<PAGE>
Registration Nos. 333-17217
811-07953
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 30, 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. 13 /x/
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 /x/
Amendment No.15 /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:
[X] 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
[ ] 75 days after filing pursuant to paragraph (a)
<PAGE>
8-27-99
This Post-Effective Amendment No. 13 to the Registration Statement on
Form N-1A for EQ Advisors Trust ("Trust") incorporates by reference each of the
Prospectuses such as Statement of Additional Information that are contained in
the Trust's Post-Effective Amendment No. 10 to its Registration Statement to
the extent that such documents are not otherwise hereby specifically revised or
otherwise amended.
<PAGE>
EQ ADVISORS TRUST
PROSPECTUS
August 30, 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. The Portfolios
below will not be available for investment until October 1, 1999.
<TABLE>
<CAPTION>
<S> <C>
FIXED INCOME PORTFOLIOS GLOBAL/INTERNATIONAL EQUITY PORTFOLIOS
- ----------------------- --------------------------------------
Alliance High Yield Alliance Global
Alliance Intermediate Government Securities Alliance International
Alliance Money Market
Alliance Quality Bond
DOMESTIC EQUITY PORTFOLIOS AGGRESSIVE EQUITY PORTFOLIOS
- -------------------------- ----------------------------
Alliance Common Stock Alliance Aggressive Stock
Alliance Equity Index Alliance Small Cap Growth
Alliance Growth and Income
ASSET ALLOCATION PORTFOLIOS
---------------------------
Alliance Balanced
Alliance Conservative Investors
Alliance Growth Investors
</TABLE>
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
<PAGE>
EQ ADVISORS TRUST
This Prospectus tells you about the fourteen (14) Portfolios of 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 current Portfolios of the Trust is diversified for purposes of the
Investment Company Act of 1940, as amended ("1940 Act").
The Trust's shares are currently sold 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"), Equitable of Colorado, Inc. ("EOC"), and insurance companies that
are not affiliated with Equitable or EOC ("non-affiliated insurance companies"),
and 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. ("EQFC") currently serves as the Manager of the
Trust. In such capacity, EQFC currently has overall responsibility for the
general management and administration of the Trust. The Board of Trustees of the
Trust has approved a transfer to Equitable, the indirect corporate parent of
EQFC, of the Trust's Investment Management Agreement with EQFC. This transfer is
expected to be completed in September 1999. Upon completion of the transfer,
Equitable will serve as the Manager of the Trust. However, until completion of
the transfer, EQFC will continue to serve in that capacity.
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 has been granted relief by the Securities and
Exchange Commission ("SEC") ("Multi-Manager Order") that enables the Manager
without obtaining shareholder approval to: (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.
The Manager and certain non-affiliated insurance companies and certain of their
separate accounts (collectively, "Applicants") have filed applications
requesting that the SEC approve the substitution of: (i) Class IA shares of
certain Portfolios for Class IA shares of corresponding portfolios of the Hudson
River Trust ("HRT"); and (ii) Class IB shares of certain Portfolios for Class IB
shares of corresponding HRT portfolios ("Substitution Application"). Alliance
Capital Management L.P. ("Alliance") serves as Adviser for each Portfolio to be
substituted for the corresponding HRT portfolio. Applicants have included, as a
term of the Substitution Application, that with respect to those Portfolios for
which Alliance serves as Adviser (other than EQ/Alliance Premier Growth
Portfolio, which will not be substituted for a portfolio of HRT), the Manager
will not: (i) terminate Alliance and select a new Adviser for those Portfolios
or (ii) materially modify the existing advisory agreement without first either
obtaining approval of shareholders for such actions or obtaining approval of
shareholders to utilize the Multi-Manager Order.
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<PAGE>
[2nd right hand page] TABLE OF CONTENTS
PAGE
SUMMARY INFORMATION CONCERNING EQ ADVISORS TRUST...............................4
ABOUT THE INVESTMENT PORTFOLIOS...............................................14
FIXED INCOME PORTFOLIOS....................................................17
ALLIANCE HIGH YIELD PORTFOLIO........................................17
ALLIANCE INTERMEDIATE GOVERNMENT SECURITIES PORTFOLIO................21
ALLIANCE MONEY MARKET PORTFOLIO......................................26
ALLIANCE QUALITY BOND PORTFOLIO......................................29
DOMESTIC EQUITY PORTFOLIOS.................................................33
ALLIANCE COMMON STOCK PORTFOLIO......................................33
ALLIANCE EQUITY INDEX PORTFOLIO......................................37
ALLIANCE GROWTH AND INCOME PORTFOLIO.................................41
GLOBAL/INTERNATIONAL PORTFOLIOS............................................45
ALLIANCE GLOBAL PORTFOLIO...........................................45
ALLIANCE INTERNATIONAL PORTFOLIO....................................48
AGGRESSIVE EQUITY PORTFOLIOS...............................................52
ALLIANCE AGGRESSIVE STOCK PORTFOLIO..................................52
ALLIANCE SMALL CAP GROWTH PORTFOLIO..................................56
ASSET ALLOCATION PORTFOLIOS................................................59
ALLIANCE BALANCED PORTFOLIO..........................................61
ALLIANCE CONSERVATIVE INVESTORS PORTFOLIO............................65
ALLIANCE GROWTH INVESTORS PORTFOLIO..................................70
MORE INFORMATION ON PRINCIPAL RISKS...........................................73
MANAGEMENT OF THE TRUST.......................................................80
The Trust..................................................................80
The Manager................................................................80
The Advisers...............................................................81
The Administrator..........................................................81
The Transfer Agent.........................................................82
Brokerage Practices........................................................82
Brokerage Transactions with Affiliates.....................................82
FUND DISTRIBUTION ARRANGEMENTS................................................82
PURCHASE AND REDEMPTION.......................................................83
HOW ASSETS ARE VALUED.........................................................83
TAX INFORMATION...............................................................84
FINANCIAL HIGHLIGHTS..........................................................84
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<PAGE>
[TWO PAGE SPREAD]
SUMMARY INFORMATION CONCERNING EQ ADVISORS TRUST
The following chart highlights the 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 23.
EQ ADVISORS TRUST
FIXED INCOME PORTFOLIOS
Part A
- --------------------------------------------------------------------------------
PORTFOLIO INVESTMENT OBJECTIVE(S)
- --------- -----------------------
================================================================================
ALLIANCE HIGH YIELD Seeks to achieve a high return by
maximizing current income and, to the
extent consistent with that objective,
capital appreciation
- --------------------------------------------------------------------------------
ALLIANCE INTERMEDIATE GOVERNMENT Seeks to achieve high current income
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 MONEY MARKET Seeks to obtain a high level of current
income, preserve its assets and maintain
liquidity
- --------------------------------------------------------------------------------
ALLIANCE QUALITY BOND Seeks to achieve high current income
consistent with preservation of capital
by investing primarily in investment
grade fixed income securities
- --------------------------------------------------------------------------------
-4-
<PAGE>
EQ ADVISORS TRUST
FIXED INCOME PORTFOLIOS
Part B
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
PRINCIPAL INVESTMENT STRATEGIES PRINCIPAL RISKS
- ------------------------------- ---------------
=============================================================================================
<S> <C>
High yield debt securities rated below General investment, fixed income,
BBB/Baa or unrated securities of comparable leveraging, loan participation and
quality ("junk bonds"), common stocks assignment, derivatives, liquidity, junk bond,
other equity securities, foreign bond, foreign securities, small-cap and mid-cap
foreign securities, derivatives, and company, and securities lending risks
securities lending
- ---------------------------------------------------------------------------------------------
Securities issued or guaranteed by the U.S. General investment, fixed income,
Government, including repurchase agreements leveraging, derivatives, and securities
and forward commitments related to U.S. lending risks
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
- ---------------------------------------------------------------------------------------------
High quality U.S. dollar-denominated money General investment, money market,
market instruments (including foreign leveraging, foreign securities, and
securities) and securities lending securities lending risks
- ---------------------------------------------------------------------------------------------
Investment-grade debt securities rated at General investment, fixed income,
least BBB/Baa or unrated securities of convertible securities, leveraging,
comparable quality at the time of purchase, derivatives, securities lending, and
convertible debt securities, preferred foreign 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
- ---------------------------------------------------------------------------------------------
</TABLE>
-5-
<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 increased 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
- --------------------------------------------------------------------------------
-6-
<PAGE>
EQ ADVISORS TRUST
DOMESTIC EQUITY PORTFOLIOS
Part B
- --------------------------------------------------------------------------------
PRINCIPAL INVESTMENT STRATEGIES PRINCIPAL RISKS
- ------------------------------- ---------------
- --------------------------------------------------------------------------------
Stocks and other equity securities General investment, foreign securities,
(including preferred stocks or leveraging, derivatives, convertible
convertible debt) and fixed income securities, small-cap and mid-cap
securities (including junk bonds), company, junk bond, securities lending,
foreign securities, derivatives, and fixed income risks
and securities lending
- --------------------------------------------------------------------------------
Securities in the S&P 500 Index, General investment, index-fund,
derivatives, and securities lending derivatives, leveraging, and securities
lending risks
- --------------------------------------------------------------------------------
Stocks and securities convertible General investment, convertible
into stocks (including junk bonds) securities, leveraging, derivatives,
foreign securities, junk bond, and fixed
income risks
- --------------------------------------------------------------------------------
-7-
<PAGE>
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
- --------------------------------------------------------------------------------
-8-
<PAGE>
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 securities, liquidity,
other mutual funds investing in foreign derivatives, securities lending,
securities), debt securities, derivatives, and fixed income risks
and securities lending
- --------------------------------------------------------------------------------
Equity securities of non-U.S. companies General investment, foreign
(including those in emerging markets securities, liquidity, growth
securities) or foreign government investing, leveraging,
enterprises (including other mutual funds derivatives, securities lending,
investing in foreign securities), debt and fixed income risks
securities, derivatives, and securities
lending)
- --------------------------------------------------------------------------------
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<PAGE>
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
- --------------------------------------------------------------------------------
-10-
<PAGE>
EQ ADVISORS TRUST
AGGRESSIVE EQUITY PORTFOLIOS
Part B
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
PRINCIPAL INVESTMENT STRATEGIES PRINCIPAL RISKS
- ------------------------------- ---------------
- ----------------------------------------------------------------------------------------------------
<S> <C>
Stocks and other equity securities of small General investment, small-cap and mid-cap
and medium-sized companies (including company, growth investing, leveraging,
securities of companies in cyclical derivatives, liquidity and foreign securities
industries, companies whose securities are risks
temporarily undervalued, companies in special
situations (e.g., change in management, new
products or changes in customer demand) and
less widely known companies)
- ----------------------------------------------------------------------------------------------------
Stocks and other equity securities of smaller General investment, small-cap and mid-cap
companies and undervalued securities company, growth investing, leveraging,
(including securities of companies in derivatives, liquidity, and foreign securities
cyclical industries, companies whose risks
securities are temporarily undervalued,
companies in special situations (e.g., change
in management, new products or changes in
customer demand) and less widely known companies)
- ----------------------------------------------------------------------------------------------------
</TABLE>
-11-
<PAGE>
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
- --------------------------------------------------------------------------------
-12-
<PAGE>
EQ ADVISORS TRUST
ASSET ALLOCATION PORTFOLIOS
Part B
- --------------------------------------------------------------------------------
PRINCIPAL INVESTMENT STRATEGIES PRINCIPAL RISKS
- ------------------------------- ---------------
- --------------------------------------------------------------------------------
Debt and equity securities, money market General investment, fixed income,
asset allocation, instruments, foreign derivatives, leveraging,
securities derivatives, and securities liquidity, securities lending, and
lending foreign securities risks
- --------------------------------------------------------------------------------
Investment grade debt securities and equity General investment, asset
securities of U.S. and foreign issuers, allocation, fixed income,
derivatives, and securities lending derivatives, convertible
securities, liquidity, leveraging,
securities lending, and foreign
securities risks
- --------------------------------------------------------------------------------
Equity securities (including foreign General investment, asset
stocks, preferred stocks, convertible allocation, fixed income,
securities, securities of small and leveraging, derivatives,
medium-sized companies) and debt liquidity, convertible securities,
securities (including foreign debt small-cap and mid-cap company,
securities and junk bonds), derivatives, securities lending, junk bond, and
and securities lending foreign securities risks
- --------------------------------------------------------------------------------
-13-
<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
-14-
<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. 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.
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
returns reflect the reinvestment of dividends, if any, but do not reflect fees,
brokerage commissions or other expenses of investing.
-15-
<PAGE>
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 S&P 400 returns reflect the reinvestment of dividends, if
any, but do not reflect fees, brokerage commissions or other expenses of
investing.
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.
-16-
<PAGE>
FIXED INCOME PORTFOLIOS
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 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 that 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.
-17
<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 BBB 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. Although junk bonds generally have
higher yields than debt securities with higher credit ratings, they are
high-risk investments that may not pay interest or return principal as
scheduled. Junk bonds generally are also less liquid and experience more price
volatility than higher rated fixed income securities. 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.
-18-
<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 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.
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 and some of the risks of investing in the Portfolio
by showing yearly changes in the Portfolio's performance. The table below shows
the Portfolio's average annual total returns for the past one, five and ten
years and compares the Portfolio's performance to: (i) the returns of a
broad-based index and (ii) the returns of an index of funds with similar
investment objectives. Past performance is not an indication of future
performance.
The Portfolio's performance shown below is the performance of its predecessor
registered investment company (HRT/Alliance High Yield Portfolio) managed by the
Adviser using the same investment objectives and strategy as the Portfolio. For
these purposes, the Portfolio is considered to be the successor entity to the
predecessor registered investment company (HRT/Alliance High Yield Portfolio)
whose inception date was January 2, 1987. The assets of the predecessor will be
transferred to the Portfolio on October 1, 1999.
Both the bar chart and table assume reinvestment of dividends and distributions.
The performance results do not reflect any insurance and Contract-related
expenses, which would reduce the performance results.
-19-
<PAGE>
CALENDER YEAR ANNUAL TOTAL RETURN
1989 5.1%
1990 -1.1%
1991 24.5%
1992 12.3%
1993 23.2%
1994 -2.8%
1995 19.9%
1996 23.0%
1997 18.5%
1998 -5.2%
Best quarter (% and time period) Worst quarter (% and time period)
7.96% (1997 2nd Quarter) -10.97% (1998 3rd Quarter)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR FIVE YEARS TEN YEARS
<S> <C> <C> <C>
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%
- ----------------------------------------------------------------------------------------------------------
</TABLE>
*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 Portfolio and its
predecessor (registered investment company) since the predecessor 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 and its predecessor since 1995. Mr. Tappe, a Senior Vice President of
Alliance, has been associated with Alliance since 1987.
-20-
<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.
-21-
<PAGE>
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.
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.
-22-
<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, 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: With respect to fixed income
investments of the Portfolio, other than U.S. Government Securities,
rated BBB by S&P or an equivalent rating by any other nationally
recognized statistical rating organization ("NRSRO"), 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 NRSRO, 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 and some of the risks of investing in the
Portfolio by showing yearly changes in the Portfolio's performance. The table
below shows the Portfolio's average annual total returns for the past one year,
five years and since inception and compares the Portfolio's performance to: (i)
the returns of a broad-based index and (ii) the returns of an index of funds
with similar investment objectives. Past performance is not an indication of
future performance.
-23-
<PAGE>
The Portfolio's performance shown below is the performance of its predecessor
registered investment company (HRT/Alliance Intermediate Government Securities
Portfolio) managed by the Adviser using the same investment objectives and
strategy as the Portfolio. For these purposes, the Portfolio is considered to be
the successor entity to the predecessor registered investment company
(HRT/Alliance Intermediate Government Securities Portfolio) whose inception date
was April 1, 1991. The assets of the predecessor will be transferred to the
Portfolio on October 1, 1999.
Both the bar chart and table assume reinvestment of dividends and distributions.
The performance results do not reflect any insurance and Contract-related fees
and expenses, which would reduce the performance results.
CALENDAR YEAR ANNUAL TOTAL RETURN
1992 5.5%
1993 10.6%
1994 -4.4%
1995 13.3%
1996 3.8%
1997 7.3%
1998 7.7%
Best quarter (% and time period) Worst quarter (% and time period)
5.31% (1991 3rd Quarter) -2.97% (1994 1st Quarter)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR FIVE YEARS SINCE INCEPTION
<S> <C> <C> <C>
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%
- -----------------------------------------------------------------------------------------------------------
</TABLE>
*For more information on this index, see the preceding section "The Benchmarks."
-24-
<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 Portfolio and its
predecessor (registered investment company) since the predecessor 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 and its predecessor since January 1999. Mr. Phlegar, a Senior Vice
President of Alliance, has been associated with Alliance since 1998.
-25-
<PAGE>
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 and asset-backed securities that have remaining maturities
of less than one year;
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.
-26-
<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: 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 and some of the risks of investing in the Portfolio
by showing yearly changes in the Portfolio's performance. The table below shows
the Portfolio's average annual total returns for the past one, five and ten
years and compares the Portfolio's performance to: (i) the returns on
three-month U.S. Treasury bills and (ii) the returns of an index of funds with
similar investment objectives. Past performance is not an indication of future
performance.
The Portfolio's performance shown below is the performance of its predecessor
registered investment company (HRT/Alliance Money Market Portfolio) managed by
the Adviser using the same investment objectives and strategy as the Portfolio.
For these purposes, the Portfolio is considered to be the successor entity to
the predecessor registered investment company (HRT/Alliance Money Market
Portfolio) whose inception date was July 13, 1981. The assets of the predecessor
will be transferred to the Portfolio on October 1, 1999.
Both the bar chart and table assume reinvestment of dividends and distributions.
The performance results do not reflect any insurance and Contract-related fees
and expenses, which would reduce the performance results.
-27-
<PAGE>
CALENDAR YEAR ANNUAL TOTAL RETURN
1989 9.2%
1990 8.2%
1991 6.2%
1992 3.6%
1993 3.0%
1994 4.0%
1995 5.7%
1996 5.3%
1997 5.4%
1998 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, 1998 was 4.69%.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR FIVE YEARS TEN YEARS
<S> <C> <C> <C>
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%
- --------------------------------------------------------------------------------------------------------
</TABLE>
*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 Portfolio and its
predecessor (registered investment company) since the predecessor 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 and its predecessor since 1990. Mr. Papera, a Senior Vice President of
Alliance, has been associated with Alliance since 1990.
-28-
<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.
-29-
<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. 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
-30-
<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 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.
PORTFOLIO PERFORMANCE
The bar chart below illustrates the Portfolio's annual total returns for each of
the last five calendar years and some of the risks of investing in the Portfolio
by showing yearly changes in the Portfolio's performance. The table below shows
the Portfolio's average annual total returns for the past one and five years and
compares the Portfolio's performance to: (i) the returns of a broad-based index
and (ii) the returns of an index of funds with similar investment objectives.
Past performance is not an indication of future performance.
The Portfolio's performance shown below is the performance of its predecessor
registered investment company (HRT/Alliance Quality Bond Portfolio) managed by
the Adviser using the same investment objectives and strategy as the Portfolio.
For these purposes, the Portfolio is considered to be the successor entity to
the predecessor registered investment company (HRT/Alliance Quality Bond
Portfolio) whose inception date was October 1, 1993. The assets of the
predecessor will be transferred to the Portfolio on October 1, 1999.
Both the bar chart and table assume reinvestment of dividends and distributions.
The performance results do not reflect any insurance and Contract-related fees
and expenses, which would reduce the performance results.
CALENDAR YEAR ANNUAL TOTAL RETURN
1994 -5.1%
1995 17.0%
1996 5.4%
1997 9.1%
1998 8.7%
Best quarter (% and time period) Worst quarter (% and time period)
-31-
<PAGE>
6.19% (1995 2nd Quarter) -4.03% (1994 1st Quarter)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR FIVE YEARS SINCE INCEPTION
<S> <C> <C> <C>
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%
- -----------------------------------------------------------------------------------------------------------
</TABLE>
*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 Portfolio and its
predecessor (registered investment company) since the predecessor 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 and its predecessor since 1995. Mr. Bloom, a Senior Vice President of
Alliance, has been associated with Alliance since 1989.
-32-
<PAGE>
DOMESTIC EQUITY PORTFOLIOS
ALLIANCE COMMON STOCK PORTFOLIO
INVESTMENT OBJECTIVE: Seeks to achieve long-term growth of its capital and
increased 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.
-33-
<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. 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
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.
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.
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 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.
PORTFOLIO PERFORMANCE
The bar chart below illustrates the Portfolio's annual total returns for each of
the last ten calendar years and some of the risks of investing in the Portfolio
by showing yearly changes in the Portfolio's performance. The table below shows
the Portfolio's average annual total returns for the past one, five and ten
years and compares the Portfolio's performance to: (i) the returns of a
broad-based index and (ii) the returns of an index of funds with similar
investment objectives. Past performance is not an indication of future
performance.
-34-
<PAGE>
The Portfolio's performance shown below is the performance of its predecessor
registered investment company (HRT/Alliance Common Stock Portfolio) managed by
the Adviser using the same investment objectives and strategy as the Portfolio.
For these purposes, the Portfolio is considered to be the successor entity to
the predecessor registered investment company (HRT/Alliance Common Stock
Portfolio) whose inception date was June 16, 1975. The assets of the predecessor
will be transferred to the Portfolio on October 1, 1999.
Both the bar chart and table assume reinvestment of dividends and distributions.
The performance results do not reflect any insurance and Contract-related fees
and expenses, which would reduce the performance results.
CALENDAR YEAR ANNUAL TOTAL RETURN
1989 25.6%
1990 -8.1%
1991 37.9%
1992 3.2%
1993 24.8%
1994 -2.1%
1995 32.5%
1996 24.3%
1997 29.4%
1998 29.4%
Best quarter (% and time period) Worst quarter (% and time period)
28.42% (1998 4th Quarter) -20.22% (1990 3rd Quarter)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR FIVE YEARS TEN YEARS
<S> <C> <C> <C>
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%
- ----------------------------------------------------------------------------------------------------
</TABLE>
*For more information on this index, see the preceding section "The Benchmarks."
-35-
<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 Portfolio and its
predecessor (registered investment company) since the predecessor 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 and its predecessor since 1977. Mr. Smith, a Senior Vice President of
Alliance, has been associated with Alliance since 1970.
-36-
<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.
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. Similarly, 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.
-37-
<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.
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 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.
PORTFOLIO PERFORMANCE
The bar chart below illustrates the Portfolio's annual total returns for each of
the last four calendar years and some of the risks of investing in the Portfolio
by showing yearly changes in the Portfolio's performance. The table below shows
the Portfolio's average annual total returns for the past year and since
inception and compares the Portfolio's performance to: (i) the returns of a
broad-based index and (ii) the returns of an index of funds with similar
investment objectives. Past performance is not an indication of future
performance.
The Portfolio's performance shown below is the performance of its predecessor
registered investment company (HRT/Alliance Equity Index Portfolio) managed by
the Adviser using the same investment objectives and strategy as the Portfolio.
For these purposes, the Portfolio is considered to be the successor entity to
the predecessor registered investment company (HRT/Alliance Equity Index
Portfolio) whose inception date was March 1, 1994. The assets of the predecessor
will be transferred to the Portfolio on October 1, 1999.
Both the bar chart and table assume reinvestment of dividends and distributions.
The performance results do not reflect any insurance and Contract-related fees
and expenses, which would reduce the performance results.
-38-
<PAGE>
CALENDAR YEAR ANNUAL TOTAL RETURN
1995 36.5%
1996 22.4%
1997 32.%6
1998 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
<TABLE>
<CAPTION>
ONE YEAR SINCE
INCEPTION
<S> <C> <C>
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%
- --------------------------------------------------------------------------------
</TABLE>
* 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 Portfolio and its
predecessor (registered investment company) since the predecessor 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.
-39-
<PAGE>
JUDITH A. DEVIVO has been responsible for the day-to-day management of the
Portfolio and its predecessor since its inception. Ms. DeVivo, a Vice President
of Alliance, has been associated with Alliance since 1970.
-40-
<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. The value
of convertible securities fluctuates both in relation to changes in interest
rates and changes in the value of the underlying common stock.
-41-
<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
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.
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: To the extent the Portfolio invests in foreign
securities, it is subject to 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 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.
PORTFOLIO PERFORMANCE
The bar chart below illustrates the Portfolio's annual total returns for each of
the last five calendar years and some of the risks of investing in the Portfolio
by showing yearly changes in the Portfolio's performance. The table below shows
the Portfolio's average annual total returns for the past one year, five years
and since inception and compares the Portfolio's performance to: (i) the returns
of a broad-based index; (ii) the returns of a "blended" index of equity and
fixed income securities; and (iii) the returns of an index of funds with similar
investment objectives. Past performance is not an indication of future
performance.
The Portfolio's performance shown below is the performance of its predecessor
registered investment company (HRT/Alliance Growth and Income Portfolio) managed
by the Adviser using the same investment objectives and strategy as the
Portfolio. For these purposes, the Portfolio is considered to be the successor
entity to the predecessor registered investment company (HRT/Alliance Growth and
Income
-42-
<PAGE>
Portfolio) whose inception date was October 1, 1993. The assets of the
predecessor will be transferred to the Portfolio on October 1, 1999.
Both the bar chart and table assume reinvestment of dividends and distributions.
The performance results do not reflect any insurance and Contract-related fees
and expenses, which would reduce the performance results.
CALENDAR YEAR ANNUAL TOTAL RETURN
1994 -0.6%
1995 24.1%
1996 20.1%
1997 26.9%
1998 20.9%
Best quarter (% and time period) Worst quarter (% and time period)
26.28% (1998 4th Quarter) -15.03% (1998 3rd Quarter)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR FIVE YEARS SINCE INCEPTION
<S> <C> <C> <C>
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 20.10% 21.07% 20.48%
CONVERTIBLE*
S&P 500 INDEX* 28.58% 24.06% 23.32%
- -----------------------------------------------------------------------------------------------------------
</TABLE>
*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 Portfolio and its
predecessor (registered investment company) since the predecessor 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.
-43-
<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 and its predecessor'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.
-44-
<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 equity securities of
U.S. and established foreign companies. The Adviser believes the equity
securities of these established non-U.S. companies 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:
-45-
<PAGE>
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 recent 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.
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 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.
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.
PORTFOLIO PERFORMANCE
The bar chart below illustrates the Portfolio's annual total returns for each of
the last ten calendar years and some of the risks of investing in the Portfolio
by showing yearly changes in the Portfolio's performance. The table below shows
the Portfolio's average annual total returns for the past one, five and ten
years and compares the Portfolio's performance to: (i) the returns of a
broad-based index and (ii) the
-46-
<PAGE>
returns of an index of funds with similar investment objectives. Past
performance is not an indication of future performance.
The Portfolio's performance shown below is the performance of its predecessor
registered investment company (HRT/Alliance Global Portfolio) managed by the
Adviser using the same investment objectives and strategy as the Portfolio. For
these purposes, the Portfolio is considered to be the successor entity to the
predecessor registered investment company (HRT/Alliance Global Portfolio) whose
inception date was August 27, 1987. The assets of the predecessor will be
transferred to the Portfolio on October 1, 1999.
Both the bar chart and table assume reinvestment of dividends and distributions.
The performance results do not reflect any insurance and Contract-related fees
and expenses, which would reduce the performance results.
CALENDAR YEAR ANNUAL TOTAL RETURN
1989 26.7%
1990 -6.1%
1991 30.5%
1992 -0.5%
1993 32.1%
1994 5.2%
1995 18.8%
1996 14.6%
1997 11.7%
1998 21.8%
Best quarter (% and time period) Worst quarter (% and time period)
26.59% (1998 4th Quarter) -16.99% (1998 3rd Quarter)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR FIVE YEARS TEN YEARS
<S> <C> <C> <C>
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%
- -------------------------------------------------------------------------------
</TABLE>
*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 Portfolio and its
predecessor (registered investment company) since the predecessor 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.
SANDRA L. YEAGER has been responsible for the day-to-day management of the
Portfolio's and its predecessor's investment program since 1998. Ms. Yeager, a
Senior Vice President of Alliance, has been associated with Alliance since 1990.
-47-
<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 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:
-48-
<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 recent 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
NRSRO, it will be exposed to greater risk than if it invested in higher-rated
obligations because BBB-rated securities are regarded as
-49-
<PAGE>
having only an adequate capacity to pay principal and interest, are considered
to lack outstanding investment characteristics, and may be speculative.
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 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.
PORTFOLIO PERFORMANCE
The bar chart below illustrates the Portfolio's annual total returns for each of
the last three calendar years and some of the risks of investing in the
Portfolio by showing yearly changes in the Portfolio's performance. The table
below shows the Portfolio's average annual total returns for the past one year
and since inception and compares the Portfolio's performance to: (i) the returns
of a broad-based index and (ii) the returns of an index of funds with similar
investment objectives. Past performance is not an indication of future
performance.
The Portfolio's performance shown below is the performance of its predecessor
registered investment company (HRT/Alliance International Portfolio) managed by
the Adviser using the same investment objectives and strategy as the Portfolio.
For these purposes, the Portfolio is considered to be the successor entity to
the predecessor registered investment company (HRT/Alliance International
Portfolio) whose inception date was April 3, 1995. The assets of the predecessor
will be transferred to the Portfolio on October 1, 1999.
Both the bar chart and table assume reinvestment of dividends and distributions.
The performance results do not reflect any insurance and Contract-related fees
and expenses, which would reduce the performance results.
-50-
<PAGE>
CALENDAR YEAR ANNUAL TOTAL RETURN
1996 9.8%
1997 -2.98%
1998 10.6%
Best quarter (% and time period) Worst quarter (% and time period)
16.55% (1998 4th Quarter) -15.68% (1998 3rd Quarter)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
<S> <C> <C>
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%
- --------------------------------------------------------------------------------
</TABLE>
* 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 Portfolio and its
predecessor (registered investment company) since the predecessor 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.
SANDRA L. YEAGER has been responsible for the day-to-day management of the
Portfolio and its predecessor since January 1999. Ms. Yeager, a Senior Vice
President of Alliance, has been associated with Alliance since 1990.
-51-
<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 (e.g., change in management, new
products or changes in customer demand) 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 options for hedging
purposes. 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.
-52-
<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.
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.
PORTFOLIO PERFORMANCE
The bar chart below illustrates the Portfolio's annual total returns for each of
the last ten calendar years and some of the risks of investing in the Portfolio
by showing yearly changes in the Portfolio's performance. The table below shows
the Portfolio's average annual total returns for the past one, five and ten
years and compares the Portfolio's performance to: (i) the returns of a
broad-based index; (ii) the returns of a "blended" index of two broad-based
indices; and (iii) the returns of an index of funds with similar investment
objectives. Past performance is not an indication of future performance.
The Portfolio's performance shown below is the performance of its predecessor
registered investment company (HRT/Alliance Aggressive Stock Portfolio) managed
by the Adviser using the same investment objectives and strategy as the
Portfolio. For these purposes, the Portfolio is considered to be the successor
entity to the predecessor registered investment company (HRT/Alliance Aggressive
Stock Portfolio) whose inception date was January 27, 1986. The assets of the
predecessor will be transferred to the Portfolio on October 1, 1999.
Both the bar chart and table assume reinvestment of dividends and distributions.
The performance results do not reflect any insurance and Contract-related fees
and expenses, which would reduce the performance results.
-53-
<PAGE>
CALENDAR YEAR ANNUAL TOTAL RETURN
1989 43.5%
1990 8.2%
1991 86.9%
1992 -3.2%
1993 16.8%
1994 -3.8%
1995 31.6%
1996 22.2%
1997 10.9%
1998 0.3%
Best quarter (% and time period) Worst quarter (% and time period)
40.10% (1991 1st Quarter) -27.19% (1998 3rd Quarter)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR FIVE YEARS TEN YEARS
<S> <C> <C> <C>
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%
- --------------------------------------------------------------------------------
</TABLE>
*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 Portfolio and its
predecessor (registered investment company) since the predecessor 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.
-54-
<PAGE>
ALDEN M. STEWART AND RANDALL E. HAASE have been the persons principally
responsible for the day-to-day management of the Portfolio and its predecessor
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.
-55-
<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
(e.g., change in management, new products or changes in customer demand) 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.
-56-
<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.
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 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.
PORTFOLIO PERFORMANCE
The bar chart below illustrates the Portfolio's annual total returns for 1998,
the Portfolio's first full year of existence and some of the risks of investing
in the Portfolio by showing yearly changes in the Portfolio's performance. The
table below shows the Portfolio's average annual total returns for one year and
since inception and compares the Portfolio's performance to: (i) the returns of
a broad-based index and (ii) the returns of an index of funds with similar
investment objectives. Past performance is not an indication of future
performance.
The Portfolio's performance shown below is the performance of its predecessor
registered investment company (HRT/Alliance Small Cap Growth Portfolio) managed
by the Adviser using the same investment objectives and strategy as the
Portfolio. For these purposes, the Portfolio is considered to be the successor
entity to the predecessor registered investment company (HRT/Alliance Small Cap
Growth Portfolio) whose inception date was May 1, 1997. The assets of the
predecessor will be transferred to the Portfolio on October 1, 1999.
Both the bar chart and table assume reinvestment of dividends and distributions.
The performance results do not reflect any insurance and Contract-related fees
and expenses, which would reduce the performance results.
-57-
<PAGE>
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)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR SINCE
INCEPTION
<S> <C> <C>
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%
- --------------------------------------------------------------------------------
</TABLE>
* 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 Portfolio and its
predecessor (registered investment company) since the predecessor 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.
MARK J. CUNNEEN has been responsible for the day-to-day management of Portfolio
and its predecessor 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.
-58-
<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.
Alliance has established an asset allocation committee (the "Committee"), all
the members of which are employees of Alliance, which is responsible for setting
and continually reviewing the asset mix ranges of each Portfolio. Under normal
market conditions, the Committee is expected to change allocation ranges
approximately three to five times per year. However, the Committee has broad
latitude to establish the frequency, as well as the magnitude, of allocation
changes within the guidelines established for each Portfolio. During periods of
severe market disruption, allocation ranges may change frequently. It is also
possible that in periods of stable and consistent outlook no change will be
made. The Committee's decisions are based on a variety of factors, including
liquidity, portfolio size, tax consequences and general market conditions,
always within the context of the appropriate investor profile for each
Portfolio. Consequently, asset mix decisions for the Alliance Conservative
Investors Portfolio particularly emphasize risk assessment of each asset class
viewed over the shorter term, while decisions for the Alliance Growth Investors
Portfolio are principally based on the longer term total return potential for
each asset class.
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 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 may make loans of up to 50% of
its total portfolio securities. Each of the Portfolios in the Asset Allocation
Portfolios 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.
-59-
<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's investments in common stocks will primarily consist of 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.
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:
-60-
<PAGE>
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.
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.
FIXED INCOME RISKS: This Portfolio invests at least 25% of its total assets 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 NRSRO, 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 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. 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.
-61-
<PAGE>
PORTFOLIO PERFORMANCE
The bar chart below illustrates the Portfolio's annual total returns for each of
the last ten calendar years and some of the risks of investing in the Portfolio
by showing yearly changes in the Portfolio's performance. The table below shows
the Portfolio's average annual total returns for the past one, five and ten
years and compares the Portfolio's performance to: (i) the returns of a
broad-based index; (ii) the returns of a "blended" index of equity and fixed
income securities; and (iii) the returns of an index of funds with similar
investment objectives. Past performance is not an indication of future
performance.
The Portfolio's performance shown below is the performance of its predecessor
registered investment company (HRT/Alliance Balanced Portfolio) managed by the
Adviser using the same investment objectives and strategy as the Portfolio. For
these purposes, the Portfolio is considered to be the successor entity to the
predecessor registered investment company (HRT/Alliance Balanced Portfolio)
whose inception date was January 27, 1986. The assets of the predecessor will be
transferred to the Portfolio on October 1, 1999.
Both the bar chart and table assume reinvestment of dividends and distributions.
The performance results do not reflect any insurance and Contract-related fees
and expenses, which would reduce the performance results.
CALENDAR YEAR ANNUAL TOTAL RETURN
1989 25.8%
1990 0.3%
1991 41.3%
1992 -2.8%
1993 12.3%
1994 -8.0%
1995 19.8%
1996 11.70%
1997 15.1%
1998 18.1%
Best quarter (% and time period) Worst quarter (% and time period)
15.13% (1991 4th Quarter) -8.29% (1990 3rd Quarter)
-62-
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR FIVE YEARS TEN YEARS
<S> <C> <C> <C>
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%
- --------------------------------------------------------------------------------
</TABLE>
*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 Portfolio and its
predecessor (registered investment company) since the predecessor 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 and its predecessor since February 12, 1996. Mr. Heisterberg, a Senior
Vice President of Alliance and Global Economic Policy Analysis, has been
associated with Alliance since 1977.
-63-
<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, common stocks that are listed on national securities exchanges. The
Portfolio may also invest in stocks that are traded over-the-counter and in
other equity-type 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 of up to 50% of its total assets, and 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.
-64-
<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 NRSRO, 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. 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.
-65-
<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 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.
PORTFOLIO PERFORMANCE
The bar chart below illustrates the Portfolio's annual total returns for each of
the last nine calendar years and some of the risks of investing in the Portfolio
by showing yearly changes in the Portfolio's performance. The table below shows
the Portfolio's average annual total returns for the past one year, five years
and since inception and compares the Portfolio's performance to: (i) the returns
of a broad-based index; (ii) the returns of a "blended" index of fixed income
and equity securities; and (iii) the returns of an index of funds with similar
investment objectives. Past performance is not an indication of future
performance.
The Portfolio's performance shown below is the performance of its predecessor
registered investment company (HRT/Alliance Conservative Investors Portfolio)
managed by the Adviser using the same investment objectives and strategy as the
Portfolio. For these purposes, the Portfolio is considered to be the successor
entity to the predecessor registered investment company (HRT/Alliance
Conservative Investors Portfolio) whose inception date was October 2, 1989. The
assets of the predecessor will be transferred to the Portfolio on October 1,
1999.
Both the bar chart and table assume reinvestment of dividends and distributions.
The performance results do not reflect any insurance and Contract-related fees
and expenses, which would reduce the performance results.
CALENDAR YEAR ANNUAL TOTAL RETURN
1990 6.3%
1991 19.8%
1992 5.6%
1993 10.8%
1994 -4.1%
1995 20.4%
1996 5.2%
1997 13.3%
1998 13.9%
Best quarter (% and time period) Worst quarter (% and time period)
7.65% (1998 4th Quarter) -3.21% (1994 1st Quarter)
-66-
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR FIVE YEARS SINCE INCEPTION
<S> <C> <C> <C>
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%
- ------------------------------------------------------------------------------------
</TABLE>
*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 Portfolio and its
predecessor (registered investment company) since the predecessor 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 and its predecessor since February 12, 1996. Mr. Heisterberg, a Senior
Vice President of Alliance and Global Economic Policy Analysis, has been
associated with Alliance since 1977.
-67-
<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.
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 down.
When interest rates fall, the reverse is true.
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
-68-
<PAGE>
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.
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.
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. 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.
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.
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PORTFOLIO PERFORMANCE
The bar chart below illustrates the Portfolio's annual total returns for each of
the last nine calendar years and some of the risks of investing in the Portfolio
by showing yearly changes in the Portfolio's performance. The table below shows
the Portfolio's average annual total returns for the past one year, five years
and since inception and compares the Portfolio's performance to: (i) the returns
of a broad-based index; (ii) the returns of a "blended" index of equity and
fixed income securities; and (iii) the returns of an index of funds with similar
investment objectives. Past performance is not an indication of future
performance.
The Portfolio's performance shown below is the performance of its predecessor
registered investment company (HRT/Alliance Growth Investors Portfolio) managed
by the Adviser using the same investment objectives and strategy as the
Portfolio. For these purposes, the Portfolio is considered to be the successor
entity to the predecessor registered investment company (HRT/Alliance Growth
Investors Portfolio) whose inception date was October 2, 1989. The assets of the
predecessor will be transferred to the Portfolio on October 1, 1999.
Both the bar chart and table assume reinvestment of dividends and distributions.
The performance results do not reflect any insurance and Contract-related fees
and expenses, which would reduce the performance results.
CALENDAR YEAR ANNUAL TOTAL RETURN
1990 10.7%
1991 48.8%
1992 4.9%
1993 15.3%
1994 -3.2%
1995 26.4%
1996 12.6%
1997 16.9%
1998 19.1%
Best quarter (% and time period) Worst quarter (% and time period)
18.16% (1998 4th Quarter) -10.60% (1990 3rd Quarter)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
<S> <C> <C> <C>
ONE YEAR FIVE YEARS SINCE INCEPTION
- --------------------------------------------------------------------------------
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- --------------------------------------------------------------------------------
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
CORP.* 22.85% 19.96% 15.55%
S&P 500 INDEX* 28.58% 24.06% 17.62%
- --------------------------------------------------------------------------------
</TABLE>
*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 Portfolio and its
predecessor (registered investment company) since the predecessor 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 and its predecessor since February 12, 1996. Mr. Heisterberg, a Senior
Vice President of Alliance and Global Economic Policy Analysis, has been
associated with Alliance since 1977.
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.
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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
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. 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.
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<PAGE>
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. 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.
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.
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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 market 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 market 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
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<PAGE>
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.
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 is not actively managed (which
involves buying and selling of securities based upon economic, financial and
market analysis and investment judgment). Rather, the Alliance Equity Index
Portfolio utilizes proprietary modeling techniques to match the performance
results of the S&P 500 Index. The Portfolio will invest in the 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 borrows money or otherwise leverages 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.
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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: Although a money market fund is designed to be relatively low
risk investments, it is 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 that 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.
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.
SECURITIES LENDING RISK: For purposes of realizing additional income, each
Portfolio may lend securities 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.
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 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
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.
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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 forty (40) 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. ("EQFC"), 1290 Avenue of the Americas, New York,
New York 10104, currently serves as the Manager of the Trust. The Board of
Trustees of the Trust have approved a transfer to Equitable of the Trust's
Investment Management Agreement with EQFC. This transfer is expected to be
completed in September 1999. Upon completion of the transfer, Equitable will
serve as the Manager of the Trust. However, until completion of the transfer,
EQFC will continue to serve in that capacity. Equitable, 1290 Avenue of the
Americas, New York, New York 10104, is the indirect corporate parent of EQFC.
Both EQFC and Equitable are investment advisers registered under the Investment
Advisers Act of 1940, as amended, and EQFC is registered as a broker-dealer
registered under the Securities Exchange Act of 1934, as amended.
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 has filed an application ("Substitution Application") requesting
that the SEC approve the substitution of Class IA and Class IB shares of these
new Portfolios of the Trust for the same class of shares of corresponding
portfolios of The Hudson River Trust ("HRT"). Alliance Capital Management L.P.
("Alliance") will serve as Adviser for each of these new Portfolios. The
Substitution Application states that, with respect to these new Portfolios
advised by Alliance, the Manager will not use the powers granted to it under the
Multi-Manager Order (i) to terminate Alliance and select a new Adviser for those
Portfolios or (ii) to materially modify the Investment Advisory Agreement
between the Manager and Alliance without first obtaining shareholder approval to
utilize the powers granted under the Multi-Manager Order or the approval of
shareholders to materially modify the Investment Advisory Agreement.
The Portfolios will commence operations on October 1, 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.
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ANNUAL RATE OF MANAGEMENT FEES
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PORTFOLIOS ANNUAL RATE
- --------------------------------------------------------------------------------
Alliance Aggressive Stock 0.54%
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Alliance Balanced 0.41%
- --------------------------------------------------------------------------------
Alliance Common Stock 0.36%
- --------------------------------------------------------------------------------
Alliance Conservative Investors 0.48%
- --------------------------------------------------------------------------------
Alliance Equity Index 0.31%
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Alliance Global 0.64%
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Alliance Growth And Income 0.55%
- --------------------------------------------------------------------------------
Alliance Growth Investors 0.51%
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Alliance High Yield 0.60%
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Alliance Intermediate Government Securities 0.50%
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Alliance International 0.90%
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Alliance Money Market 0.35%
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Alliance Quality Bond 0.53%
- --------------------------------------------------------------------------------
Alliance Small Cap Growth 0.90%
- --------------------------------------------------------------------------------
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, the Multi-Manager Order, from the
SEC that permits the Manager, subject to 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.
The Manager and certain non-affiliated insurance companies (collectively
"Applicants") have filed a Substitution Application with the SEC. Applicants
have included, as a term of the Substitution Application, that with respect to
those Portfolios for which Alliance serves as Adviser (other than EQ/Alliance
Premier Growth Portfolio, which will not be substituted for a portfolio of HRT),
the Manager will not: (i) terminate Alliance and select a new Adviser for those
Portfolios or (ii) materially modify the existing investment advisory without
first either obtaining approval of shareholders for such actions or obtaining
approval of shareholders to utilize the Multi-Manager Order.
The Manager pays each Adviser a fee based on the Portfolio's average daily net
assets. No Portfolio is responsible for the fees paid to each of the Advisers.
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
-79-
<PAGE>
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, based upon advice of counsel, 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. EQ Financial Consultants, Inc. ("EQFC") 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. ("EDI") 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. EQFC and
EDI are affiliates of Equitable. Both EQFC and EDI are registered as
broker-dealers under the Securities Exchange Act of 1934 and are members of the
National Association of Securities dealers, Inc.
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.
-80-
<PAGE>
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.
Portfolios that invest a significant portion of their assets in foreign
securities, may experience changes in their net asset value on days when a
shareholder may not purchase or redeem shares of that Portfolio because foreign
securities (other than ADRs) are valued at the close of business in the
applicable foreign country.
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 Receipts
or similar form, in the United States are valued at representative quoted
prices in the currency in the country of origin. Foreign currency is
converted into United States dollar equivalents at current exchange rates.
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.
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.
-81-
<PAGE>
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.
FINANCIAL HIGHLIGHTS
The financial highlights table below is intended to help you understand the
financial performance for fourteen (14) of the Portfolios that are advised by
Alliance (other than the EQ/Alliance Premier Growth Portfolio) for the past five
(5) years (or, if shorter, the period of the Portfolio's operations). The
financial information relating to both the Class IA shares and the Class IB
shares for those fourteen (14) Portfolios has been derived from the audited
financial statements of HRT for the year ended December 31, 1998. The Class IA
shares and the Class IB shares of each HRT Portfolio listed below will be
substituted for Class IA and Class IB shares of the corresponding Portfolio of
the Trust and the assets and liabilities of the respective HRT Portfolio will be
transferred to its corresponding Portfolio of the Trust on or about October 1,
1999. These financial statements have been audited by PricewaterhouseCoopers
LLP, independent accountants. PricewaterhouseCoopers LLP's report on HRT's
financial statements as of December 31, 1998 appears in HRT's Annual Report. The
information should be read in conjunction with the financial statements
contained in HRT's Annual Report which are incorporated by reference into the
Trust's Statement of Additional Information (SAI) and available upon request.
-82-
<PAGE>
- -------
152
THE HUDSON RIVER TRUST
FINANCIAL HIGHLIGHTS
DECEMBER 31, 1998
SELECTED DATA FOR A PORTFOLIO SHARE OUTSTANDING THROUGHOUT EACH PERIOD(A)
- --------------------------------------------------------------------------------
The financial highlights table below is intended to help you understand the
financial performance for fourteen (14) of the Portfolios that are advised by
Alliance (other than the EQ/Alliance Premier Growth Portfolio) for the past five
(5) years (or, if shorter, the period of the Portfolio's operations). The
financial information relating to both the Class A shares and the Class IB
shares for those fourteen (14) Portfolios has been derived from the audited
financial statements of HRT for the year ended December 31, 1998. The Class IA
shares and the Class IB shares of each HRT Portfolio listed below will be
substituted for Class IA and Class IB shares of the corresponding Portfolio of
the Trust and the assets and liabilities of the respective HRT Portfolio will be
transferred to its corresponding Portfolio of the Trust on or about October 1,
1999. These financial statements have been audited by PricewaterhouseCoopers
LLP, independent accountants. PricewaterhouseCoopers LLP's report on HRT's
financial statements as of December 31, 1998 appears in HRT's Annual Report. The
information should be read in conjunction with the financial statements
contained in HRT's Annual Report which are incorporated by reference into the
Trust's Statement of Additional Information (SAI) and available upon request.
