ADVISORY AGREEMENT
AMENDMENT NO. 1 to Investment Advisory Agreement ("Amendment No. 1"),
dated as of _______________, 1999, between EQ Financial Consultants, Inc., a
Delaware corporation ("EQ Financial") and Alliance Capital Management L.P., a
Delaware limited partnership (the "Adviser").
EQ Financial and the Adviser agree to modify and amend the Investment
Advisory Agreement (the " Agreement") dated as of May 1, 1999 between them as
follows:
1. New Portfolios. EQ Financial hereby appoints the Adviser as the
investment adviser of the Alliance Money Market Portfolio, Alliance Intermediate
Government Securities Portfolio, Alliance Quality Bond Portfolio, Alliance High
Yield Portfolio, Alliance Balanced Portfolio, Alliance Conservative Investors
Portfolio, Alliance Growth Investors Portfolio, Alliance Common Stock Portfolio,
Alliance Equity Index Portfolio, Alliance Growth And Income Portfolio, Alliance
Aggressive Stock Portfolio, Alliance Small Cap Growth Portfolio, Alliance Global
Portfolio, Alliance International Portfolio (the "New Portfolio) on the terms
and conditions contained in the Agreement.
2. Duration of Agreement. Section 9 of the Agreement is replaced in its
entirety as follows:
(a) The Agreement became effective with respect to the EQ/Alliance
Premier Growth Portfolio on May 1, 1999 and will become effective with respect
to the New Portfolios on the date of this Amendment.
(b) The Agreement will continue in effect with respect to the
EQ/Alliance Premier Growth Portfolio until May 1, 2001 and may be continued
thereafter pursuant to subsection (d) below.
(c) The Agreement will continue in effect with respect to the New
Portfolios until ______________, 2001 and may be continued thereafter pursuant
to subsection (d) below.
(d) With respect to each Portfolio this Agreement shall continue in
effect annually after the date specified in subsection (b) or (c), as the case
may be, only so long as such continuance is specifically approved at least
annually either by the Board of Trustees or by a majority of the outstanding
voting securities of the Portfolio, provided that in either event such
continuance shall also be approved by the vote of a majority of the Trustees of
the EQ Advisors Trust who are not "interested persons" (as defined in the
Investment Company Act) (the "Independent Trustees") of any party to the
Agreement cast in person at a meeting called for the purpose of voting on such
approval. The required shareholder approval of the Agreement or of any
continuance of the Agreement shall be effective with respect to a Portfolio if a
majority of the outstanding voting securities of the series (as defined in Rule
18f-2(h) under the Investment
1
<PAGE>
Company Act) of shares of such Portfolio votes to approve the Agreement or its
continuance, notwithstanding that the Agreement or its continuance may not have
been approved by a majority of the outstanding voting securities of (a) any
other portfolio affected by the Agreement or (b) all the portfolios of the
Trust.
3. Appendix A. Appendix A to the Agreement, setting forth the
Portfolios of the Trust for which the Adviser is appointed as the investment
adviser and the fees payable to the Adviser with respect to each Portfolio, is
hereby replaced in its entirety by Appendix A attached hereto.
4. Ratification. Except as modified and amended hereby, the Agreement
is hereby ratified and confirmed in full force and effect in accordance with its
terms.
IN WITNESS WHEREOF, the parties have executed and delivered this
Amendment No. 1 as of the date first above set forth.
EQ FINANCIAL CONSULTANTS, INC. ALLIANCE CAPITAL MANAGEMENT L.P.
By: By: ALLIANCE CAPITAL MANAGEMENT
------------------------------- CORPORATION, its General Partner
Peter D. Noris
Executive Vice President
By:
----------------------------------
Mark R. Manley
Assistant Secretary
2
<PAGE>
APPENDIX A
TO
AMENDMENT NO. 1
TO
INVESTMENT ADVISORY AGREEMENT
<TABLE>
<CAPTION>
Portfolio Advisory Fee
- --------- ------------
<S> <C>
EQ/Alliance Premier Growth Portfolio .50% of the Portfolio's daily net assets
Alliance Money Market Portfolio ___% of the Portfolio's daily net assets
Alliance Intermediate Government Securities Portfolio ___% of the Portfolio's daily net assets
Alliance Quality Bond Portfolio ___% of the Portfolio's daily net assets
Alliance High Yield Portfolio ___% of the Portfolio's daily net assets
Alliance Balanced Portfolio ___% of the Portfolio's daily net assets
Alliance Conservative Investors Portfolio ___% of the Portfolio's daily net assets
Alliance Growth Investors Portfolio ___% of the Portfolio's daily net assets
Alliance Common Stock Portfolio ___% of the Portfolio's daily net assets
Alliance Equity Index Portfolio ___% of the Portfolio's daily net assets
Alliance Growth And Income Portfolio ___% of the Portfolio's daily net assets
Alliance Aggressive Stock Portfolio ___% of the Portfolio's daily net assets
Alliance Small Cap Growth Portfolio ___% of the Portfolio's daily net assets
Alliance Global Portfolio ___% of the Portfolio's daily net assets
Alliance International Portfolio ___% of the Portfolio's daily net assets
</TABLE>
1
<PAGE>
Exhibit (e)(1)(v)
FORM OF AMENDMENT NO. 4
TO
DISTRIBUTION AGREEMENT
EQ FINANCIAL CONSULTANTS, INC./CLASS IA SHARES
FORM OF AMENDMENT NO. 4 to Distribution Agreement ("Form of Amendment
No. 4"), dated as of ____________, 1999, between EQ Advisors Trust, a Delaware
business trust (the "Trust") and EQ Financial Consultants, Inc., a Delaware
corporation (the "Distributor").
The Trust and the Distributor agree to modify and amend the
Distribution Agreement relating to Class IA Shares dated as of April 14, 1997
(the "Original Agreement"), as amended by Amendment No. 1, dated as of December
9, 1997, Amendment No. 2, dated as of December 31, 1998 and Amendment No. 3
dated as of April 30, 1999 (the Original Agreement, together with such
Amendments, the "Agreement") as herein provided. All terms used in this Form of
Amendment No. 4, unless defined herein to the contrary, shall have the meaning
given such terms in the Agreement.
1. New Portfolios. The Trust hereby authorizes the Distributor to
participate in the distribution of Class IA Shares of the Alliance Money Market
Portfolio, Alliance Intermediate Government Securities Portfolio, Alliance
Quality Bond Portfolio, Alliance High Yield Portfolio, Alliance Balanced
Portfolio, Alliance Conservative Investors Portfolio, Alliance Growth Investors
Portfolio, Alliance Common Stock Portfolio, Alliance Equity Index Portfolio,
Alliance Growth And Income Portfolio, Alliance Aggressive Stock Portfolio,
Alliance Small Cap Growth Portfolio, Alliance Global Portfolio, Alliance
International Portfolio (the "New Portfolios") on the terms and conditions
contained in the Agreement.
2. Duration of Agreement. This Agreement shall continue in effect until
_________, 2000 with respect to the New Portfolios; until April 30, 2000 with
respect to the EQ/Alliance Premier Growth Portfolio, the Capital Guardian
Research Portfolio, the Capital Guardian U.S. Equity Portfolio and the Capital
Guardian International Portfolio; and until April 14, 2000 with respect to all
other Portfolios and thereafter will continue annually with respect only so long
as such continuance is specifically approved at least annually either by (a) the
Board of Trustees of the Trust or (b) persons having voting rights in respect of
the Trust, by the vote stated in Section 11 of the Original Agreement, voted in
accordance with the provisions contained in the Participation Agreement (as
defined in the Original Agreement); provided, however, that in either event such
continuance shall also be approved by a vote of a majority of the Trustees of
the Trust who are not interested persons of any party to the Agreement, cast in
person at a meeting called for the purpose of voting on such approval.