ALLIANCE AGGRESSIVE STOCK PORTFOLIO:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
CLASS IA
---------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------
1998 1997 1996 1995 1994
-------------- -------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period (b) .................................... $ 36.22 $ 35.85 $ 35.68 $ 30.63 $ 31.89
--------- --------- --------- --------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ......................... 0.09 0.04 0.09 0.10 0.04
Net realized and unrealized gain (loss) on
investments .................................. (0.28) 3.71 7.52 9.54 (1.26)
--------- --------- --------- --------- --------
Total from investment operations .............. (0.19) 3.75 7.61 9.64 (1.22)
--------- --------- --------- --------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income .......... (0.16) (0.05) (0.09) (0.10) (0.04)
Dividends in excess of net investment
income ....................................... - - (0.00) - -
Distributions from realized gains ............. (1.72) (3.33) (7.33) (4.49) -
Distributions in excess of realized gains ..... - - (0.02) - -
Tax return of capital distributions ........... - - - - (0.00)
--------- --------- --------- --------- --------
Total dividends and distributions ............. (1.88) (3.38) (7.44) (4.59) (0.04)
--------- --------- --------- --------- --------
Net asset value, end of period .................. $ 34.15 $ 36.22 $ 35.85 $ 35.68 $ 30.63
========= ========= ========= ========= =========
Total return (c) ................................ 0.29% 10.94% 22.20% 31.63% (3.81)%
========= ========= ========= ========= =========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) ............... $4,346,907 $4,589,771 $3,865,256 $2,700,515 $1,832,164
Ratio of expenses to average net assets ......... 0.56% 0.54% 0.48% 0.49% 0.49%
Ratio of net investment income (loss) to
average net assets ............................ 0.24% 0.11% 0.24% 0.28% 0.12%
Portfolio turnover rate ......................... 105% 123% 108% 127% 92%
<CAPTION>
CLASS IB
-------------------------------------------
YEAR ENDED OCTOBER 2,
DECEMBER 31, 1996 TO
------------------------ DECEMBER 31,
1998 1997 1996
------------ ----------- ------------------
<S> <C> <C> <C>
Net asset value, beginning of
period (b) .................................... $ 36.13 $ 35.83 $ 37.28
------- ------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ......................... 0.01 (0.11) (0.01)
Net realized and unrealized gain (loss) on
investments .................................. (0.29) 3.77 0.85
------- ------- ----------
Total from investment operations .............. (0.28) 3.66 0.84
-------- ------- ----------
LESS DISTRIBUTIONS:
Dividends from net investment income .......... (0.12) (0.03) -
Dividends in excess of net investment
income ....................................... - - (0.02)
Distributions from realized gains ............. (1.72) (3.33) (0.23)
Distributions in excess of realized gains ..... - - (2.04)
Tax return of capital distributions ........... - - -
------- ------- ----------
Total dividends and distributions ............. (1.84) (3.36) (2.29)
------- ------- ----------
Net asset value, end of period .................. $ 34.01 $ 36.13 $ 35.83
======= ======= ==========
Total return (c) ................................ 0.05% 10.66% 2.32%
======= ======= ==========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) ............... $153,782 $73,486 $ 613
Ratio of expenses to average net assets ......... 0.82% 0.81% 0.73%(d)
Ratio of net investment income (loss) to
average net assets ............................ 0.02% (0.28)% (0.10)%(d)
Portfolio turnover rate ......................... 105% 123% 108%
</TABLE>
<PAGE>
- -------
153
- --------------------------------------------------------------------------------
ALLIANCE BALANCED PORTFOLIO:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
CLASS IA
---------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------
1998 1997 1996 1995 1994
-------------- -------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period (b) .................................... $ 17.58 $ 16.64 $ 16.76 $ 14.87 $ 16.67
--------- --------- --------- --------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ......................... 0.56 0.58 0.53 0.54 0.45
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions ................................. 2.54 1.86 1.31 2.36 (1.78)
--------- --------- --------- --------- --------
Total from investment operations .............. 3.10 2.44 1.84 2.90 (1.33)
--------- --------- --------- --------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income .......... (0.50) (0.59) (0.53) (0.54) (0.44)
Dividends in excess of net investment
income ....................................... - - - - (0.03)
Distributions from realized gains ............. (1.67) (0.91) (1.40) (0.47) -
Distributions in excess of realized gains ..... - - (0.03) - -
Tax return of capital distributions ........... - - - - (0.00)
--------- --------- --------- --------- --------
Total dividends and distributions ............. (2.17) (1.50) (1.96) (1.01) (0.47)
--------- --------- --------- --------- --------
Net asset value, end of period .................. $ 18.51 $ 17.58 $ 16.64 $ 16.76 $ 14.87
========= ========= ========= ========= =========
Total return (c) ................................ 18.11% 15.06% 11.68% 19.75% (8.02)%
========= ========= ========= ========= =========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) ............... $1,936,429 $1,724,089 $1,637,856 $1,523,142 $1,329,820
Ratio of expenses to average net assets ......... 0.45% 0.45% 0.41% 0.40% 0.39%
Ratio of net investment income to average
net assets .................................... 3.00% 3.30% 3.15% 3.33% 2.87%
Portfolio turnover rate ......................... 95% 146% 177% 186% 115%
<CAPTION>
CLASS IB
---------------
JULY 8, 1998
TO
DECEMBER 31,
1998
---------------
<S> <C>
Net asset value, beginning of
period (b) .................................... $ 19.48
---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ......................... 0.24
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions ................................. 0.66
---------
Total from investment operations .............. 0.90
---------
LESS DISTRIBUTIONS:
Dividends from net investment income .......... (0.20)
Dividends in excess of net investment
income ....................................... -
Distributions from realized gains ............. (1.67)
Distributions in excess of realized gains ..... -
Tax return of capital distributions ........... -
---------
Total dividends and distributions ............. (1.87)
---------
Net asset value, end of period .................. $ 18.51
=========
Total return (c) ................................ 4.92%
=========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) ............... $ 10
Ratio of expenses to average net assets ......... 0.70%(d)
Ratio of net investment income to average
net assets .................................... 2.65%(d)
Portfolio turnover rate ......................... 95%
</TABLE>
------------------------ EQ Advisors Trust
<PAGE>
- -------
154
- --------------------------------------------------------------------------------
ALLIANCE COMMON STOCK PORTFOLIO:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
CLASS IA
----------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
1998 1997 1996 1995 1994
--------------- -------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period (b) .................................... $ 21.61 $ 18.23 $ 16.48 $ 13.36 $ 14.65
---------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ......................... 0.18 0.14 0.15 0.20 0.20
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions ................................. 5.99 5.12 3.73 4.12 (0.51)
---------- --------- --------- --------- ---------
Total from investment operations .............. 6.17 5.26 3.88 4.32 (0.31)
---------- --------- --------- --------- ---------
LESS DISTRIBUTIONS:
Dividends from net investment income .......... (0.15) (0.11) (0.15) (0.20) (0.19)
Dividends in excess of net investment
income ....................................... - - - (0.02) (0.01)
Distributions from realized gains ............. (3.28) (1.77) (1.76) (0.95) (0.77)
Distributions in excess of realized gains ..... - - (0.22) (0.03) -
Tax return of capital distributions ........... - - - - (0.01)
---------- --------- --------- --------- ---------
Total dividends and distributions ............. (3.43) (1.88) (2.13) (1.20) (0.98)
---------- --------- --------- --------- ---------
Net asset value, end of period .................. $ 24.35 $ 21.61 $ 18.23 $ 16.48 $ 13.36
========== ========= ========= ========= =========
Total return (c) ................................ 29.39% 29.40% 24.28% 32.45% (2.14)%
========== ========= ========= ========= =========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) ............... $12,061,977 $9,331,994 $6,625,390 $4,879,677 $3,466,245
Ratio of expenses to average net assets ......... 0.39% 0.39% 0.38% 0.38% 0.38%
Ratio of net investment income to average
net assets .................................... 0.75% 0.69% 0.85% 1.27% 1.40%
Portfolio turnover rate ......................... 46% 52% 55% 61% 52%
<CAPTION>
CLASS IB
------------------------------------------
YEAR ENDED OCTOBER 2,
DECEMBER 31, 1996 TO
------------------------- DECEMBER 31,
1998 1997 1996
------------ ------------ ----------------
<S> <C> <C> <C>
Net asset value, beginning of
period (b) .................................... $ 21.58 $ 18.22 $ 17.90
------- ------- ---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ......................... 0.10 0.10 0.02
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions ................................. 6.00 5.11 1.52
------- ------- ---------
Total from investment operations .............. 6.10 5.21 1.54
------- ------- ---------
LESS DISTRIBUTIONS:
Dividends from net investment income .......... (0.10) (0.08) (0.00)
Dividends in excess of net investment
income ....................................... - - (0.03)
Distributions from realized gains ............. (3.28) (1.77) (0.16)
Distributions in excess of realized gains ..... - - (1.03)
Tax return of capital distributions ........... - - -
------- ------- ---------
Total dividends and distributions ............. (3.38) (1.85) (1.22)
------- ------- ---------
Net asset value, end of period .................. $ 24.30 $ 21.58 $ 18.22
======= ======= =========
Total return (c) ................................ 29.06% 29.07% 8.49%
======= ======= =========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) ............... $834,144 $228,780 $ 1,244
Ratio of expenses to average net assets ......... 0.64% 0.64% 0.63%(d)
Ratio of net investment income to average
net assets .................................... 0.44% 0.46% 0.61%(d)
Portfolio turnover rate ......................... 46% 52% 55%
</TABLE>
<PAGE>
- -------
155
- --------------------------------------------------------------------------------
ALLIANCE CONSERVATIVE INVESTORS PORTFOLIO:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
CLASS IA
-----------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period (b) .................................... $ 11.89 $ 11.29 $ 11.52 $ 10.15 $ 11.12
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ......................... 0.49 0.49 0.50 0.60 0.55
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions ................................. 1.12 0.97 0.07 1.43 (1.00)
------- ------- ------- ------- -------
Total from investment operations .............. 1.61 1.46 0.57 2.03 (0.45)
------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income .......... (0.48) (0.49) (0.51) (0.59) (0.52)
Distributions from realized gains ............. (0.70) (0.37) (0.27) (0.07) -
Distributions in excess of realized gains ..... - - (0.02) - -
------- ------- ------- ------- -------
Total dividends and distributions ............. (1.18) (0.86) (0.80) (0.66) (0.52)
------- ------- ------- ------- -------
Net asset value, end of period .................. $ 12.32 $ 11.89 $ 11.29 $ 11.52 $ 10.15
======= ======= ======= ======= =======
Total return (c) ................................ 13.88% 13.25% 5.21% 20.40% (4.10)%
======= ======= ======= ======= =======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) ............... $355,441 $307,847 $282,402 $252,101 $173,691
Ratio of expenses to average net assets ......... 0.53% 0.57% 0.61% 0.59% 0.59%
Ratio of net investment income to average
net assets .................................... 3.99% 4.17% 4.48% 5.48% 5.22%
Portfolio turnover rate ......................... 103% 206% 181% 287% 228%
<CAPTION>
CLASS IB
-------------------------------
YEAR MAY 1,
ENDED 1997 TO
DECEMBER 31, DECEMBER 31,
1998 1997
-------------- ----------------
<S> <C> <C>
Net asset value, beginning of
period (b) .................................... $ 11.88 $ 11.29
------- ---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ......................... 0.46 0.31
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions ................................. 1.12 1.01
------- ---------
Total from investment operations .............. 1.58 1.32
------- ---------
LESS DISTRIBUTIONS:
Dividends from net investment income .......... (0.45) (0.36)
Distributions from realized gains ............. (0.70) (0.37)
Distributions in excess of realized gains ..... - -
------- ---------
Total dividends and distributions ............. (1.15) (0.73)
------- ---------
Net asset value, end of period .................. $ 12.31 $ 11.88
======= =========
Total return (c) ................................ 13.60% 11.84%
======= =========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) ............... $32,653 $ 5,694
Ratio of expenses to average net assets ......... 0.78% 0.80%(d)
Ratio of net investment income to average
net assets .................................... 3.68% 3.82%(d)
Portfolio turnover rate ......................... 103% 206%
</TABLE>
------------------------ EQ Advisors Trust
<PAGE>
- -------
156
- --------------------------------------------------------------------------------
ALLIANCE EQUITY INDEX PORTFOLIO:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
CLASS IA
-----------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1998 1997 1996 1995
-------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net asset value, beginning of
period (b) .................................... $ 19.74 $ 15.16 $ 13.13 $ 9.87
--------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ......................... 0.27 0.26 0.27 0.26
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions ................................. 5.25 4.64 2.65 3.32
--------- ------- ------- -------
Total from investment operations .............. 5.52 4.90 2.92 3.58
--------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income .......... (0.25) (0.25) (0.25) (0.22)
Distributions from realized gains ............. (0.01) (0.07) (0.64) (0.09)
Distributions in excess of realized gains ..... - - - (0.01)
--------- ------- ------- -------
Total dividends and distributions ............. (0.26) (0.32) (0.89) (0.32)
--------- ------- ------- -------
Net asset value, end of period .................. $ 25.00 $ 19.74 $ 15.16 $ 13.13
========= ======= ======= =======
Total return (c) ................................ 28.07% 32.58% 22.39% 36.48%
========= ======= ======= =======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) ............... $1,689,913 $943,631 $386,249 $165,785
Ratio of expenses to average net assets ......... 0.34% 0.37% 0.39% 0.48%
Ratio of net investment income to average
net assets .................................... 1.23% 1.46% 1.91% 2.16%
Portfolio turnover rate ......................... 6% 3% 15% 9%
<CAPTION>
CLASS IA CLASS IB
------------------- ---------------------------------
YEAR
MARCH 1, 1994 ENDED MAY 1, 1997
TO DECEMBER 31, TO
DECEMBER 31, 1994 1998 DECEMBER 31, 1997
------------------- -------------- ------------------
<S> <C> <C> <C>
Net asset value, beginning of
period (b) .................................... $ 10.00 $ 19.73 $ 16.35
--------- ------- ---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ......................... 0.20 0.22 0.14
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions ................................. (0.09) 5.24 3.48
--------- ------- ---------
Total from investment operations .............. 0.11 5.46 3.62
--------- ------- ---------
LESS DISTRIBUTIONS:
Dividends from net investment income .......... (0.20) (0.20) (0.17)
Distributions from realized gains ............. (0.03) (0.01) (0.07)
Distributions in excess of realized gains ..... (0.01) - -
--------- ------- ---------
Total dividends and distributions ............. (0.24) (0.21) (0.24)
--------- ------- ---------
Net asset value, end of period .................. $ 9.87 $ 24.98 $ 19.73
========= ======= =========
Total return (c) ................................ 1.08% 27.74% 22.28%
========= ======= =========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) ............... $ 36,748 $ 443 $ 110
Ratio of expenses to average net assets ......... 0.49%(d) 0.59% 0.62%(d)
Ratio of net investment income to average
net assets .................................... 2.42%(d) 0.98% 1.10%(d)
Portfolio turnover rate ......................... 7% 6% 3%
</TABLE>
<PAGE>
- -------
157
- --------------------------------------------------------------------------------
ALLIANCE GLOBAL PORTFOLIO:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
CLASS IA
--------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
1998 1997 1996 1995 1994
-------------- -------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period (b) .................................... $ 17.29 $ 16.92 $ 15.74 $ 13.87 $ 13.62
--------- --------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ......................... 0.14 0.17 0.21 0.26 0.20
Net realized and unrealized gain on
investments and foreign currency
transactions ................................. 3.56 1.75 2.05 2.32 0.52
--------- --------- ------- ------- -------
Total from investment operations .............. 3.70 1.92 2.26 2.58 0.72
--------- --------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income .......... (0.22) (0.36) (0.21) (0.25) (0.17)
Dividends in excess of net investment
income ....................................... - - (0.08) - -
Distributions from realized gains ............. (1.31) (1.19) (0.79) (0.42) (0.28)
Distributions in excess of realized gains ..... - - - (0.03) (0.00)
Tax return of capital distributions ........... - - (0.00) (0.01) (0.02)
--------- --------- ------- ------- -------
Total dividends and distributions ............. (1.53) (1.55) (1.08) (0.71) (0.47)
--------- --------- ------- ------- -------
Net asset value, end of period .................. $ 19.46 $ 17.29 $ 16.92 $ 15.74 $ 13.87
========= ========= ======= ======= =======
Total return (c) ................................ 21.80% 11.66% 14.60% 18.81% 5.23%
========= ========= ======= ======= =======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) ............... $1,360,220 $1,203,867 $997,041 $686,140 $421,698
Ratio of expenses to average net assets ......... 0.71% 0.69% 0.60% 0.61% 0.69%
Ratio of net investment income to average
net assets .................................... 0.72% 0.97% 1.28% 1.76% 1.41%
Portfolio turnover rate ......................... 105% 57% 59% 67% 71%
<CAPTION>
CLASS IB
----------------------------------------
YEAR ENDED OCTOBER 2,
DECEMBER 31, 1996 TO
----------------------- DECEMBER 31,
1998 1997 1996
----------- ----------- ----------------
<S> <C> <C> <C>
Net asset value, beginning of
period (b) .................................... $ 17.27 $ 16.91 $ 16.57
------- ------- ---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ......................... 0.08 0.12 0.02
Net realized and unrealized gain on
investments and foreign currency
transactions ................................. 3.56 1.76 0.81
------- ------- ---------
Total from investment operations .............. 3.64 1.88 0.83
------- ------- ---------
LESS DISTRIBUTIONS:
Dividends from net investment income .......... (0.19) (0.33) -
Dividends in excess of net investment
income ....................................... - - (0.11)
Distributions from realized gains ............. (1.31) (1.19) (0.10)
Distributions in excess of realized gains ..... - - (0.28)
Tax return of capital distributions ........... - - (0.00)
------- ------- ---------
Total dividends and distributions ............. (1.50) (1.52) (0.49)
------- ------- ---------
Net asset value, end of period .................. $ 19.41 $ 17.27 $ 16.91
======= ======= =========
Total return (c) ................................ 21.50% 11.38% 4.98%
======= ======= =========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) ............... $47,982 $21,520 $ 290
Ratio of expenses to average net assets ......... 0.96% 0.97% 0.86%(d)
Ratio of net investment income to average
net assets .................................... 0.41% 0.67% 0.48%(d)
Portfolio turnover rate ......................... 105% 57% 59%
</TABLE>
------------------------ EQ Advisors Trust
<PAGE>
- -------
158
- --------------------------------------------------------------------------------
ALLIANCE GROWTH AND INCOME PORTFOLIO:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
CLASS IA
---------------------------------------------------------------
YEAR ENDED DECEMBER 31,
1998 1997 1996 1995 1994
------------ ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period (b) ................................... $ 15.38 $ 13.01 $ 11.70 $ 9.70 $ 9.95
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ........................ 0.06 0.15 0.24 0.33 0.31
Net realized and unrealized gain (loss) on
investments ................................. 3.08 3.30 2.05 1.97 (0.36)
------- ------- ------- ------- -------
Total from investment operations ............. 3.14 3.45 2.29 2.30 (0.05)
------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income ......... (0.05) (0.15) (0.23) (0.30) (0.20)
Distributions from realized gains ............ (1.48) (0.93) (0.75) - -
------- ------- ------- ------- -------
Total dividends and distributions ............ (1.53) (1.08) (0.98) (0.30) (0.20)
------- ------- ------- ------- -------
Net asset value, end of period ................. $ 16.99 $ 15.38 $ 13.01 $ 11.70 $ 9.70
======= ======= ======= ======= ======
Total return (c) ............................... 20.86% 26.90% 20.09% 24.07% (0.58)%
======= ======= ======= ======= ======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) .............. $877,744 $555,059 $232,080 $98,053 $31,522
Ratio of expenses to average net assets ........ 0.58% 0.58% 0.58% 0.60% 0.78%
Ratio of net investment income to average
net assets ................................... 0.38% 0.99% 1.94% 3.11% 3.13%
Portfolio turnover rate ........................ 74% 79% 88% 65% 52%
<CAPTION>
CLASS IB
-------------------------------
YEAR MAY 1, 1997
ENDED TO
DECEMBER 31, DECEMBER 31,
1998 1997
-------------- ----------------
<S> <C> <C>
Net asset value, beginning of
period (b) ................................... $ 15.36 $ 13.42
------- ---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ........................ 0.03 0.05
Net realized and unrealized gain (loss) on
investments ................................. 3.07 2.91
------- ---------
Total from investment operations ............. 3.10 2.96
------- ---------
LESS DISTRIBUTIONS:
Dividends from net investment income ......... (0.03) (0.09)
Distributions from realized gains ............ (1.48) (0.93)
------- ---------
Total dividends and distributions ............ (1.51) (1.02)
------- ---------
Net asset value, end of period ................. $ 16.95 $ 15.36
======= =========
Total return (c) ............................... 20.56% 22.41%
======= =========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) .............. $120,558 $ 32,697
Ratio of expenses to average net assets ........ 0.83% 0.83%(d)
Ratio of net investment income to average
net assets ................................... 0.17% 0.43%(d)
Portfolio turnover rate ........................ 74% 79%
</TABLE>
<PAGE>
- -------
159
- --------------------------------------------------------------------------------
ALLIANCE GROWTH INVESTORS PORTFOLIO:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
CLASS IA
-----------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------
1998 1997 1996 1995 1994
-------------- -------------- -------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period (b) .................................... $ 18.55 $ 17.20 $ 17.68 $ 14.66 $ 15.61
--------- --------- --------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ......................... 0.41 0.41 0.40 0.57 0.50
Net realized and unrealized gain (loss) on
on investments and foreign currency
transactions ................................. 3.03 2.43 1.66 3.24 (0.98)
--------- --------- --------- ------- -------
Total from investment operations .............. 3.44 2.84 2.06 3.81 (0.48)
--------- --------- --------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income .......... (0.41) (0.46) (0.40) (0.54) (0.46)
Dividends in excess of net investment
income ....................................... - - (0.03) (0.01) (0.01)
Distributions from realized gains ............. (1.71) (1.03) (2.10) (0.24) -
Distributions in excess of realized gains ..... - - (0.01) - -
--------- --------- --------- ------- -------
Total dividends and distributions ............. (2.12) (1.49) (2.54) (0.79) (0.47)
--------- --------- --------- ------- -------
Net asset value, end of period .................. $ 19.87 $ 18.55 $ 17.20 $ 17.68 $ 14.66
========= ========= ========= ======= =======
Total return (c) ................................ 19.13% 16.87% 12.61% 26.37% (3.15)%
========= ========= ========= ======= =======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) ............... $1,963,074 $1,630,389 $1,301,643 $896,134 $492,478
Ratio of expenses to average net assets ......... 0.55% 0.57% 0.57% 0.56% 0.59%
Ratio of net investment income to average
net assets .................................... 2.10% 2.18% 2.31% 3.43% 3.32%
Portfolio turnover rate ......................... 102% 121% 190% 107% 131%
<CAPTION>
CLASS IB
------------------------------------------
YEAR ENDED OCTOBER 2,
DECEMBER 31, 1996 TO
----------------------- DECEMBER 31,
1998 1997 1996
----------- ----------- ------------------
<S> <C> <C> <C>
Net asset value, beginning of
period (b) .................................... $ 18.52 $ 17.19 $ 16.78
------- ------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ......................... 0.36 0.36 0.07
Net realized and unrealized gain (loss) on
on investments and foreign currency
transactions ................................. 3.03 2.43 0.71
------- ------- ----------
Total from investment operations .............. 3.39 2.79 0.78
------- ------- ----------
LESS DISTRIBUTIONS:
Dividends from net investment income .......... (0.36) (0.43) (0.02)
Dividends in excess of net investment
income ....................................... - - (0.09)
Distributions from realized gains ............. (1.71) (1.03) (0.02)
Distributions in excess of realized gains ..... - - (0.24)
------- ------- ----------
Total dividends and distributions ............. (2.07) (1.46) (0.37)
------- ------- ----------
Net asset value, end of period .................. $ 19.84 $ 18.52 $ 17.19
======= ======= ==========
Total return (c) ................................ 18.83% 16.58% 4.64%
======= ======= ==========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) ............... $92,027 $35,730 $ 472
Ratio of expenses to average net assets ......... 0.80% 0.82% 0.84% (d)
Ratio of net investment income to average
net assets .................................... 1.85% 1.88% 1.69% (d)
Portfolio turnover rate ......................... 102% 121% 190%
</TABLE>
------------------------ EQ Advisors Trust
<PAGE>
- -------
160
- --------------------------------------------------------------------------------
ALLIANCE HIGH YIELD PORTFOLIO:
<TABLE>
<CAPTION>
CLASS IA
----------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1998 1997 1996 1995 1994
------------- ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period (b) ........ $ 10.41 $ 10.02 $ 9.64 $ 8.91 $ 10.08
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ......................... 1.07 1.04 1.02 0.98 0.89
Net realized and unrealized gain (loss) on
investments .................................. (1.56) 0.75 1.07 0.73 (1.17)
------- ------- ------- ------- -------
Total from investment operations .............. (0.49) 1.79 2.09 1.71 (0.28)
------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income .......... (1.03) (0.97) (0.98) (0.94) (0.88)
Dividends in excess of net investment
income ....................................... - - (0.03) (0.04) (0.01)
Distributions from realized gains ............. (0.18) (0.43) (0.70) - -
Distributions in excess of realized gains ..... - - - - -
------- -------- -------- -------- -------
Total dividends and distributions ............. (1.21) (1.40) (1.71) (0.98) (0.89)
------- -------- -------- -------- -------
Net asset value, end of period .................. $ 8.71 $ 10.41 $ 10.02 $ 9.64 $ 8.91
======= ======= ======= ======= =======
Total return (c) ................................ (5.15)% 18.48% 22.89% 19.92% (2.79)%
======= ======= ======= ======= =======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) ............... $405,308 $355,473 $199,360 $118,129 $73,895
Ratio of expenses to average net assets ......... 0.63% 0.62% 0.59% 0.60% 0.61%
Ratio of net investment income to average
net assets .................................... 10.67% 9.82% 9.93% 10.34% 9.23%
Portfolio turnover rate ......................... 181% 390% 485% 350% 248%
<CAPTION>
CLASS IB
------------------------------------------
YEAR ENDED OCTOBER 2,
DECEMBER 31, 1996 TO
------------------------- DECEMBER 31,
1998 1997 1996
------------- ----------- ----------------
<S> <C> <C> <C>
Net asset value, beginning of period (b) ........ $ 10.39 $ 10.01 $ 10.25
------- ------- ---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ......................... 1.04 1.05 0.19
Net realized and unrealized gain (loss) on
investments .................................. (1.56) 0.71 0.15
------- ------- ---------
Total from investment operations .............. (0.52) 1.76 0.34
------- ------- ---------
LESS DISTRIBUTIONS:
Dividends from net investment income .......... (1.00) (0.95) (0.03)
Dividends in excess of net investment
income ....................................... - - (0.25)
Distributions from realized gains ............. (0.18) (0.43) (0.01)
Distributions in excess of realized gains ..... - - (0.29)
------- ------- ---------
Total dividends and distributions ............. (1.18) (1.38) (0.58)
------- ------- ---------
Net asset value, end of period .................. $ 8.69 $ 10.39 $ 10.01
======= ======= =========
Total return (c) ................................ (5.38)% 18.19% 3.32%
======= ======= =========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) ............... $207,042 $66,338 $ 685
Ratio of expenses to average net assets ......... 0.88% 0.88% 0.82%(d)
Ratio of net investment income to average
net assets .................................... 10.60% 9.76% 8.71%(d)
Portfolio turnover rate ......................... 181% 390% 485%
</TABLE>
<PAGE>
- -----
161
- --------------------------------------------------------------------------------
ALLIANCE INTERMEDIATE GOVERNMENT SECURITIES PORTFOLIO(E):
<TABLE>
<CAPTION>
CLASS IA
-------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
1998 1997 1996 1995 1994
------------ ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period (b) ................................... $ 9.44 $ 9.29 $ 9.47 $ 8.87 $ 10.08
------- ------- ------ ------ -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ........................ 0.50 0.53 0.54 0.58 0.65
Net realized and unrealized gain (loss) on
investments ................................. 0.21 0.13 (0.19) 0.57 (1.08)
------- ------- ------- ------ -------
Total from investment operations ............. 0.71 0.66 0.35 1.15 (0.43)
------- ------- ------- ------ -------
LESS DISTRIBUTIONS:
Dividends from net investment income ......... (0.48) (0.51) (0.53) (0.55) (0.78)
-------- -------- ------- ------- -------
Net asset value, end of period ................. $ 9.67 $ 9.44 $ 9.29 $ 9.47 $ 8.87
======= ======= ====== ====== =======
Total return (c) ............................... 7.74% 7.29% 3.78% 13.33% (4.37)%
======= ======= ====== ====== =======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) .............. $153,383 $115,114 $88,384 $71,780 $48,518
Ratio of expenses to average net assets ........ 0.55% 0.55% 0.56% 0.57% 0.56%
Ratio of net investment income to average
net assets ................................... 5.21% 5.61% 5.73% 6.15% 6.75%
Portfolio turnover rate ........................ 539% 285% 318% 255% 133%
<CAPTION>
CLASS IB
-------------------------------
YEAR MAY 1, 1997
ENDED TO
DECEMBER 31, DECEMBER 31,
1998 1997
-------------- ----------------
<S> <C> <C>
Net asset value, beginning of
period (b) ................................... $ 9.43 $ 9.27
------ ---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ........................ 0.47 0.32
Net realized and unrealized gain (loss) on
investments ................................. 0.22 0.22
------ ---------
Total from investment operations ............. 0.69 0.54
------ ---------
LESS DISTRIBUTIONS:
Dividends from net investment income ......... (0.46) (0.38)
------- ---------
Net asset value, end of period ................. $ 9.66 $ 9.43
======= =========
Total return (c) ............................... 7.48% 5.83%
======= =========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) .............. $30,898 $ 5,052
Ratio of expenses to average net assets ........ 0.80% 0.81%(d)
Ratio of net investment income to average
net assets ................................... 4.87% 5.15%(d)
Portfolio turnover rate ........................ 539% 285%
</TABLE>
------------------------ EQ Advisors Trust
<PAGE>
- -----
162
- --------------------------------------------------------------------------------
ALLIANCE INTERNATIONAL PORTFOLIO:
<TABLE>
<CAPTION>
CLASS IA
--------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------- APRIL 3,
1995 TO
DECEMBER 31,
1998 1997 1996 1995
------------ ------------- ------------ ----------------
<S> <C> <C> <C> <C>
Net asset value, beginning of
period (b) ................................... $ 10.27 $ 11.50 $ 10.87 $ 10.00
------- ------- ------- ---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ........................ 0.09 0.10 0.13 0.14
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions ................................ 0.97 (0.45) 0.94 0.98
------- ------- ------- ---------
Total from investment operations ............. 1.06 (0.35) 1.07 1.12
------- ------- ------- ---------
LESS DISTRIBUTIONS:
Dividends from net investment income ......... (0.20) (0.32) (0.10) (0.07)
Dividends in excess of net investment
income ...................................... - - (0.09) (0.13)
Distributions from realized gains ............ (0.00) (0.56) (0.25) (0.05)
-------- ------- -------- ---------
Total dividends and distributions ............ (0.20) (0.88) (0.44) (0.25)
-------- ------- -------- ---------
Net asset value, end of period ................. $ 11.13 $ 10.27 $ 11.50 $ 10.87
======= ======= ======= =========
Total return (c) ............................... 10.57% (2.98)% 9.82% 11.29%
======= ======= ======= =========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) .............. $204,767 $190,611 $151,907 $ 28,684
Ratio of expenses to average net assets ........ 1.06% 1.08% 1.06% 1.03%(d)
Ratio of net investment income to average
net assets ................................... 0.81% 0.83% 1.10% 1.71%(d)
Portfolio turnover rate ........................ 59% 59% 48% 56%
<CAPTION>
CLASS IB
-------------------------------
YEAR MAY 1,
ENDED 1997 TO
DECEMBER 31, DECEMBER 31,
1998 1997
-------------- ----------------
<S> <C> <C>
Net asset value, beginning of
period (b) ................................... $ 10.26 $ 11.39
------- ---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ........................ 0.05 0.02
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions ................................ 0.98 (0.31)
------- ---------
Total from investment operations ............. 1.03 (0.29)
------- ---------
LESS DISTRIBUTIONS:
Dividends from net investment income ......... (0.18) (0.28)
Dividends in excess of net investment
income ...................................... - -
Distributions from realized gains ............ (0.00) (0.56)
-------- ---------
Total dividends and distributions ............ (0.18) (0.84)
-------- ---------
Net asset value, end of period ................. $ 11.11 $ 10.26
======= ==========
Total return (c) ............................... 10.30% (2.54)%
======= ==========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) .............. $ 7,543 $ 3,286
Ratio of expenses to average net assets ........ 1.31% 1.38%(d)
Ratio of net investment income to average
net assets ................................... 0.44% 0.20%(d)
Portfolio turnover rate ........................ 59% 59%
</TABLE>
<PAGE>
- -----
163
- --------------------------------------------------------------------------------
ALLIANCE MONEY MARKET PORTFOLIO:
<TABLE>
<CAPTION>
CLASS IA
----------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period (b) ................................... $ 10.18 $ 10.17 $ 10.16 $ 10.14 $ 10.12
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ........................ 0.53 0.54 0.54 0.57 0.41
Net realized and unrealized gain (loss) on
investments ................................. - - (0.01) - -
-------- -------- -------- -------- --------
Total from investment operations ............. 0.53 0.54 0.53 0.57 0.41
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income ......... (0.49) (0.53) (0.52) (0.55) (0.39)
Dividends in excess of net investment
income ...................................... - - - - -
-------- -------- -------- -------- --------
Total dividends and distributions ............ (0.49) (0.53) (0.52) (0.55) (0.39)
-------- -------- -------- -------- --------
Net asset value, end of period ................. $ 10.22 $ 10.18 $ 10.17 $ 10.16 $ 10.14
======= ======= ======= ======= =======
Total return (c) ............................... 5.34% 5.42% 5.33% 5.74% 4.02%
======= ======= ======= ======= =======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) .............. $723,311 $449,960 $463,422 $386,691 $325,391
Ratio of expenses to average net assets ........ 0.37% 0.39% 0.43% 0.44% 0.42%
Ratio of net investment income to average
net assets ................................... 5.13% 5.28% 5.17% 5.53% 4.01%
<CAPTION>
CLASS IB
------------------------------------------
YEAR ENDED OCTOBER 2,
DECEMBER 31, 1996 TO
------------------------- DECEMBER 31,
1998 1997 1996
------------ ------------ ----------------
<S> <C> <C> <C>
Net asset value, beginning of
period (b) ................................... $ 10.17 $ 10.16 $ 10.16
------- ------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ........................ 0.49 0.52 0.11
Net realized and unrealized gain (loss) on
investments ................................. 0.02 - 0.01
------- -------- --------
Total from investment operations ............. 0.51 0.52 0.12
------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income ......... (0.47) (0.51) (0.02)
Dividends in excess of net investment
income ...................................... - - (0.10)
-------- -------- ---------
Total dividends and distributions ............ (0.47) (0.51) (0.12)
-------- -------- ---------
Net asset value, end of period ................. $ 10.21 $ 10.17 $ 10.16
======= ======= ========
Total return (c) ............................... 5.08% 5.16% 1.29%
======= ======= ========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) .............. $386,718 $123,675 $ 3,184
Ratio of expenses to average net assets ........ 0.62% 0.63% 0.67%(d)
Ratio of net investment income to average
net assets ................................... 4.82% 5.02% 4.94%(d)
</TABLE>
------------------------ EQ Advisors Trust
<PAGE>
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164
- --------------------------------------------------------------------------------
ALLIANCE QUALITY BOND PORTFOLIO:
<TABLE>
<CAPTION>
CLASS IA CLASS IB
---------------------------------------------------------------- ---------------
JULY 8, 1998
YEAR ENDED DECEMBER 31, TO
---------------------------------------------------------------- DECEMBER 31,
1998 1997 1996 1995 1994 1998
------------ ------------ ------------ ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period (b) ................................... $ 9.74 $ 9.49 $ 9.61 $ 8.72 $ 9.82 $ 9.90
------- ------- ------- ------- ------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ........................ 0.55 0.60 0.57 0.57 0.66 0.25
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions ................................ 0.28 0.24 (0.07) 0.88 (1.16) 0.14
------- ------- -------- ------- ------- --------
Total from investment operations ............. 0.83 0.84 0.50 1.45 (0.50) 0.39
------- ------- -------- ------- ------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income ......... (0.53) (0.59) (0.60) (0.56) (0.55) (0.25)
Dividends in excess of net investment
income ...................................... - - (0.02) - - -
Distributions from realized gains ............ (0.20) - - - - (0.20)
Tax return of capital distributions .......... - - - - (0.05) -
-------- -------- -------- -------- ------- --------
Total dividends and distributions ............ (0.73) (0.59) (0.62) (0.56) (0.60) (0.45)
-------- -------- -------- -------- ------- --------
Net asset value, end of period ................. $ 9.84 $ 9.74 $ 9.49 $ 9.61 $ 8.72 $ 9.84
======= ======= ======= ======= ======= ========
Total return (c) ............................... 8.69% 9.14% 5.36% 17.02% (5.10)% 4.05%
======= ======= ======= ======= ======= ========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) .............. $322,418 $203,233 $155,023 $157,443 $127,575 $ 10
Ratio of expenses to average net assets ........ 0.57% 0.57% 0.59% 0.59% 0.59% 0.81%(d)
Ratio of net investment income to average
net assets ................................... 5.48% 6.19% 6.06% 6.13% 7.17% 5.06%(d)
Portfolio turnover rate ........................ 194% 374% 431% 411% 222% 194%
</TABLE>
<PAGE>
- -----
165
- --------------------------------------------------------------------------------
ALLIANCE SMALL CAP GROWTH PORTFOLIO:
<TABLE>
<CAPTION>
CLASS IA CLASS IB
--------------------------------- -----------------------------------
YEAR MAY 1, YEAR MAY 1,
ENDED 1997 TO ENDED 1997 TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1998 1997
-------------- ---------------- -------------- ------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period (b) ............ $ 12.35 $ 10.00 $ 12.34 $ 10.00
------- -------- ------- ---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) ...................... 0.01 0.01 (0.02) (0.01)
Net realized and unrealized gain (loss) on
investments ...................................... (0.54) 2.65 (0.53) 2.65
------- -------- ------- ---------
Total from investment operations .................. (0.53) 2.66 (0.55) 2.64
------- -------- ------- ---------
LESS DISTRIBUTIONS:
Dividends from net investment income .............. - (0.01) - -
Distributions from realized gains ................. - (0.30) - (0.30)
------- -------- ------- ---------
Total dividends and distributions ................. - (0.31) - (0.30)
------- -------- ------- ---------
Net asset value, end of period ...................... $ 11.82 $ 12.35 $ 11.79 $ 12.34
======= ======== ======= =========
Total return (c) .................................... (4.28)% 26.74% (4.44)% 26.57%
======= ======== ======= =========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) ................... $198,360 $ 94,676 $112,254 $ 46,324
Ratio of expenses to average net assets ............. 0.96% 0.95%(d) 1.20% 1.15%(d)
Ratio of net investment income (loss) to average net
assets ............................................ 0.08% 0.10%(d) (0.17)% (0.12)%(d)
Portfolio turnover rate ............................. 94% 96% 94% 96%
</TABLE>
------------------------ EQ Advisors Trust
<PAGE>
- ------
166
- --------------------------------------------------------------------------------
- ----------
(a) Net investment income and capital changes per share are based upon monthly
average shares outstanding.
(b) Date as of which funds were first allocated to the Portfolios are as
follows:
Class IA:
Alliance Common Stock Portfolio-June 16, 1975
Alliance Money Market Portfolio-July 13, 1981
Alliance Balanced Portfolio-January 27, 1986
Alliance Aggressive Stock Portfolio-January 27, 1986
Alliance High Yield Portfolio-January 2, 1987
Alliance Global Portfolio-August 27, 1987
Alliance Conservative Investors Portfolio-October 2, 1989
Alliance Growth Investors Portfolio-October 2, 1989
Alliance Intermediate Government Securities Portfolio-April 1, 1991
Alliance Quality Bond Portfolio-October 1, 1993
Alliance Growth and Income Portfolio-October 1, 1993
Alliance Equity Index Portfolio-March 1, 1994
Alliance International Portfolio-April 3, 1995
Alliance Small Cap Growth Portfolio-May 1, 1997
Class IB:
Alliance Money Market, Alliance High Yield, Alliance Common Stock,
Alliance Global, Alliance Aggressive Stock and Alliance Growth Investors
Portfolios-- October 2, 1996.
Alliance Intermediate Government Securities, Alliance Growth and Income,
Alliance Equity Index, Alliance International, Alliance Small Cap Growth
and Alliance Conservative Investors Portfolios-May 1, 1997. Alliance
Quality Bond and Alliance Balanced Portfolios-July 8, 1998.
(c) Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all dividends
and distributions at net asset value during the period, and redemption on
the last day of the period. Total return calculated for a period of less
than one year is not annualized.
(d) Annualized.
(e) On February 22, 1994, shares of the Alliance Intermediate Government
Securities Portfolio of the Trust were substituted for shares of the
Trust's Alliance Short-Term World Income Portfolio.
<PAGE>
- --------------------------------------------------------------------------------
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 August 30, 1999, is incorporated into this Prospectus by
reference and is available upon request free of charge by calling our toll free
number at 1-800-528-0204.
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
<PAGE>
EQ ADVISORS TRUST
PROSPECTUS
August 30, 1999
This Prospectus describes the forty (40) Portfolios offered by EQ Advisors Trust
and the Class IB shares offered by the Trust on behalf of each Portfolio that
you can choose as investment alternatives. 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. The Portfolios followed by an asterisk (*) below will not be
available for investment until October 1, 1999.
<TABLE>
<CAPTION>
<S> <C> <C>
FIXED INCOME PORTFOLIOS GLOBAL/INTERNATIONAL EQUITY PORTFOLIOS
============================================================= ==========================================================
Alliance High Yield* Alliance Global*
Alliance Intermediate Government Securities* Alliance International*
Alliance Money Market* BT International Equity Index
Alliance Quality Bond* Capital Guardian International
JPM Core Bond EQ/Putnam International Equity
Morgan Stanley Emerging Markets Equity
T. Rowe Price International Stock
DOMESTIC EQUITY PORTFOLIOS
=============================================================
Alliance Common Stock* AGGRESSIVE EQUITY PORTFOLIOS
Alliance Equity Index* ==========================================================
Alliance Growth and Income*
BT Equity 500 Index Alliance Aggressive Stock*
Calvert Socially Responsive Alliance Small Cap Growth*
Capital Guardian Research BT Small Company Index
Capital Guardian U.S. Equity EQ/Evergreen
EQ/Alliance Premier Growth Lazard Small Cap Value
EQ/Putnam Growth & Income Value MFS Emerging Growth Companies
EQ/Putnam Investors Growth Warburg Pincus Small Company Value
Lazard Large Cap Value
Merrill Lynch Basic Value Equity
MFS Growth with Income ASSET ALLOCATION PORTFOLIOS
MFS Research ==========================================================
T. Rowe Price Equity Income
Alliance Balanced*
Alliance Conservative Investors*
Alliance Growth Investors*
EQ/Evergreen Foundation
EQ/Putnam Balanced
Merrill Lynch World Strategy
</TABLE>
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.
<PAGE>
EQ ADVISORS TRUST
This Prospectus tells you about the forty (40) current Portfolios of 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 current Portfolios of the Trust, except for the Morgan Stanley Emerging
Markets Equity Portfolio, the Merrill Lynch World Strategy Portfolio and the
Lazard Small Cap Value Portfolio, are diversified for purposes of the Investment
Company Act of 1940, as amended ("1940 Act").
The Trust's shares are currently sold 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 much as insurance
companies that are not affiliated with Equitable or EOC ("non-affiliated
insurance companies"), and 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. ("EQFC") currently serves as the Manager of the
Trust. In such capacity, EQFC currently has overall responsibility for the
general management and administration of the Trust. The Board of Trustees of the
Trust has approved a transfer to Equitable, the indirect corporate parent of
EQFC, of the Trust's Investment Management Agreement with EQFC. This transfer is
expected to be completed in September 1999. Upon completion of the transfer,
Equitable will serve as the Manager of the Trust. However, until completion of
the transfer, EQFC will continue to serve in that capacity.
Each of the Portfolios has its own investment adviser ("Adviser"). The Calvert
Socially Responsible Portfolio ("Calvert Portfolio") has two Advisers, Calvert
Asset Management Company, Inc. ("Calvert") and Brown Capital Management, Inc.
("Brown Capital"). 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 has been granted
relief by the Securities and Exchange Commission ("SEC") ("Multi-Manager Order")
that enables the Manager without obtaining shareholder approval to: (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.
The Manager and certain non-affiliated insurance companies and certain of their
separate accounts (collectively, "Applicants") have filed applications
requesting that the SEC approve the substitution of: (i) Class IA shares of
certain Portfolios for Class IA shares of corresponding portfolios of the Hudson
River Trust ("HRT"); and (ii) Class IB shares of certain Portfolios for Class IB
shares of corresponding HRT portfolios ("Substitution Application"). Alliance
Capital Management L.P. ("Alliance") serves as Adviser for each Portfolio to be
substituted for the corresponding HRT portfolio. Applicants have included, as a
term of the Substitution Application, that with respect to those Portfolios for
which Alliance serves as Adviser (other than EQ/Alliance Premier Growth
Portfolio, which will not be substituted for a portfolio of HRT), the Manager
will not: (i) terminate Alliance and select a new Adviser for those Portfolios
or (ii) materially modify the existing advisory agreement without first either
obtaining approval of shareholders for such actions or obtaining approval of
shareholders to utilize the Multi-Manager Order.
-2-
<PAGE>
[2nd right hand page] TABLE OF CONTENTS
PAGE
SUMMARY INFORMATION CONCERNING EQ ADVISORS TRUST.........................5
ABOUT THE INVESTMENT PORTFOLIOS.........................................16
FIXED INCOME PORTFOLIOS..............................................19
ALLIANCE HIGH YIELD PORTFOLIO..................................19
ALLIANCE INTERMEDIATE GOVERNMENT SECURITIES PORTFOLIO..........23
ALLIANCE MONEY MARKET PORTFOLIO................................28
ALLIANCE QUALITY BOND PORTFOLIO................................32
JPM CORE BOND PORTFOLIO........................................36
DOMESTIC EQUITY PORTFOLIOS...........................................39
ALLIANCE COMMON STOCK PORTFOLIO................................39
ALLIANCE EQUITY INDEX PORTFOLIO................................43
ALLIANCE GROWTH AND INCOME PORTFOLIO...........................46
BT EQUITY 500 INDEX PORTFOLIO..................................50
CALVERT SOCIALLY RESPONSIBLE PORTFOLIO.........................53
CAPITAL GUARDIAN RESEARCH PORTFOLIO............................56
CAPITAL GUARDIAN U.S. EQUITY PORTFOLIO.........................58
EQ/ALLIANCE PREMIER GROWTH PORTFOLIO...........................60
EQ/PUTNAM GROWTH & INCOME VALUE PORTFOLIO......................62
EQ/PUTNAM INVESTORS GROWTH PORTFOLIO...........................65
LAZARD LARGE CAP VALUE PORTFOLIO...............................68
MERRILL LYNCH BASIC VALUE EQUITY PORTFOLIO.....................71
MFS GROWTH WITH INCOME PORTFOLIO...............................74
MFS RESEARCH PORTFOLIO.........................................76
T. ROWE PRICE EQUITY INCOME PORTFOLIO..........................79
GLOBAL/INTERNATIONAL PORTFOLIOS......................................82
ALLIANCE GLOBAL PORTFOLIO......................................82
ALLIANCE INTERNATIONAL PORTFOLIO...............................86
BT INTERNATIONAL EQUITY INDEX PORTFOLIO........................91
CAPITAL GUARDIAN INTERNATIONAL PORTFOLIO.......................94
EQ/PUTNAM INTERNATIONAL EQUITY PORTFOLIO.......................98
MORGAN STANLEY EMERGING MARKETS EQUITY PORTFOLIO..............101
T. ROWE PRICE INTERNATIONAL STOCK PORTFOLIO...................105
AGGRESSIVE EQUITY PORTFOLIOS........................................109
ALLIANCE AGGRESSIVE STOCK PORTFOLIO...........................109
ALLIANCE SMALL CAP GROWTH PORTFOLIO...........................113
BT SMALL COMPANY INDEX PORTFOLIO..............................117
EQ/EVERGREEN PORTFOLIO........................................120
LAZARD SMALL CAP VALUE PORTFOLIO..............................122
MFS EMERGING GROWTH COMPANIES PORTFOLIO.......................125
WARBURG PINCUS SMALL COMPANY VALUE PORTFOLIO..................128
ASSET ALLOCATION PORTFOLIOS.........................................131
ALLIANCE BALANCED PORTFOLIO...................................132
ALLIANCE CONSERVATIVE INVESTORS PORTFOLIO.....................136
ALLIANCE GROWTH INVESTORS PORTFOLIO...........................140
EQ/EVERGREEN FOUNDATION PORTFOLIO.............................144
EQ/PUTNAM BALANCED PORTFOLIO..................................146
MERRILL LYNCH WORLD STRATEGY PORTFOLIO........................149
-3-
<PAGE>
MORE INFORMATION ON PRINCIPAL RISKS.................................153
MANAGEMENT OF THE TRUST.............................................160
THE TRUST.....................................................160
THE MANAGER...................................................160
EXPENSE LIMITATION AGREEMENT..................................162
THE ADVISERS..................................................163
THE ADMINISTRATOR.............................................164
THE TRANSFER AGENT............................................164
BROKERAGE PRACTICES...........................................164
BROKERAGE TRANSACTIONS WITH AFFILIATES........................164
FUND DISTRIBUTION ARRANGEMENTS......................................165
PURCHASE AND REDEMPTION.............................................165
HOW ASSETS ARE VALUED...............................................165
TAX INFORMATION.....................................................166
PRIOR PERFORMANCE OF EACH ADVISER...................................166
FINANCIAL HIGHLIGHTS................................................171
-4-
<PAGE>
[TWO PAGE SPREAD]
SUMMARY INFORMATION CONCERNING EQ ADVISORS TRUST
The following chart highlights the forty (40) 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
<TABLE>
<CAPTION>
<S> <C>
Part A
- --------------------------------------- ----------------------------------------------------
PORTFOLIO INVESTMENT OBJECTIVE(S)
======================================= ====================================================
ALLIANCE HIGH YIELD Seeks to achieve a high return by maximizing
current income and, to the extent consistent with
that objective, capital appreciation
- --------------------------------------- ----------------------------------------------------
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 MONEY MARKET Seeks to obtain a high level of current income,
preserve its assets and maintain liquidity
- --------------------------------------- ----------------------------------------------------
ALLIANCE QUALITY BOND Seeks to achieve high current income consistent
with preservation of capital by investing primarily
in investment grade fixed income securities
- --------------------------------------- ----------------------------------------------------
JPM CORE BOND Seeks to provide a high total return consistent with
moderate risk of capital and maintenance of
liquidity
- --------------------------------------- ----------------------------------------------------
</TABLE>
-5-
<PAGE>
EQ ADVISORS TRUST
FIXED INCOME PORTFOLIOS
<TABLE>
<CAPTION>
<S> <C>
Part B
--------------------------------------------- ------------------------------------------
PRINCIPAL INVESTMENT STRATEGIES PRINCIPAL RISKS
============================================= ==========================================
High yield debt securities rated below General investment, fixed income,
BBB/Baa or unrated securities of leveraging, loan participation and
comparable quality ("junk bonds") assignment, derivatives, liquidity, junk
common stocks and other equity bond, foreign securities, small-cap and
securities, foreign securities, derivatives, mid-cap company, and securities
and securities lending lending risks
--------------------------------------------- ------------------------------------------
Securities issued or guaranteed by the U.S. General investment, fixed income,
U.S Government, including repurchase leveraging, derivatives, and securities
agreements and forward commitments lending risks
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
--------------------------------------------- ------------------------------------------
High quality U.S. dollar-denominated General investment, money market,
money market instruments (including leveraging, foreign securities, and
foreign securities) and securities lending securities lending risks
--------------------------------------------- ------------------------------------------
Investment-grade debt securities rated at General investment, fixed income,
least BBB/Baa or unrated securities of convertible securities, leveraging,
comparable quality at the time of derivatives, securities lending, and
purchase, convertible debt securities foreign securities risks
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
--------------------------------------------- ------------------------------------------
Investment-grade securities rated General investment, fixed income
BBB/Baa or better at the time of purchase liquidity, portfolio turnover, derivatives,
(including foreign issuers) and foreign securities risks
--------------------------------------------- ------------------------------------------
</TABLE>
-6-
<PAGE>
EQ ADVISORS TRUST
DOMESTIC EQUITY PORTFOLIOS
<TABLE>
<CAPTION>
<S> <C>
------------------------------------------------------- -----------------------------------------------------
PORTFOLIO INVESTMENT OBJECTIVE(S)
------------------------------------------------------- -----------------------------------------------------
------------------------------------------------------- -----------------------------------------------------
ALLIANCE COMMON STOCK Seeks to achieve long-term growth of its capital and
increased 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
------------------------------------------------------- -----------------------------------------------------
BT EQUITY 500 INDEX Seeks to replicate as closely as possible (before
deduction of Portfolio expenses) the total return of
the S&P 500 Index
------------------------------------------------------- -----------------------------------------------------
CALVERT SOCIALLY RESPONSIBLE PORTFOLIO Seeks long-term capital appreciation
------------------------------------------------------- -----------------------------------------------------
CAPITAL GUARDIAN RESEARCH PORTFOLIO Seeks long-term growth of capital
------------------------------------------------------- -----------------------------------------------------
CAPITAL GUARDIAN U.S. EQUITY PORTFOLIO Seeks long-term growth of capital
------------------------------------------------------- -----------------------------------------------------
EQ/ALLIANCE PREMIER GROWTH PORTFOLIO Seeks long-term growth of capital by primarily
investing in equity securities of a limited number of
large, carefully selected, high quality United States
companies that are judged, by the Adviser, likely to
achieve superior earnings growth
------------------------------------------------------- -----------------------------------------------------
EQ/PUTNAM GROWTH & INCOME VALUE Seeks capital growth. Current income is a
secondary objective
------------------------------------------------------- -----------------------------------------------------
EQ/PUTNAM INVESTORS GROWTH Seeks long-term growth of capital and any
increased income that results from this growth
------------------------------------------------------- -----------------------------------------------------
LAZARD LARGE CAP VALUE Seeks capital appreciation by investing primarily in
equity securities of companies with relatively large
capitalizations (i.e., companies having market
capitalizations of at least $3 billion at the time of
initial purchase) that appear to the Adviser to be
inexpensively priced relative to the return on total
capital or equity
------------------------------------------------------- -----------------------------------------------------
MERRILL LYNCH BASIC VALUE EQUITY Seeks capital appreciation and secondarily, income
by investing in securities, primarily equities, that
the Adviser believes are undervalued and therefore
represent basic investment value
</TABLE>
-7-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
PORTFOLIO INVESTMENT OBJECTIVES(S)
------------------------------------------------------- -----------------------------------------------------
MFS GROWTH WITH INCOME Seeks to provide reasonable current income and
long-term growth of capital and income
------------------------------------------------------- -----------------------------------------------------
MFS RESEARCH Seeks to provide long-term growth of capital and
future income
------------------------------------------------------- -----------------------------------------------------
T. ROWE PRICE EQUITY INCOME Seeks to provide substantial dividend income and
also capital appreciation by investing primarily in
dividend-paying common stocks of established
companies
------------------------------------------------------- -----------------------------------------------------
</TABLE>
-8-
<PAGE>
EQ ADVISORS TRUST
DOMESTIC EQUITY PORTFOLIOS
<TABLE>
<CAPTION>
<S> <C>
Part B
---------------------------------------------------------------------------------------------------
PRINCIPAL INVESTMENT STRATEGIES PRINCIPAL RISKS
------------------------------------------------- -------------------------------------------------
Stocks and other equity securities (including General investment, foreign securities,
preferred stock or convertible debt) and leveraging, derivatives, convertible securities,
fixed income securities (including junk small-cap and mid-cap company, junk bond,
bonds), foreign securities, derivatives, and securities lending, and fixed income risks
securities lending
------------------------------------------------- -------------------------------------------------
Securities in the S&P 500 Index, derivatives, General investment, index-fund, derivatives,
and securities lending leveraging, and securities lending risks
------------------------------------------------- -------------------------------------------------
Stocks and securities convertible into stocks General investment, convertible securities,
(including junk bonds) leveraging, derivatives, foreign securities, junk
bond, and fixed income risks
------------------------------------------------- -------------------------------------------------
Common stocks of companies in the S&P 500 Index General investment, index-fund, and fixed
500 Index income risks
------------------------------------------------- -------------------------------------------------
Common stocks of medium to large U.S. companies General investment, growth investing, mid-cap
companies that meet both investment and company, liquidity, and derivative risks
social criteria
------------------------------------------------- -------------------------------------------------
Equity securities primarily of United States General investment, growth investing,
issuers and securities whose principal convertible securities, and foreign securities
markets are in the United States risks
------------------------------------------------- -------------------------------------------------
Equity securities primarily of United States General investment, growth investing,
companies with market capitalization greater convertible securities, and foreign securities
than $1 billion at the time of purchase risks
------------------------------------------------- -------------------------------------------------
Equity securities of a limited number of large, General investment, focused portfolio, growth
high-quality companies that are likely to offer investing, convertible securities, derivatives,
superior earnings growth and foreign securities risks
------------------------------------------------- -------------------------------------------------
Common stocks (plus convertible bonds, General investment, derivatives, foreign
convertible preferred stocks, preferred stocks securities, value investing, and fixed income
and debt securities) risks
------------------------------------------------- -------------------------------------------------
Common stocks and convertible securities of General investment, growth investing, small-cap
companies whose earnings are believed likely and mid-cap company, derivatives, foreign
to grow faster than the economy as a whole securities, and fixed income risks
------------------------------------------------- -------------------------------------------------
Equity securities of companies with relatively General investment, value investing,
large capitalizations that the Adviser believes derivatives, and fixed income risks
are undervalued based on their return on
equity or capital
------------------------------------------------- -------------------------------------------------
Equity securities that the Adviser believes are General investment, small-cap and mid-cap
undervalued company, value investing, and foreign securities
risks
------------------------------------------------- -------------------------------------------------
Equity securities (common stock, preferred General investment, mid-cap company, foreign
stock, convertible securities, warrants and securities, and growth investing risks
depositary receipts
------------------------------------------------- -------------------------------------------------
Common stock or securities convertible into General investment, mid-cap company, foreign
common stock of companies with better than securities, fixed income, and growth investing
average prospects for long-term growth risks
------------------------------------------------- -------------------------------------------------
Dividend-paying common stocks of established General investment, value investing, foreign
companies securities, and fixed income risks
------------------------------------------------- -------------------------------------------------
</TABLE>
-9-
<PAGE>
EQ ADVISORS TRUST
GLOBAL/INTERNATIONAL EQUITY PORTFOLIOS
<TABLE>
<CAPTION>
<S> <C>
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
---------------------------------------------------- ----------------------------------------------
BT INTERNATIONAL EQUITY INDEX Seeks to replicate as closely as possible
(before deduction of Portfolio expenses) the
total return of the MSCI EAFE Index
---------------------------------------------------- ----------------------------------------------
CAPITAL GUARDIAN INTERNATIONAL PORTFOLIO Seeks long-term growth of capital by
investing primarily in non-United States
equity securities
---------------------------------------------------- ----------------------------------------------
EQ/PUTNAM INTERNATIONAL EQUITY Seeks capital appreciation
---------------------------------------------------- ----------------------------------------------
MORGAN STANLEY EMERGING MARKETS Seeks long-term capital appreciation by
investing primarily in equity securities of
emerging country issuers
---------------------------------------------------- ----------------------------------------------
T. ROWE PRICE INTERNATIONAL STOCK Seeks long-term growth of capital through
investment primarily in common stocks of
established non-U.S. companies
---------------------------------------------------- ----------------------------------------------
</TABLE>
-10-
<PAGE>
EQ ADVISORS TRUST
GLOBAL/INTERNATIONAL EQUITY PORTFOLIOS
<TABLE>
<CAPTION>
<S> <C>
Part B
---------------------------------------------- ----------------------------------------
PRINCIPAL INVESTMENT STRATEGIES PRINCIPAL RISKS
============================================== ========================================
Equity securities of U.S. and established General investment, foreign securities,
foreign companies (including shares of liquidity, derivatives, securities
other mutual funds investing in foreign lending, and fixed income risks
securities), debt securities, derivatives,
and securities lending
---------------------------------------------- ----------------------------------------
Equity securities of non-U.S. companies General investment, foreign securities,
(including those in emerging markets liquidity, growth investing, leveraging,
securities) or foreign government derivatives, securities lending, and
enterprises (including other mutual funds fixed income risks
investing in foreign securities), debt
securities, derivatives, and securities
lending)
---------------------------------------------- ----------------------------------------
Equity securities of companies in the General investment, index-fund,
MSCI EAFE Index foreign securities, liquidity, securities
lending, and derivatives risks
---------------------------------------------- ----------------------------------------
Non-United States equity securities General investment, foreign securities,
primarily of companies located in Europe, growth investing, convertible
Canada, Australia, and the Far East securities, and derivatives risks
---------------------------------------------- ----------------------------------------
Equity securities of foreign companies General investment, foreign securities,
small-cap and mid-cap company,
liquidity, and derivatives risks
---------------------------------------------- ----------------------------------------
Equity securities of emerging market General investment, foreign securities,
country companies convertible securities, liquidity,
derivatives, portfolio turnover, non-
diversification, and fixed income risks
---------------------------------------------- ----------------------------------------
Common stocks of established foreign General investment, foreign securities,
companies liquidity, fixed income, and growth
investing risks
---------------------------------------------- ----------------------------------------
</TABLE>
-11-
<PAGE>
EQ ADVISORS TRUST
AGGRESSIVE EQUITY PORTFOLIOS
<TABLE>
<CAPTION>
<S> <C>
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
--------------------------------------------- -----------------------------------------------------
BT SMALL COMPANY INDEX Seeks to replicate as closely as possible (before the
deduction of Portfolio expenses) the total return of
the Russell 2000 Index
--------------------------------------------- -----------------------------------------------------
EQ/EVERGREEN Seeks capital appreciation
--------------------------------------------- -----------------------------------------------------
LAZARD SMALL CAP VALUE Seeks capital appreciation by investing in equity
securities of U.S. companies with small market
capitalizations (i.e., companies in the range of
companies represented in the Russell 2000 Index)
that the Adviser considers inexpensively priced
relative to the return on total capital or equity
--------------------------------------------- -----------------------------------------------------
MFS EMERGING GROWTH COMPANIES Seeks to provide long-term capital growth
--------------------------------------------- -----------------------------------------------------
WARBURG PINCUS SMALL COMPANY VALUE Seeks long-term capital appreciation
--------------------------------------------- -----------------------------------------------------
</TABLE>
-12-
<PAGE>
EQ ADVISORS TRUST
AGGRESSIVE EQUITY PORTFOLIOS
<TABLE>
<CAPTION>
<S> <C>
Part B
----------------------------------------------- --------------------------------------------------
PRINCIPAL INVESTMENT STRATEGIES PRINCIPAL RISKS
=============================================== ==================================================
Stocks and other equity securities of small General investment, small-cap and mid-cap
and medium-sized companies (including company, growth investing, leveraging,
securities of companies in cyclical derivatives, liquidity and foreign securities risks
industries, companies whose securities are
temporarily undervalued, companies in
special situations (e.g., change in
management, new products or changes in
customer demand) and less widely known
companies
----------------------------------------------- --------------------------------------------------
Stocks and other equity securities of General investment, small-cap and mid-cap
smaller companies and undervalued company, growth investing, leveraging,
securities (including securities of derivatives, liquidity, and foreign securities risks
companies in cyclical industries,
companies whose securities are temporarily
undervalued, companies in special
situations (e.g., change in management,
new products or changes in customer
demand) and less widely known
companies)
----------------------------------------------- --------------------------------------------------
Common stocks of small-cap companies in General investment, index-fund, small-cap and
the Russell 2000 Index mid-cap company, derivatives, and fixed income
risks
----------------------------------------------- --------------------------------------------------
Common stocks offering potential for General investment, fixed income, small-cap and
capital growth (plus common stocks, mid-cap company, and value investing risks
corporate bonds, notes and debentures,
preferred stocks and convertible securities)
----------------------------------------------- --------------------------------------------------
Equity securities of small-cap U.S. General investment, small-cap and mid-cap
companies in the range of companies company, value investing, non-diversification,
included in the Russell 2000 Index that the and fixed income risks
Adviser believes are undervalued based on
their return on equity or capital
----------------------------------------------- --------------------------------------------------
Equity securities of emerging growth General investment, small-cap and mid-cap
companies with the potential to become company, portfolio turnover, foreign securities,
major enterprises or that are major and growth investing risks
enterprises whose rates of earning growth
are expected to accelerate
----------------------------------------------- --------------------------------------------------
Equity securities of U.S. small cap General investment, small-cap and mid-cap
companies company, portfolio turnover, foreign securities,
fixed income, and value investing risks
----------------------------------------------- --------------------------------------------------
</TABLE>
-13-
<PAGE>
EQ ADVISORS TRUST
ASSET ALLOCATION PORTFOLIOS
<TABLE>
<CAPTION>
<S> <C>
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
--------------------------------------- ----------------------------------------------------
--------------------------------------- ----------------------------------------------------
EQ/EVERGREEN FOUNDATION Seeks to provide, in order of priority, reasonable
income, conservation of capital and capital
appreciation
--------------------------------------- ----------------------------------------------------
--------------------------------------- ----------------------------------------------------
EQ/PUTNAM BALANCED Seeks to provide a balanced investment composed
of a well-diversified portfolio of stocks and bonds
that will produce both capital growth and current
income
--------------------------------------- ----------------------------------------------------
--------------------------------------- ----------------------------------------------------
MERRILL LYNCH WORLD STRATEGY Seeks high total investment return by investing
primarily in a portfolio of equity and fixed income
securities, including convertible securities, of U.S.
and foreign issuers
--------------------------------------- ----------------------------------------------------
</TABLE>
-14-
<PAGE>
EQ ADVISORS TRUST
ASSET ALLOCATION PORTFOLIOS
<TABLE>
<CAPTION>
<S> <C>
Part B
--------------------------------------------- ------------------------------------------
PRINCIPAL INVESTMENT STRATEGIES PRINCIPAL RISKS
--------------------------------------------- ------------------------------------------
--------------------------------------------- ------------------------------------------
Debt and equity securities, money market General investment, asset allocation,
instruments, foreign securities, fixed income, derivatives, leveraging,
derivatives, and securities lending liquidity, securities lending, and foreign
securities risks
--------------------------------------------- ------------------------------------------
--------------------------------------------- ------------------------------------------
Investment grade debt securities and General investment, asset allocation,
equity securities of U.S. and foreign fixed income, derivatives, convertible
issuers, derivatives, and securities lending securities, liquidity, leveraging,
securities lending, and foreign securities
risks
--------------------------------------------- ------------------------------------------
--------------------------------------------- ------------------------------------------
Equity securities (including foreign General investment, asset allocation,
stocks, preferred stocks, convertible fixed income, leveraging, derivatives,
securities, securities of small and liquidity, convertible securities, small-
medium-sized companies) and debt cap and mid-cap company, securities
securities (including foreign debt lending, junk bond, and foreign
securities and junk bonds), derivatives, securities risks
and securities lending
--------------------------------------------- ------------------------------------------
--------------------------------------------- ------------------------------------------
Common stocks, preferred stocks, General investment and fixed income risks
securities convertible into or
exchangeable for common stocks,
corporate debt obligations, U.S.
Government securities and short-term
debt instruments
--------------------------------------------- ------------------------------------------
--------------------------------------------- ------------------------------------------
Well-diversified portfolio of stocks and General investment, fixed income,
bonds, and negotiable instruments derivatives, portfolio turnover, and
foreign securities risks
--------------------------------------------- ------------------------------------------
--------------------------------------------- ------------------------------------------
Equity and fixed income securities of U.S. General investment, foreign securities,
and foreign companies fixed income, derivatives, non-
diversification, liquidity, and portfolio
turnover risks
--------------------------------------------- ------------------------------------------
</TABLE>
-15-
<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 invests 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
The performance of each of the Trust's Portfolios, as shown on the following
pages, compares each Portfolio's performance to that of: a broad-based
securities market index, an index of funds with similar investment objectives
and/or a blended index. The performance shown below is from each Portfolio's
predecessor registered investment company managed by the Adviser using the same
investment objectives and strategies as the Portfolio. 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 associated with managed investment company portfolios.
Broad-based securities indices are also not
-16-
<PAGE>
subject to contract and insurance related expenses and charges. 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 COMPOSITE MARKET BENCHMARK is made up of 36% S&P 500, 24% MSCI EAFE Index,
21% Salomon Brothers U.S. Treasury Bond 1 year and, 14% Salomon Smith Barney
World Government ex U.S., and 5% U.S. Treasury Bill.
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 EMERGING MARKETS FREE PRICE RETURN
INDEX ("MSCI Emerging Markets Free") is a market capitalization weighted equity
index composed of companies that are representative of the market structure of
the following countries: Argentina, Brazil, Chile, China Free, Colombia, Czech
Republic, Greece, Hungary, India, Indonesia, Israel, Jordan, Korea (@ 50%),
Mexico Free, Pakistan, Peru, Philippines Free, Poland, Russia, South Africa, Sri
Lanka, Taiwan (@ 50%), Thailand, Turkey, and Venezuela Free. The base date for
the index is December 31, 1987. "Free" MSCI indices exclude those shares not
purchasable by foreign investors. The average size of the emerging market
companies within this index is US $800 million.
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.
-17-
<PAGE>
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.
SALOMON BROTHERS BROAD INVESTMENT GRADE BOND INDEX is an unmanaged market
weighted index that contains approximately 4,700 individually priced investment
grade bonds.
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
returns reflect the reinvestment of dividends, if any, but do 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 S&P 400 returns reflect the reinvestment of dividends, if
any, but do not reflect fees, brokerage commissions or other expenses of
investing.
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.
-18-
<PAGE>
FIXED INCOME PORTFOLIOS
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 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 that 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.
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.
-19-
<PAGE>
THE PRINCIPAL RISKS
JUNK BOND RISK: The Portfolio invests primarily in "junk bonds" or lower-rated
securities rated BBB 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. Although junk bonds generally have
higher yields than debt securities with higher credit ratings, they are
high-risk investments that may not pay interest or return principal as
scheduled. Junk bonds generally are also less liquid and experience more price
volatility than higher rated fixed income securities. 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.
-20-
<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 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.
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 and some of the risks of investing in the Portfolio
by showing yearly changes in the Portfolio's performance. The table below shows
the Portfolio's average annual total returns for the past one, five and ten
years and compares the Portfolio's performance to: (i) the returns of a
broad-based index and (ii) the returns of an index of funds with similar
investment objectives. Past performance is not an indication of future
performance.
The Portfolio's performance shown below is the performance of its predecessor
registered investment company (HRT/Alliance High Yield Portfolio) managed by the
Adviser using the same investment objectives and strategy as the Portfolio. For
these purposes, the Portfolio is considered to be the successor entity to the
predecessor registered investment company (HRT/Alliance High Yield Portfolio)
whose inception date was January 2, 1987. The assets of the predecessor will be
transferred to the Portfolio on October 1, 1999.
Both the bar chart and table assume reinvestment of dividends and distributions.
The performance results do not reflect any insurance and Contract-related
expenses, which would reduce the performance results.
-21-
<PAGE>
CALENDAR YEAR ANNUAL TOTAL RETURN*
------------------------------------
1989-------------------------- 4.9%
1990-------------------------- -1.4%
1991-------------------------- 24.2%
1992-------------------------- 12.1%
1993-------------------------- 22.9%
1994-------------------------- -3.0%
1995-------------------------- 19.7%
1996-------------------------- 22.6%
1997-------------------------- 18.2%
1998-------------------------- -5.4%
- -------------------------------------------------------------------------------
Best quarter (% and time period) Worst quarter (% and time period)
7.90% (1997 2nd Quarter) -11.03% (1998 3rd Quarter)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS*
ONE YEAR FIVE YEARS TEN YEARS
- ---------------------------------------- ---------------------- --------------------- ---------------------
ALLIANCE HIGH YIELD PORTFOLIO - -5.38% 9.74% 10.91%
CLASS IB SHARES
- ---------------------------------------- ---------------------- --------------------- --------------------
ML MASTER** 3.66% 9.01% 11.08%
- ---------------------------------------- ---------------------- --------------------- ---------------------
LIPPER HIGH CURRENT YIELD -0.44% 7.37% 9.34%
BOND FUND AVERAGE**
- ---------------------------------------- ---------------------- --------------------- ---------------------
</TABLE>
*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 the Class IB shares since the Class IB inception date was 6.63%. The return
for the ML Master 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 Portfolio and its
predecessor (registered investment company) since the predecessor 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.
-22-
<PAGE>
WAYNE C. TAPPE has been responsible for the day-to-day management of the
Portfolio and its predecessor since 1995. Mr. Tappe, a Senior Vice President
of Alliance, has been associated with Alliance since 1987.
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:
-23-
<PAGE>
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.
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.
-24-
<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, 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: With respect to fixed income
investments of the Portfolio, other than U.S. Government Securities,
rated BBB by S&P or an equivalent rating by any other nationally
recognized statistical rating organization ("NRSRO"), 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 NRSRO, 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 and some of the risks of investing in the
Portfolio by showing yearly changes in the Portfolio's performance. The table
below shows the Portfolio's average annual total returns for the past one year,
five years and since inception and compares the Portfolio's performance to: (i)
the returns of a broad-based index and (ii) the returns of an index of funds
with similar investment objectives. Past performance is not an indication of
future performance.
The Portfolio's performance shown below is the performance of its predecessor
registered investment company (HRT/Alliance Intermediate Government Securities
Portfolio) managed by the Adviser using the same investment objectives and
strategy as the Portfolio. For these purposes, the Portfolio is considered to be
the successor entity to the predecessor registered investment company
(HRT/Alliance
-25-
<PAGE>
Intermediate Government Securities Portfolio) whose inception date
was April 1, 1991. The assets of the predecessor will be transferred to the
Portfolio on October 1, 1999.
Both the bar chart and table assume reinvestment of dividends and distributions.
The performance results do not reflect any insurance and Contract-related fees
and expenses, which would reduce the performance results.
CALENDAR YEAR ANNUAL TOTAL RETURN*
- ------------------------------------
1992-------------------------- 5.4%
1993-------------------------- 10.3%
1994-------------------------- -4.6%
1995-------------------------- 13.1%
1996-------------------------- 3.5%
1997-------------------------- 7.0%
1998-------------------------- 7.5%
Best quarter (% and time period) Worst quarter (% and time period)
5.25% (1991 3rd Quarter) -3.03% (1994 1st Quarter)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS*
- -----------------------------------------------------------------------------------------------------------
ONE YEAR FIVE YEARS SINCE INCEPTION
- ---------------------------------------- ---------------------- --------------------- ---------------------
- ---------------------------------------- ---------------------- --------------------- ---------------------
ALLIANCE INTERMEDIATE 7.48% 5.13% 6.83%
GOVERNMENT SECURITIES
PORTFOLIO - CLASS IB SHARES
- -----------------------------------------------------------------------------------------------------------
LEHMAN INTERMEDIATE
GOVERNMENT BONDS** 8.49% 6.45% 7.60%
- -----------------------------------------------------------------------------------------------------------
LIPPER INTERMEDIATE
GOVERNMENT FUNDS AVERAGE** 7.68% 5.91% 7.28%
- ---------------------------------------- ---------------------- --------------------- ---------------------
</TABLE>
*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 the Class IB shares since the Class IB inception date was 8.01%. The return
for Lehman Intermediate Government Bonds 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."
-26-
<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 Portfolio and its
predecessor (registered investment company) since the predecessor 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 and its predecessor since January 1999. Mr. Phlegar, a Senior Vice
President of Alliance, has been associated with Alliance since 1998.
-27-
<PAGE>
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 and asset-backed securities that have remaining
maturities of less than one year;
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.
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
-28-
<PAGE>
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: 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 and some of the risks of investing in the Portfolio
by showing yearly changes in the Portfolio's performance. The table below shows
the Portfolio's average annual total returns for the past one, five and ten
years and compares the Portfolio's performance to: (i) the returns on
three-month U.S. Treasury bills and (ii) the returns of an index of funds with
similar investment objectives. Past performance is not an indication of future
performance.
The Portfolio's performance shown below is the performance of its predecessor
registered investment company (HRT/Alliance Money Market Portfolio) managed by
the Adviser using the same investment objectives and strategy as the Portfolio.
For these purposes, the Portfolio is considered to be the successor entity to
the predecessor registered investment company (HRT/Alliance Money Market
Portfolio) whose inception date was July 13, 1981. The assets of the predecessor
will be transferred to the Portfolio on October 1, 1999.
Both the bar chart and table assume reinvestment of dividends and distributions.
The performance results do not reflect any insurance and Contract-related fees
and expenses, which would reduce the performance results.
-29-
<PAGE>
CALENDAR YEAR ANNUAL TOTAL RETURN*
------------------------------------
1989-------------------------- 8.9%
1990-------------------------- 8.0%
1991-------------------------- 5.9%
1992-------------------------- 3.3%
1993-------------------------- 2.7%
1994-------------------------- 3.8%
1995-------------------------- 5.5%
1996-------------------------- 5.1%
1997-------------------------- 5.2%
1998-------------------------- 5.1%
- --------------------------------------------------------------------------------
Best quarter (% and time period) Worst quarter (% and time period)
2.31% (1989 2nd Quarter) 0.63% (1992 4th Quarter)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
The Portfolio's 7-day yield for the quarter ended December 31, 1998 was 4.45%.
- -------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS*
- -------------------------------------------------------------------------------------------------------
ONE YEAR FIVE YEARS TEN YEARS
- ---------------------------------------- ---------------------- --------------------- -----------------
- ---------------------------------------- ---------------------- --------------------- -----------------
ALLIANCE MONEY MARKET 5.08% 4.91% 5.33%
PORTFOLIO - CLASS IB SHARES
- -------------------------------------------------------------------------------------------------------
3-MONTH TREASURY BILL 5.05% 5.11% 5.44%
- -------------------------------------------------------------------------------------------------------
LIPPER MONEY MARKET MUTUAL 4.84% 4.77% 5.20%
FUND AVERAGE**
- ---------------------------------------- ---------------------- --------------------- -----------------
</TABLE>
*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 the Class IB shares since the Class IB inception date was 5.13%. The return
on a 3-month Treasury Bill 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 Portfolio and its
predecessor (registered investment company) since the predecessor 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.
-30-
<PAGE>
RAYMOND J. PAPERA has been responsible for the day-to-day management of the
Portfolio and its predecessor since 1990. Mr. Papera, a Senior Vice President
of Alliance, has been associated with Alliance since 1990.
-31-
<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
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:
-32-
<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 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. 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.
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.
-33-
<PAGE>
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.
PORTFOLIO PERFORMANCE
The bar chart below illustrates the Portfolio's annual total returns for each of
the last five calendar years and some of the risks of investing in the Portfolio
by showing yearly changes in the Portfolio's performance. The table below shows
the Portfolio's average annual total returns for the past one and five years and
compares the Portfolio's performance to: (i) the returns of a broad-based index
and (ii) the returns of an index of funds with similar investment objectives.
Past performance is not an indication of future performance.
The Portfolio's performance shown below is the performance of its predecessor
registered investment company (HRT/Alliance Quality Bond Portfolio) managed by
the Adviser using the same investment objectives and strategy as the Portfolio.
For these purposes, the Portfolio is considered to be the successor entity to
the predecessor registered investment company (HRT/Alliance Quality Bond
Portfolio) whose inception date was October 1, 1993. The assets of the
predecessor will be transferred to the Portfolio on October 1, 1999.
Both the bar chart and table assume reinvestment of dividends and distributions.
The performance results do not reflect any insurance and Contract-related fees
and expenses, which would reduce the performance results.
CALENDAR YEAR ANNUAL TOTAL RETURN*
------------------------------------
1994-------------------------- -5.4%
1995-------------------------- 16.8%
1996-------------------------- 5.1%
1997-------------------------- 8.9%
1998-------------------------- 8.4%
- --------------------------------------------------------------------------------
Best quarter (% and time period) Worst quarter (% and time period)
6.13% (1995 2nd Quarter) -4.09% (1994 1st Quarter)
-34-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS*
- ----------------------------------------------------------------------------------------------------------------------
ONE YEAR FIVE YEARS SINCE INCEPTION
- ------------------------------------------- ------------------------- -------------------------- ---------------------
ALLIANCE QUALITY BOND PORTFOLIO - 8.43% 6.52% 6.05%
CLASS IB SHARES
- ------------------------------------------- ------------------------- -------------------------- ---------------------
LEHMAN AGGREGATE BONDS** 8.69% 7.27% 6.92%
- ------------------------------------------- ------------------------- -------------------------- ---------------------
LIPPER CORPORATE DEBT FUNDS A 7.47% 6.54% 6.21%
RATED AVERAGE**
- ------------------------------------------- ------------------------- -------------------------- ---------------------
</TABLE>
*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 the Class IB shares since the Class IB inception date was 4.05%. The return
on Lehman Aggregate Bonds 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 Portfolio and its
predecessor (registered investment company) since the predecessor 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 and its predecessor since 1995. Mr. Bloom, a Senior Vice President of
Alliance, has been associated with Alliance since 1989.
-35-
<PAGE>
JPM CORE BOND PORTFOLIO
INVESTMENT OBJECTIVE: Seeks to provide a high total return consistent with
moderate risk of capital and maintenance of liquidity.
THE INVESTMENT STRATEGY
This Portfolio's total return will consist of income plus realized and
unrealized capital gains and losses. The Portfolio currently invests all of its
assets in investment grade debt securities rated BBB or better by Standard &
Poor's ("S&P") or Baa or better by Moody's Investors Services, Inc. ("Moody's")
or unrated securities of similar quality.
The Adviser actively manages the Portfolio's duration, the allocation of
securities across market sectors and the selection of specific securities within
market sectors. Based on fundamental, economic and capital markets research, the
Adviser adjusts the duration of the Portfolio based on the Adviser's view of the
market and interest rates. The Adviser also actively allocates the Portfolio's
assets among the broad sectors of the fixed income market. These securities
principally include U.S. Government and agency securities, corporate securities,
private placements, asset-backed securities, mortgage-related securities and
direct mortgage obligations. The securities can be of any duration but will
generally mature within one year of the Salomon Brothers Broad Investment Grade
Bond Index (currently about 5 years). The Portfolio may also use futures
contracts to change the duration of the Portfolio's bond holdings.
[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.]
The Portfolio may also invest up to 25% of its assets in securities of foreign
issuers, including up to 20% of its assets in debt securities denominated in
currencies of developed foreign countries.
Under normal market conditions, the Portfolio will be primarily invested in
bonds. When market or financial conditions warrant, the Portfolio may invest up
to 100% of its assets in money market securities for temporary or defensive
purposes. Such investment strategies are inconsistent with the Portfolio's
investment objective and could result in the Portfolio not achieving its
investment objective.
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.
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.
-36-
<PAGE>
MORTGAGE-BACKED SECURITIES RISK: Rising interest rates may cause the
duration of mortgage-backed securities to increase. 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.
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.
PORTFOLIO TURNOVER RISK: The Portfolio's turnover rate has been over 100% per
year. Higher portfolio turnover (e.g., over 100% per year) will cause the
Portfolio to incur additional transaction costs and may result in higher taxable
gains that could be passed through to shareholders.
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; 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 return 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 a broad-based index. Both
the bar chart and table assume reinvestment of dividends and distributions. Past
performance is not an indication of future performance. The performance results
presented below do not reflect any insurance and Contract-related expenses,
which would reduce the performance results. The Portfolio commenced operations
on January 1, 1998.
Both the bar chart and table assume reinvestment of dividends and distributions.
The performance results do not reflect any insurance and Contract-related
expenses, which would reduce the performance results.
-37-
<PAGE>
CALENDAR YEAR ANNUAL TOTAL RETURN
------------------------------------
1998-------------------------- 9.02%
Best quarter (% and time period) Worst quarter (% and time period)
4.72% (1998 3rd Quarter) 0.21% (1998 4th Quarter)
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- -------------------------------------------------------------------------------
ONE YEAR SINCE INCEPTION
- -------------------------------------------------------------------------------
JPM CORE BOND PORTFOLIO 9.02% 9.02%
- -------------------------------------------------------------------------------
SALOMON BROTHERS BROAD 8.72% 8.72%
INVESTMENT GRADE BOND INDEX*
- -------------------------------------------------------------------------------
* For more information on this index, see the preceding section
"The Benchmarks."
WHO MANAGES THE PORTFOLIO
J.P. MORGAN INVESTMENT MANAGEMENT INC. ("J.P. Morgan"), 522 Fifth Avenue,
New York, New York 10036. J.P. Morgan has been the Adviser to the Portfolio
since it commenced operations. J.P. Morgan is a registered investment
adviser and is a wholly owned subsidiary of J.P. Morgan & Co. Incorporated,
a bank holding company. J.P. Morgan manages portfolios for corporations,
governments, endowments, as well as many of the largest corporate retirements
plans in the nation.
The Portfolio Managers, responsible for the day to day management of the
Portfolio since it commenced operations, are PAUL L. ZEMSKY, a Managing Director
of J.P. Morgan and a portfolio manager specializing in quantitative techniques,
who joined J.P. Morgan in 1985; and ROBERT J. TEATOM, a Managing Director of
J.P. Morgan and co-head of its U.S. Fixed Income Group, who joined J.P. Morgan
in 1975.
-38-
<PAGE>
DOMESTIC EQUITY PORTFOLIOS
ALLIANCE COMMON STOCK PORTFOLIO
INVESTMENT OBJECTIVE: Seeks to achieve long-term growth of its capital and
increased 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.
-39-
<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. 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
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.
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.
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 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.
PORTFOLIO PERFORMANCE
The bar chart below illustrates the Portfolio's annual total returns for each of
the last ten calendar years and some of the risks of investing in the Portfolio
by showing yearly changes in the Portfolio's performance. The table below shows
the Portfolio's average annual total returns for the past one, five and ten
years and compares the Portfolio's performance to: (i) the returns of a
broad-based index and (ii) the returns of an index of funds with similar
investment objectives. Past performance is not an indication of future
performance.
The Portfolio's performance shown below is the performance of its predecessor
registered investment company (HRT/Alliance Common Stock Portfolio) managed by
the Adviser using the same investment objectives and strategy as the Portfolio.
For these purposes, the Portfolio is considered to be the successor entity to
the predecessor registered investment company (HRT/Alliance Common Stock
Portfolio) whose
-40-
<PAGE>
inception date was June 16, 1975. The assets of the predecessor
will be transferred to the Portfolio on October 1, 1999.
Both the bar chart and table assume reinvestment of dividends and distributions.
The performance results do not reflect any insurance and Contract-related fees
and expenses, which would reduce the performance results.
CALENDAR YEAR ANNUAL TOTAL RETURN
- ------------------------------------
1989-------------------------- 25.3%
1990-------------------------- -8.4%
1991-------------------------- 37.6%
1992-------------------------- 3.0%
1993-------------------------- 24.6%
1994-------------------------- -2.4%
1995-------------------------- 32.2%
1996-------------------------- 24.0%
1997-------------------------- 29.1%
1998-------------------------- 29.1%
Best quarter (% and time period) Worst quarter (% and time period)
28.36% (1998 4th Quarter) -20.28% (1990 3rd Quarter)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS*
- ----------------------------------------------------------------------------------------------------------
- ------------------------------------------ -------------------- --------------------- --------------------
ONE YEAR FIVE YEARS TEN YEARS
- ------------------------------------------ -------------------- --------------------- --------------------
- ------------------------------------------ -------------------- --------------------- --------------------
ALLIANCE COMMON STOCK RETURN 29.06% 21.67% 18.38%
PORTFOLIO - CLASS IB SHARES
- ----------------------------------------------------------------------------------------------------------
S&P 500 INDEX** 25.58% 24.06% 19.21%
- ----------------------------------------------------------------------------------------------------------
LIPPER GROWTH EQUITY MUTUAL 22.86% 18.63% 16.72%
FUNDS AVERAGE**
- ----------------------------------------------------------------------------------------------------------
</TABLE>
*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 the Class IB shares since the Class IB inception date was 30.09%. The return
for the S&P 500 Index 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."
-41-
<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 Portfolio and its
predecessor (registered investment company) since the predecessor 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 and its predecessor since 1977. Mr. Smith, a Senior Vice President
of Alliance, has been associated with Alliance since 1970.
-42-
<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.
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. Similarly, 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.
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
-43-
<PAGE>
or improper valuation and the risk that changes in value of the derivative may
not correlate perfectly with the relevant assets, rates and indices.
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 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.
PORTFOLIO PERFORMANCE
The bar chart below illustrates the Portfolio's annual total returns for each of
the last four calendar years and some of the risks of investing in the Portfolio
by showing yearly changes in the Portfolio's performance. The table below shows
the Portfolio's average annual total returns for the past year and since
inception and compares the Portfolio's performance to: (i) the returns of a
broad-based index and (ii) the returns of an index of funds with similar
investment objectives. Past performance is not an indication of future
performance.
The Portfolio's performance shown below is the performance of its predecessor
registered investment company (HRT/Alliance Equity Index Portfolio) managed by
the Adviser using the same investment objectives and strategy as the Portfolio.
For these purposes, the Portfolio is considered to be the successor entity to
the predecessor registered investment company (HRT/Alliance Equity Index
Portfolio) whose inception date was March 1, 1994. The assets of the predecessor
will be transferred to the Portfolio on October 1, 1999.
Both the bar chart and table assume reinvestment of dividends and distributions.
The performance results do not reflect any insurance and Contract-related fees
and expenses, which would reduce the performance results.
CALENDAR YEAR ANNUAL TOTAL RETURN*
------------------------------------
1995-------------------------- 36.2%
1996-------------------------- 22.1%
1997-------------------------- 32.3%
1998-------------------------- 27.7%
Best quarter (% and time period) Worst quarter (% and time period)
21.07% (1998 4th Quarter) 10.03% (1998 3rd Quarter)
-44-
<PAGE>
- --------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS*
- --------------------------------------------------------------------
- --------------------------------------------------------------------
ALLIANCE EQUITY INDEX
PORTFOLIO - CLASS IB SHARES 27.74% 24.07%
- --------------------------------------------------------------------
S&P 500 INDEX** 25.58% 24.79%
- --------------------------------------------------------------------
LIPPER S&P 500 INDEX FUNDS AVERAGE** 28.05% 24.31%
- --------------------------------------------------------------------
*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 the Class IB shares since the Class IB inception date was 30.61%. The return
for the S&P 500 Index 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 Portfolio and its
predecessor (registered investment company) since the predecessor 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.
JUDITH A. DEVIVO has been responsible for the day-to-day management of the
Portfolio and its predecessor since its inception. Ms. DeVivo, a Vice
President of Alliance, has been associated with Alliance since 1970.
-45-
<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. The value
of convertible securities fluctuates both in relation to changes in interest
rates and changes in the value of the underlying common stock.
-46-
<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
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.
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: To the extent the Portfolio invests in foreign
securities, it is subject to 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 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.
PORTFOLIO PERFORMANCE
The bar chart below illustrates the Portfolio's annual total returns for each of
the last five calendar years and some of the risks of investing in the Portfolio
by showing yearly changes in the Portfolio's performance. The table below shows
the Portfolio's average annual total returns for the past one year, five years
and since inception and compares the Portfolio's performance to: (i) the returns
of a broad-based index; (ii) the returns of a "blended" index of equity and
fixed income securities; and (iii) the returns of an index of funds with similar
investment objectives. Past performance is not an indication of future
performance.
The Portfolio's performance shown below is the performance of its predecessor
registered investment company (HRT/Alliance Growth and Income Portfolio) managed
by the Adviser using the same investment objectives and strategy as the
Portfolio. For these purposes, the Portfolio is considered to be the successor
entity to the predecessor registered investment company (HRT/Alliance Growth and
Income Portfolio) whose inception date was October 1, 1993. The assets of the
predecessor will be transferred to the Portfolio on October 1, 1999.
-47-
<PAGE>
Both the bar chart and table assume reinvestment of dividends and distributions.
The performance results do not reflect any insurance and Contract-related fees
and expenses, which would reduce the performance results.
CALENDAR YEAR ANNUAL TOTAL RETURN*
------------------------------------
1994-------------------------- -0.8%
1995-------------------------- 23.8%
1996-------------------------- 19.8%
1997-------------------------- 26.6%
1998-------------------------- 20.6%
Best quarter (% and time period) Worst quarter (% and time period)
26.22% (1998 4th Quarter) -15.09% (1998 3rd Quarter)
<TABLE>
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS*
- -----------------------------------------------------------------------------------------------------------
- ---------------------------------------- ---------------------- --------------------- ---------------------
ONE YEAR FIVE YEARS SINCE INCEPTION
- ---------------------------------------- ---------------------- --------------------- ---------------------
- ---------------------------------------- ---------------------- --------------------- ---------------------
ALLIANCE GROWTH AND INCOME PORTFOLIO - 20.56% 17.57% 16.56%
CLASS IB SHARES
- ---------------------------------------- ---------------------- --------------------- ---------------------
- ---------------------------------------- ---------------------- --------------------- ---------------------
S&P 500 INDEX** 28.58% 24.06% 23.32%
- ---------------------------------------- ---------------------- --------------------- ---------------------
- ---------------------------------------- ---------------------- --------------------- ---------------------
75% S&P 500 INDEX/25% 20.10% 21.07% 20.48%
VALUE LINE CONVERTIBLE**
- ---------------------------------------- ---------------------- --------------------- ---------------------
- ---------------------------------------- ---------------------- --------------------- ---------------------
LIPPER GROWTH AND INCOME FUNDS 15.61% 18.35% 17.89%
FUNDS AVERAGE
- ---------------------------------------- ---------------------- --------------------- ---------------------
</TABLE>
*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 the Class IB shares since the Class IB inception date was 26.25%. The return
for the S&P 500 Index 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."
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 Portfolio and its
predecessor (registered investment company) since the predecessor commenced
operations. Alliance, a publicly traded limited partnership, is indirectly
majority-owned by Equitable. Alliance manages investment companies,
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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 and its predecessor'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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BT EQUITY 500 INDEX PORTFOLIO
INVESTMENT OBJECTIVE: Seeks to replicate as closely as possible (before
deduction of Portfolio expenses) the total return of the S&P 500.
THE INVESTMENT STRATEGY
The Portfolio invests in equity securities of companies included in the S&P 500.
The Adviser seeks to match the risk and return characteristics of the S&P 500 by
investing in a statistically selected sample of the securities found in the S&P
500, using a process known as "optimization". This process selects stocks for
the Portfolio so that industry weightings, market capitalizations and
fundamental characteristics (price to book ratios, price to earnings ratios,
debt to asset ratios and dividend yields) closely match those of the securities
included in the S&P 500. This approach helps to increase the Portfolio's
liquidity and reduce costs. The securities held by the Portfolio are weighted to
make the Portfolio's total investment characteristics similar to those of the
S&P 500 as a whole.
The Adviser generally will seek to match the composition of the S&P 500 but
usually will not invest the Portfolio's stock portfolio to mirror the S&P 500
exactly. Because of the difficulty and cost of executing relatively small stock
transactions, the Portfolio may not always be invested in the less heavily
weighted S&P 500 stocks, and may at times have its portfolio weighted
differently than the S&P 500, particularly if the Portfolio has a low level of
assets. In addition, the Portfolio may omit or remove any S&P 500 stock from the
Portfolio if, following objective criteria, the Adviser judges the stock to be
insufficiently liquid or believes the merit of the investment has been
substantially impaired by extraordinary events or financial conditions. The
Portfolio will not purchase the stock of Bankers Trust New York Corporation,
which is included in the S&P 500, and instead will overweight its holdings of
companies engaged in similar businesses.
[SIDEBAR: For more information on the S&P 500, see the preceding section "The
Benchmarks." The Portfolio is not sponsored, endorsed, sold or promoted by S&P
and S&P makes no guarantee as to the accuracy and/or completeness of the S&P 500
or any data included therein.]
Over time, the correlation between the performance of the Portfolio and the S&P
is expected to be 95% or higher before deduction of Portfolio expenses. The
Portfolio's ability to track the S&P 500 may be affected by, among others,
transaction costs, administration and other expenses incurred by the Portfolio,
changes in either the composition of the S&P 500 or the assets of the Portfolio,
and the timing and amount of Portfolio investor contributions and withdrawals,
if any. The Portfolio seeks securities to track the S&P 500, therefore, the
Adviser generally will not attempt to judge the merits of any particular
security as an investment.
The Portfolio may also invest up to 20% of its assets in short-term debt
securities and money market instruments to meet redemption requests or to
facilitate investment in the securities of the S&P 500. Securities index futures
contracts and related options, warrants and convertible securities may be used
for a number of reasons, including: to simulate full investment in the S&P 500
while retaining a cash balance for Portfolio management purposes; to facilitate
trading; to reduce transaction costs; or to seek higher investment returns when
a future contract, option, warrant or convertible security is priced more
attractively than the underlying equity security or S&P 500. These instruments
are considered to be 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:
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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.
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 return for 1998,
the Portfolio's first year of existence. The table below shows the Portfolio's
average annual total returns for the Portfolio for one year and since inception.
The table also compares the Portfolio's performance to the returns of a broad
based index. Both the bar chart and table assume reinvestment of dividends and
distributions. Past performance is not an indication of future performance. The
performance results presented below do not reflect any insurance and
Contract-related fees and expenses, which would reduce the performance results.
The Portfolio's inception date was January 1, 1998.
CALENDAR YEAR ANNUAL TOTAL RETURN
25.14%
1998
Best quarter (% and time period) Worst quarter (% and time period)
21.26% (1998 4th Quarter) (10.03)% (1998 3rd Quarter)
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- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR SINCE INCEPTION
BT EQUITY 500 INDEX PORTFOLIO 25.14% 25.14%
S&P 500 INDEX* 28.58% 28.58%
- -------------------------------------------------------------------------------
* For more information on this index, see the preceding section "The
Benchmarks."
WHO MANAGES THE PORTFOLIO
BANKERS TRUST COMPANY ("Bankers Trust"), 130 Liberty Street (One Bankers Trust
Plaza), New York, New York 10006. Bankers Trust has been the Adviser to the
Portfolio since it commenced operations. Bankers Trust is a wholly-owned
subsidiary of Bankers Trust Corporation. Bankers Trust conducts a variety of
general banking and trust activities and is a major wholesale supplier of
financial services, including investment management to the international and
domestic institutional markets. During 1999, Bankers Trust Corporation and a
wholly owned subsidiary of Deutsche Bank AG ("Deutsche Bank") expect to finalize
a merger in which Bankers Trust Corporation will be acquired by and become a
subsidiary of Deutsche Bank.
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<PAGE>
CALVERT SOCIALLY RESPONSIBLE PORTFOLIO
INVESTMENT OBJECTIVE: Seeks long-term capital appreciation.
THE INVESTMENT STRATEGY
The Portfolio invests primarily in common stocks of medium to large U.S.
companies that meet both investment and social criteria. Brown Capital and
Calvert use a tandem investment process to select potential investments for the
Portfolio. Brown Capital creates a universe of potential investments from which
it and Calvert will ultimately select portfolio securities. Once Brown Capital
identifies a potential investment, Calvert promptly socially screens each
potential investment to assure that it meets Calvert's social criteria. During
that process, Brown Capital continues to evaluate each potential investment
based on whether that investment will satisfy Brown Capital's investment
criteria. The criteria of both Brown Capital and Calvert must be satisfied
before a security will be purchased for the Portfolio.
[Sidebar: For purposes of this Portfolio, companies having market
capitalizations greater than $1 billion are considered medium to large
companies.]
Investment Criteria. Brown Capital's investment process balances the growth
potential of investments with the price or value of the investment in order to
identify stocks that offer above average growth potential at reasonable prices.
Brown Capital evaluates each stock in terms of its growth potential, the return
on risk-free investments, and the specific risk features of the company to
determine the reasonable price for the stock.
The Portfolio may invest up to 15% of its net assets in illiquid securities,
which are securities that cannot be readily sold because there is no active
market for them.
The Portfolio may invest in derivative instruments, such as foreign currency
contracts (up to 5% of its total assets), options on securities and indices (up
to 5% of its total assets), and futures contracts (up to 5% of its net assets).
When market or financial conditions warrant, the Portfolio may invest a
substantial portion of its assets in short-term obligations for temporary or
defensive purposes. If such action is taken, it will detract from achievement of
the Portfolio's investment objective during such periods.
Social Criteria. Calvert analyzes investments from a social activist
perspective. Calvert's philosophy is that long-term rewards to investors will
come from those organizations whose products, services and methods enhance the
human condition and the traditional American values of individual initiative,
equality of opportunity and cooperative effort. These criteria represent
standards of behavior which few, if any, organizations totally satisfy. As a
matter of practice, evaluation of a particular organization in the context of
these criteria will involve subjective judgment by Calvert.
The Portfolio seeks to invest in companies that:
o deliver safe products and services in ways that sustain our natural
environment. For example, the Portfolio looks for companies that
produce energy from renewable resources, while avoiding consistent
polluters;
o manage with participation throughout the organization in defining
and achieving objectives. For example, the Portfolio looks for
companies that offer employee stock ownership or profit-sharing
plans;
o negotiate fairly with their workers, provide an environment
supportive of their wellness, do not discriminate on the basis of
race, gender, religion, age, disability, ethnic origin, or sexual
orientation, do not consistently violate regulations of the U.S.
Equal Employment Opportunity Commission, and provide opportunities
for women, disadvantaged minorities,
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and others for whom equal opportunities have often been denied. For
example, the Portfolio considers both unionized and non-union firms
with good labor relations; and
o foster awareness of a commitment to human goals, such as creativity,
productivity, self-respect and responsibility, within the
organization and the world, and continually recreates a context
within which these goals can be realized. For example, the Portfolio
looks for companies with an above average commitment to community
affairs and charitable giving.
The Portfolio will not invest in companies that Calvert determines to be
significantly engaged in:
o production of or the manufacture of equipment to produce, nuclear
energy;
o business activities in support of repressive regimes;
o manufacture of weapon systems;
o manufacture of alcoholic beverages or tobacco products; or
o operation of gambling casinos.
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 markets.
MID-CAP COMPANY RISK: The Portfolio's investments in 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 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; 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 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.
PORTFOLIO PERFORMANCE
The inception date for this Portfolio is August 30, 1999. Therefore, no prior
performance information is available.
WHO MANAGES THE PORTFOLIO
CALVERT ASSET MANAGEMENT COMPANY, INC. ("Calvert"), 4550 Montgomery Avenue,
Suite 1000N, Bethesda, Maryland 20814, a subsidiary of Calvert Group Ltd., which
is a subsidiary of Acacia Mutual Life Insurance Company of Washington, DC
("Acacia Mutual"). On January 1, 1999, Acacia Mutual merged with and became a
controlled subsidiary of Ameritas Acacia Mutual Holding Company. Calvert has
been the Adviser to the Portfolio since it commenced operations. It has been
managing mutual funds since 1976. Calvert is the investment adviser for over 25
mutual funds, including the first and largest
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<PAGE>
family of socially screened funds. Calvert provides the social investment
research and screening of the Portfolio's investments. As of December 31, 1998,
Calvert had $6 billion in assets under management.
BROWN CAPITAL MANAGEMENT, INC. ("Brown Capital"), 809 Cathedral Street,
Baltimore, Maryland 21201. Brown Capital initially identifies potential
investments for the Portfolio, which are then promptly screened by Calvert using
the Portfolio's social criteria.
EDDIE C. BROWN, founder and President of Brown Capital, heads the management
team for the Portfolio. He has over 24 years of investment management
experience, and has held positions with T. Rowe Price and Irwing Management
Company. Mr. Brown is a frequent panelist on "Wall Street Week with Louis
Rukeyser" and is a member of the Wall Street Week Hall of Fame.
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<PAGE>
CAPITAL GUARDIAN RESEARCH PORTFOLIO
INVESTMENT OBJECTIVE: To achieve long-term growth of capital.
THE INVESTMENT STRATEGY
The Portfolio invests primarily in equity securities of United States issuers
and securities whose principal markets are in the United States, including
American Depositary Receipts and other United States registered foreign
securities. The Portfolio invests primarily in common stocks (or securities
convertible or exchangeable into common stocks) of companies with market
capitalization greater than $1 billion at the time of purchase.
The Portfolio may invest up to 10% of its total assets, at the time of purchase,
in securities of issuers domiciled outside the United States and not included in
the S&P 500 (i.e., foreign securities).
When market or financial conditions warrant, the Portfolio may invest a
substantial portion of its assets in high-quality debt securities, including
short-term obligations for temporary or defensive purposes. If such action is
taken, it will detract from achievement of the Portfolio's investment objective
during such periods.
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 markets.
CONVERTIBLE SECURITIES RISK: Convertible securities 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. 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 RISK: 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; adverse changes in foreign economic and tax policies; and foreign
government instability, war or other adverse political or economic actions.
PORTFOLIO PERFORMANCE
The inception date for this Portfolio was April 30, 1999. Therefore, no prior
performance information is available.
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WHO MANAGES THE PORTFOLIO
CAPITAL GUARDIAN TRUST COMPANY ("Capital Guardian"), 333 South Hope Street, Los
Angeles, CA 90071. Capital Guardian is a wholly-owned subsidiary of Capital
Group International, Inc., which itself is a wholly owned subsidiary of The
Capital Group Companies, Inc. Capital Guardian has been providing investment
management services since 1968 and manages approximately $80 billion as of
December 31, 1998.
The Portfolio is managed by a group of investment research professionals, led by
the Research Portfolio Coordinator, each of whom has investment discretion over
a segment of the total Portfolio. The size of each segment will vary over time
and may be based upon: (1) the level of conviction of specific research
professionals as to their designated sectors; (2) industry weights within the
relevant benchmark for the Portfolio; and (3) the judgment of the Research
Portfolio Coordinator in assessing the level of conviction of research
professionals compared to industry weights within the relevant benchmark.
Sectors may be overweighted relative to their benchmark weighting if there is a
substantial number of stocks that are judged to be attractive based on the
research professionals research in that sector, or may be underweighted if there
are relatively fewer stocks viewed to be attractive in the sector. The Research
Portfolio Coordinator also coordinates the cash holdings of the Portfolio.
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CAPITAL GUARDIAN U.S. EQUITY PORTFOLIO
INVESTMENT OBJECTIVE: To achieve long-term growth of capital.
THE INVESTMENT STRATEGY
The Portfolio strives to accomplish its investment objectives through constant
supervision, careful securities selection and broad diversification.
The Portfolio invests primarily in equity securities of United States companies
with market capitalization greater than $1 billion at the time of purchase. In
selecting securities for investment, the Adviser focuses primarily on the
potential of capital appreciation.
The Portfolio may invest up to 10% of its total assets in securities of issuers
domiciled outside the United States and not included in the S&P 500 (i.e.,
foreign securities). These securities may include American Depositary Receipts.
When market or financial conditions warrant, the Portfolio may invest a
substantial portion of its assets in high-quality debt securities, including
short-term obligations for temporary or defensive purposes. If such action is
taken, it will detract from achievement of the Portfolio's investment objective
during such periods.
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 markets.
CONVERTIBLE SECURITIES RISK: Convertible securities 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. 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 RISK: 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; adverse changes in foreign economic and tax policies; and foreign
government instability, war or other adverse political or economic actions.
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PORTFOLIO PERFORMANCE
The inception date for this Portfolio was April 30, 1999. Therefore, no prior
performance information is available.
WHO MANAGES THE PORTFOLIO
CAPITAL GUARDIAN TRUST COMPANY ("Capital Guardian"), 333 South Hope Street, Los
Angeles, CA 90071. Capital Guardian is a wholly-owned subsidiary of Capital
Group International, Inc., which itself is a wholly owned subsidiary of The
Capital Group Companies, Inc. Capital Guardian has been providing investment
management services since 1968 and manages approximately $80 billion as of
December 31, 1998.
Capital Guardian uses a multiple portfolio manager system under which the
Portfolio is divided into several segments. Each segment is individually managed
with the portfolio manager free to decide on company and industry selections as
well as valuation and transaction assessment. An additional portion of the
Portfolio is managed by a group of investment research analysts.
The individual portfolio managers of each segment of the Portfolio, other than
that managed by the group of research analysts, are as follows:
DONNALISA P. BARNUM. Donnalisa Barnum is a Senior Vice President and a portfolio
manager for Capital Guardian. She joined the Capital Guardian organization in
1986.
MICHAEL R. ERICKSON. Michael Erickson is a Senior Vice President and portfolio
manager for Capital Guardian and a Senior Vice President and Director for
Capital International Limited. He joined the Capital Guardian organization in
1987.
DAVID I. FISHER. David Fisher is Chairman of the Board of Capital Group
International, Inc. and Capital Guardian. He joined the Capital Guardian
organization in 1969.
THEODORE R. SAMUELS. Theodore Samuels is a Senior Vice President and a Director
for Capital Guardian, as well as a Director of Capital International Research,
Inc. He joined the Capital Guardian organization in 1981.
EUGENE P. STEIN. Eugene Stein is Executive Vice President, a Director, a
portfolio manager, and Chairman of the Investment Committee for Capital
Guardian. He joined the Capital Guardian organization in 1972.
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EQ/ALLIANCE PREMIER GROWTH PORTFOLIO
INVESTMENT OBJECTIVE: To achieve long-term growth of capital by primarily
investing in equity securities of a limited number of large, carefully selected,
high-quality United States companies that are judged, by the Adviser, likely to
achieve superior earnings growth.
THE INVESTMENT STRATEGY
The Portfolio invests primarily (at least 85% of its total assets) in equity
securities of United States companies. The Portfolio is diversified for purposes
of the 1940 Act, however it is still highly concentrated. The Portfolio focuses
on a relatively small number of intensively researched companies. The Adviser
selects the Portfolio's investments from a research universe of more than 600
companies that have strong management, superior industry positions, excellent
balance sheets and superior earnings growth prospects. An emphasis is placed on
identifying securities of companies whose substantially above-average
prospective earnings growth is not fully reflected in current market valuations.
Normally, the Portfolio invests in about 40-50 companies, with the 25 most
highly regarded of these companies usually constituting approximately 70% of the
Portfolio's net assets. In managing the Portfolio, the Adviser seeks to
capitalize on apparently unwarranted price fluctuations both to purchase or
increase positions on weakness and to sell or reduce overpriced holdings. The
Portfolio normally remains nearly fully invested and does not take significant
cash positions for market timing purposes. During market declines, while adding
to positions in favored stocks, the Portfolio becomes somewhat more aggressive,
gradually reducing the number of companies represented in its holdings.
Conversely, in rising markets, while reducing or eliminating fully valued
positions, the Portfolio becomes somewhat more conservative, gradually
increasing the number of companies represented in its holdings. Through this
approach, the Adviser seeks to gain positive returns in good markets while
providing some measure of protection in poor markets.
The Adviser expects the average market capitalization of companies represented
in the Portfolio normally to be in the range, or in excess, of the average
market capitalization of companies included in the S&P 500.
The Portfolio may invest up to 20% of its net assets in convertible securities
and 15% of its total assets in securities of foreign issuers.
The 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.
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:
FOCUSED PORTFOLIO RISK: The Portfolio invests in the securities of a limited
number of companies. Consequently, the Portfolio may incur more risk because
changes in the value of a single security may have a more significant effect,
either positive or negative, on the Portfolio's net asset value.
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 markets.
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CONVERTIBLE SECURITIES RISK: Convertible securities 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. 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 RISK: 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; adverse changes in foreign economic and tax policies; and foreign
government instability, war or other adverse political or economic actions.
PORTFOLIO PERFORMANCE
The inception date for this Portfolio was April 30, 1999. Therefore, no prior
performance information is available.
WHO MANAGES THE PORTFOLIO
ALLIANCE CAPITAL MANAGEMENT L.P. ("Alliance"), 1345 Avenue of the Americas, New
York, New York 10105. Alliance's sole general partner is Alliance Capital
Management Corporation, which is an indirect wholly-owned subsidiary of
Equitable, one of the largest life insurance companies in the United States and
a wholly-owned subsidiary of The Equitable Companies Incorporated. Therefore,
the Manager and Alliance are affiliates of each other. Alliance, a Delaware
limited partnership, is a leading international investment manager.
ALFRED HARRISON is the Portfolio Manager and has been responsible for the
day-to-day management of the Portfolio since its inception. Mr. Harrison is Vice
Chairman of Alliance Capital Management Corporation and has been with Alliance
since 1978. Prior to 1978, Mr. Harrison was co-founder, President, and Chief
Executive Officer of IDS Advisory Corporation, the pension fund investment
management subsidiary of Investors Diversified Services, Inc.
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EQ/PUTNAM GROWTH & INCOME VALUE PORTFOLIO
INVESTMENT OBJECTIVE: Seeks capital growth. Current income is a secondary
objective.
THE INVESTMENT STRATEGY
The Portfolio invests primarily in common stocks that offer potential for
capital growth and may invest in stocks that offer potential for current income.
In analyzing companies for investment, the Adviser tries to identify common
stocks of companies that are significantly undervalued compared with their
underlying assets or earnings potential and offer growth and current income
potential.
The Portfolio may also invest in corporate bonds, notes and debentures,
preferred stocks or convertible securities (both debt securities and preferred
stocks) or U.S. Government securities.
It may also invest a portion of its assets in debt securities rated below
investment grade ( commonly referred to as "junk bonds"), zero-coupon bonds and
payment-in-kind bonds, and high quality U.S. and foreign dollar-denominated
money market securities. The Portfolio may invest up to 20% of its total assets
in foreign securities, including transactions involving futures contracts,
forward contracts and options and foreign currency exchange transactions.
There may be times when the Adviser will use additional investment strategies to
achieve a Portfolio's investment objectives. For example, the portfolio may
engage in a variety of investment management practices such as buying and
selling derivatives, including stock index futures contracts and call and put
options.
When market or financial conditions warrant, the Portfolio may invest up to 100%
of its assets in debt securities, preferred stocks or other securities for
temporary or defensive purposes. Such investment strategies are inconsistent
with the Portfolio's investment objectives and 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:
VALUE INVESTING RISK: As noted above, the Portfolio uses a value-oriented
approach to stock selection. Value investing is subject to the risk that a value
stock's intrinsic value may never be fully recognized or realized by the market,
or its price may go down. There is also the risk that a stock judged to be
undervalued may actually be appropriately priced.
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; adverse changes in foreign economic and tax policies; and foreign
government instability, war or other adverse political or economic actions.
-62-
<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. The risk that an issuer or guarantor of a fixed income security
or counterparty to the Portfolio's fixed income transaction is unable to meets
its financial obligations is particularly significant for this Portfolio because
this Portfolio invests a portion of its assets in "junk bonds" (i.e., securities
rated below investment grade). Junk bonds are issued by companies with
questionable credit strength and, consequently, are considered to be speculative
in nature and may be subject to greater market fluctuations than investment
grade fixed-income securities.