3. Appendix A. Appendix A to the Agreement, setting forth the
Portfolios of the Trust for which the Distributor is authorized to distribute
Class IA Shares, is hereby replaced in its entirety by Appendix A attached
hereto.
Except as modified and amended hereby, the Agreement is hereby ratified
and confirmed in full force and effect in accordance with its terms.
1
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this Form
of Amendment No. 4 as of the date first above set forth.
EQ ADVISORS TRUST EQ FINANCIAL CONSULTANTS, INC.
By: By:
-------------------------------- --------------------------------
Peter D. Noris Michael S. Martin
Peter D. Noris Chairman of the Board and
President and Trustee Chief Executive Officer
2
<PAGE>
APPENDIX A
TO
FORM OF AMENDMENT NO. 4
TO
DISTRIBUTION AGREEMENT
CLASS IA SHARES
Portfolios
Portfolios In Original Agreement:
EQ/Putnam Growth & Income Value Portfolio
EQ/Putnam International Equity Portfolio
EQ/Putnam Investors Growth Portfolio
EQ/Putnam Balanced Portfolio
Merrill Lynch World Strategy Portfolio
Merrill Lynch Basic Value Equity Portfolio
MFS Research Portfolio
MFS Emerging Growth Companies Portfolio
Morgan Stanley Emerging Markets Equity Portfolio
T. Rowe Price International Stock Portfolio
T. Rowe Price Equity Income Portfolio
Warburg Pincus Small Company Value Portfolio
Portfolios Added by Amendment No. 1:
BT Equity 500 Index Portfolio BT International Equity
Index Portfolio BT Small Company Index Portfolio JPM
Core Bond Portfolio Lazard Small Cap Value Portfolio
Lazard Large Cap Value Portfolio
Portfolios Added by Amendment No. 2:
EQ/Evergreen Foundation Portfolio
EQ/Evergreen Portfolio
MFS Growth with Income Portfolio
Portfolios Added by Amendment No. 3:
EQ/Alliance Premier Growth Portfolio
Capital Guardian Research Portfolio
Capital Guardian U.S. Equity Portfolio
Capital Guardian International Portfolio
1
<PAGE>
Portfolios Added by Amendment No. 4
Alliance Money Market Portfolio
Alliance Intermediate Government Securities Portfolio
Alliance Quality Bond Portfolio Alliance High Yield
Portfolio Alliance Balanced Portfolio Alliance
Conservative Investors Portfolio Alliance Growth
Investors Portfolio Alliance Common Stock Portfolio
Alliance Equity Index Portfolio Alliance Growth And
Income Portfolio Alliance Aggressive Stock Portfolio
Alliance Small Cap Growth Portfolio Alliance Global
Portfolio Alliance International Portfolio
2
<PAGE>
Exhibit (e)(3)(v)
FORM OF AMENDMENT NO. 4
TO
DISTRIBUTION AGREEMENT
EQ FINANCIAL CONSULTANTS, INC./CLASS IB SHARES
FORM OF AMENDMENT NO. 4 to Distribution Agreement ("Form of Amendment
No. 4"), dated as of ___________, 1999, between EQ Advisors Trust, a Delaware
business trust (the "Trust") and EQ Financial Consultants, Inc., a Delaware
corporation (the "Distributor").
The Trust and the Distributor agree to modify and amend the
Distribution Agreement relating to Class IB Shares dated as of April 14, 1997
(the "Original Agreement"), as amended by Amendment No. 1, dated as of December
9, 1997, and Amendment No. 2, dated as of December 31, 1998, and Amendment No. 3
dated April 30, 1999 (the Original Agreement, together with such Amendments, the
"Agreement") as herein provided. All terms used in this Form of Amendment No. 4,
unless defined herein to the contrary, shall have the meaning given such terms
in the Agreement.
1. New Portfolios. The Trust hereby authorizes the Distributor to
participate in the distribution of Class IB Shares of the Alliance Money Market
Portfolio, Alliance Intermediate Government Securities Portfolio, Alliance
Quality Bond Portfolio, Alliance High Yield Portfolio, Alliance Balanced
Portfolio, Alliance Conservative Investors Portfolio, Alliance Growth Investors
Portfolio, Alliance Common Stock Portfolio, Alliance Equity Index Portfolio,
Alliance Growth And Income Portfolio, Alliance Aggressive Stock Portfolio,
Alliance Small Cap Growth Portfolio, Alliance Global Portfolio, Alliance
International Portfolio (the "New Portfolios") on the terms and conditions
contained in the Agreement.
2. Duration of Agreement. This Agreement shall continue in effect until
________, 2000 with respect to the New Portfolios; until April 30, 2000 with
respect to the EQ/Alliance Premier Growth Portfolio, the Capital Guardian
Research Portfolio, the Capital Guardian U.S. Equity Portfolio and the Capital
Guardian International Portfolio and until April 14, 2000 with respect to all
other Portfolios and thereafter will continue annually with respect only so long
as such continuance is specifically approved at least annually either by (a) the
Board of Trustees of the Trust or (b) persons having voting rights in respect of
the Trust, by the vote stated in Section 11 of the Original Agreement, voted in
accordance with the provisions contained in the Participation Agreement (as
defined in the Original Agreement); provided, however, that in either event such
continuance shall also be approved by a vote of a majority of the Trustees of
the Trust who are not interested persons of any party to the Agreement, cast in
person at a meeting called for the purpose of voting on such approval.
3. Appendix A. Appendix A to the Agreement, setting forth the
Portfolios of the Trust for which the Distributor is authorized to distribute
Class IB Shares, is hereby replaced in its entirety by Appendix A attached
hereto.
Except as modified and amended hereby, the Agreement is hereby ratified
and confirmed in full force and effect in accordance with its terms.
1
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this Form
of Amendment No. 4 as of the date first above set forth.
EQ ADVISORS TRUST EQ FINANCIAL CONSULTANTS, INC.
By: By:
------------------------------ -------------------------------
Peter D. Noris Michael S. Martin
Peter D. Noris Chairman of the Board and
President and Trustee Chief Executive Officer
2
<PAGE>
APPENDIX A
TO
FORM OF AMENDMENT NO. 4
TO
DISTRIBUTION AGREEMENT
CLASS IB SHARES
Portfolios
Portfolios In Original Agreement:
EQ/Putnam Growth & Income Value Portfolio
EQ/Putnam International Equity Portfolio
EQ/Putnam Investors Growth Portfolio
EQ/Putnam Balanced Portfolio
Merrill Lynch World Strategy Portfolio
Merrill Lynch Basic Value Equity Portfolio
MFS Research Portfolio
MFS Emerging Growth Companies Portfolio
Morgan Stanley Emerging Markets Equity Portfolio
T. Rowe Price International Stock Portfolio
T. Rowe Price Equity Income Portfolio
Warburg Pincus Small Company Value Portfolio
Portfolios Added by Amendment No. 1:
BT Equity 500 Index Portfolio BT International Equity
Index Portfolio BT Small Company Index Portfolio JPM
Core Bond Portfolio Lazard Small Cap Value Portfolio
Lazard Large Cap Value Portfolio
Portfolios Added by Amendment No. 2:
EQ/Evergreen Foundation Portfolio
EQ/Evergreen Portfolio
MFS Growth with Income Portfolio
Portfolios Added by Amendment No. 3:
EQ/Alliance Premier Growth Portfolio
Capital Guardian Research Portfolio
Capital Guardian U.S. Equity Portfolio
Capital Guardian International Portfolio
1
<PAGE>
Portfolios Added by Form of Amendment No. 4:
Alliance Money Market Portfolio
Alliance Intermediate Government Securities Portfolio
Alliance Quality Bond Portfolio Alliance High Yield
Portfolio Alliance Balanced Portfolio Alliance
Conservative Investors Portfolio Alliance Growth
Investors Portfolio Alliance Common Stock Portfolio
Alliance Equity Index Portfolio Alliance Growth And
Income Portfolio Alliance Aggressive Stock Portfolio
Alliance Small Cap Growth Portfolio Alliance Global
Portfolio Alliance International Portfolio
2
<PAGE>
Exhibit (e)(2)(iv)
FORM OF AMENDMENT NO. 4
TO
DISTRIBUTION AGREEMENT
EQUITABLE DISTRIBUTORS, INC. / CLASS IA SHARES
FORM OF AMENDMENT NO. 4 to Distribution Agreement ("Form of Amendment
No. 4"), dated as of _____________, 1999, between EQ Advisors Trust, a Delaware
business trust (the "Trust") and Equitable Distributors, Inc., a Delaware
corporation (the "Distributor").