PORTFOLIO PERFORMANCE
The bar chart below illustrates the Portfolio's annual total return for 1998,
the Portfolio's first full year of operations. The table below shows the
Portfolio's average annual total returns for the Portfolio for one year and
since inception. The table also compares the Portfolio's performance to the
returns of a broad-based index. Both the bar chart and table assume reinvestment
of dividends and distributions. Past performance is not an indication of future
performance. The performance results presented below do not reflect any
insurance and Contract-related fees and expenses, which would reduce the
performance results. The inception date for the Portfolio was May 1, 1997.
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<PAGE>
- -------------------------------------------------------------------------------
CALENDAR YEAR ANNUAL TOTAL RETURN
12.8%
1998
- -------------------------------------------------------------------------------
Best quarter (% and time period) Worst quarter (% and time period)
16.49% (1998 4th Quarter) (10.58)% (1998 3rd Quarter)
- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR SINCE INCEPTION
EQ/PUTNAM GROWTH & INCOME
VALUE PORTFOLIO 12.75% 17.56%
S&P 500 INDEX* 28.58% 31.63%
- -------------------------------------------------------------------------------
* For more information on this index, see the preceding section "The
Benchmarks."
WHO MANAGES THE PORTFOLIO
PUTNAM INVESTMENT MANAGEMENT, INC. ("Putnam Management"), One Post Office
Square, Boston, MA 02109. Putnam Management has been the Adviser to the
Portfolio since the Portfolio commenced operations. Putnam Management has been
managing mutual funds since 1937. Putnam Management is a subsidiary of Putnam
Investments, Inc., which is itself a subsidiary of Marsh & McLennan Companies,
Inc.
ANTHONY I. KREISEL is the Portfolio Manager responsible for the day to day
management of the Portfolio since it commenced operations. Mr. Kreisel has been
employed by Putnam Management as either a portfolio manager or analyst since
1986.
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<PAGE>
EQ/PUTNAM INVESTORS GROWTH PORTFOLIO
INVESTMENT OBJECTIVE: Seeks long-term growth of capital and any increased income
that results from this growth.
THE INVESTMENT STRATEGY
The Portfolio invests primarily in common stocks of companies with market
capitalizations of $2 billion or more. The Adviser gives consideration to growth
potential rather than to dividend income. The Portfolio may purchase securities
of medium-sized companies having a proprietary product or profitable market
niches and the potential to grow very rapidly.
The Adviser invests mostly in "growth" stocks whose earnings the Adviser
believes are likely to grow faster than the economy as a whole. The Adviser
evaluates a company's future earnings potential and dividends, financial
strength, working assets and competitive position in its industry.
Although the Portfolio invests primarily in U.S. stocks, the Portfolio may
invest without limit in securities of foreign issuers that are traded in U.S.
public markets. It may also, to a lesser extent, invest in securities of foreign
issuers that are not traded in U.S. public markets.
The Portfolio may also engage in a variety of transactions involving
derivatives, such as futures, options, warrants and swaps and may also invest in
convertible securities, preferred stocks and debt securities.
When market or financial conditions warrant, the Portfolio may invest without
limit in debt securities, preferred stocks, United States Government and agency
obligations, cash or money market instruments, or any other securities for
temporary or defensive purposes. Such investment strategies are inconsistent
with the Portfolio's investment objectives and 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.
MID-CAP COMPANY RISK: The Portfolio's investments in 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 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; and the products of technologies of such companies may be
at a relatively early stage of development or not fully tested.
-65-
<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; adverse changes in foreign economic and tax policies; and foreign
government instability, war or other adverse political or economic actions.
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 return for 1998,
the Portfolio's first full year of operations. The table below shows the
Portfolio's average annual total returns for the Portfolio for one year and
since inception. The table also compares the Portfolio's performance to the
returns of a broad-based index. Both the bar chart and table assume reinvestment
of dividends and distributions. Past performance is not an indication of future
performance. The performance results presented below do not reflect any
insurance and Contract-related fees and expenses, which would reduce the
performance results. The inception date for the Portfolio was May 1, 1997.
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<PAGE>
- -------------------------------------------------------------------------------
CALENDAR YEAR ANNUAL TOTAL RETURN
36.27%
1998
- -------------------------------------------------------------------------------
Best quarter (% and time period) Worst quarter (% and time period)
25.29% (1998 4th Quarter) (11.25)% (1998 3rd Quarter)
- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR SINCE INCEPTION
EQ/PUTNAM INVESTORS GROWTH PORTFOLIO 36.27% 37.34%
S&P 500 INDEX* 28.58% 31.63%
- --------------------------------------------------------------------------------
* For more information on this index, see the preceding section "The
Benchmarks."
WHO MANAGES THE PORTFOLIO
PUTNAM INVESTMENT MANAGEMENT, INC. ("Putnam Management"), One Post Office
Square, Boston, MA 02109. Putnam Management has been the Adviser to the
Portfolio since the Portfolio commenced operations. Putnam Management has been
managing mutual funds since 1937. Putnam Management is a subsidiary of Putnam
Investments, Inc., which is itself a subsidiary of Marsh & McLennan Companies,
Inc.
The Portfolio Managers, responsible for the day to day management of the
Portfolio since its inception, are: C. BETH COTNER, who has been employed by
Putnam Management as an investment professional* since 1995, and prior to 1995,
was a Portfolio Manager and Executive Vice President of Kemper Financial
Services; RICHARD B. ENGLAND, who has been employed by Putnam Management as an
investment professional* since 1992; and MANUAL WEISS HERRERRO, who has been
employed by Putnam Management as investment professional* since 1987.
(*Investment professional means that the manager was either a portfolio manager
or analyst.)
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<PAGE>
LAZARD LARGE CAP VALUE PORTFOLIO
INVESTMENT OBJECTIVE: Seeks capital appreciation by investing primarily in
equity securities of companies with relatively large capitalizations (i.e.,
companies having market capitalizations of at least $3 billion at the time of
initial purchase) that appear to the Adviser to be inexpensively priced relative
to the return on total capital or equity.
THE INVESTMENT STRATEGY
The Portfolio normally invests at least 80% of its total assets primarily in
equity securities of large capitalization companies. Equity securities include
common stocks, preferred stocks and securities convertible into or exchangeable
for common stocks.
The Portfolio uses a value-oriented approach in searching for securities. The
Adviser uses a "bottom-up" approach (individual stock selection) to find
companies that have:
o low price to earnings ratios;
o high yield;
o unrecognized assets;
o the possibility of management change; and
o the prospect of improved profitability.
The Portfolio may also invest up to 20% of its assets in U.S. Government
securities and investment grade debt securities of domestic corporations rated
BBB or better by S&P or Baa or better by Moody's.
The Portfolio may also invest up to 10% of its assets in foreign equity or debt
securities, or depositary receipts.
The Portfolio may also invest without limitation in high-quality, short-term
money market instruments. The Portfolio may engage in options transactions,
including writing covered call options or foreign currencies to offset costs of
hedging and writing and purchasing put and call options on securities. Although
the Portfolio will engage in options transactions primarily to hedge its
Portfolio, it may use options to increase returns. There is the risk that these
transactions sometimes may reduce returns or increase volatility.
When market or financial conditions warrant, the Portfolio may invest, without
limit, in money market securities for temporary or defensive purposes. Such
investment strategies could have the effect of reducing the benefit of any
upswing in the market. Such investment strategies are inconsistent with the
Portfolio's investment objectives and 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:
VALUE INVESTING RISK: As noted above, the Portfolio uses a value-oriented
approach to stock selection. Value investing is subject to the risk that a value
stock's intrinsic value may never be fully recognized or realized by the market,
or its price may go down. There is also the risk that a stock judged to be
undervalued may actually be appropriately priced.
-68-
<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.
PORTFOLIO PERFORMANCE
The bar chart below illustrates the Portfolio's average annual total return for
1998, the Portfolio's first year of existence. The table below shows the
Portfolio's average annual total returns for the Portfolio for one year and
since inception. The table also compares the Portfolio's performance to the
returns of a broad based index. Both the bar chart and table assume reinvestment
of dividends and distributions. Past performance is not an indication of future
performance. The performance results presented below do not reflect any
insurance and Contract-related fees and expenses, which would reduce the
performance results. The Portfolio's inception date was January 1, 1998.
- --------------------------------------------------------------------------------
CALENDAR YEAR ANNUAL TOTAL RETURN
20.01%
1998
- --------------------------------------------------------------------------------
Best quarter (% and time period) Worst quarter (% and time period)
23.34% (1998 4th Quarter) (13.43)% (1998 3rd Quarter)
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<PAGE>
- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR SINCE INCEPTION
LAZARD LARGE CAP VALUE PORTFOLIO 20.01% 20.01%
S&P 500 INDEX* 28.58% 28.58%
- --------------------------------------------------------------------------------
* For more information on this index, see the preceding section "The
Benchmarks."
WHO MANAGES THE PORTFOLIO
LAZARD ASSET MANAGEMENT ("LAM"), 30 Rockefeller Plaza, New York, New York 10112.
LAM has been the Adviser to the Portfolio since it commenced operations. LAM is
a division of Lazard Freres & Co. LLC ("Lazard Freres"), a New York limited
liability company, which is registered as an investment adviser with the SEC.
Lazard Freres provides its clients with a wide variety of investment banking,
brokerage and related services, including investment management.
The Portfolio Managers, responsible for the day to day management since the
inception of the Portfolio are HERBERT W. GULLQUIST, a Vice-Chairman, Managing
Director and Chief Investment Officer of LAM, who has been with LAM since 1982;
and MICHAEL S. ROME, a Managing Director of LAM and a U.S./Global Equity
Portfolio Manager since 1991.
-70-
<PAGE>
MERRILL LYNCH BASIC VALUE EQUITY PORTFOLIO
INVESTMENT OBJECTIVE: Seeks capital appreciation and secondarily, income by
investing in securities, primarily equities, that the Adviser of the Portfolio
believes are undervalued and therefore represent basic investment value.
THE INVESTMENT STRATEGY
The Portfolio chooses securities for capital appreciation that are expected to
increase in value. In selecting securities the Adviser emphasizes stocks that
are undervalued, are selling at a discount, or seem capable of recovering from
being temporarily out of favor. The Adviser places particular emphasis on
securities with statistical characteristics associated with undervaluation.
The Adviser follows a contrary opinion/out-of-favor investment style. The
Adviser believes that favorable changes in market prices are more likely to
occur when:
o stocks are out of favor;
o company earnings are depressed;
o price/earnings ratios are relatively low;
o investment expectations are limited; and
o there is no general interest in a security or industry.
On the other hand, the Adviser believes that negative developments are more
likely to occur when:
o investment expectations are high;
o stock prices are advancing or have advanced rapidly;
o price/earnings ratios have been inflated; and
o an industry or security continues to become popular among investors.
In other words, the Adviser believes that stocks with relatively high
price/earnings ratios are more vulnerable to price declines from unexpected
adverse developments. At the same time, stocks with relatively low
price/earnings ratios are more likely to benefit from favorable but generally
unanticipated events. Thus, the Portfolio may invest a large part of its net
assets in stocks that have weak research ratings.
The Portfolio invests primarily in common stocks of U.S. companies, but may buy
equity securities other than common stock and may also invest up to 10% of its
total assets in securities issued by foreign companies. The Portfolio may also
invest a substantial portion of its assets in companies with market
capitalizations below the largest companies. The Adviser believes that large
institutional investors may overlook these companies, making them undervalued.
The Portfolio has no minimum holding period for investments, and will buy or
sell securities whenever the Portfolio's management sees an appropriate
opportunity.
When market or financial conditions warrant, the Portfolio may invest in U.S.
Government and agency securities, money market securities and other fixed-income
securities for temporary or defensive purposes. Such investment strategies are
inconsistent with the Portfolio's investment objectives and could result in the
Portfolio not achieving its investment objective.
-71-
<PAGE>
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:
VALUE INVESTING RISK: As noted above, the Portfolio uses a value-oriented
approach to stock selection. Value investing is subject to the risk that a value
stock's intrinsic value may never be fully recognized or realized by the market,
or its price may go down. There is also the risk that a stock judged to be
undervalued may actually be appropriately priced.
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 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; and the products of technologies
of such companies may be at a relatively early stage of development or not fully
tested.
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; 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 return for 1998,
the Portfolio's first full year of operations. The table below shows the
Portfolio's average annual total returns for the Portfolio for one year and
since inception. The table also compares the Portfolio's performance to the
returns of a broad-based index. Both the bar chart and table assume reinvestment
of dividends and distributions. Past performance is not an indication of future
performance. The performance results presented below do not reflect any
insurance and Contract-related fees and expenses, which would reduce the
performance results. The inception date for the Portfolio was May 1, 1997.
- --------------------------------------------------------------------------------
CALENDAR YEAR ANNUAL TOTAL RETURN
11.59%
1998
- --------------------------------------------------------------------------------
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<PAGE>
Best quarter (% and time period) Worst quarter (% and time period)
11.20% (1997 3rd Quarter) (10.91)% (1998 3rd Quarter)
- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR SINCE INCEPTION
MERRILL LYNCH BASIC VALUE EQUITY
PORTFOLIO 11.59% 17.29%
S&P 500 INDEX* 28.58% 31.63%
- -------------------------------------------------------------------------------
For more information on this index, see the preceding section "The Benchmarks."
WHO MANAGES THE PORTFOLIO
MERRILL LYNCH ASSET MANAGEMENT, L.P. ("MLAM"), 800 Scudders Mill Road,
Plainsboro, NJ 08543. MLAM has been the Adviser to the Portfolio since it
commenced operations. MLAM is an indirect wholly-owned subsidiary of Merrill
Lynch & Co., Inc., a financial services holding company. The general partner of
MLAM is Princeton Services, Inc., a wholly-owned subsidiary of Merrill Lynch &
Co., Inc. MLAM and its affiliates act as the manager for more than 100
registered investment companies. MLAM also offers portfolio management and
portfolio analysis services to individuals and institutions.
KEVIN RENDINO, a First Vice President of MLAM since 1997, has been the Portfolio
Manager responsible for the day to day management of the Portfolio since it
commenced operations. Mr. Rendino was a Vice President of MLAM from 1993 to
1997.
-73-
<PAGE>
MFS GROWTH WITH INCOME PORTFOLIO
INVESTMENT OBJECTIVE: Seeks to provide reasonable current income and long-term
growth of capital and income.
[SIDEBAR: For purposes of this Portfolio, the words "reasonable current income"
mean moderate income.]
THE INVESTMENT STRATEGY
The Portfolio invests, under normal market conditions, primarily (at least 65%
of its total assets) in equity securities, including common stocks, preferred
stocks, convertible securities, warrants and depositary receipts for those
securities. Equity securities may be listed on a securities exchange or traded
in the over-the-counter markets. While the Portfolio may invest in companies of
any size, the Portfolio generally focuses on companies with larger market
capitalizations that the Adviser believes have sustainable growth prospects and
attractive valuations based on current and expected earnings or cash flow.
The Adviser uses a "bottom-up" investment style in managing the Portfolio. This
means that securities are selected based upon fundamental analysis performed by
the Adviser's large group of equity research analysts.
The Portfolio may invest in foreign securities and may have exposure to foreign
currencies through its investment in these securities, its direct holdings of
foreign currencies or through its use of forward foreign currency exchange
contracts for the purchase or sale of a fixed quantity of foreign currency at a
future date.
When adverse market, financial or political conditions warrant, the Portfolio
may depart from its principal strategies for temporary or defensive purposes.
Such investment strategies are inconsistent with the Portfolio's investment
objective and 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 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; and the products of technologies
of such companies may be at a relatively early stage of development or not fully
tested.
-74-
<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; adverse changes in foreign economic and tax policies; and foreign
government instability, war or other adverse political or economic actions.
PORTFOLIO PERFORMANCE
The inception date for this Portfolio was December 31, 1998. Therefore, no prior
performance information is available.
WHO MANAGES THE PORTFOLIO
MASSACHUSETTS FINANCIAL SERVICES COMPANY ("MFS"), 500 Boylston Street, Boston,
MA 02116. MFS has been the Adviser to the Portfolio since it commenced
operations. MFS is America's oldest mutual fund organization. MFS and its
predecessor organizations have a history of money management dating from 1924
and the founding of the first mutual fund in the United States, Massachusetts
Investors Trust. MFS is a subsidiary of Sun Life of Canada (United States)
Financial Services Holdings Inc., which, in turn, is an indirect wholly-owned
subsidiary of Sun Life Assurance Company of Canada.
The Portfolio Managers are JOHN D. LAUPHEIMER, JR., Senior Vice President of
MFS, who has been employed as a portfolio manager by MFS since 1986; and
MITCHELL D. DYNAN, a Vice President of MFS, who has been employed as a portfolio
manager by MFS since 1981.
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<PAGE>
MFS RESEARCH PORTFOLIO
INVESTMENT OBJECTIVE: Seeks to provide long-term growth of capital and future
income.
THE INVESTMENT STRATEGY
The Portfolio invests primarily in equity securities, such as common stocks,
securities convertible into common stocks, preferred stocks and depositary
receipts of companies believed by the Adviser to have:
o favorable prospects for long-term growth;
o attractive valuations based on current and expected earnings or cash
flow;
o dominant or growing market share; and
o superior management.
The Portfolio may invest in securities of companies of any size. The Portfolio's
investments may include securities traded on securities exchanges or in the
over-the-counter markets.
The Portfolio may invest in foreign equity securities, and may have exposure to
foreign currencies through its investment in these securities, its direct
holdings of foreign currencies or through its use of foreign currency exchange
contracts for the purchase or sale of a fixed quantity of foreign currency at a
future date.
When adverse market, financial or political conditions warrant, the Portfolio
may depart from its principal investment strategies for temporary or defensive
purposes. Such investment strategies are inconsistent with the Portfolio's
investment objectives and could result in the Portfolio not achieving its
investment objective.
The Portfolio may invest up to 10% of its assets in high yielding debt
securities rated below investment grade ("junk bonds").
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 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; 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
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<PAGE>
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. The risk that an issuer or guarantor of a fixed income security
or counterparty to the Portfolio's fixed income transaction is unable to meets
its financial obligations is particularly significant for this Portfolio because
this Portfolio invests a portion of its assets in "junk bonds" (i.e., securities
rated below investment grade). Junk bonds are issued by companies with
questionable credit strength and, consequently, are considered to be speculative
in nature and may be subject to greater market fluctuations than investment
grade fixed-income securities.
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; 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 return for 1998,
the Portfolio's first full year of operations. The table below shows the
Portfolio's average annual total returns for the Portfolio for one year and
since inception. The table also compares the Portfolio's performance to the
returns of a broad-based index. Both the bar chart and table assume reinvestment
of dividends and distributions. Past performance is not an indication of future
performance. The performance results presented below do not reflect any
insurance and Contract-related fees and expenses, which would reduce the
performance results. The inception date for the Portfolio was May 1, 1997.
- --------------------------------------------------------------------------------
CALENDAR YEAR ANNUAL TOTAL RETURN
24.11%
1998
- --------------------------------------------------------------------------------
Best quarter (% and time period) Worst quarter (% and time period)
21.36% (1998 4th Quarter) (17.35)% (1997 4th Quarter)
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- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR SINCE INCEPTION
MFS RESEARCH PORTFOLIO 24.11% 24.41%
S&P 500 INDEX* 28.58% 31.63%
- -------------------------------------------------------------------------------
* For more information on this index, see the preceding section "The
Benchmarks."
WHO MANAGES THE PORTFOLIO
MASSACHUSETTS FINANCIAL SERVICES COMPANY ("MFS"), 500 Boylston Street, Boston,
MA 02116. MFS has been the Adviser to the Portfolio since it commenced
operations. MFS is America's oldest mutual fund organization. MFS and its
predecessor organizations have a history of money management dating from 1924
and the founding of the first mutual fund in the United States, Massachusetts
Investors Trust. MFS is a subsidiary of Sun Life of Canada (United States)
Financial Services Holdings Inc., which, in turn, is an indirect wholly-owned
subsidiary of Sun Life Assurance Company of Canada.
A committee of investment research analysts selects portfolio securities for the
Portfolio. This committee includes investment analysts employed not only by MFS,
but also by MFS International (U.K.) Limited, a wholly owned subsidiary of MFS.
The committee allocates the Portfolio's assets among various industries.
Individual analysts then select what they view as the securities best suited to
achieve the Portfolio's investment objective within their assigned industry
responsibility.
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<PAGE>
T. ROWE PRICE EQUITY INCOME PORTFOLIO
INVESTMENT OBJECTIVE: Seeks to provide substantial dividend income and also
capital appreciation by investing primarily in dividend-paying common stocks of
established companies.
THE INVESTMENT STRATEGY
The Portfolio invests primarily in dividend-paying common stocks of established
companies that have favorable prospects for increasing dividend income and
capital appreciation. The Portfolio's yield as a result of that dividend income
is expected to be significantly above the average yield of the companies of the
S&P 500.
The Adviser bases its investment decisions on three premises: (1) over time,
dividend income can account for a significant portion of the Portfolio's return;
(2) dividends are a more stable and predictable source of return; and (3) prices
of stocks that pay a high current income level tend to be less volatile than
those paying below average dividends.
The Adviser uses a "value" approach in choosing securities. It looks for common
stocks of companies that have:
o established operating histories;
o above-average dividend yields relative to the S&P 500;
o low price to earnings ratios relative to the S&P 500;
o sound balance sheets; and
o low stock price relative to the company's asset value, earnings and
cash flow.
[SIDEBAR: Equity income investing involves finding common stocks that pay
dividend income. As an example, utility company stocks often provide dividend
income while a shareholder waits for the stock price to move. Dividends can help
reduce the Portfolio's volatility during turbulent markets and help offset
losses when stock prices are falling.]
The Portfolio may invest up to 25% of its total assets in foreign securities.
These securities include non-dollar-denominated securities traded outside the
United States and dollar-denominated securities such as American Depositary
Receipts. The Portfolio may also purchase preferred stocks, convertible
securities, warrants, U.S. Government securities, high-quality money market
securities, as well as investment grade debt securities and high yielding debt
securities ("junk bonds").
When market or financial conditions warrant, the Portfolio may invest without
limitation in high quality money market securities, and United States Government
debt securities for temporary or defensive purposes. Such investment strategies
are inconsistent with the Portfolio's investment objectives and 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:
VALUE INVESTING RISK: As noted above, the Portfolio uses a value-oriented
approach to stock selection. Value investing is subject to the risk that a value
stock's intrinsic value may never be fully recognized or
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<PAGE>
realized by the market, or its price may go down. There is also the risk that a
stock judged to be undervalued may actually be appropriately priced.
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; adverse changes in foreign economic and tax policies; and foreign
government instability, war or other adverse political or economic actions.
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. The risk that an issuer or guarantor of a fixed income security
or counterparty to the Portfolio's fixed income transaction is unable to meets
its financial obligations is particularly significant for this Portfolio because
this Portfolio invests a portion of its assets in "junk bonds" (i.e., securities
rated below investment grade). Junk bonds are issued by companies with
questionable credit strength and, consequently, are considered to be speculative
in nature and may be subject to greater market fluctuations than investment
grade fixed-income securities.
PORTFOLIO PERFORMANCE
The bar chart below illustrates the Portfolio's annual total return for 1998,
the Portfolio's first full year of operations. The table below shows the
Portfolio's average annual total returns for the Portfolio for one year and
since inception. The table also compares the Portfolio's performance to the
returns of a broad-based index. Both the bar chart and table assume reinvestment
of dividends and distributions. Past performance is not an indication of future
performance. The performance results presented below do not reflect any
insurance and Contract-related fees and expenses, which would reduce the
performance results. The inception date for the Portfolio was May 1, 1997.
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<PAGE>
- --------------------------------------------------------------------------------
CALENDAR YEAR ANNUAL TOTAL RETURN
9.11%
1998
- -------------------------------------------------------------------------------
Best quarter (% and time period) Worst quarter (% and time period)
11.16% (1998 4th Quarter) (7.66)% (1998 3rd Quarter)
- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR SINCE INCEPTION
T. ROWE PRICE EQUITY INCOME PORTFOLIO 9.11% 18.73%
S&P 500 INDEX* 28.58% 31.63%
- -------------------------------------------------------------------------------
* For more information on this index, see the preceding section "The
Benchmarks."
WHO MANAGES THE PORTFOLIO
T. ROWE PRICE ASSOCIATES, INC. ("T. Rowe Price"), 100 East Pratt Street,
Baltimore, MD 21202. T. Rowe Price has been the Adviser to the Portfolio since
the Portfolio commenced operations. T. Rowe Price serves as investment manager
to a variety of individual and institutional investor accounts, including
limited partnerships and other mutual funds.
Investment decisions with respect to the Portfolio are made by an Investment
Advisory Committee. BRIAN C. ROGERS has been the Committee Chairman since the
inception of the Portfolio and has day-to-day responsibility for managing the
Portfolio. Mr. Rogers joined T. Rowe Price in 1982 and has been managing
investments since 1983.
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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 equity securities of
U.S. and established foreign companies. The Adviser believes the equity
securities of these established non-U.S. companies 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:
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<PAGE>
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 recent 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.
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 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.
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.
PORTFOLIO PERFORMANCE
The bar chart below illustrates the Portfolio's annual total returns for each of
the last ten calendar years and some of the risks of investing in the Portfolio
by showing yearly changes in the Portfolio's performance. The table below shows
the Portfolio's average annual total returns for the past one, five and
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<PAGE>
ten years and compares the Portfolio's performance to: (i) the returns of a
broad-based index and (ii) the returns of an index of funds with similar
investment objectives. Past performance is not an indication of future
performance.
The Portfolio's performance shown below is the performance of its predecessor
registered investment company (HRT/Alliance Global Portfolio) managed by the
Adviser using the same investment objectives and strategy as the Portfolio. For
these purposes, the Portfolio is considered to be the successor entity to the
predecessor registered investment company (HRT/Alliance Global Portfolio) whose
inception date was August 27, 1987. The assets of the predecessor will be
transferred to the Portfolio on October 1, 1999.
Both the bar chart and table assume reinvestment of dividends and distributions.
The performance results do not reflect any insurance and Contract-related fees
and expenses, which would reduce the performance results.
<TABLE>
- ------------------------------------------------------------------------------------------------------------------
CALENDAR YEAR ANNUAL TOTAL RETURN*
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
26.5% -6.3% 30.2% -0.7% 31.9% 5.0% 18.6% 14.4% 11.4% 21.5%
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
Best quarter (% and time period) Worst quarter (% and time period)
26.53% (1998 4th Quarter) -17.05% (1998 3rd Quarter)
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<PAGE>
- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS*
ONE YEAR FIVE YEARS TEN YEARS
ALLIANCE GLOBAL PORTFOLIO - CLASS IB
SHARES 21.50% 14.01% 14.55%
MSCI WORLD INDEX** 24.34% 15.68% 10.66%
LIPPER GLOBAL MUTUAL FUNDS AVERAGE** 14.34% 11.98% 11.21%
- -------------------------------------------------------------------------------
*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 the Class IB shares since the Class IB inception date was 16.89%. The return
for the MSCI World Index 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
ALLIANCE CAPITAL MANAGEMENT, L.P. ("Alliance"), 1345 Avenue of the Americas, New
York, New York 10105. Alliance has been the Adviser to the Portfolio and its
predecessor (registered investment company) since the predecessor 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.
SANDRA L. YEAGER has been responsible for the day-to-day management of the
Portfolio's and its predecessor's investment program since 1998. Ms. Yeager, a
Senior Vice President of 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 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 recent 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
NRSRO,
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<PAGE>
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.
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 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.
PORTFOLIO PERFORMANCE
The bar chart below illustrates the Portfolio's annual total returns for each of
the last three calendar years and some of the risks of investing in the
Portfolio by showing yearly changes in the Portfolio's performance. The table
below shows the Portfolio's average annual total returns for the past one year
and since inception and compares the Portfolio's performance to: (i) the returns
of a broad-based index and (ii) the returns of an index of funds with similar
investment objectives. Past performance is not an indication of future
performance.
The Portfolio's performance shown below is the performance of its predecessor
registered investment company (HRT/Alliance International Portfolio) managed by
the Adviser using the same investment objectives and strategy as the Portfolio.
For these purposes, the Portfolio is considered to be the successor entity to
the predecessor registered investment company (HRT/Alliance International
Portfolio) whose inception date was April 3, 1995. The assets of the predecessor
will be transferred to the Portfolio on October 1, 1999.
Both the bar chart and table assume reinvestment of dividends and distributions.
The performance results do not reflect any insurance and Contract-related fees
and expenses, which would reduce the performance results.
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<PAGE>
- --------------------------------------------------------------------------------
CALENDAR YEAR ANNUAL TOTAL RETURN*
9.6% -3.2% 10.3%
1996 1997 1998
- --------------------------------------------------------------------------------
Best quarter (% and time period) Worst quarter (% and time period)
16.49% (1998 4th Quarter) -15.74% (1998 3rd Quarter)
- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS*
ONE YEAR SINCE INCEPTION
ALLIANCE INTERNATIONAL PORTFOLIO -
CLASS IB SHARES 10.30% 7.22%
MSCE EAFE INDEX** 20.00% 9.68%
LIPPER INTERNATIONAL MUTUAL FUNDS
AVERAGE 13.02% 10.74%
- -------------------------------------------------------------------------------
*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 the Class IB shares since the Class IB inception date was 4.42%. The return
for the MSCI EAFE Index 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 Portfolio and its
predecessor (registered investment company) since the predecessor commenced
operations. Alliance, a publicly traded limited partnership, is indirectly
majority-owned by Equitable. Alliance manages investment companies,
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<PAGE>
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 and its predecessor since January 1999. Ms. Yeager, a Senior Vice
President of Alliance, has been associated with Alliance since 1990.
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<PAGE>
BT INTERNATIONAL EQUITY INDEX PORTFOLIO
INVESTMENT OBJECTIVE: Seeks to replicate as closely as possible (before
deduction of Portfolio expenses) the total return of the MSCI EAFE Index.
THE INVESTMENT STRATEGY
The Portfolio invests primarily in equity securities of companies included in
the MSCI EAFE Index. The Portfolio is constructed to have aggregate investment
characteristics similar to those of the MSCI EAFE Index. The Portfolio invests
in a statistically selected sample of the securities of companies included in
the MSCI EAFE Index, although not all companies within a country will be
represented in the Portfolio at the same time. Stocks are selected based on
country of origin, market capitalization, yield, volatility and industry sector.
The Adviser will manage the Portfolio using advanced statistical techniques to
determine which securities should be purchased or sold in order to replicate the
MSCI EAFE index.
[SIDEBAR: For more information on the MSCI EAFE Index see the preceding section
"The Benchmarks." The MSCI EAFE Index is the exclusive property of Morgan
Stanley. The Portfolio is not sponsored, endorsed, sold or promoted by Morgan
Stanley and Morgan Stanley makes no guarantee as to the accuracy or completeness
of the MSCI EAFE Index or any data included therein.]
Over time, the correlation between the performance of the Portfolio and the MSCI
EAFE Index is expected to be 95% or higher before deduction of Portfolio
expenses. The Portfolio's ability to track the MSCI EAFE Index may be affected
by, among others, transaction costs, administration and other expenses incurred
by the Portfolio, changes in either the composition of the MSCI EAFE Index or
the assets of the Portfolio, and the timing and amount of Portfolio investor
contributions and withdrawals, if any. The Portfolio seeks to track the MSCI
EAFE Index, therefore, the Adviser generally will not attempt to judge the
merits of any particular security as an investment.
The Portfolio may invest to a lesser extent in short-term debt securities and
money market instruments to meet redemption requests or to facilitate investment
in the securities of the MSCI EAFE Index. Securities index futures contracts and
related options, warrants and convertible securities may be used for a number of
reasons, including: to simulate full investment in the MSCI EAFE Index while
retaining a cash balance for Portfolio management purposes; to facilitate
trading; to reduce transaction costs; or to seek higher investment returns when
a future contract, option, warrant or convertible security is priced more
attractively than the underlying equity security or MSCI EAFE Index. These
instruments are considered to be 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:
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.
FOREIGN SECURITIES RISKS: The Portfolio's investments in foreign securities
involve 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
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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; 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. The Year 2000 problem may also be especially acute in
emerging market countries, which also may adversely affect the value of
the Portfolio's investments.
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.
PORTFOLIO PERFORMANCE
The bar chart and table below illustrate the Portfolio's average annual total
return for 1998, the Portfolio's first year of existence. The table below shows
the Portfolio's average annual total returns for the Portfolio for one year and
since inception. The table also compares the Portfolio's performance to the
returns of a broad based index. Both the bar chart and table assume reinvestment
of dividends and distributions. Past performance is not an indication of future
performance. The performance results presented below do not reflect any
insurance and Contract-related fees and expenses, which would reduce performance
results. The Portfolio's inception date was January 1, 1998.
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CALENDAR YEAR ANNUAL TOTAL RETURN
20.07%
1998
- --------------------------------------------------------------------------------
Best quarter (% and time period) Worst quarter (% and time period)
20.43% (1998 4th Quarter) (13.90)% (1998 3rd Quarter)
- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR SINCE INCEPTION
BT INTERNATIONAL EQUITY INDEX PORTFOLIO 20.07% 20.07%
MSCI EAFE INDEX* 20.00% 20.00%
- -------------------------------------------------------------------------------
* For more information on this index, see the preceding section "The
Benchmarks."
WHO MANAGES THE PORTFOLIO
BANKERS TRUST COMPANY ("Bankers Trust"), 130 Liberty Street (One Bankers Trust
Plaza), New York, New York 10006. Bankers Trust has been the Adviser to the
Portfolio since it commenced operations. Bankers Trust is a wholly-owned
subsidiary of Bankers Trust New York Corporation. Bankers Trust conducts a
variety of general banking and trust activities and is a major wholesale
supplier of financial services to the international and domestic institutional
markets, including investment management. During 1999, Bankers Trust Corporation
and a wholly owned subsidiary of Deutsche Bank AG ("Deutsche Bank") expect to
finalize a merger in which Bankers Trust Corporation will be acquired by and
become a subsidiary of Deutsche Bank.
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CAPITAL GUARDIAN INTERNATIONAL PORTFOLIO
INVESTMENT OBJECTIVE: To achieve long-term growth of capital by investing
primarily in non-U.S. equity securities.
THE INVESTMENT STRATEGY
The Portfolio invests primarily (at least 80% of its net assets) in securities
of non-U.S. issuers (including American Depositary Receipts and U.S. registered
securities) and securities whose principal markets are outside of the U.S. While
the assets of the Portfolio can be invested with geographic flexibility, the
Portfolio will emphasize investment in securities of companies located in
Europe, Canada, Australia, and the Far East, giving due consideration to
economic, social, and political developments, currency risks and the liquidity
of various national markets. In addition, the Portfolio may invest in securities
of issuers domiciled in other countries including developing countries. In
determining the domicile of an issuer, the Adviser takes into account where the
company is legally organized, the location of its principal corporate offices
and where it conducts its principal operations.
The Portfolio primarily invests in common stocks (or securities convertible into
common stocks), warrants, rights, and non-convertible preferred stock. However,
when the Adviser believes that market and economic conditions indicate that it
is desirable to do so, the Portfolio may also purchase high-quality debt
securities rated, at the time of purchase, within the top three quality
categories by Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's
Corporation ("S&P") (or unrated securities of equivalent quality), repurchase
agreements, and short-term debt obligations denominated in U.S. dollars or
foreign currencies.
Although the Portfolio does not intend to seek short-term profits, securities in
the Portfolio will be sold whenever the Adviser believes it is appropriate to do
so without regard to the length of time a particular security may have been
held.
To the extent the Portfolio invests in non-U.S. dollar denominated securities or
holds non-U.S. dollar assets, the Portfolio may hedge against possible
variations in exchange rates between currencies by purchasing and selling
currency futures or put and call options and may also enter into forward foreign
currency exchange contracts to hedge against changes in currency exchange rates.
The Portfolio may also cross-hedge between two non-U.S. currencies.
When market or financial conditions warrant, the Portfolio may invest a
substantial portion of its assets in short-term obligations for temporary or
defensive purposes. If such action is taken, it will detract from achievement of
the Portfolio's investment objective during such periods.
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<PAGE>
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 RISK: 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; 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. The Year 2000 problem may also be especially acute in
emerging market countries, which also may adversely affect the value of
the Portfolio's investments.
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.
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 markets.
CONVERTIBLE SECURITIES RISK: Convertible securities 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. 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.
PORTFOLIO PERFORMANCE
The inception date for this Portfolio was April 30, 1999. Therefore, no prior
performance information is available.
WHO MANAGES THE PORTFOLIO
CAPITAL GUARDIAN TRUST COMPANY ("Capital Guardian"), 333 South Hope Street, Los
Angeles, CA 90071. Capital Guardian is a wholly-owned subsidiary of Capital
Group International, Inc., which itself is a wholly owned subsidiary of The
Capital Group Companies, Inc. Capital Guardian has been providing investment
management services since 1968 and manages approximately $80 billion as of
December 31, 1998.
Capital Guardian uses a multiple portfolio manager system under which the
Portfolio is divided into several segments. Each segment is individually managed
with the portfolio manager free to decide on company and industry selections as
well as valuation and transaction assessment. An additional portion of the
Portfolio is managed by a group of investment research analysts.
The individual portfolio managers of each segment of the Portfolio, other than
that managed by the group of research analysts, are as follows:
DAVID I. FISHER. David Fisher is Chairman of the Board of Capital Group
International, Inc. and Capital Guardian. He joined the Capital Guardian
organization in 1969.
HARTMUT GIESECKE. Hartmut Giesecke is Chairman of the Board of Capital's
Japanese investment management subsidiary, Capital International K.K., and
Managing Director Asia-Pacific, Capital Group International, Inc. He is also a
Senior Vice President and a Director of Capital International Research, Inc. and
Capital International, Inc. He joined the Capital Guardian organization in 1972.
RICHARD N. HAVAS. Richard Havas is a Senior Vice President and a portfolio
manager for Capital Guardian and Capital International Limited. He is also a
Senior Vice President and Director for Capital Guardian (Canada), Inc. and
Capital International Research, Inc. He joined the Capital Guardian organization
in 1986.
NANCY J. KYLE. Nancy Kyle is a Senior Vice President and a Director and member
of the Executive Committee of Capital Guardian. She is also President and a
Director of Capital Guardian (Canada), Inc. and a Vice President of Emerging
Markets Growth Fund. She is an international equity and emerging markets
portfolio manager. She joined the Capital Guardian organization in 1991.
JOHN MCILWRAITH. John McIlwraith is a Senior Vice President-International and a
director of Capital Guardian, a Director and a Senior Vice President of Capital
International Limited, and an international equity portfolio manager. He joined
the Capital Guardian organization in 1984.
ROBERT RONUS. Robert Ronus is President and a Director of Capital Guardian. He
is also Chairman of the Board of Capital International Research, Inc., Chairman
of the Board and a Director of Capital Guardian (Canada), Inc., a Director of
The Capital Group Companies, Inc. and Capital Group International, Inc., and a
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<PAGE>
Senior Vice President of Capital International S.A. and Capital International
Limited. He joined the Capital Guardian organization in 1972.
LIONEL M. SAUVAGE. Lionel Sauvage is a Senior Vice President and portfolio
manager for Capital Guardian and a Vice President and a Director for Capital
International Research, Inc. He joined the Capital Guardian organization in
1987.
NILLY SIKORSKY. Nilly Sikorsky is President and Managing Director of Capital
International S.A., Chairman of Capital International Perspective S.A., Managing
Director-Europe and a Director of Capital Group International, Inc., as well as
a Director of The Capital Group Companies, Inc., Capital International Limited,
and Capital International K.K. She joined the Capital Guardian organization in
1962.
RUDOLF M. STAEHELIN. Rudolf Staehelin is a Senior Vice President and Director of
Capital International Research, Inc. and Capital International S.A. He is a
portfolio manager for Capital Guardian, Capital International S.A., and Capital
International Limited. He joined Capital Guardian in 1981.
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<PAGE>
EQ/PUTNAM INTERNATIONAL EQUITY PORTFOLIO
INVESTMENT OBJECTIVE: Seeks capital appreciation.
THE INVESTMENT STRATEGY
The Portfolio invests primarily in equity securities of companies in a number of
different countries. Such equity securities normally include common stocks,
preferred stocks, securities convertible into common or preferred stocks and
warrants. Under normal market circumstances, a majority of the Portfolio's
assets will be invested in companies located in at least three different
countries outside the United States. The countries in which the Portfolio may
invest include emerging market countries.
The Portfolio considers the following to be an issuer of securities located in a
country other than the U.S.:
o companies organized under the laws of a country other than the U.S. with a
principal office outside the U.S., or
o companies that earn 50% or more of their total revenues from business
outside the U.S.
The Portfolio may engage in a variety of transactions using "derivatives," such
as futures, options, warrants, forward and swap contracts on both securities and
currencies.
The Portfolio will not limit its investments to any particular type of company.
The Portfolio may invest in companies of any size whose earnings the Adviser
believes to be in a relatively strong growth trend or whose securities the
Adviser considers to be undervalued.
The Adviser considers, among other things, a company's financial strength,
competitive position in its industry and projected future earnings and dividends
when deciding whether to buy or sell investments.
When market or financial conditions warrant, the Portfolio may invest, without
limitation, in securities of any kind, including securities traded primarily in
U.S. markets, cash and money market instruments for temporary or defensive
purposes. Such investment strategies are inconsistent with the Portfolio's
investment objectives and 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: The Portfolio's investments in foreign securities
involve 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; 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:
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<PAGE>
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. The Year 2000 problem may also be especially acute in
emerging market countries, which also may adversely affect the value of
the Portfolio's investments.
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.
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 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; 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.
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.
PORTFOLIO PERFORMANCE
The bar chart below illustrates the Portfolio's annual total return for 1998,
the Portfolio's first full year of operations. The table below shows the
Portfolio's average annual total returns for the Portfolio for one year and
since inception. The table also compares the Portfolio's performance to the
returns of a broad-based index. Both the bar chart and table assume reinvestment
of dividends and distributions. Past performance is not an indication of future
performance. The performance results presented below do not reflect any
insurance and Contract-related fees and expenses, which would reduce the
performance results. The inception date for the Portfolio was May 1, 1997.
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- --------------------------------------------------------------------------------
CALENDAR YEAR ANNUAL TOTAL RETURN
19.51%
1998
- --------------------------------------------------------------------------------
Best quarter (% and time period) Worst quarter (% and time period)
22.16% (1998 4th Quarter) (18.48)% (1998 3rd Quarter)
- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR SINCE INCEPTION
EQ/PUTNAM INTERNATIONAL EQUITY
PORTFOLIO 19.51% 17.52%
MSCI EAFE* 20.00% 13.43%
- -------------------------------------------------------------------------------
* For more information on this index, see the preceding section "The
Benchmarks."
WHO MANAGES THE PORTFOLIO
PUTNAM INVESTMENT MANAGEMENT, INC. ("Putnam Management"), One Post Office
Square, Boston, MA 02109. Putnam Management has been the Adviser to the
Portfolio since the Portfolio commenced operations. Putnam Management has been
managing mutual funds since 1937. Putnam Management is a subsidiary of Putnam
Investments, Inc.
The Portfolio Managers, responsible for the day to day management of the
Portfolio since the inception of the Portfolio, are JUSTIN SCOTT, a Managing
Director, who has been with Putnam Management as an investment professional*
since 1988 and OMID KAMSHAD, a Managing Director, who has been employed as an
investment professional* by Putnam Management since 1996. Prior to January 1996,
he was a Director of Investments at Lombard Odier International Portfolio
Management Limited and prior to April 1995, he was Director at Baring Asset
Management Company. (*Investment professional means that the manager was either
a portfolio manager or analyst.)
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<PAGE>
MORGAN STANLEY EMERGING MARKETS EQUITY PORTFOLIO
INVESTMENT OBJECTIVE: Seeks long-term capital appreciation by investing
primarily in equity securities of emerging country issuers.
THE INVESTMENT STRATEGY
The Portfolio is a non-diversified Portfolio that invests primarily in equity
securities of companies located in emerging markets countries. Such equity
securities may include common stocks, preferred stocks, convertible securities,
depositary receipts, rights and warrants. The Adviser focuses on growth-oriented
companies in emerging market countries that it believes have strong developing
economies and increasingly sophisticated markets. The Portfolio generally
invests only in emerging markets countries whose currencies are freely
convertible into United States dollars.
[SIDEBAR: A Portfolio may be considered to be "non-diversified" for federal
securities law purposes because it invests in a limited number of securities. In
all cases, the Portfolio intends to be diversified for tax purposes so that it
can qualify as a regulated investment company.]
[SIDEBAR: For purposes of this Portfolio, an emerging market country security is
defined as a security of an issuer having one or more of the following
characteristics:
o its principal securities trading market is in an emerging market country;
o alone or on a consolidated basis, at least 50% of its revenues are derived
from goods produced, sales made or services performed in emerging market
countries; and
o it is organized under the laws of or has a principal office in an emerging
market country]
The Adviser's investment approach combines top-down country allocation with
bottom-up stock selection.
[SIDEBAR: In a "top-down" approach, country allocations are made based on
forecasts of stock market trends. In a "bottom-up" approach, securities are
reviewed and chosen individually.]
The Portfolio may invest to a lesser extent in corporate or government-issued or
guaranteed debt securities of emerging markets countries, including debt
securities that are rated or considered to be below investment grade ("junk
bonds"). The Portfolio also may, to a lesser extent, invest in equity or debt
securities (including "junk bonds") of corporate or governmental issuers located
in industrialized countries, foreign currency or investment funds and
supranational entities such as the World Bank. In addition, the Portfolio may
utilize forward foreign currency contracts, options and futures contracts and
swap transactions.
When market or financial conditions warrant, the Portfolio may invest in certain
short- and medium-term fixed income securities of issuers other than emerging
market issuers and may invest without limitation in high quality money market
instruments for temporary or defensive purposes. Such investment strategies are
inconsistent with the Portfolio's investment objectives and 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: The Portfolio's investments in foreign securities
involve 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; 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. The Year 2000 problem may also be especially acute in
emerging market countries, which also may adversely affect the value of
the Portfolio's investments.
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.
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.
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.
PORTFOLIO TURNOVER RISK: The Portfolio's turnover rate has been over 100% per
year. Higher portfolio turnover (e.g., over 100% per year) will cause the
Portfolio to incur additional transaction costs and may result in higher taxable
gains that could be passed through to shareholders.
NON-DIVERSIFICATION RISK: Since a relatively high percentage of the Portfolio's
assets may be invested in the securities of a limited number of issuers, some of
which may be within the same industry, the securities of the Portfolio may be
more sensitive to changes in the market value of a single issuer or industry or
to risks associated with a single economic, political or regulatory event than a
diversified portfolio.
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
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<PAGE>
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. The risk that an
issuer or guarantor of a fixed income security or counterparty to the
Portfolio's fixed income transaction is unable to meets its financial
obligations is particularly significant for this Portfolio because this
Portfolio invests a portion of its assets in "junk bonds" (i.e., securities
rated below investment grade). Junks bonds are issued by companies with
questionable credit strength and, consequently, are considered to be speculative
in nature and may be subject to greater market fluctuations than investment
grade fixed-income securities.
PORTFOLIO PERFORMANCE
The bar chart below illustrates the Portfolio's annual total return for 1998,
the Portfolio's first full year of operations. The table below shows the
Portfolio's average annual total returns for the Portfolio for one year and
since inception. The table also compares the Portfolio's performance to the
returns of a broad-based index. Both the bar chart and table assume reinvestment
of dividends and distributions. Past performance is not an indication of future
performance. The performance results presented below do not reflect any
insurance and Contract-related fees and expenses, which would reduce the
performance results. The inception date for the Portfolio was August 20, 1997.
- --------------------------------------------------------------------------------
CALENDAR YEAR ANNUAL TOTAL RETURN
-27.10%
1998
- -------------------------------------------------------------------------------
Best quarter (% and time period) Worst quarter (% and time period)
14.56% (1998 4th Quarter) (22.14)% (1998 2nd Quarter)
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<PAGE>
- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR SINCE INCEPTION
MORGAN STANLEY EMERGING MARKETS EQUITY
PORTFOLIO (27.10)% (32.69)%
MSCI EMERGING MARKETS FREE* (25.34)% (28.92)%
- -------------------------------------------------------------------------------
* For more information on this index, see the preceding section "The
Benchmarks."
WHO MANAGES THE PORTFOLIO
MORGAN STANLEY ASSET MANAGEMENT ("MSAM"), 1221 Avenue of the Americas, New York,
NY 10020. MSAM has been the Adviser to the Portfolio since the Portfolio
commenced operations. MSAM conducts a worldwide investment management business,
providing a broad range of portfolio management services to customers in the
United States and abroad. MSAM serves as an investment adviser to numerous
open-end and closed-end investment companies. On December 1, 1998, Morgan
Stanley Asset Management Inc. changed its name to Morgan Stanley Dean Witter
Investment Management Inc. but continues to do business in certain instances
using the name Morgan Stanley Asset Management.
The Portfolio Managers, responsible for the day to day management of the
Portfolio since the Portfolio commenced operations, are: ROBERT MEYER, a
Managing Director of MSAM and Morgan Stanley & Co. Incorporated, who is head of
MSAM's Emerging Markets Equity Group and who joined MSAM in 1989; and ANDY SKOV,
a Principal of MSAM and Morgan Stanley & Co. Incorporated who joined MSAM in
1994.
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<PAGE>
T. ROWE PRICE INTERNATIONAL STOCK PORTFOLIO
INVESTMENT OBJECTIVE: Seeks long-term growth of capital through investment
primarily in common stocks of established non-United States companies.
THE INVESTMENT STRATEGY
The Portfolio invests substantially all of its assets in common stocks of
established companies outside of the United States. The Portfolio intends to
diversify broadly among countries throughout the world by having securities from
at least five different countries represented in the Portfolio. No more than 20%
of its assets will be invested in securities of any one country, except that up
to 35% can be invested in stocks of companies in Australia, Canada, France,
Japan, United Kingdom or Germany. In determining the appropriate distribution of
investments among various countries and geographic regions, the Adviser
ordinarily considers the following factors:
o prospects for relative economic growth between foreign countries;
o expected levels of inflation;
o government policies influencing business conditions;
o the outlook for currency relationships; and
o the range of individual investment opportunities available to
international investors.
The Portfolio expects to invest substantially all of its assets in common
stocks. However, the Portfolio may also invest in a variety of other equity
securities such as preferred stocks, warrants and convertible securities as well
as governmental debt securities and investment grade debt securities. The
Portfolio may also invest in certain foreign investment funds, hybrid
instruments and derivative instruments in keeping with the Portfolio objective.
In analyzing companies for investment, the Adviser uses a "bottom-up" approach
and looks for companies that have:
o prospects for achieving and sustaining above-average, long-term
earnings growth per share;
o a high return on invested capital;
o healthy balance sheet;
o sound financial and accounting policies and overall financial
strength;
o strong competitive advantages;
o effective research, product development and marketing;
o pricing flexibility
o strong management; and
o record of paying dividends.
This means that the securities are selected based upon fundamental analysis
performed by the Adviser, and are not selected based upon the type of industries
to which they belong.
When market or financial conditions warrant, the Portfolio may invest without
limitation in high quality U.S. Government and corporate debt obligations for
temporary or defensive purposes. Such investment strategies are inconsistent
with the Portfolio's investment objectives and could result in the Portfolio not
achieving its investment objective.
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<PAGE>
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.
FOREIGN SECURITIES RISKS: The Portfolio's investments in foreign securities
involve 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; 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. The Year 2000 problem may also be especially acute in
emerging market countries, which also may adversely affect the value of
the Portfolio's investments.
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.
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
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<PAGE>
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 return for 1998,
the Portfolio's first full year of operations. The table below shows the
Portfolio's average annual total returns for the Portfolio for one year and
since inception. The table also compares the Portfolio's performance to the
returns of a broad-based index. Both the bar chart and table assume reinvestment
of dividends and distributions. Past performance is not an indication of future
performance. The performance results presented below do not reflect any
insurance and Contract-related fees and expenses, which would reduce the
performance results. The inception date for the Portfolio was May 1, 1997.
- --------------------------------------------------------------------------------
CALENDAR YEAR ANNUAL TOTAL RETURN
13.68%
1998
- -------------------------------------------------------------------------------
Best quarter (% and time period) Worst quarter (% and time period)
16.86% (1998 4th Quarter) (13.63)% (1998 3rd Quarter)
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<PAGE>
- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR SINCE INCEPTION
T. ROWE PRICE INTERNATIONAL STOCK
PORTFOLIO 13.68% 7.01%
MSCI EAFE INDEX* 20.00% 13.43%
- -------------------------------------------------------------------------------
* For more information on this index, see the preceding section "The
Benchmarks."
WHO MANAGES THE PORTFOLIO
ROWE PRICE-FLEMING INTERNATIONAL, INC. ("Price-Fleming"), 100 East Pratt Street,
Baltimore, MD 21202. Price-Fleming has been the Adviser to the Portfolio since
it commenced its operations. Price-Fleming was incorporated in Maryland in 1979
as a joint venture between T. Rowe Price and Robert Fleming Holdings Limited
("Flemings"). Flemings is a diversified investment organization that
participates in a global network of regional investment offices. The common
stock of Price-Fleming is 50% owned by a wholly owned subsidiary of T. Rowe
Price, 25% owned by a subsidiary of Flemings and 25% owned by Jardine Fleming
Group Limited ("Jardine Fleming").
Investment decisions with respect to the Portfolio are made by an Investment
Advisory Committee Group. The Investment Advisory Group has day-to-day
responsibility for managing the Portfolio and developing and executing the
Portfolio's investment program.
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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 (e.g., change in management, new
products or changes in customer demand) 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 options for hedging
purposes. 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.
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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.
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.
PORTFOLIO PERFORMANCE
The bar chart below illustrates the Portfolio's annual total returns for each of
the last ten calendar years and some of the risks of investing in the Portfolio
by showing yearly changes in the Portfolio's performance. The table below shows
the Portfolio's average annual total returns for the past one, five and ten
years and compares the Portfolio's performance to: (i) the returns of a
broad-based index; (ii) the returns of a "blended" index of two broad-based
indices; and (iii) the returns of an index of funds with similar investment
objectives. Past performance is not an indication of future performance.
The Portfolio's performance shown below is the performance of its predecessor
registered investment company (HRT/Alliance Aggressive Stock Portfolio) managed
by the Adviser using the same investment objectives and strategy as the
Portfolio. For these purposes, the Portfolio is considered to be the successor
entity to the predecessor registered investment company (HRT/Alliance Aggressive
Stock Portfolio) whose inception date was January 27, 1986. The assets of the
predecessor will be transferred to the Portfolio on October 1, 1999.
Both the bar chart and table assume reinvestment of dividends and distributions.
The performance results do not reflect any insurance and Contract-related fees
and expenses, which would reduce the performance results.