The Trust and the Distributor agree to modify and amend the
Distribution Agreement relating to Class IA Shares dated as of April 14, 1997
(the "Original Agreement"), as amended by Amendment No. 1, dated as of December
9, 1997, Amendment No. 2, dated as of December 31, 1998, and Amendment No. 3
dated April 30, 1999 (the Original Agreement, together with such Amendments, the
"Agreement") as herein provided. All terms used in this Form of Amendment No. 4,
unless defined herein to the contrary, shall have the meaning given such terms
in the Agreement.
1. New Portfolios. The Trust hereby authorizes the Distributor to
participate in the distribution of Class IA Shares of the Alliance Money Market
Portfolio, Alliance Intermediate Government Securities Portfolio, Alliance
Quality Bond Portfolio, Alliance High Yield Portfolio, Alliance Balanced
Portfolio, Alliance Conservative Investors Portfolio, Alliance Growth Investors
Portfolio, Alliance Common Stock Portfolio, Alliance Equity Index Portfolio,
Alliance Growth And Income Portfolio, Alliance Aggressive Stock Portfolio,
Alliance Small Cap Growth Portfolio, Alliance Global Portfolio, Alliance
International Portfolio; (the "New Portfolios") on the terms and conditions
contained in the Agreement.
2. Duration of Agreement. This Agreement shall continue in effect until
________, 2000 with respect to the New Portfolios; until April 30, 2000 with
respect to the EQ/Alliance Premier Growth Portfolio, the Capital Guardian
Research Portfolio, the Capital Guardian U.S. Equity Portfolio and the Capital
Guardian International Portfolio; and until April 14, 2000 with respect to all
other Portfolios and thereafter will continue annually with respect only so long
as such continuance is specifically approved at least annually either by (a) the
Board of Trustees of the Trust or (b) persons having voting rights in respect of
the Trust, by the vote stated in Section 11 of the Original Agreement, voted in
accordance with the provisions contained in the Participation Agreement (as
defined in the Original Agreement); provided, however, that in either event such
continuance shall also be approved by a vote of a majority of the Trustees of
the Trust who are not interested persons of any party to the Agreement, cast in
person at a meeting called for the purpose of voting on such approval.
3. Appendix A. Appendix A to the Agreement, setting forth the
Portfolios of the Trust for which the Distributor is authorized to distribute
Class IA Shares, is hereby replaced in its entirety by Appendix A attached
hereto.
Except as modified and amended hereby, the Agreement is hereby ratified
and confirmed in full force and effect in accordance with its terms.
1
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this Form
of Amendment No. 4 as of the date first above set forth.
EQ ADVISORS TRUST EQUITABLE DISTRIBUTORS, INC.
By: By:
------------------------------ ---------------------------------
Peter D. Noris Michael S. Martin
Peter D. Noris Chairman of the Board and
President and Trustee Chief Executive Officer
2
<PAGE>
APPENDIX A
TO
FORM OF AMENDMENT NO. 4
TO
DISTRIBUTION AGREEMENT
CLASS IA SHARES
Portfolios
Portfolios In Original Agreement:
EQ/Putnam Growth & Income Value Portfolio
EQ/Putnam International Equity Portfolio
EQ/Putnam Investors Growth Portfolio
EQ/Putnam Balanced Portfolio
Merrill Lynch World Strategy Portfolio
Merrill Lynch Basic Value Equity Portfolio
MFS Research Portfolio
MFS Emerging Growth Companies Portfolio
Morgan Stanley Emerging Markets Equity Portfolio
T. Rowe Price International Stock Portfolio
T. Rowe Price Equity Income Portfolio
Warburg Pincus Small Company Value Portfolio
Portfolios Added by Amendment No. 1:
BT Equity 500 Index Portfolio BT International Equity
Index Portfolio BT Small Company Index Portfolio JPM
Core Bond Portfolio Lazard Small Cap Value Portfolio
Lazard Large Cap Value Portfolio
Portfolios Added by Amendment No. 2:
EQ/Evergreen Foundation Portfolio
EQ/Evergreen Portfolio
MFS Growth with Income Portfolio
Portfolios Added by Amendment No. 3:
EQ/Alliance Premier Growth Portfolio
Capital Guardian Research Portfolio
Capital Guardian U.S. Equity Portfolio
Capital Guardian International Portfolio
1
<PAGE>
Portfolios Added by Form of Amendment No. 4:
Alliance Money Market Portfolio
Alliance Intermediate Government Securities Portfolio
Alliance Quality Bond Portfolio Alliance High Yield
Portfolio Alliance Balanced Portfolio Alliance
Conservative Investors Portfolio Alliance Growth
Investors Portfolio Alliance Common Stock Portfolio
Alliance Equity Index Portfolio Alliance Growth And
Income Portfolio Alliance Aggressive Stock Portfolio
Alliance Small Cap Growth Portfolio Alliance Global
Portfolio Alliance International Portfolio
2
<PAGE>
Exhibit (e)(3)(v)
FORM OF AMENDMENT NO. 4
TO
DISTRIBUTION AGREEMENT
EQUITABLE DISTRIBUTORS, INC./CLASS IB SHARES
FORM OF AMENDMENT NO. 4 to Distribution Agreement ("Form of Amendment
No. 4"), dated as of ________, 1999, between EQ Advisors Trust, a Delaware
business trust (the "Trust") and Equitable Distributors, Inc., a Delaware
corporation (the "Distributor").
The Trust and the Distributor agree to modify and amend the
Distribution Agreement relating to Class IB Shares dated as of April 14, 1997
(the "Original Agreement"), as amended by Amendment No. 1, dated as of December
9, 1997, Amendment No. 2, dated as of December 31, 1998, and Amendment No. 3
dated April 30, 1999 (the Original Agreement, together with such Amendments, the
"Agreement") as herein provided. All terms used in this Form of Amendment No. 4,
unless defined herein to the contrary, shall have the meaning given such terms
in the Agreement.