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<PAGE>
<TABLE>
- ---------------------------------------------------------------------------------------------------------------------
CALENDAR YEAR ANNUAL TOTAL RETURN*
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
43.2% 7.9% 86.6% -3.4% 16.5% -4.1% 31.4% 22.1% 10.7% 0.1%
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
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 PORTFOLIO -
CLASS IB SHARES 0.10% 11.25% 18.65%
S&P 400 MIDCAP INDEX** 19.11% 18.84% 19.29%
50% S&P 400 MIDCAP
INDEX/50% RUSSELL 2000 8.28% 15.56% 16.49%
LIPPER MIDCAP GROWTH FUNDS AVERAGE** 12.16% 14.87% 15.44%
- --------------------------------------------------------------------------------
*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 the Class IB shares since the Class IB inception date was 5.70%. The return
for the S&P 400 MidCap Index 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."
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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 Portfolio and its
predecessor (registered investment company) since the predecessor 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.
ALDEN M. STEWART AND RANDALL E. HAASE have been the persons principally
responsible for the day-to-day management of the Portfolio and its predecessor
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
(e.g., change in management, new products or changes in customer demand) 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.
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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.
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 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.
PORTFOLIO PERFORMANCE
The bar chart below illustrates the Portfolio's annual total returns for 1998,
the Portfolio's first full year of existence and some of the risks of investing
in the Portfolio by showing yearly changes in the Portfolio's performance. The
table below shows the Portfolio's average annual total returns for one year and
since inception and compares the Portfolio's performance to: (i) the returns of
a broad-based index and (ii) the returns of an index of funds with similar
investment objectives. Past performance is not an indication of future
performance.
The Portfolio's performance shown below is the performance of its predecessor
registered investment company (HRT/Alliance Small Cap Growth Portfolio) managed
by the Adviser using the same investment objectives and strategy as the
Portfolio. For these purposes, the Portfolio is considered to be the successor
entity to the predecessor registered investment company (HRT/Alliance Small Cap
Growth Portfolio) whose inception date was May 1, 1997. The assets of the
predecessor will be transferred to the Portfolio on October 1, 1999.
Both the bar chart and table assume reinvestment of dividends and distributions.
The performance results do not reflect any insurance and Contract-related fees
and expenses, which would reduce the performance results.
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<PAGE>
- -------------------------------------------------------------------------------
CALENDAR YEAR ANNUAL TOTAL RETURN
-4.4%
1998
- --------------------------------------------------------------------------------
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 PORTFOLIO -
CLASS IB SHARES -4.44% 12.06%
RUSSELL 2000 GROWTH INDEX* 1.23% 16.58%
LIPPER SMALL COMPANY GROWTH FUNDS
AVERAGE -0.33% 16.72%
- --------------------------------------------------------------------------------
* 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 Portfolio and its
predecessor (registered investment company) since the predecessor 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>
MARK J. CUNNEEN has been responsible for the day-to-day management of Portfolio
and its predecessor 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>
BT SMALL COMPANY INDEX PORTFOLIO
INVESTMENT OBJECTIVE: Seeks to replicate as closely as possible (before the
deduction of Portfolio expenses) the total return of the Russell 2000 Index
("Russell 2000").
THE INVESTMENT STRATEGY
The Portfolio invests primarily in equity securities of small-cap companies
included in the Russell 2000. The Adviser seeks to match the returns of the
Russell 2000. The Portfolio invests in a statistically selected sample of the
securities found in the Russell 2000, using a process known as "optimization."
This process selects stocks for the Portfolio so that industry weightings,
market capitalizations and fundamental characteristics (price to book ratios,
price to earnings ratios, debt to asset ratios and dividend yields) closely
match those of the securities included in the Russell 2000. This approach helps
to increase the Portfolio's liquidity and reduce costs. The securities held by
the Portfolio are weighted to make the Portfolio's total investment
characteristics similar to those of the Russell 2000 as a whole.
[SIDEBAR: For more information on The Russell 2000, see the preceding section
"The Benchmarks." The Portfolio is neither sponsored by nor affiliated with the
Frank Russell Company, which is the owner of the trademarks and copyrights
relating to the Russell indices.]
Over time, the correlation between the performance of the Portfolio and the
Russell 2000 is expected to be 95% or higher before the deduction of Portfolio
expenses. The Portfolio's ability to track the Russell 2000 may be affected by,
among other things, transaction costs, administration and other expenses
incurred by the Portfolio, changes in either the composition of the Russell 2000
or the assets of the Portfolio, and the timing and amount of Portfolio investor
contributions and withdrawals, if any. The Portfolio seeks to track the Russell
2000, therefore, the Adviser generally will not attempt to judge the merits of
any particular security as an investment.
Securities index futures contracts and related options, warrants and convertible
securities may be used for a number of reasons, including: to simulate full
investment in the Russell 2000 while retaining a cash balance for fund
management purposes; to facilitate trading; to reduce transaction costs; or to
seek higher investment returns when a future contract, option, warrant or
convertible security is priced more attractively than the underlying equity
security or Russell 2000. These instruments are considered to be derivatives.
The Portfolio may invest to a lesser extent in short-term debt securities and
money market securities to meet redemption requests or to facilitate investment
in the securities included in the Russell 2000.
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.
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<PAGE>
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 known 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; 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.
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 return for 1998,
the Portfolio's first year of existence. The table below shows the Portfolio's
average annual total returns for the Portfolio for one year and since inception.
The table also compares the Portfolio's performance to the returns of a broad
based index. Both the bar chart and table assume reinvestment of dividends and
distributions. Past performance is not an indication of future performance. The
performance results presented below do not reflect any insurance and
Contract-related fees and expenses, which would reduce the performance results.
The Portfolio's inception date was January 1, 1998.
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- --------------------------------------------------------------------------------
CALENDAR YEAR ANNUAL TOTAL RETURN
-2.27%
1998
- --------------------------------------------------------------------------------
Best quarter (% and time period) Worst quarter (% and time period)
16.21% (1998 4th Quarter) (19.52) (1998 3rd Quarter)
- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR SINCE INCEPTION
BT SMALL COMPANY INDEX PORTFOLIO (2.27)% (2.27)%
RUSSELL 2000 Index* (2.54)% (2.54)%
- --------------------------------------------------------------------------------
* For more information on this index, see the preceding section "The
Benchmarks."
WHO MANAGES THE PORTFOLIO
BANKERS TRUST COMPANY ("Bankers Trust"), 130 Liberty Street (One Bankers Trust
Plaza), New York, New York 10006. Bankers Trust has been the Adviser to the
Portfolio since it commenced operations. Bankers Trust is a wholly-owned
subsidiary of Bankers Trust New York Corporation. Bankers Trust conducts a
variety of general banking and trust activities and is a major wholesale
supplier of financial services to the international and domestic institutional
markets. Investment management is a core business of Bankers Trust built on a
tradition of excellence from its roots as a trust bank founded in 1903. During
1999, Bankers Trust Corporation and a wholly owned subsidiary of Deutsche Bank
AG ("Deutsche Bank") expect to finalize a merger in which Bankers Trust
Corporation will be acquired by and become a subsidiary of Deutsche Bank.
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EQ/EVERGREEN PORTFOLIO
INVESTMENT OBJECTIVE: Seeks capital appreciation.
THE INVESTMENT STRATEGY
The Evergreen Portfolio invests primarily in common stocks and convertible
securities of companies that are relatively small or little-known or represent
special situations which the Adviser believes offer potential for capital
appreciation. In addition, the Portfolio may invest in relatively well-known,
large company securities that have the potential for capital appreciation.
Securities are selected based on a combination of comparative undervaluation
relative to growth potential and/or merger/acquisition price.
[SIDEBAR: For purposes of this Portfolio, a "little-known" company is one whose
business is limited to a regional market or whose securities are mainly
privately held. A " relatively small" company is one that has a small share of
the market for its products or services in comparison with other companies in
its field or that provides goods or services for a limited market. A "special
situation" company is one which offers potential for capital appreciation
because of a recent or anticipated change in structure, management, products or
services.
The Portfolio also may invest to a lesser extent in non-convertible debt
securities and preferred stocks that offer an opportunity for capital
appreciation.
When market or financial conditions warrant, the Portfolio may invest up to 100%
of its assets in short-term obligations for temporary or defensive purposes.
Such investment strategies are inconsistent with the Portfolio's investment
objectives and 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:
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 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; and the products of technologies
of such companies may be at a relatively early stage of development or not fully
tested.
VALUE INVESTING RISK: As noted above, the Portfolio uses a value-oriented
approach to stock selection. Value investing is subject to the risk that a value
stock's intrinsic value may never be fully recognized or realized by the market,
or its price may go down. There is also the risk that a stock judged to be
undervalued may actually be appropriately priced.
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.
PORTFOLIO PERFORMANCE
The inception date for this Portfolio was December 31, 1998. Therefore, no prior
performance information is available.
WHO MANAGES THE PORTFOLIO
EVERGREEN ASSET MANAGEMENT CORP. ("Evergreen"), 2500 Westchester Avenue,
Purchase, New York 10577. Evergreen has been the Adviser to the Portfolio since
it commenced operations. Evergreen is a registered investment adviser and a
wholly-owned subsidiary of First Union Corporation. Evergreen offers a broad
range of financial services to individuals and businesses throughout the United
States.
Jean Ledford and Richard Welsh became co-managers of the Portfolio in August
1999. Ms. Ledford, CFA, became President and Chief Executive Officer of
Evergreen in August 1999. From February 1997 until she joined Evergreen, Ms.
Ledford worked as a portfolio manager at American Century Investments ("American
Century"). From 1980 until she joined American Century, Ms. Ledford was the
investment director at the State of Wisconsin Investment Board.
Mr. Welsh joined Evergreen as Senior Vice President and portfolio manager in
August 1999. Prior to joining Evergreen, he worked for five years as a portfolio
manager and analyst at American Century.
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LAZARD SMALL CAP VALUE PORTFOLIO
INVESTMENT OBJECTIVE: Seeks capital appreciation by investing in equity
securities of United States companies with small market capitalizations (i.e.,
companies in the range of companies represented in the Russell 2000 Index) that
the Adviser considers inexpensively priced relative to the return on total
capital or equity.
THE INVESTMENT STRATEGY
The Portfolio is a non-diversified Portfolio that invests primarily in equity
securities of U.S. companies with small market capitalizations that the Adviser
believes are undervalued based on their return on equity or capital. The
Portfolio will have characteristics similar to the Russell 2000 Index. The
equity securities that may be purchased by the Portfolio include common stocks,
preferred stocks, securities convertible into or exchangeable for common stocks,
rights and warrants.
[SIDEBAR: For more information on The Russell 2000, see the preceding section
"The Benchmarks"]
[SIDEBAR: A Portfolio may be considered to be "non-diversified" for federal
securities law purposes because it invests in a limited number of securities. In
all cases, the Portfolio intends to be diversified for tax purposes so that it
can qualify as a regulated investment company.]
In selecting investments for the Portfolio, the Adviser looks for equity
securities of companies that have one or more of the following characteristics:
(i) are undervalued relative to their earnings, cash flow or asset values; (ii)
have an attractive price/value relationship with expectations that some catalyst
will cause the perception of value to change within two years; (iii) are out of
favor due to circumstances which are unlikely to harm the company's franchise or
earnings power; (iv) have low projected price to earnings or price-to-cash flow
multiples; (v) have the potential to become a larger factor in the company's
business; (vi) have significant debt but have high levels of free cash flow; and
(vii) have a relatively short corporate history with the expectation that the
business may grow.
Although the Portfolio will principally invest at least 80% of its assets in
small capitalization securities, the Portfolio may also invest up to 20% of its
assets in larger capitalization equity securities or investment-grade debt
securities.
When market or financial conditions warrant, the Portfolio may invest without
limitation in short-term money market instruments or hold its assets in cash for
temporary or defensive purposes. Such investment strategies could have the
effect of reducing the benefit of any upswing in the market. Such investment
strategies are inconsistent with the Portfolio's investment objectives and 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:
VALUE INVESTING RISK: As noted above, the Portfolio uses a value-oriented
approach to stock selection. Value investing is subject to the risk that a value
stock's intrinsic value may never be fully recognized or realized by the market,
or its price may go down. There is also the risk that a stock judged to be
undervalued may actually be appropriately priced.
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<PAGE>
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 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; and the products of technologies
of such companies may be at a relatively early stage of development or not fully
tested.
NON-DIVERSIFICATION RISK: Since a relatively high percentage of the Portfolio's
assets may be invested in the securities of a limited number of issuers, some of
which may be within the same industry, the securities of the Portfolio may be
more sensitive to changes in the market value of a single issuer or industry or
to risks associated with a single economic, political or regulatory event than a
diversified portfolio.
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 return for 1998,
the Portfolio's first year of existence. The table below shows the Portfolio's
average annual total returns for the Portfolio for one year and since inception.
The table also compares the Portfolio's performance to the returns of a broad
based index. Both the bar chart and table assume reinvestment of dividends and
distributions. Past performance is not an indication of future performance. The
performance results presented below do not reflect any insurance and
Contract-related fees and expenses, which would reduce the performance results.
The Portfolio's inception date was January 1, 1998.
- --------------------------------------------------------------------------------
CALENDAR YEAR ANNUAL TOTAL RETURN
-7.03%
1998
- -------------------------------------------------------------------------------
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Best quarter (% and time period) Worst quarter (% and time period)
15.78% (1998 4th Quarter) (20.10)% (1998 3rd Quarter)
- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR SINCE INCEPTION
LAZARD SMALL CAP VALUE PORTFOLIO (7.03)% (7.03)%
RUSSELL 2000 INDEX* (2.54)% (2.54)%
- --------------------------------------------------------------------------------
* For more information on this index, see the preceding section "The
Benchmarks."
WHO MANAGES THE PORTFOLIO
LAZARD ASSET MANAGEMENT ("LAM"), 30 Rockefeller Plaza, New York, New York 10112.
LAM has been the Adviser to the Portfolio since it commenced operations. LAM is
a division of Lazard Freres & Co. LLC ("Lazard Freres"), a New York limited
liability company, which is registered as an investment adviser with the SEC.
Lazard Freres provides its clients with a wide variety of investment banking and
related services, including investment management.
The Portfolio Managers, responsible for the day to day management since the
inception of the Portfolio, are: EILEEN D. ALEXANDERSON, a Managing Director of
LAM who has been with LAM since 1979 and HERBERT W. GULLQUIST, a Vice-Chairman,
Managing Director and Chief Investment Officer of LAM, who has been with LAM
since 1982.
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<PAGE>
MFS EMERGING GROWTH COMPANIES PORTFOLIO
INVESTMENT OBJECTIVE: Seeks to provide long-term capital growth.
THE INVESTMENT STRATEGY
The Portfolio invests, under normal market conditions, primarily (at least 65%
of its total assets) in common stocks and related securities, such as preferred
stock, convertible securities and depositary receipts of emerging growth
companies. Emerging growth companies that the Adviser believes are either:
o early in their life cycle but have the potential to become major
enterprises, or
o are major enterprises whose rates of earnings growth are expected to
accelerate because of special factors such as rejuvenated management, new
products, changes in customer demand or basic changes in the economic
environment.
For purposes of this Portfolio, emerging growth companies may be of any size and
the Adviser would expect these companies to have products, technologies,
management, markets and opportunities that will facilitate earnings growth over
time that is well above the growth rate of the overall economy and rate of
inflation. The Portfolio's investments may include securities traded in the
over-the-counter markets.
The Adviser uses a "bottom-up" investment style in managing the Portfolio. This
means the securities are selected based upon fundamental analysis performed by
the Adviser.
In addition, up to 15% of the Portfolio's assets may be invested in foreign
securities, including those in emerging markets, or in cash and cash
equivalents.
When adverse market, financial or political conditions warrant, the Portfolio
may depart from its principal strategies for temporary or defensive purposes.
Such investment strategies are inconsistent with the Portfolio's investment
objectives and could result in the Portfolio not achieving its investment
objective.
The Portfolio may engage in active and frequent trading to achieve its principal
investment strategies. Frequent trading increases transaction costs, which could
detract from the Portfolio's performance.
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 and may trade less frequently and in lower
volume; such companies are more likely to experience greater or more
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<PAGE>
unexpected changes in their earnings and growth prospects; and the products of
technologies of such companies may be at a relatively early stage of development
or not fully tested.
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; 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 return for 1998,
the Portfolio's first full year of operations. The table below shows the
Portfolio's average annual total returns for the Portfolio for one year and
since inception. The table also compares the Portfolio's performance to the
returns of a broad-based index. Both the bar chart and table assume reinvestment
of dividends and distributions. Past performance is not an indication of future
performance. The performance results presented below do not reflect any
insurance and Contract-related fees and expenses, which would reduce the
performance results. The inception date for the Portfolio was May 1, 1997.
- --------------------------------------------------------------------------------
CALENDAR YEAR ANNUAL TOTAL RETURN
34.57%
1998
- --------------------------------------------------------------------------------
Best quarter (% and time period) Worst quarter (% and time period)
26.70% (1998 4th Quarter) (12.69)% (1998 3rd Quarter)
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- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR SINCE INCEPTION
MFS EMERGING GROWTH COMPANIES PORTFOLIO 34.57% 34.81%
RUSSELL 2000 INDEX* (2.54)% (14.53)%
- --------------------------------------------------------------------------------
* For more information on this index, see the preceding section "The
Benchmarks."
WHO MANAGES THE PORTFOLIO
MASSACHUSETTS FINANCIAL SERVICES COMPANY ("MFS"), 500 Boylston Street, Boston,
MA 02116. MFS has been the Adviser to the Portfolio since it commenced
operations. MFS is America's oldest mutual fund organization. MFS and its
predecessor organizations have a history of money management dating from 1924
and the founding of the first mutual fund in the United States, Massachusetts
Investors Trust. MFS is a subsidiary of Sun Life of Canada (United States)
Financial Services Holdings Inc., which, in turn, is an indirect wholly-owned
subsidiary of Sun Life Assurance Company of Canada.
The Portfolio Managers are JOHN W. BALLEN, President of MFS, who has been
employed by MFS as a portfolio manager of the Portfolio since 1984; TONI Y.
SHIMURA, a Vice President of MFS, who has been employed by MFS as a portfolio
manager for the Portfolio since 1995; and STEPHEN PESEK, a Vice President of
MFS, who has been employed as a portfolio manager by MFS since 1994. Prior to
1994, Mr.Pesek worked at Fidelity Investments as a research analyst.
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WARBURG PINCUS SMALL COMPANY VALUE PORTFOLIO
INVESTMENT OBJECTIVE: Seeks long-term capital appreciation.
THE INVESTMENT STRATEGY
The Portfolio invests primarily in equity securities of U.S. small-cap companies
with above-average growth potential that the Adviser believes to be undervalued.
Typically, such investments may include common stocks, preferred stocks,
convertible securities, warrants and rights of small-cap companies. Once 65% of
the Portfolio's assets are invested in small-cap companies, the Portfolio may
also invest in companies with a market capitalization of any size.
[SIDEBAR: For purposes of this Portfolio, small-cap companies are companies
having market capitalizations within the range of capitalizations of companies
represented in the Russell 2000 Index .]
In determining whether a company's stock is undervalued, the Adviser considers
all relevant factors which may include a company's:
o price/earnings ratio;
o price to book value ratio;
o price to cash flow ratio; and
o debt to capital ratio.
The Portfolio will invest primarily (at least 65% of its net assets) in the
securities of U.S. companies traded in the U.S. securities markets. The
Portfolio may invest to a lesser extent in foreign securities, investment grade
debt securities and high quality domestic and foreign short-term (one year or
less) and medium-term money-market securities.
When market or financial conditions warrant, the Portfolio may invest without
limitation in investment grade debt obligations and in domestic and foreign
obligations, including repurchase agreements for temporary or defensive
purposes. Such investment strategies are inconsistent with the Portfolio's
investment objectives and 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:
VALUE INVESTING RISK: As noted above, the Portfolio uses a value-oriented
approach to stock selection. Value investing is subject to the risk that a value
stock's intrinsic value may never be fully recognized or realized by the market,
or its price may go down. There is also the risk that a stock judged to be
undervalued may actually be appropriately priced.
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 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; and the products of technologies
of such companies may be at a relatively early stage of development or not fully
tested.
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<PAGE>
PORTFOLIO TURNOVER RISK: The Portfolio's turnover rate has been over 100% per
year. Higher portfolio turnover (e.g., over 100% per year) will cause the
Portfolio to incur additional transaction costs and may result in higher taxable
gains that could be passed through to shareholders.
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; adverse changes in foreign economic and tax policies; and foreign
government instability, war or other adverse political or economic actions.
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 return for 1998,
the Portfolio's first full year of operations. The table below shows the
Portfolio's average annual total returns for the Portfolio for one year and
since inception. The table also compares the Portfolio's performance to the
returns of a broad-based index. Both the bar chart and table assume reinvestment
of dividends and distributions. Past performance is not an indication of future
performance. The performance results presented below do not reflect any
insurance and Contract-related fees and expenses, which would reduce the
performance results. The inception date for the Portfolio was May 1, 1997.
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- --------------------------------------------------------------------------------
CALENDAR YEAR ANNUAL TOTAL RETURN
-10.02%
1998
- --------------------------------------------------------------------------------
Best quarter (% and time period) Worst quarter (% and time period)
15.49% (1997 3rd Quarter) (20.25)% (1998 3rd Quarter
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR SINCE INCEPTION
WARBURG PINCUS SMALL COMPANY VALUE
PORTFOLIO (10.02)% 4.25%
RUSSELL 2000 INDEX* (2.54)% 14.53%
- --------------------------------------------------------------------------------
* For more information on this index, see the preceding section "The
Benchmarks."
WHO MANAGES THE PORTFOLIO
WARBURG PINCUS ASSET MANAGEMENT, INC. ("WPAM"), 466 Lexington Avenue, New York,
New York 10017-3147. WPAM has been the Adviser to the Portfolio since it
commenced operations. WPAM is a professional investment advisory firm that
provides investment services to investment companies, employee benefit plans,
endowment funds, foundations and other institutions and individuals. WPAM is
indirectly controlled by Warburg, Pincus & Co., a New York partnership which has
no business other than being a holding company of WPAM and its affiliates.
During 1999, WPAM and Credit Suisse Group expect to finalize Credit Suisse
Group's acquisition of WPAM. WPAM will be combined with and into Credit Suisse
Group's global asset management subsidiary, Credit Suisse Asset Management, LLC.
KYLE F. FREY is the Portfolio Manager and has been responsible for the
day-to-day management of the Portfolio since the Portfolio commenced operations.
Mr. Frey is a managing director of WPAM and has been with WPAM since 1989.
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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.
Alliance has established an asset allocation committee (the "Committee"), all
the members of which are employees of Alliance, which is responsible for setting
and continually reviewing the asset mix ranges of each Portfolio. Under normal
market conditions, the Committee is expected to change allocation ranges
approximately three to five times per year. However, the Committee has broad
latitude to establish the frequency, as well as the magnitude, of allocation
changes within the guidelines established for each Portfolio. During periods of
severe market disruption, allocation ranges may change frequently. It is also
possible that in periods of stable and consistent outlook no change will be
made. The Committee's decisions are based on a variety of factors, including
liquidity, portfolio size, tax consequences and general market conditions,
always within the context of the appropriate investor profile for each
Portfolio. Consequently, asset mix decisions for the Alliance Conservative
Investors Portfolio particularly emphasize risk assessment of each asset class
viewed over the shorter term, while decisions for the Alliance Growth Investors
Portfolio are principally based on the longer term total return potential for
each asset class.
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 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 may make loans of up to 50% of
its total portfolio securities. Each of the Portfolios in the Asset Allocation
Portfolios 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
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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.
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's investments in common stocks will primarily consist of 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.
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.
-132-
<PAGE>
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.
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.
FIXED INCOME RISKS: This Portfolio invests at least 25% of its total assets 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 NRSRO, 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 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.
-133-
<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 ten calendar years and some of the risks of investing in the Portfolio
by showing yearly changes in the Portfolio's performance. The table below shows
the Portfolio's average annual total returns for the past one, five and ten
years and compares the Portfolio's performance to: (i) the returns of a
broad-based index; (ii) the returns of a "blended" index of equity and fixed
income securities; and (iii) the returns of an index of funds with similar
investment objectives. Past performance is not an indication of future
performance.
The Portfolio's performance shown below is the performance of its predecessor
registered investment company (HRT/Alliance Balanced Portfolio) managed by the
Adviser using the same investment objectives and strategy as the Portfolio. For
these purposes, the Portfolio is considered to be the successor entity to the
predecessor registered investment company (HRT/Alliance Balanced Portfolio)
whose inception date was January 27, 1986. The assets of the predecessor will be
transferred to the Portfolio on October 1, 1999.
Both the bar chart and table assume reinvestment of dividends and distributions.
The performance results do not reflect any insurance and Contract-related fees
and expenses, which would reduce the performance results.
<TABLE>
- -------------------------------------------------------------------------------------------------------
CALENDAR YEAR ANNUAL TOTAL RETURN*
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
25.6% 0.0% 41.0% -3.1% 12.0% -8.3% 19.5% 11.4% 14.8% 17.8%
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- ------------------------------------------------------------------------------------------------------
</TABLE>
Best quarter (% and time period) Worst quarter (% and time period)
15.07% (1991 4th Quarter) -8.35% (1990 3rd Quarter)
-134-
<PAGE>
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS*
ONE YEAR FIVE YEARS TEN YEARS
ALLIANCE BALANCED PORTFOLIO - CLASS IB
SHARES 17.82% 10.56% 12.25%
S&P 500 INDEX** 28.58% 24.06% 19.21%
50% S&P 500 INDEX/50%
LEHMAN GOVT/CORP** 19.02% 16.88% 15.21%
LIPPER BALANCED MUTUAL FUNDS AVERAGE** 13.48% 13.84% 12.97%
- --------------------------------------------------------------------------------
*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 the Class IB shares since the Class IB inception date was 4.92%. The return
for the S&P 500 Index for 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 Portfolio and its
predecessor (registered investment company) since the predecessor 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 and its predecessor since February 12, 1996. Mr. Heisterberg, a Senior
Vice President of Alliance and Global Economic Policy Analysis, has been
associated with Alliance since 1977.
-135-
<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, common stocks that are listed on national securities exchanges. The
Portfolio may also invest in stocks that are traded over-the-counter and in
other equity-type 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 of up to 50% of its total assets, and 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.
-136-
<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 NRSRO, 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. 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.
-137-
<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 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.
PORTFOLIO PERFORMANCE
The bar chart below illustrates the Portfolio's annual total returns for each of
the last nine calendar years and some of the risks of investing in the Portfolio
by showing yearly changes in the Portfolio's performance. The table below shows
the Portfolio's average annual total returns for the past one year, five years
and since inception and compares the Portfolio's performance to: (i) the returns
of a broad-based index; (ii) the returns of a "blended" index of fixed income
and equity securities; and (iii) the returns of an index of funds with similar
investment objectives. Past performance is not an indication of future
performance.
The Portfolio's performance shown below is the performance of its predecessor
registered investment company (HRT/Alliance Conservative Investors Portfolio)
managed by the Adviser using the same investment objectives and strategy as the
Portfolio. For these purposes, the Portfolio is considered to be the successor
entity to the predecessor registered investment company (HRT/Alliance
Conservative Investors Portfolio) whose inception date was October 2, 1989. The
assets of the predecessor will be transferred to the Portfolio on October 1,
1999.
Both the bar chart and table assume reinvestment of dividends and distributions.
The performance results do not reflect any insurance and Contract-related fees
and expenses, which would reduce the performance results.
<TABLE>
- ---------------------------------------------------------------------------------------------------------
CALENDAR YEAR ANNUAL TOTAL RETURN*
<S> <C> <C> <C> <C> <C> <C> <C> <C>
6.2% 19.6% 5.5% 10.5% -4.4% 20.2% 5.0% 13.0% 13.6%
1990 1991 1992 1993 1994 1995 1996 1997 1998
- ----------------------------------------------------------------------------------------------------------
</TABLE>
Best quarter (% and time period) Worst quarter (% and time period)
7.59% (1998 4th Quarter) -3.27% (1994 1st Quarter)
-138-
<PAGE>
- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS*
ONE YEAR FIVE YEARS SINCE INCEPTION
ALLIANCE CONSERVATIVE INVESTORS
PORTFOLIO - CLASS IB SHARES 13.60% 9.13% 9.71%
S&P 500 INDEX** 28.58% 24.06% 17.62%
70% LEHMAN TREASURY/30%
S&P 500 INDEX 15.59% 13.37% 12.08%
LIPPER FLEXIBLE PORTFOLIO AVERAGE** 14.20% 14.31% 12.55%
- --------------------------------------------------------------------------------
*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 the Class IB shares since the Class IB inception date was 15.42%. The return
for the S&P 500 Index 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 Portfolio and its
predecessor (registered investment company) since the predecessor 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 and its predecessor since February 12, 1996. Mr. Heisterberg, a Senior
Vice President of Alliance and Global Economic Policy Analysis, has been
associated with Alliance since 1977.
-139-
<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.
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 down.
When interest rates fall, the reverse is true.
-140-
<PAGE>
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.
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.
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. 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.
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.
-141-
<PAGE>
PORTFOLIO PERFORMANCE
The bar chart below illustrates the Portfolio's annual total returns for each of
the last nine calendar years and some of the risks of investing in the Portfolio
by showing yearly changes in the Portfolio's performance. The table below shows
the Portfolio's average annual total returns for the past one year, five years
and since inception and compares the Portfolio's performance to: (i) the returns
of a broad-based index; (ii) the returns of a "blended" index of equity and
fixed income securities; and (iii) the returns of an index of funds with similar
investment objectives. Past performance is not an indication of future
performance.
The Portfolio's performance shown below is the performance of its predecessor
registered investment company (HRT/Alliance Growth Investors Portfolio) managed
by the Adviser using the same investment objectives and strategy as the
Portfolio. For these purposes, the Portfolio is considered to be the successor
entity to the predecessor registered investment company (HRT/Alliance Growth
Investors Portfolio) whose inception date was October 2, 1989. The assets of the
predecessor will be transferred to the Portfolio on October 1, 1999.
Both the bar chart and table assume reinvestment of dividends and distributions.
The performance results do not reflect any insurance and Contract-related fees
and expenses, which would reduce the performance results.
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)
-142-
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS*
<TABLE>
<CAPTION>
ONE YEAR FIVE YEARS SINCE INCEPTION
<S> <C> <C> <C>
ALLIANCE GROWTH INVESTORS PORTFOLIO - 18.83% 13.36% 15.81%
CLASS IB SHARES
S&P 500 INDEX** 28.58% 24.06% 17.62%
70% S&P 500 INDEX/30% 22.85% 19.96% 15.55%
LEHMAN GOV'T CORP.**
LIPPER FLEXIBLE PORTFOLIO AVERAGE** 14.20% 14.31% 12.55%
</TABLE>
*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 the Class IB shares since the Class IB inception date was 17.94%. The return
for the S&P 500 Index 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 Portfolio and its
predecessor (registered investment company) since the predecessor 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 and its predecessor since February 12, 1996. Mr. Heisterberg, a Senior
Vice President of Alliance and Global Economic Policy Analysis, has been
associated with Alliance since 1977.
-143-
<PAGE>
EQ/EVERGREEN FOUNDATION PORTFOLIO
INVESTMENT OBJECTIVE: Seeks to provide, in order of priority, reasonable income,
conservation of capital and capital appreciation.
[SIDEBAR: For purposes of this Portfolio, the words "reasonable income" mean
moderate income.]
THE INVESTMENT STRATEGY
The Portfolio invests primarily in a combination of common stocks, preferred
stocks, securities that are convertible into or exchangeable for common stocks,
investment-grade corporate debt securities, securities of or guaranteed by the
U.S. Government, its agencies or instrumentalities, and short-term debt
instruments, such as high quality commercial paper, and obligations of
FDIC-member banks. Investments in common stocks focus on those that pay
dividends and have the potential for capital appreciation. Common stocks are
selected based on a combination of financial strength and estimated growth
potential. Bonds are selected based on the Adviser's projections of interest
rates, varying amounts and maturities in order to achieve capital protection
and, when possible, capital appreciation. The asset allocation of the Portfolio
will vary in accordance with changing economic and market conditions.
Under normal market conditions, at least 25% of the Portfolio's net assets will
be invested in fixed income securities. In selecting debt securities, the
Adviser will emphasize securities that the Adviser believes will not be subject
to significant fluctuations in value. The corporate debt obligations purchased
by the Portfolio will be rated A or higher by S&P and Moody's. The Fund is not
managed with a targeted maturity.
When market or financial conditions warrant, the Portfolio may invest 100% of
its assets in short-term obligations for temporary or defensive purposes. Such
investment strategies are inconsistent with the Portfolio's investment
objectives and 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
stocks, but generally offer lower yields than unconvertible securities of
similar quality. Convertible securities fluctuate both in relation to changes in
interest rates and changes in the value of the underlying common stock.
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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PORTFOLIO PERFORMANCE
The inception date for this Portfolio was December 31, 1998. Therefore, no
performance information is available.
WHO MANAGES THE PORTFOLIO
EVERGREEN ASSET MANAGEMENT CORP. ("Evergreen"), 2500 Westchester Avenue,
Purchase, New York 10577. Evergreen has been the Adviser to the Portfolio since
it commenced operations. Evergreen is a registered investment adviser and a
wholly-owned subsidiary of First Union Corporation. Evergreen offers a broad
range of financial services to individuals and businesses throughout the United
States.
Jean Ledford and Richard Welsh became co-managers of the Portfolio in August
1999. Ms. Ledford, CFA, became President and Chief Executive Officer of
Evergreen in August 1999. From February 1997 until she joined Evergreen, Ms.
Ledford worked as a portfolio manager at American Century Investments ("American
Century"). From 1980 until she joined American Century, Ms. Ledford was the
investment director at the State of Wisconsin Investment Board.
Mr. Welsh joined Evergreen as Senior Vice President and portfolio manager in
August 1999. Prior to joining Evergreen, he worked for five years as a portfolio
manager and analyst at American Century.
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EQ/PUTNAM BALANCED PORTFOLIO
INVESTMENT OBJECTIVE: Seeks to provide a balanced investment composed of a
well-diversified portfolio of stocks and bonds that will produce both capital
growth and current income.
THE INVESTMENT STRATEGY
The Portfolio may invest in almost any type of security or negotiable
instrument, including common stocks, corporate bonds, cash and money market
securities. Although the proportion invested in each type of security is not
fixed, generally, no more than 75% of the Portfolio's assets will be invested in
common stocks, securities that are convertible into common stocks and other
equity securities.
The Portfolio uses a value-oriented approach by investing in stocks the Adviser
believes are currently selling below their true worth.
[SIDEBAR: Value-investing attempts to identify strong companies selling at a
discount from their perceived true worth. The Adviser selects stocks for the
Portfolio at prices at which in its view are temporarily low relative to the
company's earnings, assets, cash flow and dividends.]
The Portfolio may also invest in debt securities, issued by the U.S. Government
or by private companies. Most of the Portfolio's debt securities will be
investment-grade (rated at least BBB) and are generally intermediate- to
long-term (with maturities of more than three (3) years). The Portfolio may also
invest in lower-rated debt securities (called "junk bonds").
The Portfolio may also invest up to 20% of its total assets in foreign
securities and may purchase Eurodollar certificates of deposit (i.e., short-term
time deposits issued by European banks) without regard to this 20% limit.
When market or financial conditions warrant, the Portfolio may invest up to 100%
of its assets in short term obligations for temporary or defensive purposes.
Such investment strategies are inconsistent with the Portfolio's investment
objectives and 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:
VALUE INVESTING RISK: As noted above, the Portfolio uses a value-oriented
approach to stock selection. Value investing is subject to the risk that a value
stock's intrinsic value may never be fully recognized or realized by the market,
or its price may go down. There is also the risk that a stock judged to be
undervalued may actually be appropriately priced.
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
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principal and interest, are considered to lack outstanding investment
characteristics, and may be speculative. The risk that an issuer or guarantor of
a fixed income security or counterparty to the Portfolio's fixed income
transaction is unable to meet its financial obligations is particularly
significant for this Portfolio because this Portfolio invests a portion of its
assets in "junk bonds" (i.e., securities rated below investment grade). Junk
bonds are issued by companies with questionable credit strength and,
consequently, are considered to be speculative in nature and may be subject to
greater market fluctuations than investment grade fixed-income securities.
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.
PORTFOLIO TURNOVER RISK: The Portfolio's turnover rate was over 100% per year.
Higher portfolio turnover (e.g., over 100% per year) will cause the Portfolio to
incur additional transaction costs and may result in higher taxable gains that
could be passed through to shareholders.
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; 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 return for 1998,
the Portfolio's first full year of operations. The table below shows the
Portfolio's average annual total returns for the Portfolio for one year and
since inception. The table also compares the Portfolio's performance to the
returns of a broad-based index. Both the bar chart and table assume reinvestment
of dividends and distributions. Past performance is not an indication of future
performance. The performance results presented below do not reflect any
insurance and Contract-related fees and expenses, which would reduce the
performance results. The inception date for the Portfolio was May 1, 1997.
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CALENDAR YEAR ANNUAL TOTAL RETURN
1998
11.92%
Best quarter (% and time period) Worst quarter (% and time period)
9.33% (1998 4th Quarter) (5.24)% (1998 3rd Quarter)
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR SINCE INCEPTION
EQ/PUTNAM BALANCED PORTFOLIO 11.92% 15.93%
60% S&P 500/40% LEHMAN GOV'T/CORP. 21.35% 23.48
INDEX*
* For more information on this index, see the preceding section "The
Benchmarks."
WHO MANAGES THE PORTFOLIO
PUTNAM INVESTMENT MANAGEMENT, INC. ("Putnam Management"), One Post Office
Square, Boston, MA 02109. Putnam Management has been the Adviser to the
Portfolio since it commenced operations. Putnam Management has been managing
mutual funds since 1937. Putnam Management is a subsidiary of Putnam
Investments, Inc., which is itself a subsidiary of Marsh & McLennan Companies,
Inc.
The Portfolio Managers, responsible for the day-to-day management of the
Portfolio, are: DAVID L. WALDMAN, Managing Director, who has been employed by
Putnam Management as an investment professional* since 1997 and prior to 1997,
Mr. Waldman was a senior Portfolio Manager at Lazard Freres since 1995, and
prior to 1995, he was a Vice President at Goldman Sachs; EDWARD P. BOUSA, Senior
Vice President, who has been employed by Putnam Management as an investment
professional* since October, 1992; JAMES M. PRUSKO, Vice President, who has been
employed by Putnam Management as an investment professional* since 1992; and
KRISHNA K. MEMANI, MANAGING DIRECTOR, Senior Vice President, who has been
employed by Putnam Management as an investment professional* since 1998.
(*Investment professional means that the manager was either a portfolio manager
or analyst.)
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MERRILL LYNCH WORLD STRATEGY PORTFOLIO
INVESTMENT OBJECTIVE: Seek high total investment return by investing primarily
in a portfolio of equity and fixed income securities, including convertible
securities, of U.S. and foreign issuers.
[SIDEBAR: For purposes of this Portfolio, "total investment return" consists of
interest, dividends discount accruals, and capital changes, including changes in
the value of non-dollar denominated securities and other assets and liabilities
resulting from currency fluctuations.]
THE INVESTMENT STRATEGY The Portfolio is a non-diversified Portfolio that
invests in both equity securities and fixed-income securities. The Portfolio may
invest entirely in equity securities, entirely in fixed-income securities, or
partly in equity securities and partly in fixed-income securities.
[SIDEBAR: A Portfolio may be considered to be "non-diversified" for federal
securities law purposes because it invests in a limited number of securities. In
all cases, the Portfolio intends to be diversified for tax purposes so that it
can qualify as a regulated investment company.]
The Portfolio will normally invest a significant portion of its assets in equity
securities of companies throughout the world. The equity securities in which the
Portfolio invests will primarily be common stocks of large companies.
There are no limits on the Portfolio's ability to invest in any country or
geographic region. The Portfolio can invest primarily in U.S. securities,
primarily in foreign securities, or partly in both. It normally invests in at
least three countries at any given time. The Portfolio may invest in companies
in emerging markets, but the Adviser anticipates that a substantially greater
portion of the Portfolio's equity investments will be in companies in developed
countries. At the present time, the Portfolio focuses on investments in Canada,
Western Europe, the Far East, and Latin America, as well as in the United
States.
The Adviser will select the percentage of the Portfolio's assets that will be
invested in equity securities and fixed-income securities, as well as the
geographic allocation of the Portfolio's investments, based on its view of
general economic and financial trends in various countries and industries, such
as inflation, commodity prices, the direction of interest and currency
movements, estimates of growth in industry output and profits, and government
fiscal policies. For example, if the Adviser believes that falling commodity
prices and decreasing estimates of industrial output globally signal low growth
and limited returns from equity securities, the Portfolio may emphasize
fixed-income investments. Similarly, if the Adviser believes that low inflation,
new technologies and improvements in economic productivity in a country or
region signal a promising environment for equity securities in that country or
region the Portfolio may emphasize equity investments in that country or region.
The Portfolio may invest in fixed-income securities of any maturity, including
United States and foreign government securities and corporate debt securities.
The Portfolio will only invest in debt securities that are rated investment
grade by S&P or Moody's or unrated securities that are of comparable quality.
The Portfolio may also invest in securities denominated in currencies other than
the U.S. dollar. The Portfolio may also engage in currency transactions to hedge
against the risk of loss from changes in currency exchange rates. In addition,
the Portfolio may also employ a variety of instruments and techniques to enhance
income and to hedge against market and currency risk.
The Portfolio has no stated minimum holding period for investments, and will buy
or sell securities whenever the Adviser sees an appropriate opportunity.
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When market or financial conditions warrant, the Portfolio may invest up to 100%
of its assets in United States Government or Government agency securities, money
market securities, other fixed income securities, or cash for temporary or
defensive purposes. Such investment strategies are inconsistent with the
Portfolio's investment objective and 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
stocks, but generally offer lower yields than unconvertible securities of
similar quality. Convertible securities fluctuate 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 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; 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:
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.
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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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.
NON-DIVERSIFICATION RISK: Since a relatively high percentage of the Portfolio's
assets may be invested in the securities of a limited number of issuers, some of
which may be within the same industry, the securities of the Portfolio may be
more sensitive to changes in the market value of a single issuer or industry or
to risks associated with a single economic, political or regulatory event than a
diversified portfolio.
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.
PORTFOLIO TURNOVER RISK: The Portfolio's turnover rate has been over 100% per
year. Higher portfolio turnover (e.g., over 100% per year) will cause the
Portfolio to incur additional transaction costs and may result in higher taxable
gains that could be passed through to shareholders.
PORTFOLIO PERFORMANCE
The bar chart below illustrates the Portfolio's annual total return for 1998,
the Portfolio's first full year of operations. The table below shows the
Portfolio's average annual total returns for the Portfolio for one year and
since inception. The table also compares the Portfolio's performance to the
returns of a broad-based index. Both the bar chart and table assume reinvestment
of dividends and distributions. Past performance is not an indication of future
performance. The performance results presented below do not reflect any
insurance and Contract-related fees and expenses, which would reduce the
performance results. The inception date for the Portfolio was May 1, 1997.
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CALENDAR YEAR ANNUAL TOTAL RETURN
1998
6.81%
Best quarter (% and time period) Worst quarter (% and time period)
10.56% (1998 4th Quarter) (11.15)% (1998 3rd Quarter)
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR SINCE INCEPTION
MERRILL LYNCH WORLD STRATEGY PORTFOLIO 6.81% 6.91%
COMPOSITE MARKET BENCHMARK INDEX* (25.34)% (28.92)%
* For more information on this index, see the preceding section "The
Benchmarks."
WHO MANAGES THE PORTFOLIO
MERRILL LYNCH ASSET MANAGEMENT, L.P. ("MLAM"), 800 Scudders Mill Road,
Plainsboro, New Jersey 08543. MLAM has been the Adviser to the Portfolio since
it commenced operations. MLAM is an indirect wholly-owned subsidiary of Merrill
Lynch & Co., Inc., a financial services holding company. MLAM and its affiliates
act as the manager for more than 100 registered investment companies. MLAM also
offers portfolio management and portfolio analysis services to individuals and
institutions.
THOMAS R. ROBINSON is the Portfolio Manager primarily responsible for the
day-to-day management of the Portfolio since it commenced operations. Mr.
Robinson has served as a First Vice President of MLAM since 1997 and as a Senior
Portfolio Manager of MLAM since 1995. Prior to 1995, Mr. Robinson served as
Manager of International Strategy for Merrill Lynch & Co. Global Securities
Research and Economics Group.
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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
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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 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. 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. 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
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corporate restructurings by highly leveraged issuers or in debt
securities not current in the payment of interest or principal, or in
default.
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
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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 market 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 market 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.
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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.
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, BT Equity 500 Index, BT Small
Company Index and BT International Equity Index Portfolios are not actively
managed (which involves buying and selling of securities based upon economic,
financial and market analysis and investment judgment). Rather, the Alliance
Equity Index Portfolio utilizes proprietary modeling techniques to match the
performance results of the S&P 500 Index. The BT Equity 500 Index, BT Small
Company Index and BT International Equity Index Portfolios utilize a "passive"
or "indexing" investment approach and attempt to duplicate the investment
performance of the particular index the Portfolio is tracking (i.e., S&P 500
Index, Russell 2000 Index or MSCI EAFE Index) through statistical procedures.
Therefore, each of the Portfolios will invest in the securities included in the
relevant index or substantially identical securities regardless of market
trends. The Portfolios cannot modify their investment strategies to respond to
changes in the economy, which means they 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 borrows money or otherwise leverages 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: Although a money market fund is designed to be relatively low
risk investments, it is 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 that 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.
NON-DIVERSIFICATION RISK: The Lazard Small Cap Value, Morgan Stanley Emerging
Markets Equity and Merrill Lynch World Strategy Portfolios are classified as
"non-diversified" investment companies, which means that the proportion of each
Portfolio's assets that may be invested in the securities of a single issuer is
not limited by the 1940 Act. Since a relatively high percentage of each
non-diversified Portfolio's
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assets may be invested in the securities of a limited number of issuers, some of
which may be within the same industry, the securities of each Portfolio may be
more sensitive to changes in the market value of a single issuer or industry.
The use of such a focused investment strategy may increase the volatility of a
Portfolio's investment performance, as the Portfolio may be more susceptible to
risks associated with a single economic, political or regulatory event than a
diversified portfolio. If the securities in which the Portfolio invests perform
poorly, the Portfolio could incur greater losses than it would have had it been
invested in a greater number of securities. However to qualify as a regulated
investment company ("RIC") under the Internal Revenue Code of 1986, as amended
(the "Code") and receive pass through tax treatment, each Portfolio at the close
of each fiscal quarter, may not have more than 25% of its total assets invested
in the securities of any one issuer (excluding U.S. Government obligations) and
with respect to 50% of its assets, (i) may not have more than 5% of its total
assets invested in the securities of any one issuer and (ii) may not own more
than 10% of the outstanding voting securities of any one issuer. Each
non-diversified Portfolio intends to qualify as a RIC.
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.
SECURITIES LENDING RISK: For purposes of realizing additional income, each
Portfolio may lend securities 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.
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 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
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.
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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 forty (40) 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. ("EQFC"), 1290 Avenue of the Americas, New York,
New York 10104, currently serves as the Manager of the Trust. The Board of
Trustees of the Trust have approved a transfer to Equitable of the Trust's
Investment Management Agreement with EQFC. This transfer is expected to be
completed in September 1999. Upon completion of the transfer, Equitable will
serve as the Manager of the Trust. However, until completion of the transfer,
EQFC will continue to serve in that capacity. Equitable, 1290 Avenue of the
Americas, New York, New York 10104, is the indirect corporate parent of EQFC.
Both EQFC and Equitable are investment advisers registered under the Investment
Advisers Act of 1940, as amended, and EQFC is registered as a broker-dealer
registered under the Securities Exchange Act of 1934, as amended.
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 has filed an application ("Substitution Application") requesting
that the SEC approve the substitution of Class IA and Class IB shares of 14 new
Portfolios of the Trust for the same class of shares of corresponding portfolios
of The Hudson River Trust ("HRT"). Alliance Capital Management L.P. ("Alliance")
will serve as Adviser for each of those 14 new Portfolios. The Substitution
Application states that, with respect to those 14 new Portfolios advised by
Alliance, the Manager will not use the powers granted to it under the
Multi-Manager Order (i) to terminate Alliance and select a new Adviser for those
Portfolios or (ii) to materially modify the Investment Advisory Agreement
between the Manager and Alliance without first obtaining shareholder approval to
utilize the powers granted under the Multi-Manager Order or the approval of
shareholders to materially modify the Investment Advisory Agreement.
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 received for the
calendar year ended December 31, 1998 for managing each of the Portfolios and
the rate of the management fees waived by the Manager in 1998 in accordance with
the provisions of the Expense Limitation Agreement, as defined directly below
between the Manager and the Trust.
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MANAGEMENT FEES PAID BY THE PORTFOLIOS TO EQFC IN 1998
- --------------------------------------------------------------------------------
PORTFOLIOS ANNUAL RATE RECEIVED RATE OF FEES WAIVED
- --------------------------------------------------------------------------------
BT Equity 500 Index 0.00% 0.25%
- --------------------------------------------------------------------------------
BT International Equity Index 0.00% 0.35%
- --------------------------------------------------------------------------------
BT Small Company Index 0.00% 0.25%
- --------------------------------------------------------------------------------
EQ/Putnam Balanced 0.20% 0.35%
- --------------------------------------------------------------------------------
EQ/Putnam Growth & Income Value 0.36% 0.19%
- --------------------------------------------------------------------------------
EQ/Putnam International Equity 0.44% 0.26%
- --------------------------------------------------------------------------------
EQ/Putnam Investors Growth 0.31% 0.24%
- --------------------------------------------------------------------------------
JPM Core Bond 0.05% 0.40%
- --------------------------------------------------------------------------------
Lazard Large Cap Value 0.21% 0.34%
- --------------------------------------------------------------------------------
Lazard Small Cap Value 0.62% 0.18%
- --------------------------------------------------------------------------------
Merrill Lynch Basic Value Equity 0.34% 0.21%
- --------------------------------------------------------------------------------
Merrill Lynch World Strategy 0.26% 0.44%
- --------------------------------------------------------------------------------
MFS Emerging Growth Companies 0.36% 0.19%
- --------------------------------------------------------------------------------
MFS Research 0.35% 0.20%
- --------------------------------------------------------------------------------
Morgan Stanley Emerging Markets Equity 0.33% 0.82%
- --------------------------------------------------------------------------------
T. Rowe Price Equity Income 0.36% 0.19%
- --------------------------------------------------------------------------------
T. Rowe Price International Stock 0.54% 0.21%
- --------------------------------------------------------------------------------
Warburg Pincus Small Company Value 0.47% 0.18%
- --------------------------------------------------------------------------------
The twenty-two (22) Portfolios listed in the table below did not commence
operations during 1998. 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. As
explained in the next section, the Portfolios listed below (except for the
Portfolios for which Alliance serves as Investment Adviser other than
EQ/Alliance Premier Growth Portfolio) are subject to an expense limitation
agreement between the Trust and Manager which affects the rate of management
fees to be received by the Manager on behalf of each Portfolio.
ANNUAL RATE OF MANAGEMENT FEES
- -------------------------------------------------------------------------
PORTFOLIOS ANNUAL RATE
- -------------------------------------------------------------------------
Alliance Aggressive Stock(1) 0.54%
- -------------------------------------------------------------------------
Alliance Balanced(1) 0.41%
- -------------------------------------------------------------------------
Alliance Common Stock(1) 0.36%
- -------------------------------------------------------------------------
Alliance Conservative Investors(1) 0.48%
- -------------------------------------------------------------------------
Alliance Equity Index(1) 0.31%
- -------------------------------------------------------------------------
Alliance Global(1) 0.64%
- -------------------------------------------------------------------------
Alliance Growth And Income(1) 0.55%
- -------------------------------------------------------------------------
Alliance Growth Investors(1) 0.51%
- -------------------------------------------------------------------------
Alliance High Yield(1) 0.60%
- -------------------------------------------------------------------------
Alliance Intermediate Government Securities(1) 0.50%
- -------------------------------------------------------------------------
Alliance International(1) 0.90%
- -------------------------------------------------------------------------
Alliance Money Market(1) 0.35%
- -------------------------------------------------------------------------
Alliance Quality Bond(1) 0.53%
- -------------------------------------------------------------------------
Alliance Small Cap Growth(1) 0.90%
- -------------------------------------------------------------------------
Calvert Socially Responsible(2) 0.65%
- -------------------------------------------------------------------------
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- -------------------------------------------------------------------------
Capital Guardian International (3) 0.75%
- -------------------------------------------------------------------------
Capital Guardian Research (1) 0.65%
- -------------------------------------------------------------------------
Capital Guardian U.S. Equity (3) 0.65%
- -------------------------------------------------------------------------
EQ/Alliance Premier Growth (3) 0.90%
- -------------------------------------------------------------------------
EQ/Evergreen Foundation (4) 0.63%
- -------------------------------------------------------------------------
EQ/Evergreen (4) 0.75%
- -------------------------------------------------------------------------
MFS Growth with Income (4) 0.55%
- -------------------------------------------------------------------------
- -----------------
(1) The inception date for this Portfolio is October 1, 1999.
(2) The inception date for this Portfolio is August 30, 1999.
(3) The inception date for this Portfolio was April 30, 1999.
(4) The inception date for this Portfolio was December 31, 1998.