1. New Portfolios. The Trust hereby authorizes the Distributor to
participate in the distribution of Class IB Shares of the Alliance Money Market
Portfolio, Alliance Intermediate Government Securities Portfolio, Alliance
Quality Bond Portfolio, Alliance High Yield Portfolio, Alliance Balanced
Portfolio, Alliance Conservative Investors Portfolio, Alliance Growth Investors
Portfolio, Alliance Common Stock Portfolio, Alliance Equity Index Portfolio,
Alliance Growth And Income Portfolio, Alliance Aggressive Stock Portfolio,
Alliance Small Cap Growth Portfolio, Alliance Global Portfolio, Alliance
International Portfolio (the "New Portfolios") on the terms and conditions
contained in the Agreement.
2. Duration of Agreement. This Agreement shall continue in effect until
_______, 2000 with respect to the New Portfolios; until April 30, 2000 with
respect to the EQ/Alliance Premier Growth Portfolio, the Capital Guardian
Research Portfolio, the Capital Guardian U.S. Equity Portfolio and the Capital
Guardian International Portfolio; and until April 14, 2000 with respect to all
other Portfolios and thereafter will continue annually with respect only so long
as such continuance is specifically approved at least annually either by (a) the
Board of Trustees of the Trust or (b) persons having voting rights in respect of
the Trust, by the vote stated in Section 11 of the Original Agreement, voted in
accordance with the provisions contained in the Participation Agreement (as
defined in the Original Agreement); provided, however, that in either event such
continuance shall also be approved by a vote of a majority of the Trustees of
the Trust who are not interested persons of any party to the Agreement, cast in
person at a meeting called for the purpose of voting on such approval.
3. Appendix A. Appendix A to the Agreement, setting forth the
Portfolios of the Trust for which the Distributor is authorized to distribute
Class IB Shares, is hereby replaced in its entirety by Appendix A attached
hereto.
1
<PAGE>
Except as modified and amended hereby, the Agreement is hereby ratified
and confirmed in full force and effect in accordance with its terms.
IN WITNESS WHEREOF, the parties have executed and delivered this Form
of Amendment No. 4 as of the date first above set forth.
EQ ADVISORS TRUST EQUITABLE DISTRIBUTORS, INC.
By: By:
------------------------------- ---------------------------------
Peter D. Noris Michael S. Martin
Peter D. Noris Chairman of the Board and
President and Trustee Chief Executive Officer
2
<PAGE>
APPENDIX A
TO
FORM OF AMENDMENT NO. 4
TO
DISTRIBUTION AGREEMENT
CLASS IB SHARES
Portfolios
Portfolios In Original Agreement:
EQ/Putnam Growth & Income Value Portfolio
EQ/Putnam International Equity Portfolio
EQ/Putnam Investors Growth Portfolio
EQ/Putnam Balanced Portfolio
Merrill Lynch World Strategy Portfolio
Merrill Lynch Basic Value Equity Portfolio
MFS Research Portfolio
MFS Emerging Growth Companies Portfolio
Morgan Stanley Emerging Markets Equity Portfolio
T. Rowe Price International Stock Portfolio
T. Rowe Price Equity Income Portfolio
Warburg Pincus Small Company Value Portfolio
Portfolios Added by Amendment No. 1:
BT Equity 500 Index Portfolio BT International Equity
Index Portfolio BT Small Company Index Portfolio JPM
Core Bond Portfolio Lazard Small Cap Value Portfolio
Lazard Large Cap Value Portfolio
Portfolios Added by Amendment No. 2:
EQ/Evergreen Foundation Portfolio
EQ/Evergreen Portfolio
MFS Growth with Income Portfolio
Portfolios Added by Amendment No. 3:
EQ/Alliance Premier Growth Portfolio
Capital Guardian Research Portfolio
Capital Guardian U.S. Equity Portfolio
Capital Guardian International Portfolio
1
<PAGE>
Portfolios Added by Form of Amendment No. 4:
Alliance Money Market Portfolio
Alliance Intermediate Government Securities Portfolio
Alliance Quality Bond Portfolio Alliance High Yield
Portfolio Alliance Balanced Portfolio Alliance
Conservative Investors Portfolio Alliance Growth
Investors Portfolio Alliance Common Stock Portfolio
Alliance Equity Index Portfolio Alliance Growth And
Income Portfolio Alliance Aggressive Stock Portfolio
Alliance Small Cap Growth Portfolio Alliance Global
Portfolio Alliance International Portfolio
2
<PAGE>
Exhibit (g)(1)(v)
FORM OF AMENDMENT NO. 4
TO
CUSTODIAN AGREEMENT
Form of Amendment No. 4, dated as of ___________, 1999 ("Amendment"),
to the Custodian Agreement dated as of April 14, 1997 ("Original Agreement"), as
amended by Amendment No. 1, dated as of December 9, 1997, Amendment No. 2, dated
as of December 31, 1998, and Amendment No. 3 dated as of April 30, 1999
(collectively the "Agreement") by and between EQ Advisors Trust and The Chase
Manhattan Bank.
The parties hereto agree that Appendix A to the Agreement is replaced
in its entirety by Appendix A attached hereto.
Except as modified and amended hereby, the Agreement is hereby ratified
and confirmed in full force and effect in accordance with its terms.
IN WITNESS WHEREOF, the parties have executed and delivered this Form
of Amendment No. 4 as of the date first above set forth.
EQ ADVISORS TRUST THE CHASE MANHATTAN BANK
By: By:
--------------------------------- ------------------------------
Name: Peter D. Noris Name: John K. Breitweg
Title: President and Trustee Title: Vice President
1
<PAGE>
APPENDIX A
TO
FORM OF AMENDMENT NO. 4
TO
CUSTODIAN AGREEMENT
PORTFOLIOS AND CLASSES COVERED BY CUSTODIAN AGREEMENT
<TABLE>
<CAPTION>
Portfolios Classes
---------- -------
<S> <C>
BT Equity 500 Index Portfolio Class IA and Class IB
BT International Equity Index Portfolio Class IA and Class IB
BT Small Company Index Portfolio Class IA and Class IB
EQ/Alliance Premier Growth Portfolio Class IA and Class IB
Capital Guardian International Portfolio Class IA and Class IB
Capital Guardian Research Portfolio Class IA and Class IB
Capital Guardian U.S. Equity Portfolio Class IA and Class IB
EQ/Putnam Balanced Portfolio Class IA and Class IB
EQ/Putnam Growth & Income Value Portfolio Class IA and Class IB
EQ/Putnam International Equity Portfolio Class IA and Class IB
EQ/Putnam Investors Growth Portfolio Class IA and Class IB
EQ/Evergreen Foundation Portfolio Class IA and Class IB
EQ/Evergreen Portfolio Class IA and Class IB
JPM Core Bond Portfolio Class IA and Class IB
Lazard Large Cap Value Portfolio Class IA and Class IB
Lazard Small Cap Value Portfolio Class IA and Class IB
Merrill Lynch Basic Value Equity Portfolio Class IA and Class IB
Merrill Lynch World Strategy Portfolio Class IA and Class IB
MFS Emerging Growth Companies Portfolio Class IA and Class IB
MFS Growth with Income Portfolio Class IA and Class IB
MFS Research Portfolio Class IA and Class IB
Morgan Stanley Emerging Markets Equity Portfolio Class IA and Class IB
T. Rowe Price Equity Income Portfolio Class IA and Class IB
T. Rowe Price International Stock Portfolio Class IA and Class IB
Warburg Pincus Small Company Value Portfolio Class IA and Class IB
Alliance Money Market Portfolio Class IA and Class IB
Alliance Intermediate Government Securities Portfolio Class IA and Class IB
Alliance Quality Bond Portfolio Class IA and Class IB
Alliance High Yield Portfolio Class IA and Class IB
Alliance Balanced Portfolio Class IA and Class IB
Alliance Conservative Investors Portfolio Class IA and Class IB
Alliance Growth Investors Portfolio Class IA and Class IB
Alliance Common Stock Portfolio Class IA and Class IB
Alliance Equity Index Portfolio Class IA and Class IB
Alliance Growth And Income Portfolio Class IA and Class IB
1
Alliance Aggressive Stock Portfolio Class IA and Class IB
Alliance Small Cap Growth Portfolio Class IA and Class IB
Alliance Global Portfolio Class IA and Class IB
Alliance International Portfolio Class IA and Class IB
</TABLE>
2
<PAGE>
Exhibit (h)(2)(v)
FORM OF
AMENDED AND RESTATED EXPENSE LIMITATION AGREEMENT
AMENDED AND RESTATED EXPENSE LIMITATION AGREEMENT, effective as of
_____, 1999 by and between EQ Financial Consultants, Inc. (the "Manager") and EQ
Advisors Trust (the "Trust"), on behalf of each series of the Trust set forth in
Schedule A attached hereto (each a "Portfolio," and collectively, the
"Portfolios").