EXPENSE LIMITATION AGREEMENT
In the interest of limiting expenses of each Portfolio (except for the
Portfolios for which Alliance serves as Investment Adviser, other than
EQ/Alliance Premier Growth 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 fees:
EXPENSE LIMITATION RATES
- ------------------------------------------------------------------------------
PORTFOLIOS AMOUNT EXPENSES LIMITED TO
(% of daily net assets)
- ------------------------------------------------------------------------------
BT Equity 500 Index 0.30%
- ------------------------------------------------------------------------------
BT International Equity Index 0.75%
- ------------------------------------------------------------------------------
BT Small Company Index 0.50%
- ------------------------------------------------------------------------------
Calvert Socially Responsible 0.80%
- ------------------------------------------------------------------------------
Capital Guardian International 0.95%
- ------------------------------------------------------------------------------
Capital Guardian Research 0.70%
- ------------------------------------------------------------------------------
Capital Guardian U.S. Equity 0.70%
- ------------------------------------------------------------------------------
EQ/Alliance Premier Growth 0.90%
- ------------------------------------------------------------------------------
EQ/Evergreen Foundation 0.70%
- ------------------------------------------------------------------------------
EQ/Evergreen Portfolio 0.80%
- ------------------------------------------------------------------------------
EQ/Putnam Balanced 0.65%
- ------------------------------------------------------------------------------
EQ/Putnam Growth & Income Value 0.60%
- ------------------------------------------------------------------------------
EQ/Putnam International Equity 0.95%
- ------------------------------------------------------------------------------
EQ/Putnam Investors Growth 0.70%
- ------------------------------------------------------------------------------
JPM Core Bond 0.55%
- ------------------------------------------------------------------------------
Lazard Large Cap Value 0.70%
- ------------------------------------------------------------------------------
Lazard Small Cap Value 0.95%
- ------------------------------------------------------------------------------
Merrill Lynch Basic Value Equity 0.60%
- ------------------------------------------------------------------------------
Merrill Lynch World Strategy 0.95%
- ------------------------------------------------------------------------------
MFS Emerging Growth Companies 0.60%
- ------------------------------------------------------------------------------
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- ------------------------------------------------------------------------------
MFS Growth with Income 0.60%
- ------------------------------------------------------------------------------
MFS Research 0.60%
- ------------------------------------------------------------------------------
Morgan Stanley Emerging Markets Equity 1.50%
- ------------------------------------------------------------------------------
T. Rowe Price Equity Income 0.60%
- ------------------------------------------------------------------------------
T. Rowe Price International Stock 0.95%
- ------------------------------------------------------------------------------
Warburg Pincus Small Company Value 0.75%
- ------------------------------------------------------------------------------
Each Portfolio may at a later date, as described below, 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 total amount of reimbursement to which the Manager may be entitled will
equal, at any time, the sum of (i) all investment management fees previously
waived or reduced by the Manager and (ii) all other payments previously remitted
by the Manager to the Portfolio during any of the previous five (5) fiscal
years, less any reimbursement that the Portfolio has previously paid to the
Manager with respect to (a) such investment management fees previously waived or
reduced and (b) such other payments previously remitted by the Manager to the
Portfolio.
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, the Multi-Manager Order, from the
SEC that permits the Manager, subject to 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.
The Manager and certain non-affiliated insurance companies (collectively
"Applicants") have filed a Substitution Application with the SEC. Applicants
have included, as a term of the Substitution Application, that with respect to
those Portfolios for which Alliance serves as Adviser (other than EQ/Alliance
Premier Growth Portfolio, which will not be substituted for a portfolio of HRT),
the Manager will not: (i) terminate Alliance and select a new Adviser for those
Portfolios or (ii) materially modify the existing investment advisory without
first either obtaining approval of shareholders for such actions or obtaining
approval of shareholders to utilize the Multi-Manager Order.
The Manager pays each Adviser a fee based on the Portfolio's average daily net
assets. No Portfolio is responsible for the fees paid to each of the Advisers.
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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, based upon advice of counsel, 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. EQ Financial Consultants, Inc. ("EQFC") 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. ("EDI") 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. EQFC and
EDI are affiliates of Equitable. Both EQFC and EDI are registered as
broker-dealers under the Securities Exchange Act of 1934 and are members of the
National Association of Securities dealers, Inc.
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.
Portfolios that invest a significant portion of their assets in foreign
securities, may experience changes in their net asset value on days when a
shareholder may not purchase or redeem shares of that Portfolio because foreign
securities (other than ADRs) are valued at the close of business in the
applicable foreign country.
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:
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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 Receipts
or similar form, in the United States are valued at representative quoted
prices in the currency in the country of origin. Foreign currency is
converted into United States dollar equivalents at current exchange rates.
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.
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.
PRIOR PERFORMANCE OF EACH ADVISER
The following table provides information concerning the historical performance
of another registered investment company (or series), account or other
institutional private accounts managed by each Adviser that has investment
objectives, policies, strategies and risks substantially similar to those of the
respective Portfolio(s) of the Trust for which it serves as Adviser. The data is
provided to illustrate the past performance of each Adviser in managing a
substantially similar investment vehicle as measured against
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specified market indices. This data does not represent the past performance of
any of the Portfolios or the future performance of any Portfolio or its Adviser.
Consequently, potential investors should not consider this performance data as
an indication of the future performance of any Portfolio of the Trust or of its
Adviser and should not confuse this performance data with performance data for
each of the Trust's Portfolios, which is shown for each Portfolio that has at
least one full year of operations under the caption "ABOUT THE INVESTMENT
PORTFOLIOS."
Each Adviser's performance data shown below for other registered investment
companies (or series thereof) was calculated in accordance with standards
prescribed by the SEC for the calculation of average annual total return
information for registered investment companies. Average annual total return
reflects changes in share prices and reinvestment of dividends and distributions
and is net of fund expenses. In each such instance, the share prices and
investment returns will fluctuate, reflecting market conditions as well as
changes in company-specific fundamentals of portfolio securities.
Composite performance data relating to the historical performance of
institutional private accounts managed by the relevant Adviser was calculated on
a total return basis and includes all losses. As specified below, this composite
performance data is provided for the J.P. Morgan Active Fixed Income Composite,
the Capital Guardian U.S. Equity Research Portfolio-Diversified Composite, the
Capital Guardian U.S. Equity Composite, and the Capital Guardian Non-U.S. Equity
Composite (collectively, the "Composites"). The total returns for each Composite
reflect the deduction of investment advisory fees, brokerage commissions and
execution costs paid by J.P. Morgan's and Capital Guardian's institutional
private accounts, respectively, without provision for federal or state income
taxes. Custodial fees, if any, were not included in the calculation. Each
Composite includes all actual, fee-paying, discretionary institutional private
accounts managed by J.P. Morgan and Capital Guardian, respectively, that have
investment objectives, policies, strategies and risks substantially similar to
those of the relevant Portfolio. Securities transactions are accounted for on
the trade date and accrual accounting is utilized. Cash and equivalents are
included in performance returns. The institutional private accounts that are
included in the Composites are not subject to the same types of expenses to
which the relevant Portfolio is subject or to the diversification requirements,
specific tax restrictions and investment limitations imposed on the Portfolio by
the 1940 Act or Subchapter M of the Internal Revenue Code. Consequently, the
performance results for the Composites could have been adversely affected if the
institutional private accounts included in the Composites had been regulated as
investment companies under the federal securities laws.
The investment results presented below are unaudited. For more information on
the specified market indices used below, see the section "The Benchmarks." The
name of the other fund or account managed by the adviser is shown in BOLD. The
name of the Trust Portfolio is shown in (parentheses). The name of the benchmark
is shown in italics.
<TABLE>
<CAPTION>
ANNUAL RATES OF RETURN OF OTHER FUNDS OR ACCOUNTS
MANAGED BY ADVISORS
AS OF 12/31/98
<S> <C> <C> <C> <C> <C>
OTHER FUND OR ACCOUNT MANAGED BY ADVISER 1 5 10 SINCE INCEPTION
(EQAT Portfolio) YEAR YEARS YEARS INCEPTION DATE
Benchmark
J.P. MORGAN ACTIVE FIXED INCOME COMPOSITE 6.90% 7.20% 9.40% 5/31/77
(JPM Core Bond Portfolio)
Salomon Brothers Broad Investment Grade Bond 8.70% 7.30% 9.30%
Index (1)
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ANNUAL RATES OF RETURN OF OTHER FUNDS OR ACCOUNTS
MANAGED BY ADVISERS
AS OF 12/31/98
OTHER FUND OR ACCOUNT MANAGED BY ADVISER 1 5 10 SINCE INCEPTION
(EQAT Portfolio) YEAR YEARS YEARS INCEPTION DATE
Benchmark
THE GEORGE PUTNAM FUND OF BOSTON (2) 10.60% 15.07% 13.77% 11/5/37
(EQ/Putnam Balanced Portfolio)
S&P 500 Index (3) 28.57% 24.06% 19.21%
BT INSTITUTIONAL FUNDS - EQUITY 500 INDEX FUND - 28.75% 24.05% N/A 21.56% 12/31/92
INSTITUTIONAL CLASS
(BT Equity 500 Index Portfolio)
S&P 500 Index (3) 28.57% 24.06% N/A 21.61%
BT ADVISORS FUNDS - SMALL CAP INDEX (2.60)% N/A N/A 11.58% 7/10/96
FUND-INSTITUTIONAL CLASS
(BT Small Company Index Portfolio)
Russell 2000 Index (4) (2.54)% N/A N/A 11.85%
PUTNAM GROWTH & INCOME FUND II (2) 12.46% N/A N/A N/A 1/5/95
(EQ/Putnam Growth & Income Value Portfolio)
S&P 500 Index (3) 28.57% N/A N/A 30.51%
PUTNAM INVESTORS FUND (2) 35.52% 24.12% 20.16% 12/1/25
(EQ/Putnam Investors Growth Portfolio)
S&P 500 Index (3) 28.57% 24.06% 19.21%
THE LAZARD FUNDS, INC. - LAZARD EQUITY PORTFOLIO 17.31% 20.36% 16.83% 6/87
(Lazard Large Cap Value Portfolio)
S&P 500 Index (3) 28.57% 24.06% 19.21%
THE LAZARD FUNDS, INC. - LAZARD SMALL CAP PORTFOLIO (12.62)% 11.45% N/A 16.10% 10/1/91
(Lazard Small Cap Value Portfolio)
Russell 2000 Index (4) (2.54)% 11.86% N/A 13.89%
MERRILL LYNCH VARIABLE SERIES FUNDS, INC. - MERRILL 8.88% 8.49% N/A 9.57% 2/28/92
LYNCH GLOBAL STRATEGY FOCUS FUND
(Merrill Lynch World Strategy Portfolio)
MSCI EAFE Index (5) 20.00% 9.19% N/A 9.98%
MERRILL LYNCH VARIABLE SERIES FUNDS, INC. -MERRILL 9.44% 15.40% N/A 15.80% 7/ 1/93
LYNCH BASIC VALUE FOCUS FUND
(Merrill Lynch Basic Value Equity Portfolio)
S&P 500 Index (3) 28.57% 24.06% N/A 22.74%
MFS RESEARCH FUND (2), (6) 22.92% 20.65% 18.44% 10/13/71
(MFS Research Portfolio)
S&P 500 Index (3) 28.57% 24.06% 19.21%
T. ROWE PRICE EQUITY INCOME FUND 9.23% 18.75% 15.18% 10/31/85
(T. Rowe Price Equity Income Portfolio)
S&P 500 Index (3) 28.57% 24.06% 19.21%
WARBURG PINCUS SMALL COMPANY VALUE FUND (7) (14.88)% N/A N/A 16.51% 12/29/95
(Warbug Pincus Small Company Value Portfolio)
Russell 2000 Index (4) (2.54)% N/A N/A 11.58%
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<PAGE>
ANNUAL RATES OF RETURN OF OTHER FUNDS OR ACCOUNTS
MANAGED BY ADVISERS
AS OF 12/31/98
OTHER FUND OR ACCOUNT MANAGED BY ADVISER 1 5 10 SINCE INCEPTION
(EQAT Portfolio) YEAR YEARS YEARS INCEPTION DATE
Benchmark
BT ADVISORS FUNDS - EAFE EQUITY INDEX FUND - 19.81% N/A N/A 9.69% 1/24/96
INSTITUTIONAL CLASS
(BT International Equity Index Portfolio)
MSCI EAFE Index (5) 20.00% N/A N/A 9.70%
PUTNAM INTERNATIONAL GROWTH FUND (2) 18.95% 13.18% N/A N/A 2/28/91
(EQ/Putnam International Equity Portfolio)
MSCI EAFE Index (5) 20.00% 9.19% N/A 7.58%
MFS EMERGING GROWTH FUND (6) 23.56% 19.66% 22.94% 12/29/86
(MFS Emerging Growth Companies Portfolio)
Russell 2000 Index (4) (2.54)% 11.86% 12.94%
MASSACHUSETTS INVESTORS TRUST (2) 22.95% 22.97% 19.15% 7/15/24
(MFS Growth with Income Portfolio)
S&P 500 Index (3) 28.57% 24.06% 19.21%
MORGAN STANLEY INSTITUTIONAL FUND, INC. - EMERGING (25.40)% (8.20)% N/A 3.50% 9/25/92
MARKETS PORTFOLIO (8)
(Morgan Stanley Emerging Markets Equity Portfolio)
IFC Global Total Return Composite Index (9) (21.10)% (8.70)% N/A 1.90%
T. ROWE PRICE INTERNATIONAL STOCK FUND 16.14% 8.87% 10.45% 5/ 9/80
(T. Rowe Price International Stock Portfolio)
MSCI EAFE Index (5) 20.00% 9.19% 9.50%
EVERGREEN FOUNDATION FUND - CLASS Y SHARES 12.21% 15.06% N/A 16.89% 1/ 2/90
(EQ/Evergreen Foundation Portfolio)
S&P 500 Index (3) 28.57% 24.06% N/A 18.82%
EVERGREEN FUND - CLASS Y SHARES 7.23% 17.82% 14.07% 10/15/71
(EQ/Evergreen Portfolio)
Russell 2000 Index (4) (2.54)% 11.86% 12.94%
CAPITAL GUARDIAN U.S. EQUITY RESEARCH 28.46% 24.53% N/A 21.74% 3/31/93
PORTFOLIO-DIVERSIFIED COMPOSITE
(Capital Guardian Research Portfolio)
S&P 500 Index 28.58% 23.99% N/A 21.68%
CAPITAL GUARDIAN U.S. EQUITY COMPOSITE 22.88% 22.27% 18.07% 13.71% 12/31/66
(Capital Guardian U.S. Equity Portfolio)
S&P 500 Index 28.58% 23.99% 19.12% 12.84%
CAPITAL GUARDIAN NON-U.S. EQUITY COMPOSITE 17.32% 11.62% 10.87% 15.00% 12/31/78
(Capital Guardian International Portfolio)
MSCI EAFE Index (5) 19.97% 9.19% 5.53% 13.25%
ALLIANCE PREMIER GROWTH FUND, INC.-ADVISOR CLASS (10) 49.85% N/A N/A 42.97% 10/ 1/96
(EQ/Alliance Premier Growth Portfolio)
S&P 500 Index (3) 28.60% N/A N/A 21.60%
</TABLE>
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<PAGE>
(1) The Salomon Brothers Broad Investment Grade Bond Index is an
unmanaged, market-weighted index that contains approximately 4,700
individually priced investment grade bonds. The index does not
include fees or operating expenses and is not available for actual
investment.
(2) Performance for the Class A shares. The Class A shares are in many
instances subject to a front-end sales charge of up to 5.75%. Other
share classes have different expenses and their performance will
vary.
(3) The S&P 500 Index ("S&P 500") is an unmanaged index containing common
stocks 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 income dividends and capital gain
distributions, if any, but does not reflect fees, brokerage
commissions, or other expenses of investing.
(4) The Russell 2000 Index is an unmanaged index (with no defined
investment objective) composed of approximately 2,000
small-capitalization stocks and includes reinvestments of dividends.
The index does not include fees or operating expenses and is not
available for actual investment. It is compiled by the Frank Russell
Company.
(5) The Morgan Stanley Capital International EAFE Index ("MSCI EAFE
Index") is an unmanaged capitalization-weighted measure of stock
markets in Europe, Australia and the Far East. The returns of the
EAFE Index assume dividends are reinvested net of withholding tax and
do not reflect any fees or operating expenses. The index is not
available for actual investment.
(6) The results for the MFS Research Fund (Class A shares) and the MFS
Emerging Growth Fund (Class B shares) do not reflect sales charges
that may be imposed on the such shares.
(7) Absent the waiver of fees in 1998 by the Warburg Pincus Small
Company Value Fund's investment adviser and co-administrator,
management fees of the Warburg Pincus Small Company Value Fund would
equal 1.00%, other expenses would equal 0.94% and total operating
expenses would equal 2.19%. The investment adviser and
co-administrator of the Warburg Pincus Small Company Value Fund are
under no obligation to continue these waivers.
(8) Performance for the Class A shares of the Morgan Stanley
Institutional Fund, Inc. - Emerging Markets Portfolio. The Class B
shares of the Morgan Stanley Institutional Fund, Inc. - Emerging
Markets Portfolio are subject to a Rule 12b-1 fee equal to 0.25% of
the Portfolio's assets. The expense ratio of Morgan Stanley
Institutional Fund, Inc. - Emerging Markets Portfolio has been capped
at 1.75% since inception.
(9) The IFC Global Total Return Composite Index is an unmanaged index of
common stocks and includes developing countries in Latin America,
East and South Asia, Europe, the Middle East and Africa. The Index
assumes dividends are reinvested.
(10) Annualized performance for the Adviser Class shares. The Advisor
Class shares had a total expense ratio of 1.26% of its average daily
net assets for the year ended December 31, 1998. Other share classes
have different expenses and their performance will vary.
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<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Trust's
financial performance since May 1, 1997. The Trust began to offer Class IA
shares for the T. Rowe Price Equity Income, MFS Emerging Growth Companies,
Warburg Pincus Small Company Value and BT International Equity Portfolios on
November 24, 1998. Except for those four Portfolios, the financial information
in the table below for the period May 1, 1997 to December 31, 1998 relates only
to the Class IB shares. The financial information relating to both the Class IA
shares and the Class IB shares has been derived from the audited financial
statements of the Trust. These financial statements have been audited by
PricewaterhouseCoopers LLP, independent public accountants.
PricewaterhouseCoopers LLP's report on the Trust's financial statements as of
December 31, 1998 appears in the Trust's Annual Report. The information should
be read in conjunction with the financial statements contained in the Trust's
Annual Report which are incorporated by reference into the Trust's Statement of
Additional Information (SAI) and available upon request.
<TABLE>
<CAPTION>
NET REALIZED
AND
UNREALIZED
GAIN (LOSS) ON DIVIDENDS IN
NET ASSET INVESTMENTS DIVIDENDS EXCESS OF DISTRIBUTIONS
VALUE, NET AND FOREIGN TOTAL FROM FROM NET NET FROM
BEGINNING INVESTMENT CURRENCY INVESTMENT INVESTMENT INVESTMENT REALIZED
OF PERIOD INCOME TRANSACTIONS OPERATIONS INCOME INCOME GAINS
<S> <C> <C> <C> <C> <C> <C>
T. Rowe Price
International Stock Portfolio
DEC. 31,1998 $ 9.85 $0.06 $ 1.28 $1.34 $(0.07) $(0.02) -
DEC. 31,1997 $10.00 $0.02 $(0.17) $(0.15) - - -
T. Rowe Price
Equity Income Portfolio
CLASS IB DEC. 31, 1998 $12.08 $0.22 $ 0.87 $1.09 $(0.22) - $(0.28)
CLASS IB DEC. 31,1997 $10.00 $0.10 2.11 $2.21 $(0.09) - $(0.04)
CLASS IA NOV, 24-DEC. 31, 1998 $13.22 $0.06 $(0.09)+ $(0.03) $(0.24) - $(0.28)
EQ/Putnam Growth & Income Value
Portfolio
DEC. 31,1998 $11.52 $0.11 $.35 $1.46 $(0.11) - -
DEC. 31, 1997 $10.00 $0.06 $1.56 $1.62 $(0.06) - $(0.01)
EQ/Putnam Balanced Portfolio
DEC.31,1998 $11.21 $0.25 $1.08 $1.33 $(0.23) - $(0.15)
DEC. 31, 1997 $10.00 $0.14 $1.30 $1.44 $(0.13) $(0.01) $(0.09)
EQ/Putnam International Equity
Portfolio
DEC.31, 1998 $10.89 $0.05 $2.07 $2.12 - - -
DEC. 31, 1997 $10.00 $0.03 $0.93 $0.96 $(0.02) - $(0.01)
EQ/Putnam Investors Growth
Portfolio
DEC. 31, 1998 $12.33 $0.01 $4.46 $4.47 $(0.01) - -
DEC. 31, 1997 $10.00 $0.02 $2.45 $2.47 $(0.03) - $(0.04)
MFS Research Portfolio
DEC. 31, 1998 $11.48 $0.04 $2.73 $2.77 $(0.04) - -
DEC. 31, 1997 $10.00 $0.02 $1.58 $1.60 $(0.02) - $(0.01)
MFS Emerging Growth Companies
Portfolio
CLASS IB DEC. 31, 1998 $11.92 $(0.03) $4.15 $4.12 - - -
CLASS IB DEC. 31, 1997 $10.00 $0.02 $2.21 $2.23 $(0.02) - $(0.18)
CLASS IA NOV. 24-DEC. 31,1998 $14.18 - $1.86 $1.86 - - -
Warburg Pincus Small Company
Value Portfolio
CLASS IB DEC. 31, 1998 $11.85 $0.05 $(1.24) $(1.19) $(0.04) - -
CLASS IB DEC. 31, 1997 $10.00 $0.01 $1.90 $1.91 $(0.01) - -
CLASS IA NOV. 24-DEC. 31,1998 $10.40 $0.03 $0.23+ $0.26 $(0.06) - -
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
NET REALIZED
AND
UNREALIZED
GAIN (LOSS) ON DIVIDENDS IN
NET ASSET INVESTMENTS DIVIDENDS EXCESS OF DISTRIBUTIONS
VALUE, NET AND FOREIGN TOTAL FROM FROM NET NET FROM
BEGINNING INVESTMENT CURRENCY INVESTMENT INVESTMENT INVESTMENT REALIZED
OF PERIOD INCOME TRANSACTIONS OPERATIONS INCOME INCOME GAINS
<S> <C> <C> <C> <C> <C> <C> <C>
Merrill Lynch World Strategy
Portfolio
DEC.31,1998 $10.31 $0.15 $0.55 $0.70 $(0.04) $(0.04) -
DEC. 31, 1997 $10.00 $0.08 $0.39 $0.47 $(0.05) - -
Merrill Lynch
Basic Value Equity Portfolio
DEC. 31, 1998 $11.58 $0.12 $1.21 $1.33 $(0.12) - $(0.43)
DEC. 31, 1997 $10.00 $0.06 $1.64 $1.70 $(0.06) - $(0.05)
Morgan Stanley
Emerging Markets Equity Portfolio
DEC, 31, 1998 $7.96 $0.03 $(2.18) $(2.15) $(0.02) - -
DEC. 31, 1997 $10.00 $0.04 $(2.06) $(2.02) $(0.02) - -
BT Equity 500 Index Portfolio
DEC. 31, 1998 $10.00 $0.06 $2.45 $2.51 $(0.06) - -
DEC. 31, 1997 - - - - - - -
BT International Equity Index
Portfolio
CLASS IB DEC. 31, 1998 $10.00 $0.08 $1.92 $2.00 $(0.15) - -
CLASS IB Dec. 31, 1997 - - - - - - -
CLASS IA NOV. 24-DEC. 31,1998 $11.67 $0.03 $0.31 $0.34 $(0.17) - -
BT Small Company Index Portfolio
DEC. 31, 1998 $10.00 $0.07 $(0.30) $(0.23) $(0.07) - $(0.13)
DEC. 31, 1997 - - - - - - -
JPM Core Bond Portfolio
DEC. 31,1998 $10.00 $0.21 $0.70 $0.91 $(0.21) $(0.01) $(0.11)
DEC, 31, 1997 - - - - - - -
Lazard Large Cap Value Portfolio
DEC. 31, 1998 $10.00 $0.06 $1.94 $2.00 $(0.06) - -
DEC, 31, 1997 - - - - - - -
Lazard Small Cap Value Portfolio
DEC. 31, 1998 $10.00 $0.02 $(0.72) $(0.70) $(0.03) - -
DEC. 31, 1997 - - - - - - -
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
DISTRIBUTIONS RATIO OF EXPENSES
IN EXCESS OF TOTAL NET ASSET NET ASSETS, END TO AVERAGE NET
REALIZED DIVIDENDS AND VALUE, END TOTAL RETURN OF PERIOD ASSETS AFTER
GAINS DISTRIBUTIONS OF PERIOD (b) (000's) WAIVERS (a)(c)
<S> <C> <C> <C> <C> <C> <C>
T. Rowe Price International Stock
Portfolio
DEC. 31, 1998 - $(0.09) $11.10 13.68% $134,653 1.20%
DEE. 31, 1997 - - $9.85 (1.49)% $69,572 1.20%
T. Rowe Price Equity Income
Portfolio
CLASS IB DEC. 31, 1998 - $(0.50) $12.67 9.11% $242,001 0.85%(1)
CLASS IB DEC. 31, 1997 - $(0.13) $12.08 22.11% $99,947 0.85%(a)
CLASS IA NOV. 24-DEC. 31, 1998 - $(0.52) $12.67 (2.21)%(b) $2,415 0.60%(a)(1)
EQ/Putnam Growth & Income
Value Portfolio
DEC. 31, 1998 $(0.10) $(0.21) $12.77 12.75% $460,744 0.85%
DEC. 31, 1997 $(0.03) $(0.10) $11.52 16.23% $150,260 0.85%
EQ/Putnam Balanced Portfolio
DEC. 31, 1998 - $(0.38) $12.16 11.92% $75,977 0.90%(a)
DEC. 31, 1997 - $(0.23) $11.21 14.38% $25,854 0.90%
EQ/Putnam International Equity
Portfolio
DEC, 31, 1998 - - $13.01 19.51% $143,721 1.20%
Dec. 31, 1997 $(0.04) $(0.07) $10.89 9.58% $55,178 1.20%
EQ/Putnam Investors Growth
Portfolio
DEC. 31, 1998 - $(0.01) $16.79 36.27% $175,015 0.85%
DEC. 31, 1997 $(0.07) $(0.14) $12.33 24.70% $39,695 0.85%
MFS Research Portfolio
DEC. 31, 1998 - $(0.04) $14.21 24.11% $407,619 0.85%
DEC. 31, 1997 $(0.09) $(0.12) $11.48 16.07% $114,754 0.85%
MFS Emerging Growth Companies
Portfolio
CLASS IB DEC. 31, 1998 - - $16.04 34.57% $461,307 0.85%(1)
CLASS IB DEC. 31, 1997 $(0.11) $(0.31) $11.92 22.42% $99,317 0.85%(a)
CLASS IA NOV. 24-DEC. 31, 1998 - - $16.04 13.12% $5,978 0.60%(a)(1)
Warburg Pincus Small Company
Value Portfolio
CLASS IB DEC. 31, 1998 - $(0.05) $10.61 (10.02)% $166,746 1.00%(1)
CLASS IB DEC. 31, 1997 $(0.05) $(0.06) $11.85 19.15% $120,880 1.00%(a)
CLASS IA NOV. 24-DEC. 31, 1998 - $(0.07) $10.59 2.63%(b) $747 0.75%(a)(1)
Merrill Lynch World Strategy
Portfolio
DEC. 31, 1998 - $(0.08) $10.93 6.81% $30,631 1.20%
DEC. 31, 1997 $(0.11) $(0.16) $10.31 4.70% $18,210 1.20%
Merrill Lynch Basic Value Equity
Portfolio
DEC. 31, 1998 - $(0.55) $12.36 11.59% $174,104 0.85%
Dec, 31, 1997 $(0.01) $(0.12) $11.58 16.99% $49,495 0.85%
Morgan Stanley Emerging Markets
Equity Portfolio
DEC. 31, 1998 - $(0.02) $5.79 (27.10)% $41,359 1.81%
DEC. 31, 1997 - $(0.02) $7.96 (20.16)% $21,433 1.75%
BT Equity 500 Index Portfolio
DEC. 31, 1998 - $(0.06) $12.45 25.14% $224,247 0.55%
DEC. 31, 1997 - - - - - -
BT International Equity Index
Portfolio
CLASS IB DEC. 31, 1998 - $(0.15) $11.85 20.07% $48,075 0.84%(1)
CLASS IB DEC. 31, 1997 - - - - - -
CLASS IA NOV. 24-DEC. 31, 1998 - $(0.17) $11.84 2.94%(b) $735 0.59%(a)(1)
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
DISTRIBUTIONS RATIO OF EXPENSES
IN EXCESS OF TOTAL NET ASSET NET ASSETS, END TO AVERAGE NET
REALIZED DIVIDENDS AND VALUE, END TOTAL RETURN OF PERIOD ASSETS AFTER
GAINS DISTRIBUTIONS OF PERIOD (b) (000's) WAIVERS (a)(c)
<S> <C> <C> <C> <C> <C> <C>
BT Small Company Index Portfolio
Dec. 31,1998 $(0.01) $(0.21) $9.56 (2.27)% $32,609 0.60%
Dec. 31, 1997 - - - - - -
JPM Core Bond Portfolio
Dec. 31,1998 $(0.01) $(0.34) $10.57 9.02% $103,326 0.80%
Dec. 31, 1997 - - - - - -
Lazard Large Cap Value Portfolio
Dec.31,1998 - $(0.06) $11.94 20.01% $74,588 0.90%
Dec. 31, 1997 - - - - - -
Lazard Small Cap Value Portfolio
Dec.31,1998 - $(0.03) $9.27 (7.03)% $51,046 1.20%
Dec. 31, 1997 - - - - - -
</TABLE>
-174-
<PAGE>
<TABLE>
<CAPTION>
RATIO OF NET RATIO OF NET
RATIO OF EXPENSES TO INVESTMENT INCOME INVESTMENT INCOME
AVERAGE NET ASSETS TO AVERAGE NET TO AVERAGE NET
BEFORE WAIVERS (a)(c) ASSETS AFTER ASSETS BEFORE PORTFOLIO
WAIVERS(a)(c) WAIVERS(a)(c) TURNOVER RATE
<S> <C> <C> <C> <C>
T. Rowe Price International Stock
Portfolio
DEC. 31, 1998 1.40% 0.67% 0.47% 22%
DEC. 31, 1997 2.56% 0.45% (0.91)% 17%
T. Rowe Price Equity Income Portfolio
CLASS IB DEC. 31,1998 1.04%(1) 2.20%(1) 2.01%(1) 17%
CLASS IB DEC. 31, 1997 1.74%(a) 2.49%(a) 1.60%(a) 9%
CLASS IA NOV. 24-DEC. 31, 1998 0.79%(a)(1) 2.45%(a)(1) 2.26%(a)(1) 17%
EQ/Putnam Growth & Income Value
Portfolio
DEC. 31, 1998 1.04% 1.30% 1.11% 74%
DEC. 31, 1997 1.75% 1.67% 0.77% 61%
EQ/Putnam Balanced Portfolio
DEC, 31, 1998 1.25% 2.88% 2.53% 135%
Dec, 31, 1997 2.55% 3.19% 1.54% 117%
EQ/Putnam International Equity Portfolio
DEC. 31, 1998 1.46% 0.64% 0.38% 94%
DEC. 31, 1997 2.53% 0.74% (0.59)% 43%
EQ/Putnam
Investors Growth Portfolio
DEC. 31,1998 1.09% 0.14% (0.10)% 64%
DEC. 31, 1997 2.13% 0.58% (0.70)% 47%
MFS Research Portfolio
DEC. 31, 1998 1.05% 0.44% 0.24% 73%
DEC. 31, 1997 1.78% 0.65% (0.28)% 51%
MFS Emerging Growth Companies
Portfolio
CLASS IB DEC. 31, 1998 1.04%(1) (0.30)%(1) (0.49)%(1) 79%
CLASS 1B DEC. 31,1997 1.82%(a) 0.61%(a) (0.36)%(a) 116%
CLASS IA NOV. 24-DEC. 31, 1998 .79%(a)(1) (0.05)%(a)(1) (0.24)%(a)(1) 79%
Warburg Pincus Small Company Value
Portfolio
CLASS IB DEC. 31, 1998 1.17%(1) 0.47%(1) 0.30%(1) 111%
CLASS IB DEC. 31,1997 1.70%(a) 0.26%(a) (0.44)%(a) 44%
CLASS IA NOV. 24-DEC. 31,1998 0.92%(a)(1) 0.72(a)(1) 0.55%(a)(1) 111%
Merrill Lynch World Strategy
Portfolio
DEC. 31, 1998 1.61% 1.63% 1.22% 115%
DEC. 31, 1997 3.05% 1.89% 0.04% 58%
Merrill Lynch
Basic Value Equity Portfolio
DEC. 31, 1998 1.06% 1.41% 1.20% 83%
DEC. 31, 1997 1.89% 1.91% 0.87% 25%
*Morgan Stanley Emerging Markets
Equity Portfolio
DEC. 31, 1998 2.63% 0.73% (0.09)% 114%
DEC. 31, 1997 2.61% 1.96% 1.10% 25%
**BT Equity 500 Index Portfolio
DEC. 31, 1998 0.83% 1.22% 0.94% 2%
DEC. 31, 1997 - - - -
**BT International Equity Index Portfolio
CLASS IB DEC. 31,1998 1.49%(1) 1.11%(1) 0.46%(1) 3%
CLASS IB DEC. 31, 1997 - -
CLASS IA NOV. 24-DEC. 31,1998 1.24%(a)(1) 1.36%(a)(1) 0.71%(a)(1) 3%
</TABLE>
-175-
<PAGE>
<TABLE>
<CAPTION>
RATIO OF NET RATIO OF NET
RATIO OF EXPENSES TO INVESTMENT INCOME INVESTMENT INCOME
AVERAGE NET ASSETS TO AVERAGE NET TO AVERAGE NET
BEFORE WAIVERS (a)(c) ASSETS AFTER ASSETS BEFORE PORTFOLIO
WAIVERS(a)(c) WAIVERS(a)(c) TURNOVER RATE
<S> <C> <C> <C> <C>
**BT Small Company Index Portfolio
Dec. 31, 1998 1.81% 1.18% (0.03)% 35%
Dec. 31, 1997 - - - -
**JPM Core Bond Portfolio
DEC. 31, 1998 1.03% 4.95% 4.72% 428%
Dec. 31, 1997 - - - -
**Lazard Large Cap Value Portfolio
DEC. 31, 1998 1.20% 1.19% 0.89% 37%
Dec, 31, 1997 - - - -
**Lazard Small Cap Value Portfolio
Dec. 31, 1998 1.54% 0.52% 0.18% 21%
Dec. 31, 1997 - - - -
</TABLE>
* The Morgan Stanley Emerging Markets Equity Portfolio commenced
operations on August 20, 1997.
**Commencement of Operations for 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 was January 1, 1998. No financial highlights
are presented for EQ/Evergreen Foundation Portfolio, EQ/Evergreen
Portfolio and MFS Growth with Income Portfolio, each of which received
initial capital on December 31, 1998. In addition, no financial
highlights are presented for the EQ/Alliance Premier Growth Portfolio,
Capital Guardian Research Portfolio, Capital Guardian U.S. Equity
Portfolio, and Capital Guardian International Portfolio, each of which
received initial capital on April 30, 1999.
+ The amount shown for a share outstanding throughout the period does
not accord with the aggregate net gains on investments for that period
because of the timing of sales and repurchases of the Portfolio shares
in relation to fluctuating market value of the investments of the
Portfolio.
(a) Annualized.
(b) Total return calculated for a period of less than one year is not
annualized.
(c) For further information concerning fee waivers, see the section
entitled "Expense Limitation Agreement" in the Prospectus.
(1) Reflects overall fund ratios for investment income and non-class
specific expense.
The financial highlights table below is intended to help you understand
the financial performance for fourteen (14) of the Portfolios that are
advised by Alliance (other than the EQ/Alliance Premier Growth
Portfolio) for the past five (5) years (or, if shorter, the period of
the Portfolio's operations). The financial information relating to both
the Class IA shares and the Class IB shares for those fourteen (14)
Portfolios has been derived from the audited financial statements of
HRT for the year ended December 31, 1998. The Class IA shares and the
Class IB shares of each HRT Portfolio listed below will be substituted
for Class IA and Class IB shares of the corresponding Portfolio of the
Trust and the assets of the respective HRT Portfolio will be
transferred to its corresponding Portfolio of the Trust on or about
October 1, 1999. These financial statements have been audited by
PricewaterhouseCoopers LLP, independent public accountants.
PricewaterhouseCoopers LLP's report on HRT's financial statements as of
December 31, 1998 appears in HRT's Annual Report. The information
should be read in conjunction with the financial statements contained
in HRT's Annual Report which are incorporated by reference into the
Trust's Statement of Additional Information (SAI) and available upon
request.
-176-
<PAGE>
10
Financial Highlights
- -------
146
- --------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the Trust's
financial performance since May 1, 1997. The Trust began to offer Class IA
shares for the T. Rowe Price Equity Income, MFS Emerging Growth Companies,
Warburg Pincus Small Company Value and BT International Equity Portfolios on
November 24, 1998. Except for those four Portfolios, the financial information
in the table below for the period May 1, 1997 to December 31, 1998 relates only
to the Class IB shares. The financial information relating to both the Class IA
shares and the Class IB shares has been derived from the audited financial
statements of the Trust. These financial statements have been audited by
PricewaterhouseCoopers LLP, independent public accountants.
PricewaterhouseCoopers LLP's report on the Trust's financial statements as of
December 31, 1998 appears in the Trust's Annual Report. The information should
be read in conjunction with the financial statements contained in the Trust's
Annual Report which are incorporated by reference into the Trust's Statement of
Additional Information (SAI) and available upon request.
<TABLE>
<CAPTION>
NET
REALIZED
AND
UNREALIZED
GAIN (LOSS)
NET ASSET ON
VALUE, INVESTMENTS
BEGINNING NET AND FOREIGN
OF INVESTMENT CURRENCY
PERIOD INCOME TRANSACTIONS
<S> <C> <C> <C>
BT EQUITY 500 INDEX PORTFOLIO
Dec. 31, 1998 $ 10.00 $ 0.06 $ 2.45
Dec. 31, 1997 - - -
BT INTERNATIONAL EQUITY INDEX PORTFOLIO
Class IB Dec. 31, 1998 $ 10.00 $ 0.08 $ 1.92
Class IB Dec. 31, 1997 - - -
Class IA Nov. 24-Dec. 31, 1998 $ 11.67 $ 0.03 $ 0.31
BT SMALL COMPANY INDEX PORTFOLIO
Dec. 31, 1998 $ 10.00 $ 0.07 $ (0.30)
Dec. 31, 1997 - - -
EQ/PUTNAM BALANCED PORTFOLIO
Dec. 31, 1998 $ 11.21 $ 0.25 $ 1.08
Dec. 31, 1997 $ 10.00 $ 0.14 $ 1.30
EQ/PUTNAM GROWTH & INCOME VALUE PORTFOLIO
Dec. 31, 1998 $ 11.52 $ 0.11 $ 1.35
Dec. 31, 1997 $ 10.00 $ 0.06 $ 1.56
EQ/PUTNAM INTERNATIONAL EQUITY PORTFOLIO
Dec. 31, 1998 $ 10.89 $ 0.05 $ 2.07
Dec. 31, 1997 $ 10.00 $ 0.03 $ 0.93
EQ/PUTNAM INVESTORS GROWTH PORTFOLIO
Dec. 31, 1998 $ 12.33 $ 0.01 $ 4.46
Dec. 31, 1997 $ 10.00 $ 0.02 $ 2.45
JPM CORE BOND PORTFOLIO
Dec. 31, 1998 $ 10.00 $ 0.21 $ 0.70
Dec. 31, 1997 - - -
<CAPTION>
DIVIDENDS IN
DIVIDENDS EXCESS OF DISTRIBUTIONS
TOTAL FROM FROM NET NET FROM
INVESTMENT INVESTMENT INVESTMENT REALIZED
OPERATIONS INCOME INCOME GAINS
<S> <C> <C> <C> <C>
BT EQUITY 500 INDEX PORTFOLIO
Dec. 31, 1998 $ 2.51 $ (0.06) - -
Dec. 31, 1997 - - - -
BT INTERNATIONAL EQUITY INDEX PORTFO LIO
Class IB Dec. 31, 1998 $ 2.00 $ (0.15) - -
Class IB Dec. 31, 1997 - - - -
Class IA Nov. 24-Dec. 31, 1998 $ 0.34 $ (0.17) - -
BT SMALL COMPANY INDEX PORTFOLIO
Dec. 31, 1998 $ (0.23) $ (0.07) - $(0.13)
Dec. 31, 1997 - - - -
EQ/PUTNAM BALANCED PORTFOLIO
Dec. 31, 1998 $ 1.33 $ (0.23) - $(0.15)
Dec. 31, 1997 $ 1.44 $ (0.13) $ (0.01) $(0.09)
EQ/PUTNAM GROWTH & INCOME VALUE PORT FOLIO
Dec. 31, 1998 $ 1.46 $ (0.11) - -
Dec. 31, 1997 $ 1.62 $ (0.06) - $(0.01)
EQ/PUTNAM INTERNATIONAL EQUITY PORTF OLIO
Dec. 31, 1998 $ 2.12 - - -
Dec. 31, 1997 $ 0.96 $ (0.02) - $(0.01)
EQ/PUTNAM INVESTORS GROWTH PORTFOLIO
Dec. 31, 1998 $ 4.47 $ (0.01) - -
Dec. 31, 1997 $ 2.47 $ (0.03) - $(0.04)
JPM CORE BOND PORTFOLIO
Dec. 31, 1998 $ 0.91 $ (0.21) $ (0.01) $(0.11)
Dec. 31, 1997 - - - -
</TABLE>
<PAGE>
- -----
147
- --------------------------------------------------------------------------------
Financial Hightlights
<TABLE>
<CAPTION>
DISTRIBUTIONS TOTAL NET ASSET
IN EXCESS OF DIVIDENDS AND VALUE, END OF
REALIZED GAINS DISTRIBUTIONS PERIOD
<S> <C> <C> <C>
BT EQUITY 500 INDEX PORTFOLIO
Dec. 31, 1998 - $ (0.06) $ 12.45
Dec. 31, 1997 - - -
BT INTERNATIONAL EQUITY INDEX PORTFOLIO
Class IB Dec. 31, 1998 - $ (0.15) $ 11.85
Class IB Dec. 31, 1997 - - -
Class IA Nov. 24-Dec. 31, 1998 - $ (0.17) $ 11.84
BT SMALL COMPANY INDEX PORTFOLIO
Dec. 31, 1998 $ (0.01) $ (0.21) $ 9.56
Dec. 31, 1997 - - -
EQ/PUTNAM BALANCED PORTFOLIO
Dec. 31, 1998 - $ (0.38) $ 12.16
Dec. 31, 1997 - $ (0.23) $ 11.21
EQ/PUTNAM GROWTH & INCOME VALUE PORTFOLIO
Dec. 31, 1998 $ (0.10) $ (0.21) $ 12.77
Dec. 31, 1997 $ (0.03) $ (0.10) $ 11.52
EQ/PUTNAM INTERNATIONAL EQUITY PORTFOLIO
Dec. 31, 1998 - - $ 13.01
Dec. 31, 1997 $ (0.04) $ (0.07) $ 10.89
EQ/PUTNAM INVESTORS GROWTH PORTFOLIO
Dec. 31, 1998 - $ (0.01) $ 16.79
Dec. 31, 1997 $ (0.07) $ (0.14) $ 12.33
JPM CORE BOND PORTFOLIO
Dec. 31, 1998 $ (0.01) $ (0.34) $ 10.57
Dec. 31, 1997 - - -
<CAPTION>
RATIO OF
EXPENSES TO
NET ASSETS, AVERAGE NET
TOTAL RETURN END OF PERIOD ASSETS AFTER
(b) (000'S) WAIVERS (a)(c)
<S> <C> <C> <C>
BT EQUITY 500 INDEX PORTFOLIO
Dec. 31, 1998 25.14% $224,247 0.55%
Dec. 31, 1997 - - -
BT INTERNATIONAL EQUITY INDEX PORTFOLIO
Class IB Dec. 31, 1998 20.07% $ 48,075 0.84%(1)
Class IB Dec. 31, 1997 - - -
Class IA Nov. 24-Dec. 31, 1998 2.94%(b) $ 735 0.59%(a)(1)
BT SMALL COMPANY INDEX PORTFOLIO
Dec. 31, 1998 (2.27)% $ 32,609 0.60%
Dec. 31, 1997 - - -
EQ/PUTNAM BALANCED PORTFOLIO
Dec. 31, 1998 11.92% $ 75,977 0.90%(a)
Dec. 31, 1997 14.38% $ 25,854 0.90%
EQ/PUTNAM GROWTH & INCOME VALUE PORTFOLIO
Dec. 31, 1998 12.75% $460,744 0.85%
Dec. 31, 1997 16.23% $150,260 0.85%
EQ/PUTNAM INTERNATIONAL EQUITY PORTFOL IO
Dec. 31, 1998 19.51% $143,721 1.20%
Dec. 31, 1997 9.58% $ 55,178 1.20%
EQ/PUTNAM INVESTORS GROWTH PORTFOLIO
Dec. 31, 1998 36.27% $175,015 0.85%
Dec. 31, 1997 24.70% $ 39,695 0.85%
JPM CORE BOND PORTFOLIO
Dec. 31, 1998 9.02% $103,326 0.80%
Dec. 31, 1997 - - -
</TABLE>
------------------------- EQ Advisors Trust
<PAGE>
- -----
148
- --------------------------------------------------------------------------------
Financial Highlights
<TABLE>
<CAPTION>
NET
REALIZED
AND
UNREALIZED
GAIN (LOSS)
NET ASSET ON
VALUE, INVESTMENTS
BEGINNING NET AND FOREIGN TOTAL FROM
OF INVESTMENT CURRENCY INVESTMENT
PERIOD INCOME TRANSACTIONS OPERATIONS
<S> <C> <C> <C> <C>
LAZARD LARGE CAP VALUE PORTFOLIO
Dec. 31, 1998 $ 10.00 $ 0.06 $ 1.94 $ 2.00
Dec. 31, 1997 - - -
LAZARD SMALL CAP VALUE PORTFOLIO
Dec. 31, 1998 $ 10.00 $ 0.02 $ (0.72) $ (0.70)
Dec. 31, 1997 - - - -
MERRILL LYNCH BASIC VALUE EQUITY PORTFOLIO
Dec. 31, 1998 $ 11.58 $ 0.12 $ 1.21 $ 1.33
Dec. 31, 1997 $ 10.00 $ 0.06 $ 1.64 $ 1.70
MERRILL LYNCH WORLD STRATEGY PORTFOLIO
Dec. 31, 1998 $ 10.31 $ 0.15 $ 0.55 $ 0.70
Dec. 31, 1997 $ 10.00 $ 0.08 $ 0.39 $ 0.47
MFS EMERGING GROWTH COMPANIES PORTFOLIO
Class IB Dec. 31, 1998 $ 11.92 $ (0.03) $ 4.15 $ 4.12
Class IB Dec. 31, 1997 $ 10.00 $ 0.02 $ 2.21 $ 2.23
Class IA Nov. 24-Dec. 31, 1998 $ 14.18 - $ 1.86 $ 1.86
MFS RESEARCH PORTFOLIO
Dec. 31, 1998 $ 11.48 $ 0.04 $ 2.73 $ 2.77
Dec. 31, 1997 $ 10.00 $ 0.02 $ 1.58 $ 1.60
MORGAN STANLEY EMERGING MARKETS EQUITY PORTFOLIO
Dec. 31, 1998 $ 7.96 $ 0.03 $ (2.18) $ (2.15)
Dec. 31, 1997 $ 10.00 $ 0.04 $ (2.06) $ (2.02)
T. ROWE PRICE EQUITY INCOME PORTFOLIO
Class IB Dec. 31, 1998 $ 12.08 $ 0.22 $ 0.87 $ 1.09
Class IB Dec. 31, 1997 $ 10.00 $ 0.10 $ 2.11 $ 2.21
Class IA Nov. 24-Dec. 31, 1998 $ 13.22 $ 0.06 $ (0.09)+ $ (0.03)
T. ROWE PRICE INTERNATIONAL STOCK PORTFOLIO
Dec 31, 1998 $ 9.85 $ 0.06 $ 1.28 $ 1.34
Dec. 31, 1997 $ 10.00 $ 0.02 $ (0.17) $ (0.15)
WARBURG PINCUS SMALL COMPANY VALUE PORTFOLIO
Class IB Dec. 31, 1998 $ 11.85 $ 0.05 $ (1.24) $ (1.19)
Class IB Dec. 31, 1997 $ 10.00 $ 0.01 $ 1.90 $ 1.91
Class IA Nov. 24-Dec. 31, 1998 $ 10.40 $ 0.03 $ 0.23+ $ 0.26
<CAPTION>
DIVIDENDS
IN
DIVIDENDS EXCESS OF DISTRIBUTION
FROM NET NET FROM
INVESTMENT INVESTMENT REALIZED
INCOME INCOME GAINS
<S> <C> <C> <C>
LAZARD LARGE CAP VALUE PORTFOLIO
Dec. 31, 1998 (0.06) - -
Dec. 31, 1997 - - -
LAZARD SMALL CAP VALUE PORTFOLIO
Dec. 31, 1998 (0.03) - -
Dec. 31, 1997 - - -
MERRILL LYNCH BASIC VALUE EQUITY PORTFOLIO
Dec. 31, 1998 (0.12) - $(0.43)
Dec. 31, 1997 (0.06) - $(0.05)
MERRILL LYNCH WORLD STRATEGY PORTFOLIO
Dec. 31, 1998 (0.04) $ (0.04) -
Dec. 31, 1997 (0.05) - -
MFS EMERGING GROWTH COMPANIES PORTFOLIO
Class IB Dec. 31, 1998 - - -
Class IB Dec. 31, 1997 (0.02) - $(0.18)
Class IA Nov. 24-Dec. 31, 1998 - - -
MFS RESEARCH PORTFOLIO
Dec. 31, 1998 $ (0.04) - -
Dec. 31, 1997 $ (0.02) - $(0.01)
MORGAN STANLEY EMERGING MARKETS EQUITY PORTFOLIO
Dec. 31, 1998 $ (0.02) - -
Dec. 31, 1997 $ (0.02) - -
T. ROWE PRICE EQUITY INCOME PORTFOLIO
Class IB Dec. 31, 1998 $ (0.22) - $(0.28)
Class IB Dec. 31, 1997 $ (0.09) - $(0.04)
Class IA Nov. 24-Dec. 31, 1998 $ (0.24) - $(0.28)
T. ROWE PRICE INTERNATIONAL STOCK PORTFOLIO
Dec 31, 1998 (0.07) $ (0.02) -
Dec. 31, 1997 - - -
WARBURG PINCUS SMALL COMPANY VALUE PORTFOLIO
Class IB Dec. 31, 1998 $ (0.04) - -
Class IB Dec. 31, 1997 $ (0.01) - -
Class IA Nov. 24-Dec. 31, 1998 $ (0.06) - -
</TABLE>
<PAGE>
-----
149
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DISTRIBUTIONS TOTAL NET ASSET
IN EXCESS OF DIVIDENDS AND VALUE, END OF
REALIZED GAINS DISTRIBUTIONS PERIOD
<S> <C> <C> <C>
LAZARD LARGE CAP VALUE PORTFOLIO
Dec. 31, 1998 - $ (0.06) $ 11.94
Dec. 31, 1997 - - -
LAZARD SMALL CAP VALUE PORTFOLIO
Dec. 31, 1998 - $ (0.03) $ 9.27
Dec. 31, 1997 - - -
MERRILL LYNCH BASIC VALUE EQUITY PORTFOLIO
Dec. 31, 1998 - $ (0.55) $ 12.36
Dec. 31, 1997 $ (0.01) $ (0.12) $ 11.58
MERRILL LYNCH WORLD STRATEGY PORTFOLIO
Dec. 31, 1998 - $ (0.08) $ 10.93
Dec. 31, 1997 $ (0.11) $ (0.16) $ 10.31
MFS EMERGING GROWTH COMPANIES PORTFOLIO
Class IB Dec. 31, 1998 - - $ 16.04
Class IB Dec. 31, 1997 $ (0.11) $ (0.31) $ 11.92
Class IA Nov. 24-Dec. 31, 1998 - - $ 16.04
MFS RESEARCH PORTFOLIO
Dec. 31, 1998 - $ (0.04) $ 14.21
Dec. 31, 1997 $ (0.09) $ (0.12) $ 11.48
MORGAN STANLEY EMERGING MARKETS EQUITY PORTFOLIO
Dec. 31, 1998 - $ (0.02) $ 5.79
Dec. 31, 1997 - $ (0.02) $ 7.96
T. ROWE PRICE EQUITY INCOME PORTFOLIO
Class IB Dec. 31, 1998 - $ (0.50) $ 12.67
Class IB Dec. 31, 1997 - $ (0.13) $ 12.08
Class IA Nov. 24-Dec. 31, 1998 - $ (0.52) $ 12.67
T. ROWE PRICE INTERNATIONAL STOCK PORTFOLIO
Dec. 31, 1998 - $ (0.09) $ 11.10
Dec. 31, 1997 - - $ 9.85
WARBURG PINCUS SMALL COMPANY VALUE PORTFOLIO
Class IB Dec. 31, 1998 - $ (0.05) $ 10.61
Class IB Dec. 31, 1997 $ (0.05) $ (0.06) $ 11.85
Class IA Nov. 24-Dec. 31, 1998 - $ (0.07) $ 10.59
<CAPTION>
RATIO OF
EXPENSES TO
NET ASSETS, AVERAGE NET
TOTAL RETURN END OF PERIOD ASSETS AFTER
(b) (000'S) WAIVERS (a)(c)
<S> <C> <C> <C>
LAZARD LARGE CAP VALUE PORTFOLIO
Dec. 31, 1998 20.01% $ 74,588 0.90%
Dec. 31, 1997 - - -
LAZARD SMALL CAP VALUE PORTFOLIO
Dec. 31, 1998 (7.03)% $ 51,046 1.20%
Dec. 31, 1997 - - -
MERRILL LYNCH BASIC VALUE EQUITY PORTFOLIO
Dec. 31, 1998 11.59% $174,104 0.85%
Dec. 31, 1997 16.99% $ 49,495 0.85%
MERRILL LYNCH WORLD STRATEGY PORTFOLIO
Dec. 31, 1998 6.81% $ 30,631 1.20%
Dec. 31, 1997 4.70% $ 18,210 1.20%
MFS EMERGING GROWTH COMPANIES PORTFOLIO
Class IB Dec. 31, 1998 34.57% $461,307 0.85%(1)
Class IB Dec. 31, 1997 22.42% $ 99,317 0.85%(a)
Class IA Nov. 24-Dec. 31, 1998 13.12% $ 5,978 0.60%(a)(1)
MFS RESEARCH PORTFOLIO
Dec. 31, 1998 24.11% $407,619 0.85%
Dec. 31, 1997 16.07% $114,754 0.85%
MORGAN STANLEY EMERGING MARKETS EQUITY PORTFOLIO
Dec. 31, 1998 (27.10)% $ 41,359 1.81%
Dec. 31, 1997 (20.16)% $ 21,433 1.75%
T. ROWE PRICE EQUITY INCOME PORTFOLIO
Class IB Dec. 31, 1998 9.11% $242,001 0.85%(1)
Class IB Dec. 31, 1997 22.11% $ 99,947 0.85%(a)
Class IA Nov. 24-Dec. 31, 1998 (2.21)%(b) $ 2,415 0.60%(a)(1)
T. ROWE PRICE INTERNATIONAL STOCK PORTFOLIO
Dec. 31, 1998 13.68% $134,653 1.20%
Dec. 31, 1997 (1.49)% $ 69,572 1.20%
WARBURG PINCUS SMALL COMPANY VALUE PORTFOLIO
Class IB Dec. 31, 1998 (10.02)% $166,746 1.00%(1)
Class IB Dec. 31, 1997 19.15% $120,880 1.00%(a)
Class IA Nov. 24-Dec. 31, 1998 2.63%(b) $ 747 0.75%(a)(1)
</TABLE>
------------------------- EQ Advisors Trust
<PAGE>
- -----
150
- --------------------------------------------------------------------------------
Financial Highlights
<TABLE>
<CAPTION>
RATIO OF NET RATIO OF NET
RATIO OF EXPENSES TO INVESTMENT INCOME TO INVESTMENT INCOME TO
AVERAGE NET ASSETS AVERAGE NET ASSETS AVERAGE NET ASSETS PORTFOLIO
BEFORE WAIVERS (a)(c) AFTER WAIVERS (a)(c) BEFORE WAIVERS (a)(c) TURNOVER RATE
<S> <C> <C> <C> <C>
**BT EQUITY 500 INDEX PORTFOLIO
Dec. 31, 1998 0.83% 1.22% 0.94% 2%
Dec. 31, 1997 - - - -
**BT INTERNATIONAL EQUITY INDEX PORTFOLIO
Class IB Dec. 31, 1998 1.49%(1) 1.11%(1) 0.46%(1) 3%
Class IB Dec. 31, 1997 - - - -
Class IA Nov. 24-Dec. 31, 1998 1.24%(a)(1) 1.36%(a)(1) 0.71%(a)(1) 3%
**BT SMALL COMPANY INDEX PORTFOLIO
Dec. 31, 1998 1.81% 1.18% (0.03)% 35%
Dec. 31, 1997 - - - -
EQ/PUTNAM BALANCED PORTFOLIO
Dec. 31, 1998 1.25% 2.88% 2.53% 135%
Dec. 31, 1997 2.55% 3.19% 1.54% 117%
EQ/PUTNAM GROWTH & INCOME VALUE PORTFOLIO
Dec. 31, 1998 1.04% 1.30% 1.11% 74%
Dec. 31, 1997 1.75% 1.67% 0.77% 61%
EQ/PUTNAM INTERNATIONAL EQUITY PORTFOLIO
Dec. 31, 1998 1.46% 0.64% 0.38% 94%
Dec. 31, 1997 2.53% 0.74% (0.59)% 43%
EQ/PUTNAM INVESTORS GROWTH PORTFOLIO
Dec. 31, 1998 1.09% 0.14% (0.10)% 64%
Dec. 31, 1997 2.13% 0.58% (0.70)% 47%
**JPM CORE BOND PORTFOLIO
Dec. 31, 1998 1.03% 4.95% 4.72% 428%
Dec. 31, 1997 - - - -
**LAZARD LARGE CAP VALUE PORTFOLIO
Dec. 31, 1998 1.20% 1.19% 0.89% 37%
Dec. 31, 1997 - - - -
**LAZARD SMALL CAP VALUE PORTFOLIO
Dec. 31, 1998 1.54% 0.52% 0.18% 21%
Dec. 31, 1997 - - - -
MERRILL LYNCH BASIC VALUE EQUITY PORTFOLIO
Dec. 31, 1998 1.06% 1.41% 1.20% 83%
Dec. 31, 1997 1.89% 1.91% 0.87% 25%
MERRILL LYNCH WORLD STRATEGY PORTFOLIO
Dec. 31, 1998 1.61% 1.63% 1.22% 115%
Dec. 31, 1997 3.05% 1.89% 0.04% 58%
</TABLE>
<PAGE>
- -----
151
- --------------------------------------------------------------------------------
Financial Highlights
<TABLE>
<CAPTION>
RATIO OF NET RATIO OF NET
RATIO OF EXPENSES TO INVESTMENT INCOME TO INVESTMENT INCOME TO
AVERAGE NET ASSETS AVERAGE NET ASSETS AVERAGE NET ASSETS PORTFOLIO
BEFORE WAIVERS (a)(c) AFTER WAIVERS (a)(c) BEFORE WAIVERS (a)(c) TURNOVER RATE
<S> <C> <C> <C> <C>
MFS EMERGING GROWTH COMPANIES PORTFOLIO
Class IB Dec. 31, 1998 1.04%(1) (0.30)%(1) (0.49)%(1) 79%
Class IB Dec. 31, 1997 1.82%(a) 0.61%(a) (0.36)%(a) 116%
Class IA Nov. 24-Dec. 31, 1998 79%(a)(1) (0.05)%(a)(1) (0.24)%(a)(1) 79%
MFS RESEARCH PORTFOLIO
Dec. 31, 1998 1.05% 0.44% 0.24% 73%
Dec. 31, 1997 1.78% 0.65% (0.28)% 51%
*MORGAN STANLEY EMERGING MARKETS
EQUITY PORTFOLIO
Dec. 31, 1998 2.63% 0.73% (0.09)% 114%
Dec. 31, 1997 2.61% 1.96% 1.10% 25%
T. ROWE PRICE EQUITY INCOME PORTFOLIO
Class IB Dec. 31, 1998 1.04%(1) 2.20%(1) 2.01%(1) 17%
Class IB Dec. 31, 1997 1.74%(a) 2.49%(a) 1.60%(a) 9%
Class IA Nov. 24-Dec. 31, 1998 0.79%(a)(1) 2.45%(a)(1) 2.26%(a)(1) 17%
T. ROWE PRICE INTERNATIONAL STOCK PORTFOLIO
Dec. 31, 1998 1.40% 0.67% 0.47% 22%
Dec. 31, 1997 2.56% 0.45% (0.91)% 17%
WARBURG PINCUS SMALL COMPANY VALUE PORTFOLIO
Class IB Dec. 31, 1998 1.17%(1) 0.47%(1) 0.30%(1) 111%
Class IB Dec. 31, 1997 1.70%(a) 0.26%(a) (0.44)%(a) 44%
Class IA Nov. 24-Dec. 31, 1998 0.92%(a)(1) 0.72%(a)(1) 0.55%(a)(1) 111%
</TABLE>
* The Morgan Stanley Emerging Markets Equity Portfolio commenced operations
on August 20, 1997.
** Commencement of operations for 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 was January 1, 1998. No financial highlights
are presented for EQ/Evergreen Foundation Portfolio, EQ/Evergreen
Portfolio and MFS Growth with Income Portfolio, each of which received
initial capital on December 31, 1998. In addition no financial highlights
are presented for Capital Guardian International, Capital Guardian
Research Portfolio, Capital Guardian U.S. Equity Portfolio or EQ/Alliance
Premier Growth Portfolio, each of which received initial capital on April
30, 1999.
+ The amount shown for a share outstanding throughout the period does not
accord with the aggregate net gains on investments for that period because
of the timing of sales and repurchases of the Portfolio shares in relation
to fluctuating market value of the investments of the Portfolio.
(a) Annualized.
(b) Total return calculated for a period of less than one year is not
annualized.
(c) For further information concerning fee waivers, see the section entitled
"Expense Limitation Agreement" in the Prospectus.
(1) Reflects overall fund ratios for investment income and non-class specific
expense.
------------------------- EQ Advisors Trust
<PAGE>
- -------
152
THE HUDSON RIVER TRUST
FINANCIAL HIGHLIGHTS
DECEMBER 31, 1998
SELECTED DATA FOR A PORTFOLIO SHARE OUTSTANDING THROUGHOUT EACH PERIOD(A)
- --------------------------------------------------------------------------------
The financial highlights table below is intended to help you understand the
financial performance for fourteen (14) of the Portfolios that are advised by
Alliance (other than the EQ/Alliance Premier Growth Portfolio) for the past five
(5) years (or, if shorter, the period of the Portfolio's operations). The
financial information relating to both the Class A shares and the Class IB
shares for those fourteen (14) Portfolios has been derived from the audited
financial statements of HRT for the year ended December 31, 1998. The Class IA
shares and the Class IB shares of each HRT Portfolio listed below will be
substituted for Class IA and Class IB shares of the corresponding Portfolio of
the Trust and the assets and liabilities of the respective HRT Portfolio will be
transferred to its corresponding Portfolio of the Trust on or about October 1,
1999. These financial statements have been audited by PricewaterhouseCoopers
LLP, independent accountants. PricewaterhouseCoopers LLP's report on HRT's
financial statements as of December 31, 1998 appears in HRT's Annual Report. The
information should be read in conjunction with the financial statements
contained in HRT's Annual Report which are incorporated by reference into the
Trust's Statement of Additional Information (SAI) and available upon request.
ALLIANCE AGGRESSIVE STOCK PORTFOLIO:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
CLASS IA
---------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------
1998 1997 1996 1995 1994
-------------- -------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period (b) .................................... $ 36.22 $ 35.85 $ 35.68 $ 30.63 $ 31.89
--------- --------- --------- --------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ......................... 0.09 0.04 0.09 0.10 0.04
Net realized and unrealized gain (loss) on
investments .................................. (0.28) 3.71 7.52 9.54 (1.26)
--------- --------- --------- --------- --------
Total from investment operations .............. (0.19) 3.75 7.61 9.64 (1.22)
--------- --------- --------- --------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income .......... (0.16) (0.05) (0.09) (0.10) (0.04)
Dividends in excess of net investment
income ....................................... - - (0.00) - -
Distributions from realized gains ............. (1.72) (3.33) (7.33) (4.49) -
Distributions in excess of realized gains ..... - - (0.02) - -
Tax return of capital distributions ........... - - - - (0.00)
--------- --------- --------- --------- --------
Total dividends and distributions ............. (1.88) (3.38) (7.44) (4.59) (0.04)
--------- --------- --------- --------- --------
Net asset value, end of period .................. $ 34.15 $ 36.22 $ 35.85 $ 35.68 $ 30.63
========= ========= ========= ========= =========
Total return (c) ................................ 0.29% 10.94% 22.20% 31.63% (3.81)%
========= ========= ========= ========= =========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) ............... $4,346,907 $4,589,771 $3,865,256 $2,700,515 $1,832,164
Ratio of expenses to average net assets ......... 0.56% 0.54% 0.48% 0.49% 0.49%
Ratio of net investment income (loss) to
average net assets ............................ 0.24% 0.11% 0.24% 0.28% 0.12%
Portfolio turnover rate ......................... 105% 123% 108% 127% 92%
<CAPTION>
CLASS IB
-------------------------------------------
YEAR ENDED OCTOBER 2,
DECEMBER 31, 1996 TO
------------------------ DECEMBER 31,
1998 1997 1996
------------ ----------- ------------------
<S> <C> <C> <C>
Net asset value, beginning of
period (b) .................................... $ 36.13 $ 35.83 $ 37.28
------- ------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ......................... 0.01 (0.11) (0.01)
Net realized and unrealized gain (loss) on
investments .................................. (0.29) 3.77 0.85
------- ------- ----------
Total from investment operations .............. (0.28) 3.66 0.84
-------- ------- ----------
LESS DISTRIBUTIONS:
Dividends from net investment income .......... (0.12) (0.03) -
Dividends in excess of net investment
income ....................................... - - (0.02)
Distributions from realized gains ............. (1.72) (3.33) (0.23)
Distributions in excess of realized gains ..... - - (2.04)
Tax return of capital distributions ........... - - -
------- ------- ----------
Total dividends and distributions ............. (1.84) (3.36) (2.29)
------- ------- ----------
Net asset value, end of period .................. $ 34.01 $ 36.13 $ 35.83
======= ======= ==========
Total return (c) ................................ 0.05% 10.66% 2.32%
======= ======= ==========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) ............... $153,782 $73,486 $ 613
Ratio of expenses to average net assets ......... 0.82% 0.81% 0.73%(d)
Ratio of net investment income (loss) to
average net assets ............................ 0.02% (0.28)% (0.10)%(d)
Portfolio turnover rate ......................... 105% 123% 108%
</TABLE>
<PAGE>
- -------
153
- --------------------------------------------------------------------------------
ALLIANCE BALANCED PORTFOLIO:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
CLASS IA
---------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------
1998 1997 1996 1995 1994
-------------- -------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period (b) .................................... $ 17.58 $ 16.64 $ 16.76 $ 14.87 $ 16.67
--------- --------- --------- --------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ......................... 0.56 0.58 0.53 0.54 0.45
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions ................................. 2.54 1.86 1.31 2.36 (1.78)
--------- --------- --------- --------- --------
Total from investment operations .............. 3.10 2.44 1.84 2.90 (1.33)
--------- --------- --------- --------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income .......... (0.50) (0.59) (0.53) (0.54) (0.44)
Dividends in excess of net investment
income ....................................... - - - - (0.03)
Distributions from realized gains ............. (1.67) (0.91) (1.40) (0.47) -
Distributions in excess of realized gains ..... - - (0.03) - -
Tax return of capital distributions ........... - - - - (0.00)
--------- --------- --------- --------- --------
Total dividends and distributions ............. (2.17) (1.50) (1.96) (1.01) (0.47)
--------- --------- --------- --------- --------
Net asset value, end of period .................. $ 18.51 $ 17.58 $ 16.64 $ 16.76 $ 14.87
========= ========= ========= ========= =========
Total return (c) ................................ 18.11% 15.06% 11.68% 19.75% (8.02)%
========= ========= ========= ========= =========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) ............... $1,936,429 $1,724,089 $1,637,856 $1,523,142 $1,329,820
Ratio of expenses to average net assets ......... 0.45% 0.45% 0.41% 0.40% 0.39%
Ratio of net investment income to average
net assets .................................... 3.00% 3.30% 3.15% 3.33% 2.87%
Portfolio turnover rate ......................... 95% 146% 177% 186% 115%
<CAPTION>
CLASS IB
---------------
JULY 8, 1998
TO
DECEMBER 31,
1998
---------------
<S> <C>
Net asset value, beginning of
period (b) .................................... $ 19.48
---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ......................... 0.24
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions ................................. 0.66
---------
Total from investment operations .............. 0.90
---------
LESS DISTRIBUTIONS:
Dividends from net investment income .......... (0.20)
Dividends in excess of net investment
income ....................................... -
Distributions from realized gains ............. (1.67)
Distributions in excess of realized gains ..... -
Tax return of capital distributions ........... -
---------
Total dividends and distributions ............. (1.87)
---------
Net asset value, end of period .................. $ 18.51
=========
Total return (c) ................................ 4.92%
=========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) ............... $ 10
Ratio of expenses to average net assets ......... 0.70%(d)
Ratio of net investment income to average
net assets .................................... 2.65%(d)
Portfolio turnover rate ......................... 95%
</TABLE>
------------------------ EQ Advisors Trust
<PAGE>
- -------
154
- --------------------------------------------------------------------------------
ALLIANCE COMMON STOCK PORTFOLIO:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
CLASS IA
----------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
1998 1997 1996 1995 1994
--------------- -------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period (b) .................................... $ 21.61 $ 18.23 $ 16.48 $ 13.36 $ 14.65
---------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ......................... 0.18 0.14 0.15 0.20 0.20
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions ................................. 5.99 5.12 3.73 4.12 (0.51)
---------- --------- --------- --------- ---------
Total from investment operations .............. 6.17 5.26 3.88 4.32 (0.31)
---------- --------- --------- --------- ---------
LESS DISTRIBUTIONS:
Dividends from net investment income .......... (0.15) (0.11) (0.15) (0.20) (0.19)
Dividends in excess of net investment
income ....................................... - - - (0.02) (0.01)
Distributions from realized gains ............. (3.28) (1.77) (1.76) (0.95) (0.77)
Distributions in excess of realized gains ..... - - (0.22) (0.03) -
Tax return of capital distributions ........... - - - - (0.01)
---------- --------- --------- --------- ---------
Total dividends and distributions ............. (3.43) (1.88) (2.13) (1.20) (0.98)
---------- --------- --------- --------- ---------
Net asset value, end of period .................. $ 24.35 $ 21.61 $ 18.23 $ 16.48 $ 13.36
========== ========= ========= ========= =========
Total return (c) ................................ 29.39% 29.40% 24.28% 32.45% (2.14)%
========== ========= ========= ========= =========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) ............... $12,061,977 $9,331,994 $6,625,390 $4,879,677 $3,466,245
Ratio of expenses to average net assets ......... 0.39% 0.39% 0.38% 0.38% 0.38%
Ratio of net investment income to average
net assets .................................... 0.75% 0.69% 0.85% 1.27% 1.40%
Portfolio turnover rate ......................... 46% 52% 55% 61% 52%
<CAPTION>
CLASS IB
------------------------------------------
YEAR ENDED OCTOBER 2,
DECEMBER 31, 1996 TO
------------------------- DECEMBER 31,
1998 1997 1996
------------ ------------ ----------------
<S> <C> <C> <C>
Net asset value, beginning of
period (b) .................................... $ 21.58 $ 18.22 $ 17.90
------- ------- ---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ......................... 0.10 0.10 0.02
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions ................................. 6.00 5.11 1.52
------- ------- ---------
Total from investment operations .............. 6.10 5.21 1.54
------- ------- ---------
LESS DISTRIBUTIONS:
Dividends from net investment income .......... (0.10) (0.08) (0.00)
Dividends in excess of net investment
income ....................................... - - (0.03)
Distributions from realized gains ............. (3.28) (1.77) (0.16)
Distributions in excess of realized gains ..... - - (1.03)
Tax return of capital distributions ........... - - -
------- ------- ---------
Total dividends and distributions ............. (3.38) (1.85) (1.22)
------- ------- ---------
Net asset value, end of period .................. $ 24.30 $ 21.58 $ 18.22
======= ======= =========
Total return (c) ................................ 29.06% 29.07% 8.49%
======= ======= =========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) ............... $834,144 $228,780 $ 1,244
Ratio of expenses to average net assets ......... 0.64% 0.64% 0.63%(d)
Ratio of net investment income to average
net assets .................................... 0.44% 0.46% 0.61%(d)
Portfolio turnover rate ......................... 46% 52% 55%
</TABLE>
<PAGE>
- -------
155
- --------------------------------------------------------------------------------
ALLIANCE CONSERVATIVE INVESTORS PORTFOLIO:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
CLASS IA
-----------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period (b) .................................... $ 11.89 $ 11.29 $ 11.52 $ 10.15 $ 11.12
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ......................... 0.49 0.49 0.50 0.60 0.55
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions ................................. 1.12 0.97 0.07 1.43 (1.00)
------- ------- ------- ------- -------
Total from investment operations .............. 1.61 1.46 0.57 2.03 (0.45)
------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income .......... (0.48) (0.49) (0.51) (0.59) (0.52)
Distributions from realized gains ............. (0.70) (0.37) (0.27) (0.07) -
Distributions in excess of realized gains ..... - - (0.02) - -
------- ------- ------- ------- -------
Total dividends and distributions ............. (1.18) (0.86) (0.80) (0.66) (0.52)
------- ------- ------- ------- -------
Net asset value, end of period .................. $ 12.32 $ 11.89 $ 11.29 $ 11.52 $ 10.15
======= ======= ======= ======= =======
Total return (c) ................................ 13.88% 13.25% 5.21% 20.40% (4.10)%
======= ======= ======= ======= =======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) ............... $355,441 $307,847 $282,402 $252,101 $173,691
Ratio of expenses to average net assets ......... 0.53% 0.57% 0.61% 0.59% 0.59%
Ratio of net investment income to average
net assets .................................... 3.99% 4.17% 4.48% 5.48% 5.22%
Portfolio turnover rate ......................... 103% 206% 181% 287% 228%
<CAPTION>
CLASS IB
-------------------------------
YEAR MAY 1,
ENDED 1997 TO
DECEMBER 31, DECEMBER 31,
1998 1997
-------------- ----------------
<S> <C> <C>
Net asset value, beginning of
period (b) .................................... $ 11.88 $ 11.29
------- ---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ......................... 0.46 0.31
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions ................................. 1.12 1.01
------- ---------
Total from investment operations .............. 1.58 1.32
------- ---------
LESS DISTRIBUTIONS:
Dividends from net investment income .......... (0.45) (0.36)
Distributions from realized gains ............. (0.70) (0.37)
Distributions in excess of realized gains ..... - -
------- ---------
Total dividends and distributions ............. (1.15) (0.73)
------- ---------
Net asset value, end of period .................. $ 12.31 $ 11.88
======= =========
Total return (c) ................................ 13.60% 11.84%
======= =========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) ............... $32,653 $ 5,694
Ratio of expenses to average net assets ......... 0.78% 0.80%(d)
Ratio of net investment income to average
net assets .................................... 3.68% 3.82%(d)
Portfolio turnover rate ......................... 103% 206%
</TABLE>
------------------------ EQ Advisors Trust
<PAGE>
- -------
156
- --------------------------------------------------------------------------------
ALLIANCE EQUITY INDEX PORTFOLIO:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
CLASS IA
-----------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1998 1997 1996 1995
-------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net asset value, beginning of
period (b) .................................... $ 19.74 $ 15.16 $ 13.13 $ 9.87
--------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ......................... 0.27 0.26 0.27 0.26
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions ................................. 5.25 4.64 2.65 3.32
--------- ------- ------- -------
Total from investment operations .............. 5.52 4.90 2.92 3.58
--------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income .......... (0.25) (0.25) (0.25) (0.22)
Distributions from realized gains ............. (0.01) (0.07) (0.64) (0.09)
Distributions in excess of realized gains ..... - - - (0.01)
--------- ------- ------- -------
Total dividends and distributions ............. (0.26) (0.32) (0.89) (0.32)
--------- ------- ------- -------
Net asset value, end of period .................. $ 25.00 $ 19.74 $ 15.16 $ 13.13
========= ======= ======= =======
Total return (c) ................................ 28.07% 32.58% 22.39% 36.48%
========= ======= ======= =======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) ............... $1,689,913 $943,631 $386,249 $165,785
Ratio of expenses to average net assets ......... 0.34% 0.37% 0.39% 0.48%
Ratio of net investment income to average
net assets .................................... 1.23% 1.46% 1.91% 2.16%
Portfolio turnover rate ......................... 6% 3% 15% 9%
<CAPTION>
CLASS IA CLASS IB
------------------- ---------------------------------
YEAR
MARCH 1, 1994 ENDED MAY 1, 1997
TO DECEMBER 31, TO
DECEMBER 31, 1994 1998 DECEMBER 31, 1997
------------------- -------------- ------------------
<S> <C> <C> <C>
Net asset value, beginning of
period (b) .................................... $ 10.00 $ 19.73 $ 16.35
--------- ------- ---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ......................... 0.20 0.22 0.14
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions ................................. (0.09) 5.24 3.48
--------- ------- ---------
Total from investment operations .............. 0.11 5.46 3.62
--------- ------- ---------
LESS DISTRIBUTIONS:
Dividends from net investment income .......... (0.20) (0.20) (0.17)
Distributions from realized gains ............. (0.03) (0.01) (0.07)
Distributions in excess of realized gains ..... (0.01) - -
--------- ------- ---------
Total dividends and distributions ............. (0.24) (0.21) (0.24)
--------- ------- ---------
Net asset value, end of period .................. $ 9.87 $ 24.98 $ 19.73
========= ======= =========
Total return (c) ................................ 1.08% 27.74% 22.28%
========= ======= =========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) ............... $ 36,748 $ 443 $ 110
Ratio of expenses to average net assets ......... 0.49%(d) 0.59% 0.62%(d)
Ratio of net investment income to average
net assets .................................... 2.42%(d) 0.98% 1.10%(d)
Portfolio turnover rate ......................... 7% 6% 3%
</TABLE>
<PAGE>
- -------
157
- --------------------------------------------------------------------------------
ALLIANCE GLOBAL PORTFOLIO:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
CLASS IA
--------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
1998 1997 1996 1995 1994
-------------- -------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period (b) .................................... $ 17.29 $ 16.92 $ 15.74 $ 13.87 $ 13.62
--------- --------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ......................... 0.14 0.17 0.21 0.26 0.20
Net realized and unrealized gain on
investments and foreign currency
transactions ................................. 3.56 1.75 2.05 2.32 0.52
--------- --------- ------- ------- -------
Total from investment operations .............. 3.70 1.92 2.26 2.58 0.72
--------- --------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income .......... (0.22) (0.36) (0.21) (0.25) (0.17)
Dividends in excess of net investment
income ....................................... - - (0.08) - -
Distributions from realized gains ............. (1.31) (1.19) (0.79) (0.42) (0.28)
Distributions in excess of realized gains ..... - - - (0.03) (0.00)
Tax return of capital distributions ........... - - (0.00) (0.01) (0.02)
--------- --------- ------- ------- -------
Total dividends and distributions ............. (1.53) (1.55) (1.08) (0.71) (0.47)
--------- --------- ------- ------- -------
Net asset value, end of period .................. $ 19.46 $ 17.29 $ 16.92 $ 15.74 $ 13.87
========= ========= ======= ======= =======
Total return (c) ................................ 21.80% 11.66% 14.60% 18.81% 5.23%
========= ========= ======= ======= =======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) ............... $1,360,220 $1,203,867 $997,041 $686,140 $421,698
Ratio of expenses to average net assets ......... 0.71% 0.69% 0.60% 0.61% 0.69%
Ratio of net investment income to average
net assets .................................... 0.72% 0.97% 1.28% 1.76% 1.41%
Portfolio turnover rate ......................... 105% 57% 59% 67% 71%
<CAPTION>
CLASS IB
----------------------------------------
YEAR ENDED OCTOBER 2,
DECEMBER 31, 1996 TO
----------------------- DECEMBER 31,
1998 1997 1996
----------- ----------- ----------------
<S> <C> <C> <C>
Net asset value, beginning of
period (b) .................................... $ 17.27 $ 16.91 $ 16.57
------- ------- ---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ......................... 0.08 0.12 0.02
Net realized and unrealized gain on
investments and foreign currency
transactions ................................. 3.56 1.76 0.81
------- ------- ---------
Total from investment operations .............. 3.64 1.88 0.83
------- ------- ---------
LESS DISTRIBUTIONS:
Dividends from net investment income .......... (0.19) (0.33) -
Dividends in excess of net investment
income ....................................... - - (0.11)
Distributions from realized gains ............. (1.31) (1.19) (0.10)
Distributions in excess of realized gains ..... - - (0.28)
Tax return of capital distributions ........... - - (0.00)
------- ------- ---------
Total dividends and distributions ............. (1.50) (1.52) (0.49)
------- ------- ---------
Net asset value, end of period .................. $ 19.41 $ 17.27 $ 16.91
======= ======= =========
Total return (c) ................................ 21.50% 11.38% 4.98%
======= ======= =========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) ............... $47,982 $21,520 $ 290
Ratio of expenses to average net assets ......... 0.96% 0.97% 0.86%(d)
Ratio of net investment income to average
net assets .................................... 0.41% 0.67% 0.48%(d)
Portfolio turnover rate ......................... 105% 57% 59%
</TABLE>
------------------------ EQ Advisors Trust
<PAGE>
- -------
158
- --------------------------------------------------------------------------------
ALLIANCE GROWTH AND INCOME PORTFOLIO:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
CLASS IA
---------------------------------------------------------------
YEAR ENDED DECEMBER 31,
1998 1997 1996 1995 1994
------------ ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period (b) ................................... $ 15.38 $ 13.01 $ 11.70 $ 9.70 $ 9.95
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ........................ 0.06 0.15 0.24 0.33 0.31
Net realized and unrealized gain (loss) on
investments ................................. 3.08 3.30 2.05 1.97 (0.36)
------- ------- ------- ------- -------
Total from investment operations ............. 3.14 3.45 2.29 2.30 (0.05)
------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income ......... (0.05) (0.15) (0.23) (0.30) (0.20)
Distributions from realized gains ............ (1.48) (0.93) (0.75) - -
------- ------- ------- ------- -------
Total dividends and distributions ............ (1.53) (1.08) (0.98) (0.30) (0.20)
------- ------- ------- ------- -------
Net asset value, end of period ................. $ 16.99 $ 15.38 $ 13.01 $ 11.70 $ 9.70
======= ======= ======= ======= ======
Total return (c) ............................... 20.86% 26.90% 20.09% 24.07% (0.58)%
======= ======= ======= ======= ======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) .............. $877,744 $555,059 $232,080 $98,053 $31,522
Ratio of expenses to average net assets ........ 0.58% 0.58% 0.58% 0.60% 0.78%
Ratio of net investment income to average
net assets ................................... 0.38% 0.99% 1.94% 3.11% 3.13%
Portfolio turnover rate ........................ 74% 79% 88% 65% 52%
<CAPTION>
CLASS IB
-------------------------------
YEAR MAY 1, 1997
ENDED TO
DECEMBER 31, DECEMBER 31,
1998 1997
-------------- ----------------
<S> <C> <C>
Net asset value, beginning of
period (b) ................................... $ 15.36 $ 13.42
------- ---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ........................ 0.03 0.05
Net realized and unrealized gain (loss) on
investments ................................. 3.07 2.91
------- ---------
Total from investment operations ............. 3.10 2.96
------- ---------
LESS DISTRIBUTIONS:
Dividends from net investment income ......... (0.03) (0.09)
Distributions from realized gains ............ (1.48) (0.93)
------- ---------
Total dividends and distributions ............ (1.51) (1.02)
------- ---------
Net asset value, end of period ................. $ 16.95 $ 15.36
======= =========
Total return (c) ............................... 20.56% 22.41%
======= =========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) .............. $120,558 $ 32,697
Ratio of expenses to average net assets ........ 0.83% 0.83%(d)
Ratio of net investment income to average
net assets ................................... 0.17% 0.43%(d)
Portfolio turnover rate ........................ 74% 79%
</TABLE>
<PAGE>
- -------
159
- --------------------------------------------------------------------------------
ALLIANCE GROWTH INVESTORS PORTFOLIO:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
CLASS IA
-----------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------
1998 1997 1996 1995 1994
-------------- -------------- -------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period (b) .................................... $ 18.55 $ 17.20 $ 17.68 $ 14.66 $ 15.61
--------- --------- --------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ......................... 0.41 0.41 0.40 0.57 0.50
Net realized and unrealized gain (loss) on
on investments and foreign currency
transactions ................................. 3.03 2.43 1.66 3.24 (0.98)
--------- --------- --------- ------- -------
Total from investment operations .............. 3.44 2.84 2.06 3.81 (0.48)
--------- --------- --------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income .......... (0.41) (0.46) (0.40) (0.54) (0.46)
Dividends in excess of net investment
income ....................................... - - (0.03) (0.01) (0.01)
Distributions from realized gains ............. (1.71) (1.03) (2.10) (0.24) -
Distributions in excess of realized gains ..... - - (0.01) - -
--------- --------- --------- ------- -------
Total dividends and distributions ............. (2.12) (1.49) (2.54) (0.79) (0.47)
--------- --------- --------- ------- -------
Net asset value, end of period .................. $ 19.87 $ 18.55 $ 17.20 $ 17.68 $ 14.66
========= ========= ========= ======= =======
Total return (c) ................................ 19.13% 16.87% 12.61% 26.37% (3.15)%
========= ========= ========= ======= =======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) ............... $1,963,074 $1,630,389 $1,301,643 $896,134 $492,478
Ratio of expenses to average net assets ......... 0.55% 0.57% 0.57% 0.56% 0.59%
Ratio of net investment income to average
net assets .................................... 2.10% 2.18% 2.31% 3.43% 3.32%
Portfolio turnover rate ......................... 102% 121% 190% 107% 131%
<CAPTION>
CLASS IB
------------------------------------------
YEAR ENDED OCTOBER 2,
DECEMBER 31, 1996 TO
----------------------- DECEMBER 31,
1998 1997 1996
----------- ----------- ------------------
<S> <C> <C> <C>
Net asset value, beginning of
period (b) .................................... $ 18.52 $ 17.19 $ 16.78
------- ------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ......................... 0.36 0.36 0.07
Net realized and unrealized gain (loss) on
on investments and foreign currency
transactions ................................. 3.03 2.43 0.71
------- ------- ----------
Total from investment operations .............. 3.39 2.79 0.78
------- ------- ----------
LESS DISTRIBUTIONS:
Dividends from net investment income .......... (0.36) (0.43) (0.02)
Dividends in excess of net investment
income ....................................... - - (0.09)
Distributions from realized gains ............. (1.71) (1.03) (0.02)
Distributions in excess of realized gains ..... - - (0.24)
------- ------- ----------
Total dividends and distributions ............. (2.07) (1.46) (0.37)
------- ------- ----------
Net asset value, end of period .................. $ 19.84 $ 18.52 $ 17.19
======= ======= ==========
Total return (c) ................................ 18.83% 16.58% 4.64%
======= ======= ==========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) ............... $92,027 $35,730 $ 472
Ratio of expenses to average net assets ......... 0.80% 0.82% 0.84%(d)
Ratio of net investment income to average
net assets .................................... 1.85% 1.88% 1.69%(d)
Portfolio turnover rate ......................... 102% 121% 190%
</TABLE>
------------------------ EQ Advisors Trust
<PAGE>
- -------
160
- --------------------------------------------------------------------------------
ALLIANCE HIGH YIELD PORTFOLIO:
<TABLE>
<CAPTION>
CLASS IA
----------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1998 1997 1996 1995 1994
------------- ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period (b) ........ $ 10.41 $ 10.02 $ 9.64 $ 8.91 $ 10.08
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ......................... 1.07 1.04 1.02 0.98 0.89
Net realized and unrealized gain (loss) on
investments .................................. (1.56) 0.75 1.07 0.73 (1.17)
------- ------- ------- ------- -------
Total from investment operations .............. (0.49) 1.79 2.09 1.71 (0.28)
------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income .......... (1.03) (0.97) (0.98) (0.94) (0.88)
Dividends in excess of net investment
income ....................................... - - (0.03) (0.04) (0.01)
Distributions from realized gains ............. (0.18) (0.43) (0.70) - -
Distributions in excess of realized gains ..... - - - - -
------- -------- -------- -------- -------
Total dividends and distributions ............. (1.21) (1.40) (1.71) (0.98) (0.89)
------- -------- -------- -------- -------
Net asset value, end of period .................. $ 8.71 $ 10.41 $ 10.02 $ 9.64 $ 8.91
======= ======= ======= ======= =======
Total return (c) ................................ (5.15)% 18.48% 22.89% 19.92% (2.79)%
======= ======= ======= ======= =======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) ............... $405,308 $355,473 $199,360 $118,129 $73,895
Ratio of expenses to average net assets ......... 0.63% 0.62% 0.59% 0.60% 0.61%
Ratio of net investment income to average
net assets .................................... 10.67% 9.82% 9.93% 10.34% 9.23%
Portfolio turnover rate ......................... 181% 390% 485% 350% 248%
<CAPTION>
CLASS IB
------------------------------------------
YEAR ENDED OCTOBER 2,
DECEMBER 31, 1996 TO
------------------------- DECEMBER 31,
1998 1997 1996
------------- ----------- ----------------
<S> <C> <C> <C>
Net asset value, beginning of period (b) ........ $ 10.39 $ 10.01 $ 10.25
------- ------- ---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ......................... 1.04 1.05 0.19
Net realized and unrealized gain (loss) on
investments .................................. (1.56) 0.71 0.15
------- ------- ---------
Total from investment operations .............. (0.52) 1.76 0.34
------- ------- ---------
LESS DISTRIBUTIONS:
Dividends from net investment income .......... (1.00) (0.95) (0.03)
Dividends in excess of net investment
income ....................................... - - (0.25)
Distributions from realized gains ............. (0.18) (0.43) (0.01)
Distributions in excess of realized gains ..... - - (0.29)
------- ------- ---------
Total dividends and distributions ............. (1.18) (1.38) (0.58)
------- ------- ---------
Net asset value, end of period .................. $ 8.69 $ 10.39 $ 10.01
======= ======= =========
Total return (c) ................................ (5.38)% 18.19% 3.32%
======= ======= =========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) ............... $207,042 $66,338 $ 685
Ratio of expenses to average net assets ......... 0.88% 0.88% 0.82%(d)
Ratio of net investment income to average
net assets .................................... 10.60% 9.76% 8.71%(d)
Portfolio turnover rate ......................... 181% 390% 485%
</TABLE>
<PAGE>
- -----
161
- --------------------------------------------------------------------------------
ALLIANCE INTERMEDIATE GOVERNMENT SECURITIES PORTFOLIO(E):
<TABLE>
<CAPTION>
CLASS IA
-------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
1998 1997 1996 1995 1994
------------ ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period (b) ................................... $ 9.44 $ 9.29 $ 9.47 $ 8.87 $ 10.08
------- ------- ------ ------ -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ........................ 0.50 0.53 0.54 0.58 0.65
Net realized and unrealized gain (loss) on
investments ................................. 0.21 0.13 (0.19) 0.57 (1.08)
------- ------- ------- ------ -------
Total from investment operations ............. 0.71 0.66 0.35 1.15 (0.43)
------- ------- ------- ------ -------
LESS DISTRIBUTIONS:
Dividends from net investment income ......... (0.48) (0.51) (0.53) (0.55) (0.78)
-------- -------- ------- ------- -------
Net asset value, end of period ................. $ 9.67 $ 9.44 $ 9.29 $ 9.47 $ 8.87
======= ======= ====== ====== =======
Total return (c) ............................... 7.74% 7.29% 3.78% 13.33% (4.37)%
======= ======= ====== ====== =======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) .............. $153,383 $115,114 $88,384 $71,780 $48,518
Ratio of expenses to average net assets ........ 0.55% 0.55% 0.56% 0.57% 0.56%
Ratio of net investment income to average
net assets ................................... 5.21% 5.61% 5.73% 6.15% 6.75%
Portfolio turnover rate ........................ 539% 285% 318% 255% 133%
<CAPTION>
CLASS IB
-------------------------------
YEAR MAY 1, 1997
ENDED TO
DECEMBER 31, DECEMBER 31,
1998 1997
-------------- ----------------
<S> <C> <C>
Net asset value, beginning of
period (b) ................................... $ 9.43 $ 9.27
------ ---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ........................ 0.47 0.32
Net realized and unrealized gain (loss) on
investments ................................. 0.22 0.22
------ ---------
Total from investment operations ............. 0.69 0.54
------ ---------
LESS DISTRIBUTIONS:
Dividends from net investment income ......... (0.46) (0.38)
------- ---------
Net asset value, end of period ................. $ 9.66 $ 9.43
======= =========
Total return (c) ............................... 7.48% 5.83%
======= =========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) .............. $30,898 $ 5,052
Ratio of expenses to average net assets ........ 0.80% 0.81%(d)
Ratio of net investment income to average
net assets ................................... 4.87% 5.15%(d)
Portfolio turnover rate ........................ 539% 285%
</TABLE>
------------------------ EQ Advisors Trust
<PAGE>
- -----
162
- --------------------------------------------------------------------------------
ALLIANCE INTERNATIONAL PORTFOLIO:
<TABLE>
<CAPTION>
CLASS IA
--------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------- APRIL 3,
1995 TO
DECEMBER 31,
1998 1997 1996 1995
------------ ------------- ------------ ----------------
<S> <C> <C> <C> <C>
Net asset value, beginning of
period (b) ................................... $ 10.27 $ 11.50 $ 10.87 $ 10.00
------- ------- ------- ---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ........................ 0.09 0.10 0.13 0.14
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions ................................ 0.97 (0.45) 0.94 0.98
------- ------- ------- ---------
Total from investment operations ............. 1.06 (0.35) 1.07 1.12
------- ------- ------- ---------
LESS DISTRIBUTIONS:
Dividends from net investment income ......... (0.20) (0.32) (0.10) (0.07)
Dividends in excess of net investment
income ...................................... - - (0.09) (0.13)
Distributions from realized gains ............ (0.00) (0.56) (0.25) (0.05)
-------- ------- -------- ---------
Total dividends and distributions ............ (0.20) (0.88) (0.44) (0.25)
-------- ------- -------- ---------
Net asset value, end of period ................. $ 11.13 $ 10.27 $ 11.50 $ 10.87
======= ======= ======= =========
Total return (c) ............................... 10.57% (2.98)% 9.82% 11.29%
======= ======= ======= =========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) .............. $204,767 $190,611 $151,907 $ 28,684
Ratio of expenses to average net assets ........ 1.06% 1.08% 1.06% 1.03%(d)
Ratio of net investment income to average
net assets ................................... 0.81% 0.83% 1.10% 1.71%(d)
Portfolio turnover rate ........................ 59% 59% 48% 56%
<CAPTION>
CLASS IB
-------------------------------
YEAR MAY 1,
ENDED 1997 TO
DECEMBER 31, DECEMBER 31,
1998 1997
-------------- ----------------
<S> <C> <C>
Net asset value, beginning of
period (b) ................................... $ 10.26 $ 11.39
------- ---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ........................ 0.05 0.02
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions ................................ 0.98 (0.31)
------- ---------
Total from investment operations ............. 1.03 (0.29)
------- ---------
LESS DISTRIBUTIONS:
Dividends from net investment income ......... (0.18) (0.28)
Dividends in excess of net investment
income ...................................... - -
Distributions from realized gains ............ (0.00) (0.56)
-------- ---------
Total dividends and distributions ............ (0.18) (0.84)
-------- ---------
Net asset value, end of period ................. $ 11.11 $ 10.26
======= ==========
Total return (c) ............................... 10.30% (2.54)%
======= ==========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) .............. $ 7,543 $ 3,286
Ratio of expenses to average net assets ........ 1.31% 1.38%(d)
Ratio of net investment income to average
net assets ................................... 0.44% 0.20%(d)
Portfolio turnover rate ........................ 59% 59%
</TABLE>
<PAGE>
- -----
163
- --------------------------------------------------------------------------------
ALLIANCE MONEY MARKET PORTFOLIO:
<TABLE>
<CAPTION>
CLASS IA
----------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period (b) ................................... $ 10.18 $ 10.17 $ 10.16 $ 10.14 $ 10.12
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ........................ 0.53 0.54 0.54 0.57 0.41
Net realized and unrealized gain (loss) on
investments ................................. - - (0.01) - -
-------- -------- -------- -------- --------
Total from investment operations ............. 0.53 0.54 0.53 0.57 0.41
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income ......... (0.49) (0.53) (0.52) (0.55) (0.39)
Dividends in excess of net investment
income ...................................... - - - - -
-------- -------- -------- -------- --------
Total dividends and distributions ............ (0.49) (0.53) (0.52) (0.55) (0.39)
-------- -------- -------- -------- --------
Net asset value, end of period ................. $ 10.22 $ 10.18 $ 10.17 $ 10.16 $ 10.14
======= ======= ======= ======= =======
Total return (c) ............................... 5.34% 5.42% 5.33% 5.74% 4.02%
======= ======= ======= ======= =======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) .............. $723,311 $449,960 $463,422 $386,691 $325,391
Ratio of expenses to average net assets ........ 0.37% 0.39% 0.43% 0.44% 0.42%
Ratio of net investment income to average
net assets ................................... 5.13% 5.28% 5.17% 5.53% 4.01%
<CAPTION>
CLASS IB
------------------------------------------
YEAR ENDED OCTOBER 2,
DECEMBER 31, 1996 TO
------------------------- DECEMBER 31,
1998 1997 1996
------------ ------------ ----------------
<S> <C> <C> <C>
Net asset value, beginning of
period (b) ................................... $ 10.17 $ 10.16 $ 10.16
------- ------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ........................ 0.49 0.52 0.11
Net realized and unrealized gain (loss) on
investments ................................. 0.02 - 0.01
------- -------- --------
Total from investment operations ............. 0.51 0.52 0.12
------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income ......... (0.47) (0.51) (0.02)
Dividends in excess of net investment
income ...................................... - - (0.10)
-------- -------- ---------
Total dividends and distributions ............ (0.47) (0.51) (0.12)
-------- -------- ---------
Net asset value, end of period ................. $ 10.21 $ 10.17 $ 10.16
======= ======= ========
Total return (c) ............................... 5.08% 5.16% 1.29%
======= ======= ========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) .............. $386,718 $123,675 $ 3,184
Ratio of expenses to average net assets ........ 0.62% 0.63% 0.67%(d)
Ratio of net investment income to average
net assets ................................... 4.82% 5.02% 4.94%(d)
</TABLE>
------------------------ EQ Advisors Trust
<PAGE>
- -----
164
- --------------------------------------------------------------------------------
ALLIANCE QUALITY BOND PORTFOLIO:
<TABLE>
<CAPTION>
CLASS IA CLASS IB
---------------------------------------------------------------- ---------------
JULY 8, 1998
YEAR ENDED DECEMBER 31, TO
---------------------------------------------------------------- DECEMBER 31,
1998 1997 1996 1995 1994 1998
------------ ------------ ------------ ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period (b) ................................... $ 9.74 $ 9.49 $ 9.61 $ 8.72 $ 9.82 $ 9.90
------- ------- ------- ------- ------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ........................ 0.55 0.60 0.57 0.57 0.66 0.25
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions ................................ 0.28 0.24 (0.07) 0.88 (1.16) 0.14
------- ------- -------- ------- ------- --------
Total from investment operations ............. 0.83 0.84 0.50 1.45 (0.50) 0.39
------- ------- -------- ------- ------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income ......... (0.53) (0.59) (0.60) (0.56) (0.55) (0.25)
Dividends in excess of net investment
income ...................................... - - (0.02) - - -
Distributions from realized gains ............ (0.20) - - - - (0.20)
Tax return of capital distributions .......... - - - - (0.05) -
-------- -------- -------- -------- ------- --------
Total dividends and distributions ............ (0.73) (0.59) (0.62) (0.56) (0.60) (0.45)
-------- -------- -------- -------- ------- --------
Net asset value, end of period ................. $ 9.84 $ 9.74 $ 9.49 $ 9.61 $ 8.72 $ 9.84
======= ======= ======= ======= ======= ========
Total return (c) ............................... 8.69% 9.14% 5.36% 17.02% (5.10)% 4.05%
======= ======= ======= ======= ======= ========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) .............. $322,418 $203,233 $155,023 $157,443 $127,575 $ 10
Ratio of expenses to average net assets ........ 0.57% 0.57% 0.59% 0.59% 0.59% 0.81%(d)
Ratio of net investment income to average
net assets ................................... 5.48% 6.19% 6.06% 6.13% 7.17% 5.06%(d)
Portfolio turnover rate ........................ 194% 374% 431% 411% 222% 194%
</TABLE>
<PAGE>
- -----
165
- --------------------------------------------------------------------------------
ALLIANCE SMALL CAP GROWTH PORTFOLIO:
<TABLE>
<CAPTION>
CLASS IA CLASS IB
--------------------------------- -----------------------------------
YEAR MAY 1, YEAR MAY 1,
ENDED 1997 TO ENDED 1997 TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1998 1997
-------------- ---------------- -------------- ------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period (b) ............ $ 12.35 $ 10.00 $ 12.34 $ 10.00
------- -------- ------- ---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) ...................... 0.01 0.01 (0.02) (0.01)
Net realized and unrealized gain (loss) on
investments ...................................... (0.54) 2.65 (0.53) 2.65
------- -------- ------- ---------
Total from investment operations .................. (0.53) 2.66 (0.55) 2.64
------- -------- ------- ---------
LESS DISTRIBUTIONS:
Dividends from net investment income .............. - (0.01) - -
Distributions from realized gains ................. - (0.30) - (0.30)
------- -------- ------- ---------
Total dividends and distributions ................. - (0.31) - (0.30)
------- -------- ------- ---------
Net asset value, end of period ...................... $ 11.82 $ 12.35 $ 11.79 $ 12.34
======= ======== ======= =========
Total return (c) .................................... (4.28)% 26.74% (4.44)% 26.57%
======= ======== ======= =========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) ................... $198,360 $ 94,676 $112,254 $ 46,324
Ratio of expenses to average net assets ............. 0.96% 0.95%(d) 1.20% 1.15%(d)
Ratio of net investment income (loss) to average net
assets ............................................ 0.08% 0.10%(d) (0.17)% (0.12)%(d)
Portfolio turnover rate ............................. 94% 96% 94% 96%
</TABLE>
------------------------ EQ Advisors Trust
<PAGE>
- ------
166
- --------------------------------------------------------------------------------
- ----------
(a) Net investment income and capital changes per share are based upon monthly
average shares outstanding.
(b) Date as of which funds were first allocated to the Portfolios are as
follows:
Class IA:
Alliance Common Stock Portfolio-June 16, 1975
Alliance Money Market Portfolio-July 13, 1981
Alliance Balanced Portfolio-January 27, 1986
Alliance Aggressive Stock Portfolio-January 27, 1986
Alliance High Yield Portfolio-January 2, 1987
Alliance Global Portfolio-August 27, 1987
Alliance Conservative Investors Portfolio-October 2, 1989
Alliance Growth Investors Portfolio-October 2, 1989
Alliance Intermediate Government Securities Portfolio-April 1, 1991
Alliance Quality Bond Portfolio-October 1, 1993
Alliance Growth and Income Portfolio-October 1, 1993
Alliance Equity Index Portfolio-March 1, 1994
Alliance International Portfolio-April 3, 1995
Alliance Small Cap Growth Portfolio-May 1, 1997
Class IB:
Alliance Money Market, Alliance High Yield, Alliance Common Stock,
Alliance Global, Alliance Aggressive Stock and Alliance Growth Investors
Portfolios-- October 2, 1996.
Alliance Intermediate Government Securities, Alliance Growth and Income,
Alliance Equity Index, Alliance International, Alliance Small Cap Growth
and Alliance Conservative Investors Portfolios-May 1, 1997. Alliance
Quality Bond and Alliance Balanced Portfolios-July 8, 1998.
(c) Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all dividends
and distributions at net asset value during the period, and redemption on
the last day of the period. Total return calculated for a period of less
than one year is not annualized.
(d) Annualized.
(e) On February 22, 1994, shares of the Alliance Intermediate Government
Securities Portfolio of the Trust were substituted for shares of the
Trust's Alliance Short-Term World Income Portfolio.
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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 August 30, 1999, is incorporated into this Prospectus by
reference and is available upon request free of charge by calling our toll free
number at 1-800-528-0204.
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
<PAGE>
EQ ADVISORS TRUST
STATEMENT OF ADDITIONAL INFORMATION
AUGUST 30, 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
August 30, 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
<PAGE>
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, Capital Guardian International
Portfolio and Calvert Socially Responsible 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 company separate accounts of: Integrity Life Insurance Company,
National Integrity Life Insurance Company, The American Franklin Life Insurance
Company, and Transamerica Occidental Life Insurance Company, each of which is
unaffiliated
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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 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'
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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;
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;
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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, in connection with 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 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);
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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:*
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
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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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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 1940 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 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.
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(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.
(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
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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.
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
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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. 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.
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.
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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.
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
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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 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
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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. 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 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
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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 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
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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.
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
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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, 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
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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 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.
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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.
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
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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.
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
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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 of the 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.
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
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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
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,
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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 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
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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 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
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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.
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
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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 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.
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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.
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
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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.
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
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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
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.
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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, 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
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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,
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
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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 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
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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, 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
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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
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
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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 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
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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 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
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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.
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.
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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 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
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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 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
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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 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 1995;
Equitable Life prior thereto, Vice President, Salomon Brothers Inc., 1992 to 1995. Principal, Equity
1290 Avenue of the Americas Division, Morgan Stanley & Co., Inc., 1984 to 1992. Director, Alliance Capital Management,
New York, New York 10104 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 Investment Counsel
Syrus Associates Trust (investment company) since 1992. Director, The PBHG Funds, Inc. (investment
880 Third Avenue company) since 1995.
New York, NY 10022
William M. Kearns, Jr. (63) President, W.M. Kearns & Co., Inc., a private investment company, since 1994; Director,
W.M. Kearns & Co., Inc. Kuhlman Corporation, Malibu Entertainment Worldwide, Inc., Selective Insurance Group, Inc.,
310 South Street as well as a number of private and venture-backed companies; Managing Director, Lehman
Morristown, NJ 07960 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. President and
Burson-Marsteller Chief Executive Officer, Burson-Marsteller New York, 1995 to 1996. President and Chief
230 Park Avenue South Executive Officer, Gavin Anderson & Company New York, 1994 to 1995. Prior thereto, he held
New York, NY 10003-1566 various positions with Hill and Knowlton, Inc. for twenty years.
Harvey Rosenthal (56) Independent Director and Investor, CVS Corporation (formerly Melville Corporation) since
60 State Street 1996. President and Chief Operating Officer, CVS Corporation from 1994 to 1996. Prior
Suite 700 thereto, he held various positions with CVS division of Melville Corporation, for
Boston, MA 02109 twenty-seven years.
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NAME, ADDRESS AND AGE PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
William T. McCaffrey* (62) Director, Senior Executive Vice President and Chief Operating Officer, Equitable Life, to
89-25 63rd Avenue March 1998. Executive Vice President and Chief Administrative Officer, The Equitable
Rego Park, NY 11374 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, 1998.
Equitable Life Vice Chairman, Chase Manhattan Corporation from 1996 to 1998. Vice Chairman, Chemical Bank,
1290 Avenue of the Americas 1995 to 1996 (Chase Manhattan Corporation and Chemical Bank merged in 1996). Senior
New York, NY 10104 Executive Vice 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, Steven M.
Joenk, 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. Steven
M. Joenk 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.
-40-
<PAGE>
TRUSTEE COMPENSATION TABLE*
PENSION OR
RETIREMENT TOTAL
AGGREGATE BENEFITS COMPENSATION
COMPENSATION ACCRUED FROM TRUST
FROM THE AS PART OF PAID TO
TRUST TRUST EXPENSES TRUSTEES
-------------- -------------- --------
Peter D. Noris $-0- $-0- $-0-
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-
* 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 Equitable, EQ Financial Consultants,
Inc. ("EQFC"), Equitable Distributors, Inc. ("EDI"), 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
Steven M. Joenk (40) Senior Vice President, Equitable Life since July 1999. Managing
Vice President and Chief Financial Officer Director of MeesPierson from 1996 to 1999. Executive Vice President and
Chief Financial Officer, Gabelli Funds, Inc. from 1994 to 1996. Chief
Financial Officer of money management subsidiary PaineWebber/Mitchell
Hutchins Asset Management from 1989 to 1994.
Brian O'Neil (47) Executive Vice President, Equitable Life since November 1998. Chief
Vice President Investment 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
Vice President and Treasurer Equitable Life. Treasurer, Frontier Trust Company and EquiSource. Vice
President and Treasurer, Equitable Casualty Insurance Company.
Patricia Louie, Esq. (44) Vice President and Counsel, Insurance Division, Equitable Life since
Vice President and Secretary July 1999. Assistant General Counsel of The Dreyfus Corporation from 1989 to
1994. Associate Counsel (1992 to 1994) and Assistant General Counsel (1989 to
1992) of the Investment Company Institute.
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,
Vice President and Controller The Equitable of Colorado, Inc. since 1996.