WHEREAS, the Trust is a Delaware business trust organized under the
Amended and Restated Agreement and Declaration of Trust ("Declaration of
Trust"), and is registered under the Investment Company Act of 1940, as amended
(the "1940 Act"), as an open-end management company of the series type, and each
Portfolio is a series of the Trust;
WHEREAS, the Trust and the Manager have entered into an Investment
Management Agreement dated April 14, 1997, as amended ("Management Agreement"),
pursuant to which the Manager provides investment management services to each
Portfolio for compensation based on the value of the average daily net assets of
each such Portfolio;
WHEREAS, the Trust and the Manager have determined that it is
appropriate and in the best interests of each Portfolio and its shareholders to
maintain the expenses of each Portfolio at a level below the level to which each
such Portfolio would normally be subject during its start-up period and,
therefore, initially entered into an Expense Limitation Agreement, dated as of
April 14, 1997, as amended ("Expense Limitation Agreement"), in order to
maintain each Portfolio's expense ratios at the Maximum Annual Operating Expense
Limit (as hereinafter defined) specified for such Portfolio in Schedule A
hereto;
WHEREAS, the Trust and the Manager desire to extend the term of the
Expense Limitation Agreement, as so amended for an additional year, with respect
to all Portfolios, regardless of the present expiration date of the Expense
Limitation Agreement as to such Portfolios;
WHEREAS, the Trust and the Manager desire to increase the Maximum
Annual Operating Expense Limits for certain Portfolios to reflect changes in the
Trust and the growth of those Portfolios since their inception as well as the
original intent of the parties that the Maximum Annual Operating Expense Limits
be continued only so long as necessary to support Portfolios during their
start-up period;
WHEREAS, fourteen new Portfolios, Alliance Money Market Portfolio,
Alliance Intermediate Government Securities Portfolio, Alliance Quality Bond
Portfolio, Alliance High Yield Portfolio, Alliance Balanced Portfolio, Alliance
Conservative Investors Portfolio, Alliance Growth Investors Portfolio, Alliance
Common Stock Portfolio, Alliance Equity Index Portfolio, Alliance Growth And
Income Portfolio, Alliance Aggressive Stock Portfolio, Alliance Small Cap Growth
Portfolio, Alliance Global Portfolio, Alliance International Portfolio
(collectively, the "New Portfolios"), are being added to the Trust;
1
<PAGE>
WHEREAS, the Trust and the Manager desire to maintain the expenses of
each New Portfolio at the Maximum Annual Operating Expense Limit specified for
such Portfolio in Schedule A during its start-up period; and
WHEREAS, the Trust and the Manager desire to modify the Expense
Limitation Agreement to document the agreement of the Manager to be liable for
the excess expenses of each New Portfolio;
NOW THEREFORE, the parties hereto agree that the Expense Limitation
Agreement is hereby modified, amended and restated in its entirety as of the
date hereof as follows:
1. Expense Limitation.
1.1. Applicable Expense Limit. To the extent that the aggregate
expenses of every character incurred by a Portfolio in any fiscal year,
including but not limited to investment management fees of the Manager (but
excluding interest, taxes, brokerage commissions, other expenditures which are
capitalized in accordance with generally accepted accounting principles, other
extraordinary expenses not incurred in the ordinary course of such Portfolio's
business and amounts payable pursuant to a plan adopted in accordance with Rule
12b-1 under the 1940 Act) ("Portfolio Operating Expenses"), exceed the Maximum
Annual Operating Expense Limit, as defined in Section 1.2 below, such excess
amount (the "Excess Amount") shall be the liability of the Manager.
1.2. Maximum Annual Operating Expense Limit. The Maximum Annual
Operating Expense Limit with respect to each Portfolio shall be the amount
specified in Schedule A based on a percentage of the average daily net assets of
each Portfolio.
1.3. Method of Computation. To determine the Manager's liability with
respect to the Excess Amount, each month the Portfolio Operating Expenses for
each Portfolio shall be annualized as of the last day of the month. If the
annualized Portfolio Operating Expenses for any month of a Portfolio exceed the
Maximum Annual Operating Expense Limit of such Portfolio, the Manager shall
first waive or reduce its investment management fee for such month by an amount
sufficient to reduce the annualized Portfolio Operating Expenses to an amount no
higher than the Maximum Annual Operating Expense Limit. If the amount of the
waived or reduced investment management fee for any such month is insufficient
to pay the Excess Amount, the Manager may also remit to the appropriate
Portfolio or Portfolios an amount that, together with the waived or reduced
investment management fee, is sufficient to pay such Excess Amount.
1.4. Year-End Adjustment. If necessary, on or before the last day of
the first month of each fiscal year, an adjustment payment shall be made by the
appropriate party in order that the amount of the investment management fees
waived or reduced and other payments remitted by the Manager to the Portfolio or
Portfolios with respect to the previous fiscal year shall equal the Excess
Amount.
2
<PAGE>
2. Reimbursement of Fee Waivers and Expense Reimbursements.
2.1. Reimbursement. If in any year during which the total assets of a
Portfolio are greater than $100 million and in which the Management Agreement is
still in effect, the estimated aggregate Portfolio Operating Expenses of such
Portfolio for the fiscal year are less than the Maximum Annual. Operating
Expense Limit for that year, subject to quarterly approval by the Trust's Board
of Trustees as provided in Section 2.2 below, the Manager shall be entitled to
reimbursement by such Portfolio, in whole or in part as provided below, of the
investment management fees waived or reduced and other payments remitted by the
Manager to such Portfolio pursuant to Section 1 hereof. The total amount of
reimbursement to which the Manager may be entitled (the "Reimbursement Amount")
shall equal, at any time, the sum of all investment management fees previously
waived or reduced by the Manager and all other payments remitted by the Manager
to the Portfolio, pursuant to Section 1 hereof, during any of the previous five
(5) fiscal years, less any reimbursement previously paid by such Portfolio to
the Manager, pursuant to Sections 2.2 or 2.3 hereof, with respect to such
waivers, reductions, and payments. The Reimbursement Amount shall not include
any additional charges or fees whatsoever, including, e.g., interest accruable
on the Reimbursement Amount.
2.2. Board Approval. No reimbursement shall be paid to the Manager with
respect to any Portfolio pursuant to this provision in any fiscal quarter,
unless the Trust's Board of Trustees has determined that the payment of such
reimbursement is in the best interests of such Portfolio and its shareholders.
The Trust's Board of Trustees shall determine quarterly in advance whether any
reimbursement may be paid to the Manager with respect to any Portfolio in such
quarter.
2.3. Method of Computation. To determine each Portfolio's payments, if
any, to reimburse the Manager for the Reimbursement Amount, each month the
Portfolio Operating Expenses of each Portfolio shall be annualized as of the
last day of the month. If the annualized Portfolio Operating Expenses of a
Portfolio for any month are less than the Maximum Annual Operating Expense Limit
of such Portfolio, such Portfolio, only with the prior approval of the Trust's
Board of Trustees, shall pay to the Manager an amount sufficient to increase the
annualized Portfolio Operating Expenses of that Portfolio to an amount no
greater than the Maximum Annual Operating Expense Limit of that Portfolio,
provided that such amount paid to the Manager will in no event exceed the total
Reimbursement Amount.
2.4. Year-End Adjustment. If necessary, on or before the last day of
the first month of each fiscal year, an adjustment payment shall be made by the
appropriate party in order that the actual Portfolio Operating Expenses of a
Portfolio for the prior fiscal year (including any reimbursement payments
hereunder with respect to such fiscal year) do not exceed the Maximum Annual
Operating Expense Limit.
3. Term and Termination of Agreement.
This Agreement shall continue in effect with respect to all Portfolios
(including the New Portfolios) until _____, 2000 and shall thereafter continue
in effect with respect to each Portfolio (including the New Portfolios) from
year to year provided such continuance is specifically approved by a majority of
the Trustees of the Trust who (i) are not "interested persons" of the
3
<PAGE>
Trust or any other party to this Agreement, as defined in the 1940 Act, and (ii)
have no direct or indirect financial interest in the operation of this Agreement
("Non-Interested Trustees"). Nevertheless, this Agreement may be terminated by
either party hereto, without payment of any penalty, upon ninety (90) days'
prior written notice to the other party at its principal place of business;
provided that, in the case of termination by the Trust, such action shall be
authorized by resolution of a majority of the Non-Interested Trustees of the
Trust or by a vote of a majority of the outstanding voting securities of the
Trust.
4. Miscellaneous.
4.1. Captions. The captions in this Agreement are included for
convenience of reference only and in no other way define or delineate any of the
provisions hereof or otherwise affect their construction or effect.
4.2. Interpretation. Nothing herein contained shall be deemed to
require the Trust or the Portfolios to take any action contrary to the Trust's
Declaration of Trust or By-Laws, or any applicable statutory or regulatory
requirement to which it is subject or by which it is bound, or to relieve or
deprive the Trust's Board of Trustees of its responsibility for and control of
the conduct of the affairs of the Trust or the Portfolios.
4.3. Definitions. Any question of interpretation of any term or
provision of this Agreement, including but not limited to the investment
management fee, the computations of net asset values, and the allocation of
expenses, having a counterpart in or otherwise derived from the terms and
provisions of the Management Agreement or the 1940 Act, shall have the same
meaning as and be resolved by reference to such Management Agreement or the 1940
Act.
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed
by their respective officers thereunto duly authorized and their respective
corporate seals to be hereunto affixed, as of the day and year first above
written.
EQ ADVISORS TRUST
ON BEHALF OF
EACH OF ITS SERIES
By:
-----------------------------
Peter D. Noris
President and Trustee
EQ FINANCIAL CONSULTANTS, INC.
By:
-----------------------------
Peter D. Noris
Executive Vice President
4
<PAGE>
SCHEDULE A
MAXIMUM ANNUAL OPERATING EXPENSE LIMITS
This Agreement relates to the following Portfolios of the Trust:
<TABLE>
<CAPTION>
Maximum Annual Operating
Name of Portfolio Expense Limit
----------------- -------------
<S> <C>
BT Equity 500 Index Portfolio .30%
BT International Equity Index Portfolio .55%
BT Small Company Index Portfolio .35%
Capital Guardian International Portfolio .95%
Capital Guardian U.S. Equity Portfolio .70%
Capital Guardian Research Portfolio .70%
EQ/Alliance Premier Growth Portfolio .90%
EQ/Putnam Balanced Portfolio .65%
EQ/Putnam Growth & Income Value Portfolio .60%
EQ/Putnam International Equity Portfolio .95%
EQ/Putnam Investors Growth Portfolio .60%
EQ/Evergreen Foundation Portfolio .70%
EQ/Evergreen Portfolio .80%
JPM Core Bond Portfolio .55%
Lazard Large Cap Value Portfolio .65%
Lazard Small Cap Value Portfolio .95%
Merrill Lynch Basic Value Equity Portfolio .60%
Merrill Lynch World Strategy Portfolio .95%
MFS Emerging Growth Companies Portfolio .60%
MFS Growth with Income Portfolio .60%
MFS Research Portfolio .60%
Morgan Stanley Emerging Markets Equity Portfolio 1.50%
T. Rowe Price Equity Income Portfolio .60%
T. Rowe Price International Stock Portfolio .95%
Warburg Pincus Small Company Value Portfolio .75%
Alliance Money Market Portfolio ____%
Alliance Intermediate Government Securities Portfolio ____%
Alliance Quality Bond Portfolio ____%
Alliance High Yield Portfolio ____%
Alliance Balanced Portfolio ____%
Alliance Conservative Investors Portfolio ____%
Alliance Growth Investors Portfolio ____%
Alliance Common Stock Portfolio ____%
Alliance Equity Index Portfolio ____%
Alliance Growth And Income Portfolio ____%
Alliance Aggressive Stock Portfolio ____%
Alliance Small Cap Growth Portfolio ____%
Alliance Global Portfolio ____%
Alliance International Portfolio ____%
</TABLE>
<PAGE>
Exhibit (h)(4)(v)
FORM OF AMENDMENT NO. 4
TO
PARTICIPATION AGREEMENT
Form of Amendment No. 4, dated as of ________, 1999 ("Amendment"), to
Participation Agreement dated as of April 14, 1997 ("Original Agreement") as
amended by Amendment No. 1, dated as of December 9, 1997, Amendment No. 2, dated
as of December 31, 1998, and Amendment No. 3 dated as of April 30, 1999
(collectively the "Agreement") by and among EQ Advisors Trust, The Equitable
Life Assurance Society of the United States, Equitable Distributors, Inc. and EQ
Financial Consultants, Inc. (collectively, the "Parties").
The Parties hereby agree that Schedule B to the Agreement is replaced
in its entirety by the schedule attached hereto entitled "Schedule B".
Except as modified and amended hereby, the Agreement is hereby ratified
and confirmed in full force and effect in accordance with its terms.
IN WITNESS WHEREOF, the parties have executed and delivered this Form
of Amendment No. 4 as of the date first above set forth.
EQ ADVISORS TRUST THE EQUITABLE LIFE ASSURANCE
SOCIETY OF THE UNITED STATES
By: By:
-------------------------------- ----------------------------------
Name: Peter D. Noris Name: Peter D. Noris
Title: President and Trustee Title: Executive Vice President
and Chief Investment Officer
EQUITABLE DISTRIBUTORS, INC. EQ FINANCIAL CONSULTANTS, INC.
By: By:
-------------------------------- ----------------------------------
Name: Jerome S. Golden Name: Michael S. Martin
Title: Chairman of the Board Title: Chairman of the Board
and Chief Executive Officer
1
<PAGE>
SCHEDULE B
TO
FORM OF AMENDMENT NO. 4 TO PARTICIPATION AGREEMENT
DESIGNATED PORTFOLIOS AND CLASSES
PORTFOLIOS OF
EQ ADVISORS TRUST
<TABLE>
<CAPTION>
Portfolios Classes
---------- -------
<S> <C>
BT Equity 500 Index Portfolio Class IA and Class IB
BT International Equity Index Portfolio Class IA and Class IB
BT Small Company Index Portfolio Class IA and Class IB
EQ/Alliance Premier Growth Portfolio Class IA and Class IB
EQ/Capital Guardian International Equities Portfolio Class IA and Class IB
EQ/Capital Guardian Research Portfolio Class IA and Class IB
EQ/Capital Guardian U.S. Equities Portfolio Class IA and Class IB
EQ/Putnam Balanced Portfolio Class IA and Class IB
EQ/Putnam Growth & Income Value Portfolio Class IA and Class IB
EQ/Putnam International Equity Portfolio Class IA and Class IB
EQ/Putnam Investors Growth Portfolio Class IA and Class IB
EQ/Evergreen Foundation Portfolio Class IA and Class IB
EQ/Evergreen Portfolio Class IA and Class IB
JPM Core Bond Portfolio Class IA and Class IB
Lazard Large Cap Value Portfolio Class IA and Class IB
Lazard Small Cap Value Portfolio Class IA and Class IB
Merrill Lynch Basic Value Equity Portfolio Class IA and Class IB
Merrill Lynch World Strategy Portfolio Class IA and Class IB
MFS Emerging Growth Companies Portfolio Class IA and Class IB
MFS Growth with Income Portfolio Class IA and Class IB
MFS Research Portfolio Class IA and Class IB
Morgan Stanley Emerging Markets Equity Portfolio Class IA and Class IB
T. Rowe Price Equity Income Portfolio Class IA and Class IB
T. Rowe Price International Stock Portfolio Class IA and Class IB
Warburg Pincus Small Company Value Portfolio Class IA and Class IB
Alliance Money Market Portfolio Class IA and Class IB
Alliance Intermediate Government Securities Portfolio Class IA and Class IB
Alliance Quality Bond Portfolio Class IA and Class IB
Alliance High Yield Portfolio Class IA and Class IB
Alliance Balanced Portfolio Class IA and Class IB
Alliance Conservative Investors Portfolio Class IA and Class IB
Alliance Growth Investors Portfolio Class IA and Class IB
Alliance Common Stock Portfolio Class IA and Class IB
2
<PAGE>
Alliance Equity Index Portfolio Class IA and Class IB
Alliance Growth And Income Portfolio Class IA and Class IB
Alliance Aggressive Stock Portfolio Class IA and Class IB
Alliance Small Cap Growth Portfolio Class IA and Class IB
Alliance Global Portfolio Class IA and Class IB
Alliance International Portfolio Class IA and Class IB
</TABLE>
3
<PAGE>
Exhibit (h)(5)(v)
FORM OF AMENDMENT NO. 2
TO
PARTICIPATION AGREEMENT
Form of Amendment No. 2, dated as of ______, 1999 ("Amendment"), to
Participation Agreement dated as of December 1, 1998 ("Original Agreement")
(collectively, the "Agreement"), as amended by Amendment No. 1, dated as of
April 30, 1999 among EQ Advisors Trust, The Equitable Life Assurance Society of
the United States, Equitable Financial Consultants, Inc. and The Equitable
Investment Plan for Employees, Managers and Agents (collectively, the
"Parties").
The Parties hereby agree that Schedule B to the Agreement is replaced
in its entirety by the schedule attached hereto entitled "Schedule B".
Except as modified and amended hereby, the Agreement is hereby ratified
and confirmed in full force and effect in accordance with its terms.
IN WITNESS WHEREOF, the parties have executed and delivered this Form
of Amendment No. 2 as of the date first above set forth.
EQ ADVISORS TRUST THE EQUITABLE LIFE ASSURANCE
SOCIETY OF THE UNITED STATES
By: By:
-------------------------------- ----------------------------------
Name: Peter D. Noris Name: Peter D. Noris
Title: President and Trustee Title: Executive Vice President
and Chief Investment Officer
EQ FINANCIAL CONSULTANTS, INC. THE EQUITABLE INVESTMENT
PLAN FOR EMPLOYEES, MANAGERS AND AGENTS
By:
--------------------------------
Name: Michael S. Martin By: Officers Committee on Benefit
Title: Chairman of the Board Plans, as Plan Fiduciary
and Chief Executive Officer
By:
----------------------------------
Name: Michael Hegarty
Title: Chairman
4
<PAGE>
SCHEDULE B
TO
FORM OF AMENDMENT NO. 2 TO PARTICIPATION AGREEMENT
DESIGNATED PORTFOLIOS AND CLASSES
PORTFOLIOS OF
EQ ADVISORS TRUST
<TABLE>
<CAPTION>
Portfolios Classes
---------- -------
<S> <C>
BT Equity 500 Index Portfolio Class IA and Class IB
BT International Equity Index Portfolio Class IA and Class IB
BT Small Company Index Portfolio Class IA and Class IB
EQ/Alliance Premier Growth Portfolio Class IA and Class IB
EQ/Capital Guardian International Equities Portfolio Class IA and Class IB
EQ/Capital Guardian Research Portfolio Class IA and Class IB
EQ/Capital Guardian U.S. Equities Portfolio Class IA and Class IB
EQ/Putnam Balanced Portfolio Class IA and Class IB
EQ/Putnam Growth & Income Value Portfolio Class IA and Class IB
EQ/Putnam International Equity Portfolio Class IA and Class IB
EQ/Putnam Investors Growth Portfolio Class IA and Class IB
EQ/Evergreen Foundation Portfolio Class IA and Class IB
EQ/Evergreen Portfolio Class IA and Class IB
JPM Core Bond Portfolio Class IA and Class IB
Lazard Large Cap Value Portfolio Class IA and Class IB
Lazard Small Cap Value Portfolio Class IA and Class IB
Merrill Lynch Basic Value Equity Portfolio Class IA and Class IB
Merrill Lynch World Strategy Portfolio Class IA and Class IB
MFS Emerging Growth Companies Portfolio Class IA and Class IB
MFS Growth with Income Portfolio Class IA and Class IB
MFS Research Portfolio Class IA and Class IB
Morgan Stanley Emerging Markets Equity Portfolio Class IA and Class IB
T. Rowe Price Equity Income Portfolio Class IA and Class IB
T. Rowe Price International Stock Portfolio Class IA and Class IB
Warburg Pincus Small Company Value Portfolio Class IA and Class IB
Alliance Money Market Portfolio Class IA and Class IB
Alliance Intermediate Government Securities Portfolio Class IA and Class IB
Alliance Quality Bond Portfolio Class IA and Class IB
Alliance High Yield Portfolio Class IA and Class IB
Alliance Balanced Portfolio Class IA and Class IB
Alliance Conservative Investors Portfolio Class IA and Class IB
Alliance Growth Investors Portfolio Class IA and Class IB
Alliance Common Stock Portfolio Class IA and Class IB
5
<PAGE>
Alliance Equity Index Portfolio Class IA and Class IB
Alliance Growth And Income Portfolio Class IA and Class IB
Alliance Aggressive Stock Portfolio Class IA and Class IB
Alliance Small Cap Growth Portfolio Class IA and Class IB
Alliance Global Portfolio Class IA and Class IB
Alliance International Portfolio Class IA and Class IB
</TABLE>
6
<PAGE>
EXHIBIT (i)(6)
FORM OF OPINION AND CONSENT OF COUNSEL
May 26, 1999
EQ Advisors Trust
1290 Avenue of the Americas
New York, New York 10104
Dear Gentlemen:
This opinion is given in connection with the filing by EQ Advisors
Trust, a Delaware business trust ("Trust"), of Post-Effective Amendment No. 11
to the Registration Statement on Form N-1A ("Registration Statement") under the
Securities Act of 1933 ("1933 Act") and Amendment No. 13 under the Investment
Company Act of 1940 ("1940 Act") relating to an indefinite amount of authorized
shares of beneficial interest, at a par value of $.01 per share, of fourteen new
separate series of the Trust: Alliance Money Market Portfolio, Alliance
Intermediate Government Securities Portfolio, Alliance Quality Bond Portfolio,
Alliance High Yield Portfolio, Alliance Balanced Portfolio, Alliance
Conservative Investors Portfolio, Alliance Growth Investors Portfolio, Alliance
Common Stock Portfolio, Alliance Equity Portfolio, Alliance Growth and Income
Portfolio, Alliance Aggressive Stock Portfolio, Alliance Small Cap Portfolio,
Alliance Global Portfolio, and Alliance International (individually "Portfolio"
and, together, the "Portfolios"). The authorized shares of beneficial interest
of the Portfolios are hereinafter referred to as the "Shares."
We have examined the following Trust documents: Certificate of Trust;
Certificate of Amendment; Amended and Restated Agreement and Declaration of
Trust; By-Laws; Registration Statement on Form N-1A filed on December 3, 1996;
Pre-Effective Amendment No. 1 to the Registration Statement on Form N-1A filed
January 23, 1997; Pre-Effective Amendment No. 2 to the Registration Statement on
Form N-1A filed April 7, 1997; Post-Effective Amendment No. 1 to the
Registration Statement on Form N-1A filed August 28, 1997, Post-Effective
Amendment No. 2 to the Registration Statement on Form N-1A filed October 15,
1997; Post-Effective Amendment No. 3 to the Registration Statement on Form N-1A
filed October 31, 1997; Post-Effective Amendment No. 4 to the Registration
Statement filed December 29, 1997, Post-Effective Amendment No. 5 to the
Registration Statement filed March 5, 1998; Post-Effective Amendment No. 6 to
the Registration Statement filed April 22, 1998; Post-Effective Amendment No. 7
to the Registration Statement filed October 15, 1998; Post-Effective Amendment
No. 8 to the Registration Statement filed February 16, 1999, Post-Effective
Amendment No. 9 to the Registration Statement filed February 16, 1999;
Post-Effective Amendment No. 10 to the Registration Statement filed April 29,
1999; pertinent provisions of the laws of the State of Delaware; and such other
corporate records, certificates, documents and statutes that we have deemed
relevant in order to render the opinion expressed herein.
Based on such examination, we are of the opinion that:
<PAGE>
1. EQ Advisors Trust is a Delaware business trust duly organized,
validly existing, and in good standing under the laws of the
State of Delaware; and
2. The Shares to be offered for sale by EQ Advisors Trust, when
issued in the manner contemplated by the Registration
Statement, will be legally issued, fully-paid and
non-assessable.
This letter expresses our opinion as to the Delaware Business Trust Act
governing matters such as the due organization of EQ Advisors Trust and the
authorization and issuance of the Shares, but does not extend to the securities
or "Blue Sky" laws of the State of Delaware or to federal securities or other
laws.
We consent to the use of this opinion as an exhibit to the Registration
Statement and to the reference to Dechert Price & Rhoads under the caption
"Counsel" in the Statement of Additional Information, which is incorporated by
reference into the Prospectus comprising a part of the Registration Statement.
Very truly yours,
DECHERT PRICE & RHOADS
2
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Statement of
Additional Information constituting part of this Post-Effective Amendment No. 11
to the registration statement on Form N-1A (the "Registration Statement") of our
report dated February 17, 1999, relating to the financial statements and
financial highlights appearing in the December 31, 1998 Annual Report to
Shareholders of EQ Advisors Trust, which is also incorporated by reference into
the Registration Statement. We also consent to the reference to us under the
heading "Other Services-Independent Accountant" in the Statement of Additional
Information.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
May 26, 1999
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<GROSS-EXPENSE> 1,406,297
<AVERAGE-NET-ASSETS> 96,302,265
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[AVG-DEBT-OUTSTANDING] 0
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
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<NAME> EQ/PUTNAM INVESTORS GROWTH PORTFOLIO
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<PER-SHARE-NAV-BEGIN> 12.33
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<PAGE>
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<NAME> EQ ADVISORS TRUST
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<S> <C>
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<NUMBER-OF-SHARES-REDEEMED> (142,092)
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<NET-CHANGE-IN-ASSETS> 144,468,708
<ACCUMULATED-NII-PRIOR> 2,001
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<GROSS-ADVISORY-FEES> 1,000,224
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,884,780
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<PER-SHARE-NAV-BEGIN> 13.22
<PER-SHARE-NII> 0.06
<PER-SHARE-GAIN-APPREC> (0.09)
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<PER-SHARE-NAV-END> 12.67
<EXPENSE-RATIO> 0.60
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
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<CIK> 0001027263
<NAME> EQ ADVISORS TRUST
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<NUMBER> 11
<NAME> T. ROWE PRICE EQUITY INCOME PORTFOLIO, CLASS 1B
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<S> <C>
<PERIOD-TYPE> 12-MOS
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<PER-SHARE-NAV-END> 12.67
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[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0001027263
<NAME> EQ ADVISORS TRUST
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<NAME> T. ROWE PRICE INTERNATIONAL STOCK PORTFOLIO
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<S> <C>
<PERIOD-TYPE> 12-MOS
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[AVG-DEBT-OUTSTANDING] 0
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0001027263
<NAME> EQ ADVISORS TRUST
<SERIES>
<NUMBER> 13
<NAME> WARBURG PINCUS SMALL COMPANY VALUE PORTFOLIO - CLASS IA
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<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1998
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<NET-CHANGE-IN-ASSETS> 46,613,579
<ACCUMULATED-NII-PRIOR> (28)
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<PER-SHARE-NAV-BEGIN> 10.40
<PER-SHARE-NII> 0.03
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[AVG-DEBT-OUTSTANDING] 0
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0001027263
<NAME> EQ ADVISORS TRUST
<SERIES>
<NUMBER> 14
<NAME> WARBURG PINCUS SMALL COMPANY VALUE PORTFOLIO - CLASS IB
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<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
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<PER-SHARE-NII> 0.05
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0001027263
<NAME> EQ ADVISORS TRUST
<SERIES>
<NUMBER> 15
<NAME> MORGAN STANLEY EMERGING MARKETS EQUITY PORTFOLIO
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<S> <C>
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<NUMBER-OF-SHARES-REDEEMED> (10,307,350)
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<PER-SHARE-NII> 0.03
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[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0001027263
<NAME> EQ ADVISORS TRUST
<SERIES>
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<NAME> BT EQUITY 500 INDEX PORTFOLIO
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<S> <C>
<PERIOD-TYPE> 12-MOS
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<PAGE>
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<PAGE>
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
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<NAME> EQ ADVISORS TRUST
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<NAME> BT SMALL COMPANY INDEX PORTFOLIO
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
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<NAME> EQ ADVISORS TRUST
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
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<NAME> EQ ADVISORS TRUST
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
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<NAME> EQ ADVISORS TRUST
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
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<NAME> EQ ADVISORS TRUST
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
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<NAME> EQ ADVISORS TRUST
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0001027263
<NAME> EQ ADVISORS TRUST
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<NUMBER> 25
<NAME> MFS GROWTH WITH INCOME PORTFOLIO
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<S> <C>
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