Mary E. Cantwell (37) Vice President, Equitable Life since July 1999; Assistant Vice President,
Vice President Office of the Chief Investment Officer, Equitable Life 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, Esq. (44) Senior Vice President, Secretary and General Counsel of Chase Global Funds
Assistant Secretary Services Company since November 1991.
Lloyd Lipsett, Esq. (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.
Helen A. Robichaud, Esq. (47) Vice President and Associate General Counsel, Chase Global Funds Services
Assistant Secretary Company since 1994.
</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 and EOC; (ii) to the Equitable Plan; and (iii) insurance company
separate accounts of: Integrity Life Insurance Company, National Integrity Life
Insurance Company, The American Franklin Life Insurance Company, and
Transamerica Occidental 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 more than 99% 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.
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<PAGE>
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") currently serves as 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"), Capital Guardian
Trust Company ("Capital Guardian") Calvert Asset Management Company, Inc.
("Calvert"), and Brown Capital Management ("Brown Capital") (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 Board of Trustees of the Trust has approved a transfer to Equitable of the
Trust's Investment Management Agreement with EQFC. This transfer is expected to
be completed in September 1999. Upon completion of the transfer, Equitable will
serve as the Manager of the Trust. However, until completion of the transfer,
EQFC will continue to serve in that capacity. Equitable, 1290 Avenue of the
Americas, New York, New York 10104, is the indirect corporate parent of EQFC.
Both EQFC and Equitable are investment advisers registered under the Investment
Advisers Act of 1940, as amended, and a EQFC broker-dealer registered under the
Securities Exchange Act of 1934, as amended. Management of the Trust and its
Board of Trustees are of the view that the transfer of the Investment
Management Agreement from EQFC to Equitable does not constitute an "assignment"
of that agreement as that term is defined in Section 2(a)(4) of the 1940 Act
and Section 202(a)(1) of the Investment Advisers Act.
-43-
<PAGE>
Equitable, which is a New York life insurance company and one of the largest
life insurance companies in the United States, is a wholly-owned subsidiary of
The Equitable Companies Incorporated ("The Equitable Companies"), a
publicly-owned holding company. The principal offices of The Equitable
Companies and Equitable are located at 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; 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
-44-
<PAGE>
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.
FISCAL YEAR ENDED DECEMBER 31, 1997*
<TABLE>
<CAPTION>
TOTAL AMOUNT OF
MANAGEMENT FEE FEES WAIVED AND
PAID TO MANAGER OTHER EXPENSES
PORTFOLIO MANAGEMENT FEE AFTER FEE WAIVER 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.
CALENDAR YEAR ENDED DECEMBER 31, 1998*
<TABLE>
<CAPTION>
TOTAL AMOUNT OF
MANAGEMENT FEE FEES WAIVED AND
PAID TO MANAGER OTHER EXPENSES
PORTFOLIO MANAGEMENT FEE AFTER FEE WAIVER 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 $788,805 $573,446 $215,359
Warburg Pincus Small Company Value $1,012,129 $738,570 $273,559
Morgan Stanley Emerging Markets Equity $364,795 $105,117 $259,678
BT Equity 500 Index Portfolio $210,001 $0 $232,207
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, Capital Guardian International and Calvert
Socially Responsible. 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 the Alliance
Portfolios with Alliance and EQ Alliance Premier Growth Portfolio. 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. Finally, the Manager has entered
into Advisory Agreements on behalf of Calvert Socially Responsible Portfolio
with Calvert and Brown Capital. The Advisory Agreements obligate T. Rowe Price,
Price Fleming, Putnam Management, MFS, Warburg, MSAM, MLAM, LAM, J.P. Morgan,
Bankers Trust, Evergreen, Alliance, Capital Guardian, Calvert, and Brown Capital
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>
FISCAL YEAR ENDED DECEMBER 31, 1997*
PORTFOLIO ADVISORY FEE PAID
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
* 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, Capital Guardian, Calvert, or
Brown Capital during the fiscal year ended December 31, 1997.
CALENDAR YEAR ENDED DECEMBER 31, 1998*
PORTFOLIO ADVISORY FEE PAID
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
* No advisory fees were paid to Evergreen, MFS on behalf of MFS Growth with
Income Portfolio, Alliance, Capital Guardian, Calvert, or Brown Capital
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 to certain conditions, to enter
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<PAGE>
into Advisory Agreements with Advisers approved by the Trustees, but without
the requirement of shareholder approval. Pursuant to the terms of the
Multi-Manager 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. With
respect to these Portfolios for which Alliance serves as Adviser (other than
EQ/Alliance Premier Growth Portfolio), the Manager will not: (i) terminate
Alliance and select a new Adviser for those Portfolios or (ii) materially
modify the existing investment advisory agreement without first either
obtaining approval of shareholder for such actions or obtaining approval of
shareholders to utilize the Multi-Manager Order.
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:
FISCAL YEAR ENDED DECEMBER 31, 1997*
PORTFOLIO ADVISORY FEE PAID
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
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<PAGE>
* 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 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.
CALENDAR YEAR ENDED DECEMBER 31, 1998*
PORTFOLIO ADMINISTRATION FEE
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
* 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, Capital Guardian International, and Calvert Socially
Responsible 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") in which EQFC and EDI serve as
the Distributors for the Trust's Class IA shares and Class IB shares. EQFC and
EDI are each an indirect wholly-owned subsidiary of Equitable and the address
for each is 1290 Avenue of the Americas, New York, New York 10104.
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.
-49-
<PAGE>
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.
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,
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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. 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>
DISTRIBUTION FEE DISTRIBUTION FEE TOTAL
PORTFOLIO PAID TO EQFC 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
Lazard Small Cap Value Portfolio $0 $60,874 $60,874
</TABLE>
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<PAGE>
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, Capital Guardian
International, and Calvert Socially Responsible 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
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<PAGE>
broker) and financial standing, as well as the net results of specific
transactions, taking into account such factors as price, promptness, size of
order and difficulty of execution. The research services obtained will, in
general, be used by 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:
FISCAL YEAR ENDED DECEMBER 31, 1997*
PORTFOLIO BROKERAGE COMMISSIONS PAID
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
* 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.
CALENDAR YEAR ENDED DECEMBER 31, 1998*
PORTFOLIO BROKERAGE COMMISSIONS PAID
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
* 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
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<PAGE>
Income, EQ/Alliance Premier Growth, Capital Guardian Research, Capital
Guardian U.S. Equity, Capital Guardian International and Calvert Socially
Responsible 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. Calvert, an
Adviser to the Calvert Socially Responsible Portfolio, may execute portfolio
transactions through certain affiliates of Calvert, including Ameritas
Investment Corporation and The Advisors Group. Brown Capital, an Adviser to the
Calvert Socially Responsible 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
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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.
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.
FISCAL YEAR ENDED DECEMBER 31, 1997*
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE OF
AGGREGATE OF TOTAL TRANSACTIONS
AFFILIATED BROKERAGE BROKERAGE (BASED ON
PORTFOLIO BROKER-DEALER COMMISSIONS PAID COMMISSIONS DOLLAR AMOUNTS)
- --------- ------------- ---------------- ----------- ---------------
<S> <C> <C> <C> <C>
Merrill Lynch Basic Value Equity Donaldson, Lufkin & Jenrette $1,444 1.91% 1.48%
Securities Corporation ("DLJ")
Merrill Lynch, Pierce Fenner $7,984 10.55% 10.93%
& Smith Incorporated ("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 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 Jardine Fleming Securities $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.
CALENDAR YEAR ENDED DECEMBER 31, 1998*
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE OF
AGGREGATE OF TOTAL TRANSACTIONS
AFFILIATED BROKERAGE BROKERAGE (BASED ON
PORTFOLIO BROKER-DEALER COMMISSIONS PAID COMMISSIONS DOLLAR AMOUNTS)
- --------- ------------- ---------------- ----------- ---------------
<S> <C> <C> <C> <C>
Merrill Lynch Basic Value Equity Donaldson, Lufkin & $14,104 3.55% 4.43%
Jenrette Securities
Corporation ("DLJ")
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, $ 48 .01% .01%
MFS Emerging Growth Companies Portfolio Pershing Trading Company, $ 600 .10% .12%
T. Rowe Price Equity Income Portfolio DLJ $ 3,544 2.47% 1.53%
T. Rowe Price International Stock Jardine Fleming $ 1,978 1.10% .72%
Robert Fleming Co. $ 5,249 2.92% 3.41%
Ord Minnett - New Zealand $ 326 .18% .13%
Ord Minnett Group, Ltd. $ 155 .09% .06%
DLJ $ 165 .09% .14%
Morgan Stanley Emerging Markets Equity Morgan Stanley & Co. $ 596 .24% .18%
Lazard Small Cap Value Portfolio DLJ $ 150 .19% .15%
</TABLE>
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* 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, Capital Guardian International and Calvert Socially
Responsible 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, as defined below. 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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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 may be valued on the basis of prices provided
by a pricing service when such prices are believed to reflect the fair market
value of such securities. The prices provided by a pricing service take into
account many factors, including institutional size, trading in similar groups
of securities and any developments related to specific securities; however,
when such prices are not available, such bonds are valued at a bid price
estimated by a broker.
o Short-term debt securities 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. Convertible
bonds may be matrix-priced based upon the conversion value to the underlying
common stocks and market premiums.
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.
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The market value of a put or call option will usually reflect, among other
factors, the market price of the underlying security.
When the Trust writes a call option, an amount equal to the premium received by
the Trust is included in the Trust's financial statements as an asset and an
equivalent liability. The amount of the liability is subsequently
marked-to-market to reflect the current market value of the option written.
When an option expires on its stipulated expiration date or the Trust enters
into a closing purchase or sale transaction, the Trust realizes a gain (or
loss) without regard to any unrealized gain or loss on the underlying security,
and the liability related to such option is extinguished. When an option is
exercised, the Trust realizes a gain or loss from the sale of the underlying
security, and the proceeds of sale are increased by the premium originally
received, or reduced by the price paid for the option.
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
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<PAGE>
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.
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.
-59-
<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 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.
-60-
<PAGE>
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 or the Hudson River Trust's Annual Report to Shareholders, filed
electronically with the SEC, are incorporated by reference and made a part of
this document.
-61-
<PAGE>
EQ ADVISORS TRUST
INVESTMENT STRATEGIES SUMMARY
<TABLE>
<CAPTION>
Borrowings Borrowings
Asset-backed (emergencies, (leveraging Convertible Inverse Brady
PORTFOLIO Securities(A) redemptions) purposes) Securities Floaters(A) Floaters(A) Bonds(B)
============================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
Alliance Aggressive Stock Y Y N Y Y Y Y
Alliance Balanced Y Y N Y Y Y Y
Alliance Common Stock Y Y N Y Y Y Y
Alliance Conservative Investors Y Y N Y Y Y Y
Alliance Equity Index N Y N Y Y Y N
Alliance Global Y Y N Y Y Y Y
Alliance Growth and Income Y Y N Y Y Y Y
Alliance Growth Investors Y Y N Y Y Y Y
Alliance High Yield Y Y N Y Y Y Y
Alliance Intermediate Y Y N Y Y Y Y
Alliance International Y Y N Y Y Y Y
Alliance Money Market Y Y N Y Y Y N
Alliance Quality Bond Y Y N Y Y Y Y
Alliance Small Cap Growth Y Y N Y Y Y Y
T. Rowe Price International N Y - 33.3% N Y N N N
T. Rowe Price Equity Income N Y - 33.3% N Y N N N
EQ/Putnam Growth & Income Value N Y - 10.0% N Y N N N
EQ/Putnam International Equity N Y - 10.0% N Y N N N
EQ/Putnam Investors Growth N Y - 10.0% N Y N N N
EQ/Putnam Balanced Y Y - 10.0% N Y Y N Y
MFS Research N Y - 33.3% N Y N N N
MFS Emerging Growth Companies Y Y - 33.3% N Y N N Y
MFS Growth with Income N Y - 10.0% N Y N N N
Morgan Stanley Emerging Markets Y Y - 33.3% N Y Y Y Y
Warburg Pincus Small Company N Y - 30.0% N Y N N N
<CAPTION>
Depository Foreign Foreign Foreign Options
Receipts(B) Spot Trans. Forward Futures Trans (exchange traded)
======================================================================
<S> <C> <C> <C> <C>
Y Y Y Y Y
Y Y Y Y Y
Y Y Y Y Y
Y Y Y Y Y
N N N N N
Y Y Y Y Y
Y Y Y Y Y
Y Y Y Y Y
Y Y Y Y Y
N Y N N Y
Y Y Y Y Y
Y N N N N
Y Y Y Y Y
Y Y Y Y Y
Y Y Y Y Y
Y Y Y Y Y
Y Y Y Y Y
Y Y Y Y Y
Y Y Y Y Y
Y Y Y Y Y
Y Y N N N
Y Y Y Y Y
Y Y Y Y Y
Y Y Y Y Y
Y Y Y Y Y
</TABLE>
-62-
<PAGE>
<TABLE>
<CAPTION>
Borrowings Borrowings
Asset-backed (emergencies, (leveraging Convertible Inverse Brady
PORTFOLIO Securities(A) redemptions) purposes) Securities Floaters(A) Floaters(A) Bonds(B)
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
Merrill Lynch World Strategy N Y - 33.3% N Y N N N
Merrill Lynch Basic Value Equity N Y - 33.3% N Y N N N
Lazard Large Cap Value N Y - 10.0% Y - 33.3% Y Y N N
Lazard Small Cap Value N Y - 15.0% E) N Y Y N N
JPM Core Bond Y Y - 33.3% N Y N N Y
BT Small Company Index Y Y - 33.3% N Y N N N
BT International Equity Index Y Y - 33.3% N Y N N N
BT Equity 500 Index Y Y - 33.3% N Y N N N
EQ/Evergreen Portfolio N Y - 33.3% N Y N N N
EQ/Evergreen Foundation N Y - 33.3% N Y N N N
EQ/Alliance Premier Growth N Y - 5.0% N Y N N N
Capital Guardian Research N Y - 5.0% N Y N N N
Capital Guardian U.S. Equity N Y - 5.0% N Y N N N
Capital Guardian International N Y - 5.0% N Y N N N
Calvert Socially Responsible Y Y - 33.3% N Y Y Y Y
<CAPTION>
Depository Foreign Foreign Foreign Options
Receipts(B) Spot Trans. Forward Futures Trans (exchange traded)
======================================================================
<S> <C> <C> <C> <C>
Y Y Y Y Y
Y - 10% Y Y Y Y
Y - 10% Y N N N
N N N N N
Y Y Y Y Y
N N N N N
Y Y Y Y Y
N N N N N
Y N N N N
Y Y Y Y Y
Y Y Y Y Y
Y N N N N
Y N N N N
Y Y Y Y Y
Y Y Y 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).
-63-
<PAGE>
EQ ADVISORS TRUST
INVESTMENT STRATEGIES SUMMARY
<TABLE>
<CAPTION>
Foreign Currency
------------------------ Investment
Foreign (written, Foreign Forward Hybrid Illiquid Grade
PORTFOLIO Options call options Securities Commitments Instruments(A) Securities Fixed
--------- ------- ---- ---------------- ------------ -------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Alliance Aggressive Stock Y Y Y - 20% Y Y Y - 15% Y
Alliance Balanced Y Y Y - 20% Y Y Y - 15% Y
Alliance Common Stock Y Y Y Y Y Y - 15% Y
Alliance Conservative Y Y Y - 15% Y Y Y - 15% Y
Alliance Equity Index N N N Y Y Y - 15% Y
Alliance Global Y Y Y Y Y Y - 15% Y
Alliance Growth and Income Y Y Y Y N Y - 15% Y
Alliance Growth Investors Y Y Y - 30% Y Y Y - 15% Y - 60%
Alliance High Yield Y Y Y Y Y Y - 15% Y
Alliance Intermediate Y N N Y Y Y - 15% Y
Alliance International Y Y Y Y Y Y - 15% Y
Alliance Money Market N N Y - 20% Y N Y - 10% Y
Alliance Quality Bond Y Y Y Y Y Y - 15% Y
Alliance Small Cap Growth Y Y Y - 20% Y Y Y - 15% Y
T. Rowe Price International N Y Y Y Y - 10% Y - 15% Y
T. Rowe Price Equity Income N Y Y Y Y - 10% Y - 15% Y
EQ/Putnam Growth & Income Y Y Y Y N Y - 15% Y
EQ/Putnam International Y Y Y Y N Y - 15% Y
EQ/Putnam Investors Growth Y Y Y Y N Y - 15% Y
EQ/Putnam Balanced Y Y Y Y N Y - 15% Y
MFS Research N N Y Y N Y - 15% Y
MFS Emerging Growth Companies Y Y Y Y N Y - 15% Y
MFS Growth with Income Y Y Y Y N Y - 15% Y
Morgan Stanley Emerging Y Y Y Y Y Y - 15% Y
Warburg Pincus Small Company N Y Y N N Y - 10% Y
Merrill Lynch World Strategy Y Y Y Y N Y - 15% Y
Merrill Lynch Basic Value N Y Y Y N Y - 15% Y
Lazard Large Cap Value N Y Y Y N Y - 10% Y
Lazard Small Cap Value N N Y Y N Y - 10% Y
JPM Core Bond Y Y Y Y N Y - 15% Y
BT Small Company Index N N N Y N Y - 15% Y
BT International Equity Index Y Y Y Y N Y - 15% Y
BT Equity 500 Index N N Y Y N Y - 15% Y
EQ/Evergreen Portfolio Y Y Y Y N Y - 15% Y
EQ/Evergreen Foundation N Y Y Y N Y - 15% N
EQ/Alliance Premier Growth Y Y Y Y N Y - 15% Y
Capital Guardian Research N N Y Y Y - 10% Y - 15% Y
Capital Guardian U.S. Equity N N Y Y Y - 10% Y - 15% Y
Capital Guardian Y Y Y Y Y - 10% Y - 15% Y
Calvert Socially Responsible Y Y Y - 10% Y Y - 5% Y - 15% Y
<CAPTION>
Non-Inv. Security Security
Grade Loan Mortgage Direct Municipal Futures Options
Fixed Participation Related (Mortgages Securities Trans.(A) Trans.(C)
-------- -------------- ---------- --------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
N Y Y N N Y Y
N Y Y N N Y Y
N Y Y N N Y Y
N Y Y N N Y Y
N Y N N N Y N
N Y Y N N Y Y
Y- 30% Y Y N N Y Y
Y - 15% Y Y N N Y Y
Y Y Y N N Y Y
N Y Y N N Y Y
N Y Y N N Y Y
N N Y N N N N
N Y Y N N Y Y
N Y Y N N Y Y
N N N N N Y Y
Y - 10% N N N N Y Y
Y N N N N Y Y
Y N N N N Y Y
Y N N N N Y Y
Y Y Y N N Y Y
Y - 10% N N N N N N
Y Y N N N Y Y
Y N N N N Y Y
Y Y Y N Y Y Y
Y N N N N Y Y
Y N N N N Y Y
N N N N N Y Y
N Y Y N N N N
N Y Y N N N N
N Y Y Y Y Y Y
N N Y N N Y Y
N N Y N N Y Y
N N Y N N Y Y
N N N N N Y Y
Y N Y N N Y Y
N N N N N Y Y
N N N N N Y Y
N N N N N Y Y
N N N N N Y Y
Y - 20% N N N Y 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).
-65-
<PAGE>
EQ ADVISORS TRUST
INVESTMENT STRATEGIES SUMMARY
<TABLE>
<CAPTION>
Passive Payment Real Estate Reverse Short Sales
Foreign InKind Investment Repurchase Repurchase Securities Against
PORTFOLIO Inv. Comp. Bonds Trusts Agreements Agreements Lending thebox
---------- ----- ------ ---------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Alliance Aggressive Stock Y Y Y Y N Y - 50.0% Y
Alliance Balanced Y Y Y Y N Y - 50.0% Y
Alliance Common Stock Y Y Y Y N Y - 50.0% Y
Alliance Conservative Y Y Y Y N Y - 50.0% Y
Alliance Equity Index Y Y Y N N Y - 50.0% Y
Alliance Global Y Y Y Y N Y - 50.0% Y
Alliance Growth and Income Y Y Y Y N Y - 50.0% Y
Alliance Growth Investors Y Y Y Y N Y - 50.0% Y
Alliance High Yield Y Y Y Y N Y Y
Alliance Intermediate Y Y Y Y N Y Y
Alliance International Y Y Y Y N Y - 50.0% Y
Alliance Money Market Y Y Y Y N Y - 50.0% Y
Alliance Quality Bond Y Y Y Y N Y - 50.0% Y
Alliance Small Cap Growth Y Y Y Y N Y - 50.0% Y
T. Rowe Price International Y N N Y N Y - 33.3% N
T. Rowe Price Equity Income N N N Y N Y - 33.3% N
EQ/Putnam Growth & Income N Y N Y N Y - 25.0% N
EQ/Putnam International Equity Y N N Y N Y - 25.0% N
EQ/Putnam Investors Growth N N N Y N Y - 25.0% N
EQ/Putnam Balanced N Y Y Y N Y - 25.0% N
MFS Research N N N Y N Y - 33.3% N
MFS Emerging Growth Companies N N N Y N Y - 30.0% N
MFS Growth with Income N N N Y N Y - 25.0% N
Morgan Stanley Emerging Y Y Y Y Y Y - 33.3% Y
Warburg Pincus Small Company N N N Y N Y - 20.0% Y
Merrill Lynch World Strategy N N N Y N Y - 20.0% N
Merrill Lynch Basic Value N N N Y N Y - 20.0% N
Lazard Large Cap Value N N Y Y Y Y - 10.0% N
Lazard Small Cap Value N N Y Y N Y - 10.0% N
JPM Core Bond N Y Y Y Y Y - 33.3% N
BT Small Company Index N N Y Y Y Y - 30.0% N
BT International Equity Index N N Y Y Y Y - 30.0% N
BT Equity 500 Index N N Y Y Y Y - 30.0% N
EQ/Evergreen Portfolio N N N Y Y Y - 33.3% Y
EQ/Evergreen Foundation N N Y Y Y Y - 33.3% N
EQ/Alliance Premier Growth N N Y Y N Y - 25.0% N
Capital Guardian Research N N Y Y N Y - 33.3% N
Capital Guardian U.S. Equity N N Y Y N Y - 33.3% N
Capital Guardian Y N Y Y N Y - 33.3% N
Calvert Socially Responsible N N Y Y Y Y - 33.3% Y
<CAPTION>
Small Zero
Company Structured Swap U.S. Gov't Coupon
Securities Notes(A) Trans.(A) Securities Bonds
- ---------- -------- ----------- ------------ -------
<S> <C> <C> <C> <C>
Y Y Y Y Y
Y Y Y Y Y
Y Y Y Y Y
Y Y Y Y Y
Y Y Y Y Y
Y Y Y Y Y
Y Y Y Y Y
Y Y Y Y Y
Y Y Y Y Y
Y Y Y Y Y
Y Y Y Y Y
Y Y N Y Y
Y Y Y Y Y
Y Y Y Y Y
N N N Y N
N N N Y N
N N N Y Y
Y N N Y N
N N N Y N
Y N N Y Y
N N N Y N
N N N Y N
N N N Y Y
Y Y Y Y Y
Y N N Y N
N N N Y N
N N N Y N
N N N Y N
Y N N Y N
N N Y Y Y
Y N N Y N
N N Y Y N
N N N Y N
Y N N Y N
N N N Y N
N N N Y N
Y N N Y N
Y N N Y N
Y N N Y N
Y Y Y 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).
-67-
<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.
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.
<PAGE>
o Bonds rated BBB are regarded as having an adequate capacity to pay interest
and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal
for bonds in this category than in higher rated categories.
o Debt rated BB, B, CCC, CC or C is regarded, on balance, as predominantly
speculative with respect to the issuer's capacity to pay interest and repay
principal in accordance with the terms of the obligation. While such debt
will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse debt
conditions.
o The rating C1 is reserved for income bonds on which no interest is being
paid. o Debt rated D is in default and payment of interest and/or
repayment of principal is in arrears.
The ratings from AA to CCC may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within the major rating categories.
Moody's ratings are as follows:
o Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as
"gilt-edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
o Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there
may be other elements present which make the long term risks appear
somewhat larger than in Aaa securities.
o Bonds which are rated A possess many 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.
-69-
<PAGE>
PEA 13 (DRAFT 8/26/99)
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) Amendment No. 4, dated as of August 30, 1999, to Investment
Management Agreement between EQ Advisors Trust and EQ Financial
Consultants, Inc.
(d)(1)(vi) Amendment No. 5, dated October 1, 1999 to Investment Management
Agreement between EQ Advisors Trust and The Equitable Life
Assurance Society of the United States. (to be provided by
amendment)
(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)
C-1
<PAGE>
(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)
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 Credit Suisse Asset Management, LLC, dated as of July 1,
1999.
(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 October 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.
(to be provided by amendment)
(d)(14) Investment Advisory Agreement between EQ Financial Consultants,
Inc. and Capital Guardian Trust Company, dated as of May 1,
1999.(11)
(d)(15) Investment Advisory Agreement between EQ Financial Consultants,
Inc. and Calvert Asset Management Company, Inc., dated as of
August 30, 1999.
(d)(16) Investment Advisory Agreement between EQ Financial Consultants,
Inc. and Brown Capital Management, dated as of August 30, 1999.
(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)
<PAGE>
(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)
(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) Amendment No. 4 dated as of August 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. (to be
provided by amendment)
(e)(1)(vi) Amendment No. 5 dated as of October 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. (to be
provided by amendment)
(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) Amendment No. 4 dated as of August 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. (to
be provided by amendment)
(e)(2)(vi) Amendment No. 5 dated as of October 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. (to
be provided by amendment)
(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)
<PAGE>
(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) Amendment No. 4 dated as of August 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. (to
be provided by amendment)
(e)(3)(vi) Amendment No. 5 dated as of October 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. (to
be provided by amendment)
(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) Amendment No. 4 dated as of August 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. (to
be provided by amendment)
(e)(4)(vi) Amendment No. 5 dated as of October 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. (to
be provided by amendment)
(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)
<PAGE>
(g)(1)(v) Form of Amendment No. 4 dated as of August 30, 1999 to the
Custodian Agreement between EQ Advisors Trust and The Chase
Manhattan Bank dated April 17, 1997. (to be provided by amendment)
(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)
(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) Amended and Restated Expense Limitation Agreement between EQ
Financial Consultants, Inc. and EQ Advisors Trust dated as of
August 30, 1999. (to be provided by amendment)
(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)
<PAGE>
(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 October 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. (to be provided by amendment)
(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)(6) 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, Alliance International Portfolio and
the Calvert Socially Responsible Portfolio.
(j) Consent of PricewaterhouseCoopers LLP, Independent Public
Accountants.
<PAGE>
(k) None
(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)
Power of Attorney for Steven M. Joenk.
- ---------------
(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).
<PAGE>
(11) Incorporated herein by reference to Registrant's Registration Statement
on Form N-1A filed on April 29, 1999 (File No. 333-17217).
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 more than 99% 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 "[s]ubject 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 having been an agent." Article VI,
Section 3 of the Trust's By-Laws further states, in relevant part, that "[n]o
indemnification shall
<PAGE>
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.
<PAGE>
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 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 Calvert Asset Management
Company, Inc. is set forth in Calvert Asset Management Company's Form ADV filed
with the Securities and Exchange Commission on May 12, 1999 (File No. 801-17044)
and amended through the date hereof, is incorporated by reference.
<PAGE>
The information as to the directors and officers of Brown Capital Management is
set forth in Brown Capital Management's Form ADV filed with the Securities and
Exchange Commission on May 30, 1995 (File No. 801-19287) and 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.
<PAGE>
Vernon E. Jordan, Jr., Director of Bankers Trust Company. Senior Partner, Akin,
Gump, Strauss, Hauer & 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 Advisory
<PAGE>
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.; Assistant General
Counsel, The Capital Group Companies, Inc.; and Secretary. Capital Management
Services, Inc.
<PAGE>
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 Trust Company of Nevada.
<PAGE>
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.
<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 FP 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.
<PAGE>
<TABLE>
<CAPTION>
=====================================================================================================================
EQ FINANCIAL CONSULTANTS, INC.
=====================================================================================================================
NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND OFFICES
BUSINESS ADDRESS WITH EQ FINANCIAL WITH REGISTRANT
CONSULTANTS, INC. (EQ ADVISORS TRUST)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
DIRECTORS
* Derry E. Bishop Director
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 Vice President
Chief 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
* Mike Woodhead Vice President
</TABLE>
C-17
<PAGE>
<TABLE>
<CAPTION>
=====================================================================================================================
EQ FINANCIAL CONSULTANTS, INC.
=====================================================================================================================
NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND OFFICES
BUSINESS ADDRESS WITH EQ FINANCIAL WITH REGISTRANT
CONSULTANTS, INC. (EQ ADVISORS TRUST)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
* Mary E. Cantwell Assistant Vice President 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.
=====================================================================================================================
NAME AND PRINCIPAL BUSINESS POSITIONS AND OFFICES POSITIONS AND OFFICES
ADDRESS WITH EQUITABLE WITH REGISTRANT
DISTRIBUTORS, INC. (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>
<PAGE>
<TABLE>
<CAPTION>
=====================================================================================================================
EQUITABLE DISTRIBUTORS, INC.
=====================================================================================================================
NAME AND PRINCIPAL BUSINESS POSITIONS AND OFFICES POSITIONS AND OFFICES
ADDRESS WITH EQUITABLE WITH REGISTRANT
DISTRIBUTORS, INC. (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:
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
<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
Calvert Asset Management Company, Inc. Brown Capital Management, Inc.
4550 Montgomery Avenue 809 Cathedral Street
Suite 1000N Baltimore, MD 21201
Bethesda, MD 20814
ITEM 29. MANAGEMENT SERVICES: NONE.
ITEM 30. UNDERTAKINGS
Inapplicable.
<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. 13 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 30th day of August, 1999.
EQ ADVISORS TRUST
By: /s/ Peter D. Noris
----------------------------------
Peter D. Noris
President
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Post-Effective Amendment No. 13 to the Registration Statement has been signed
below by the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Peter D. Noris President and Trustee August 30, 1999
- ------------------------------------
Peter D. Noris
* Trustee August 30, 1999
- ------------------------------------
William T. McCaffrey
* Trustee August 30, 1999
- ------------------------------------
Michael Hegarty
* Trustee August 30, 1999
- ------------------------------------
Jettie M. Edwards
* Trustee August 30, 1999
- ------------------------------------
William M. Kearns, Jr.
* Trustee August 30, 1999
- ------------------------------------
Christopher P.A. Komisarjevsky
* Trustee August 30, 1999
- ------------------------------------
Harvey Rosenthal
* Chief Financial Officer August 30, 1999
- ------------------------------------
Steven M. Joenk
* By: /s/ Peter D. Noris
-----------------------------
Peter D. Noris
(Attorney-in-Fact)
</TABLE>
<PAGE>
EXHIBIT LIST
EXHIBIT
NUMBER DESCRIPTION
(d)(1)(v) Amendment No. 4, dated as of August 30, 1999, to Investment
Management Agreement between EQ Advisors Trust and EQ
Financial Consultants, Inc.
(d)(11) Investment Advisory Agreement between EQ Financial
Consultants, Inc. and Credit Suisse Asset Management, LLC,
dated as of July 1, 1999.
(d)(15) Investment Advisory Agreement between EQ Financial
Consultants, Inc. and Calvert Asset Management Company, Inc.,
dated as of August 30, 1999.
(d)(16) Investment Advisory Agreement between EQ Financial
Consultants, Inc. and Brown Capital Management, dated as of
August 30, 1999.
(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, Alliance
International Portfolio, and Calvert Socially Responsible
Portfolio.
(j) Consent of PricewaterhouseCoopers LLP, Independent Public
Accountants.
(n) Financial Data Schedule
Other Exhibits:
Power of Attorney for Steven M. Joenk
<PAGE>
FORM OF AMENDMENT NO. 4
TO
INVESTMENT MANAGEMENT AGREEMENT
FORM OF AMENDMENT NO. 4 to Investment Management Agreement ("Amendment
No. 4"), dated as of August 30, 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, and Calvert Socially Responsible
Portfolio (collectively, 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,
2000 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, 2001 and may be continued thereafter pursuant
to subsection (f) below.
(e) With respect to the New Portfolios, the Agreement will
continue in effect until September 1, 2002 and may be continued thereafter
pursuant to subsection (f) below.
(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
<PAGE>
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.
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this
Amendment No. 4 as of the date first above set forth.
EQ ADVISORS TRUST EQ FINANCIAL CONSULTANTS, INC.
By: /s/ Peter D. Noris By: Michael S. Martin
--------------------- -------------------------
Peter D. Noris Michael S. Martin
President and Trustee Chairman of the Board and
Chief Executive Officer
<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
<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
Calvert Socially Responsible Portfolio
<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
<PAGE>
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
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
Calvert Socially Responsible Portfolio .65% of the Portfolio's average net daily assets
Alliance Money Market Portfolio .35% of the Portfolio's average net daily assets
Alliance Intermediate Government Securities Portfolio .50% of the Portfolio's average net daily assets
Alliance Quality Bond Portfolio .53% of the Portfolio's average net daily assets
Alliance High Yield Portfolio .60% of the Portfolio's average net daily assets
Alliance Balanced Portfolio .41% of the Portfolio's average net daily assets
Alliance Conservative Investors Portfolio .48% of the Portfolio's average net daily assets
Alliance Growth Investors Portfolio .51% of the Portfolio's average net daily assets
Alliance Common Stock Portfolio .36% of the Portfolio's average net daily assets
Alliance Equity Index Portfolio .31% of the Portfolio's average net daily assets
Alliance Growth And Income Portfolio .55% of the Portfolio's average net daily assets
Alliance Aggressive Stock Portfolio .54% of the Portfolio's average net daily assets
Alliance Small Cap Growth Portfolio .90% of the Portfolio's average net daily assets
Alliance Global Portfolio .64% of the Portfolio's average net daily assets
Alliance International Portfolio .90% of the Portfolio's average net daily assets
</TABLE>
<PAGE>
INVESTMENT ADVISORY AGREEMENT
AGREEMENT, dated as of July 1, 1999, by and between EQ Financial
Consultants, Inc., a Delaware corporation ("EQ Financial" or the "Manager"), and
Credit Suisse Asset Management, LLC (the "Adviser").
WHEREAS, EQ Advisors Trust (the "Trust") is registered as an investment
company under the Investment Company Act of 1940, as amended (the "Investment
Company Act");
WHEREAS, the Trust's shareholders are and will be separate accounts
maintained by insurance companies for variable life insurance policies and
variable annuity contracts (the "Policies") under which income, gains, and
losses, whether or not realized, from assets allocated to such accounts are, in
accordance with the Policies, credited to or charged against such accounts
without regard to other income, gains, or losses of such insurance companies;
WHEREAS, the Trust is and will continue to be a series fund having two
or more investment portfolios, each with its own investment objectives, policies
and restrictions;
WHEREAS, EQ Financial is registered as an investment adviser under the
Investment Advisers Act of 1940, as amended ("Advisers Act"), and is the
investment manager to the Trust;
WHEREAS, the Adviser is registered as an investment adviser under the
Advisers Act;
WHEREAS, the Investment Company Act prohibits any person from acting as
an investment adviser to a registered investment company except pursuant to a
written contract (the "Agreement"); and
WHEREAS, the Board of Trustees of the Trust and EQ Financial desire to
retain the Adviser to render investment advisory services to the portfolio
specified in Schedule A hereto ("Portfolio") in the manner and on the terms
hereinafter set forth.
NOW, THEREFORE, EQ Financial and Adviser agree as follows:
1. APPOINTMENT OF ADVISER
The Manager hereby appoints the Adviser to act as investment adviser
for the Portfolio and to manage the investment and reinvestment of the assets of
the Portfolio, subject to the supervision of the Trustees of the Trust and the
terms and conditions of this Agreement. The Adviser will be an independent
contractor and will have no authority to act for or represent the Trust or
Manager in any way or otherwise be deemed an agent of the Trust or Manager
except as expressly authorized in this Agreement or another writing by the
Trust, Manager and the Adviser. Notwithstanding the foregoing, the Adviser may
execute account documentation, agreements, contracts and other documents as the
Adviser may be requested by brokers, dealers, counterparts and other persons in
connection with the Adviser's management of the assets of the
<PAGE>
Portfolio, provided that the Adviser receives the express agreement and consent
of the Manager and/or the Trust's Board of Trustees to execute such
documentation, agreements, contracts and other documents. In such respect, and
only for this limited purpose, the Adviser shall act as the Manager and/or the
Trust's agent and attorney-in-fact.
2. SERVICES TO BE RENDERED BY THE ADVISER TO THE TRUST
A. The Adviser will manage the investment and reinvestment of the
assets of the Portfolio and determine the composition of the assets of the
Portfolio, subject always to the direction and control of the Trustees of the
Trust and the Manager and in accordance with the provisions of the Trust's
registration statement, as amended from time to time. In fulfilling its
obligations to manage the investment and reinvestment of the assets of the
Portfolio, the Adviser will:
(i) obtain and evaluate pertinent economic, statistical,
financial, and other information affecting the economy generally and
individual companies or industries, the securities of which are
included in the Portfolio or are under consideration for inclusion in
the Portfolio;
(ii) formulate and implement a continuous investment program
for the Portfolio (a) consistent with the investment objectives,
policies and restrictions of the Portfolio as stated in the Trust's
Agreement and Declaration of Trust, By-Laws, and such Portfolio's
currently effective Prospectus and Statement of Additional Information
("SAI") as amended from time to time, and (b) in compliance with the
requirements applicable to both regulated investment companies and
segregated asset accounts under Subchapters M and L of the Internal
Revenue Code of 1986, as amended, and requirements applicable to
registered investment companies under applicable laws;
(iii) take whatever steps are necessary to implement the
investment program for the Portfolio by the purchase and sale of
securities and other investments authorized under the Trust's Agreement
and Declaration of Trust, By-Laws, and such Portfolio's currently
effective Prospectus and SAI, including the placing of orders for such
purchases and sales;
(iv) regularly report to the Trustees of the Trust and the
Manager with respect to the implementation of the investment program
and, in addition, provide such statistical information and special
reports concerning the Portfolio and/or important developments
materially affecting the investments held, or contemplated to be
purchased, by the Portfolio, as may reasonably be requested by the
Manager or the Trustees of the Trust, including attendance at Board of
Trustees Meetings, as reasonably requested, to present such information
and reports to the Board; and
(v) provide determinations of the fair value of certain
portfolio securities when market quotations are not readily available
for the purpose of calculating the
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<PAGE>
Portfolio's net asset value in accordance with procedures and methods
established by the Trustees of the Trust;
(vi) provide any and all information, records and supporting
documentation about accounts the Adviser manages that have investment
objectives, policies, and strategies substantially similar to those
employed by the Adviser in managing the Portfolio which may be
reasonably necessary, under applicable laws, to allow the Portfolio or
its agent to present information concerning the Adviser's prior
performance in the Prospectus, and the SAI of the Portfolio and any
permissible reports and materials prepared by the Portfolio or its
agent; and
(vii) establish appropriate interfaces with the Trust's
administrator and Manager in order to provide such administrator and
Manager with all necessary information requested by the administrator
and Manager.
B. To facilitate the Adviser's fulfillment of its obligations under
this Agreement, the Manager and the Trust will undertake the following:
(i) the Manager agrees promptly to provide the Adviser with
all amendments or supplements to the Registration Statement, the
Trust's Agreement and Declaration of Trust, and By-Laws;
(ii) the Trust and the Manager each agrees, on an ongoing
basis, to notify the Adviser expressly in writing of each change in the
fundamental and nonfundamental investment policies of the Portfolio;
(iii) the Manager agrees to provide or cause to be provided to
the Adviser with such assistance as may be reasonably requested by the
Adviser in connection with its activities pertaining to the Portfolio
under this Agreement, including, without limitation, information
concerning the Portfolio, its available funds, or funds that may
reasonably become available for investment, and information as to the
general condition of the Portfolio's affairs;
(iv) the Manager agrees to provide or cause to be provided to
the Adviser on an ongoing basis, such information as is reasonably
requested by the Adviser for performance by the Adviser of its
obligations under this Agreement, and the Adviser shall not be in
breach of any term of this Agreement or be deemed to have acted
negligently if the Manager fails to provide or cause to be provided
such requested information and the Adviser relies on the information
most recently furnished to the Adviser; and
(v) the Manager will promptly provide the Adviser with any
guidelines and procedures applicable to the Adviser or the Portfolio
adopted from time to time by the Board of Trustees of the Trust and
agrees to promptly provide the Adviser copies of all amendments
thereto.
- 3 -
<PAGE>
C. The Adviser, at its expense, will furnish: (i) all necessary
investment and management facilities and investment personnel, including
salaries, expenses and fees of any personnel required for it to faithfully
perform its duties under this Agreement; and (ii) administrative facilities,
including bookkeeping, clerical personnel and equipment necessary for the
efficient conduct of the investment affairs of the Portfolio (excluding that
necessary for the determination of net asset value and shareholder accounting
services). The Adviser shall not be obligated to pay any expenses of or for the
Portfolio not expressly assumed by the Adviser pursuant to this Section 2.
D. The Adviser will select brokers and dealers to effect all portfolio
transactions subject to the conditions set forth herein. The Adviser will place
all necessary orders with brokers, dealers, or issuers, and will negotiate
brokerage commissions if applicable. The Adviser is directed at all times to
seek to execute brokerage transactions for the Portfolio in accordance with such
policies or practices as may be established by the Board of Trustees and
described in the Trust's currently effective Prospectus and SAI, as amended from
time to time. In placing orders for the purchase or sale of investments for the
Portfolio, in the name of the Portfolio or its nominees, the Adviser shall use
its best efforts to obtain for the Portfolio the most favorable price and best
execution available, considering all of the circumstances, and shall maintain
such records as are required of an investment adviser under applicable law.
Subject to the appropriate policies and procedures approved by the
Board of Trustees, the Adviser may, to the extent authorized by Section 28(e) of
the Securities Exchange Act of 1934, cause the Portfolio to pay a broker or
dealer that provides brokerage or research services to the Manager, the Adviser,
or the Portfolio an amount of commission for effecting a portfolio transaction
in excess of the amount of commission another broker or dealer would have
charged for effecting that transaction if the Adviser determines, in good faith,
that such amount of commission is reasonable in relationship to the value of
such brokerage or research services provided viewed in terms of that particular
transaction or the Adviser's overall responsibilities to the Portfolio or its
other advisory clients. To the extent authorized by said Section 28(e) and the
Trust's Board of Trustees, the Adviser shall not be deemed to have acted
unlawfully or to have breached any duty created by this Agreement or otherwise
solely by reason of such action. In addition, subject to seeking the most
favorable price and best execution available, the Adviser may also consider
sales of shares of the Trust as a factor in the selection of brokers and
dealers.
E. On occasions when the Adviser deems the purchase or sale of a
security to be in the best interest of the Portfolio as well as other clients of
the Adviser, the Adviser to the extent permitted by applicable laws and
regulations, may, but shall be under no obligation to, aggregate the securities
to be purchased or sold to attempt to obtain a more favorable price or lower
brokerage commissions and efficient execution. In such event, allocation of the
securities so purchased or sold, as well as the expenses incurred in the
transaction, will be made by the Adviser in the manner the Adviser considers to
be the most equitable and consistent with its fiduciary obligations to the
Portfolio and to its other clients.
- 4 -
<PAGE>
F. The Adviser will maintain all accounts, books and records with
respect to the Portfolio as are required of an investment adviser of a
registered investment company pursuant to the Investment Company Act and
Advisers Act and the rules thereunder.
3. COMPENSATION OF ADVISER
The Manager will pay the Adviser, with respect to the Portfolio, the
compensation specified in Appendix A to this Agreement. Payments shall be made
to the Adviser on the first day of each month; however, this advisory fee will
be calculated on the daily average value of the Portfolio's assets and accrued
on a daily basis.
4. LIABILITY OF ADVISER
Neither the Adviser nor any of its directors, officers, or employees
shall be liable to the Manager, the Trust or any shareholder thereof or any
service provider to any Portfolio for any loss suffered by the Manager, the
Trust or any shareholder thereof or any service provided to any Portfolio
resulting from its acts or omissions as Adviser to the Portfolio, except for
losses resulting from willful misconduct, bad faith, or gross negligence in the
performance of, or from reckless disregard of, the duties of the Adviser or any
of its directors, officers or employees. The Adviser, its directors, officers or
employees shall not be liable to the Manager or the Trust for any loss suffered
as a consequence of any action or inaction of other service providers to the
Trust, provided such action or inaction of such other service providers to any
Portfolio is not a result of the willful misconduct, bad faith or gross
negligence in the performance of, or from reckless disregard of, the duties of
the Adviser under this Agreement.
5. NON-EXCLUSIVITY
The services of the Adviser to the Portfolio and the Trust are not to
be deemed to be exclusive, and the Adviser shall be free to render investment
advisory or other services to others (including other investment companies) and
to engage in other activities. It is understood and agreed that the directors,
officers, and employees of the Adviser are not prohibited from engaging in any
other business activity or from rendering services to any other person, or from
serving as partners, officers, directors, trustees, or employees of any other
firm or corporation, including other investment companies. Furthermore, the
Trust and the Manager recognize that the Adviser may give advice, and take
action, with respect to its other clients that may differ from the advice given,
or the time or nature of action taken, with respect to the Portfolio.
6. SUPPLEMENTAL ARRANGEMENTS
The Adviser may enter into arrangements with other persons affiliated
with the Adviser for the provision of certain personnel and facilities to the
Adviser to better enable it to fulfill its duties and obligations under this
Agreement.
- 5 -
<PAGE>
7. REGULATION
The Adviser shall submit to all regulatory and administrative bodies
having jurisdiction over the services provided pursuant to this Agreement any
information, reports, or other material which any such body by reason of this
Agreement may request or require pursuant to applicable laws and regulations.
8. RECORDS
The records relating to the services provided under this Agreement
shall be the property of the Trust and shall be under its control; however, the
Trust shall furnish to the Adviser such records and permit it to retain such
records (either in original or in duplicate form) as it shall reasonably require
in order to carry out its duties. In the event of the termination of this
Agreement, such records shall promptly be returned to the Trust by the Adviser
free from any claim or retention of rights therein. The Adviser shall keep
confidential any information obtained in connection with its duties hereunder
and disclose such information only if the Trust has authorized such disclosure
or if such disclosure is expressly required or requested by applicable federal
or state regulatory authorities.
9. DURATION OF AGREEMENT
This Agreement shall become effective with respect to the Portfolio on
the later of the date of its execution or the date of the commencement of
operations of the Portfolio. This Agreement will continue in effect for a period
more than two years from the date of its execution only so long as such
continuance is specifically approved at least annually by the Board of Trustees,
provided that in such event such continuance shall also be approved by the vote
of a majority of the Trustees who are not "interested persons' (as defined in
the Investment Company Act) ("Independent Trustees") of any party to this
Agreement cast in person at a meeting called for the purpose of voting on such
approval.
10. INDEMNIFICATIONS
A. The Manager shall indemnify the Adviser and its controlling persons,
officers, directors, employees, agents, legal representatives and persons
controlled by it (which shall not include the Trust or any Portfolio)
(collectively, "Adviser Related Persons") to the fullest extent permitted by law
against any and all loss, damage, judgments, fines, amounts paid in settlement
and reasonable expenses, including attorneys' fees (collectively "Losses"),
incurred by the Adviser or Adviser Related Persons arising from or in connection
with this Agreement or the performance by the Adviser or Adviser Related Persons
of its or their duties hereunder so long as such Losses arise out of the
Manager's gross negligence, willful misconduct or bad faith, in performing its
responsibilities hereunder or under its agreements with the Trust or the gross
negligence, willful misconduct or bad faith of any companies affiliated with the
Manager that provide services to the Trust, including, without limitation, such
Losses arising under any applicable law or that may be based upon any untrue
statement of a material fact contained in the Trust's registration statement, or
any amendment thereof or any supplement thereto, or the
- 6 -
<PAGE>
omission to state therein a material fact known or which should have been known
and was required to be stated therein or necessary to make the statements
therein not misleading, unless such statement or omission was made in reliance
upon written information furnished to the Manager or the Trust by the Adviser or
an Adviser Related Person specifically for inclusion in the registration
statement or any amendment or supplement thereto, except to the extent any such
Losses referred to in this paragraph A (i.e., paragraph A.) result from willful
misfeasance, bad faith, gross negligence or reckless disregard on the part of
the Adviser or an Adviser Related Person in the performance of any of its duties
under, or in connection with, this Agreement.
B. The Adviser shall indemnify the Manager and its controlling persons,
officers, directors, employees, agents, legal representatives and persons
controlled by it (which shall not include the Trust or any Portfolio)
(collectively, "Manager Related Persons") to the fullest extent permitted by law
against any and all Losses incurred by the Manager or Manager Related Persons
arising from or in connection with this Agreement or the performance by the
Manager or Manager Related Persons of its or their duties hereunder so long as
such Losses arise out of the Adviser's gross negligence, willful misconduct or
bad faith in performing its responsibilities hereunder, including, without
limitation, such Losses arising under any applicable law or that may be based
upon any untrue statement of a material fact contained in the Trust's
registration statement, or any amendment thereof or any supplement thereto or
the omission to state therein a material fact known or which should have been
known and was required to be stated therein or necessary to make the statements
therein not misleading, provided that such statement or omission was made in
reliance upon written information furnished by the Adviser or Adviser Related
Person to the Manager or the Trust, except to the extent any such Losses
referred to in this paragraph B (i.e., paragraph B.) result from willful
misfeasance, bad faith, gross negligence or reckless disregard on the part of
the Manager or a Manager Related Person in the performance of any of its duties
under, or in connection with, this Agreement.
C. The indemnifications provided in this Section 10 shall survive the
termination of this Agreement.
11. TERMINATION OF AGREEMENT
This Agreement may be terminated at any time, without the payment of
any penalty, by the Board of Trustees, including a majority of the Independent
Trustees, by the vote of a majority of the outstanding voting securities of the
Portfolio, on sixty (60) days' written notice to the Manager and the Adviser, or
by the Manager or Adviser on sixty (60) days' written notice to the Trust and
the other party. This Agreement will automatically terminate, without the
payment of any penalty, in the event of its assignment (as defined in the
Investment Company Act) or in the event the Investment Management Agreement
between the Manager and the Trust is assigned or terminates for any other
reason. This Agreement will also terminate upon written notice to the other
party that the other party is in material breach of this Agreement, unless the
other party in material breach of this Agreement cures such breach to the
reasonable satisfaction of the party alleging the breach within thirty (30) days
after written notice.
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<PAGE>
12. PROVISION OF CERTAIN INFORMATION BY ADVISER
The Adviser will promptly notify the Manager in writing of the
occurrence of any of the following events:
A. the Adviser fails to be registered as an investment adviser under
the Advisers Act or under the laws of any jurisdiction in which the Adviser is
required to be registered as an investment adviser in order to perform its
obligations under this Agreement;
B. the Adviser is served or otherwise receives notice of any action,
suit, proceeding, inquiry, or investigation, at law or in equity, before or by
any court, public board, or body, involving the affairs of the Trust; and/or
C. the chief executive officer or controlling stockholder of the
Adviser or the portfolio manager of the Portfolio changes or there is a change
in actual control or management of the Adviser.
13. USE OF ADVISER'S NAME
Neither the Trust nor the Manager or any affiliate or agent thereof
shall make reference to or use the name, and any derivative thereof or logo
associated with that name, of the Adviser or any of its affiliates in any
advertising or promotional materials without the prior approval of the Adviser,
which approval shall not be unreasonably withheld or delayed. Upon termination
of this Agreement, the Manager and the Trust shall forthwith cease to use such
name (or derivative or logo) as soon as reasonably practicable.
14. AMENDMENTS TO THE AGREEMENT
Except to the extent permitted by the Investment Company Act or the
rules or regulations thereunder or pursuant to any exemptive relief granted by
the Securities and Exchange Commission ("SEC"), this Agreement may be amended by
the parties only if such amendment, if material, is specifically approved by the
vote of a majority of the outstanding voting securities of the Portfolio (unless
such approval is not required by Section 15 of the Investment Company Act as
interpreted by the SEC or its staff) and by the vote of a majority of the
Independent Trustees cast in person at a meeting called for the purpose of
voting on such approval. The required shareholder approval shall be effective
with respect to the Portfolio if a majority of the outstanding voting securities
of the Portfolio vote to approve the amendment, notwithstanding that the
amendment may not have been approved by a majority of the outstanding voting
securities of any other portfolio affected by the amendment or all the
portfolios of the Trust.
15. ENTIRE AGREEMENT
This Agreement contains the entire understanding and agreement of the
parties with respect to the Portfolio listed in Appendix A.
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<PAGE>
16. HEADINGS
The headings in the sections of this Agreement are inserted for
convenience of reference only and shall not constitute a part hereof.
17. NOTICES
All notices required to be given pursuant to this Agreement shall be
delivered or mailed to the last known business address of each applicable party
in person or by registered mail or a private mail or delivery service providing
the sender with notice of receipt. The specific person to whom notice shall be
provided for each party will be specified in writing to the other party. Notice
shall be deemed given on the date delivered or mailed in accordance with this
paragraph.
18. SEVERABILITY
Should any portion of this Agreement for any reason be held to be void
in law or in equity, the Agreement shall be construed, insofar as is possible,
as if such portion had never been contained herein.
19. GOVERNING LAW
The provisions of this Agreement shall be construed and interpreted in
accordance with the laws of the State of Delaware, or any of the applicable
provisions of the Investment Company Act. To the extent that the laws of the
State of Delaware, or any of the provisions in this Agreement, conflict with
applicable provisions of the Investment Company Act, the latter shall control.
Any question of interpretation of any term or provision of this
Agreement having a counterpart in or otherwise derived from a term or provision
of the Investment Company Act shall be resolved by reference to such term or
provision of the Investment Company Act and to interpretations thereof, if any,
by the United States courts or, in the absence of any controlling decision of
any such court, by rules, regulations or orders of the SEC validly issued
pursuant to the investment Company Act. Specifically, the terms "vote of a
majority of the outstanding voting securities," "interested persons,"
"assignment," and "affiliated persons," as used herein shall have the meanings
assigned to them by Section 2(a) of the Investment Company Act. In addition,
where the effect of a requirement of the Investment Company Act reflected in any
provision of this Agreement is relaxed by a rule, regulation or order of the
SEC, whether of special or of general application, such provision shall be
deemed to incorporate the effect of such rule, regulation or order.
- 9 -
<PAGE>
IN WITNESS WHEREOF the parties hereto have caused this Agreement to be
executed under seal by their duly authorized officers as of the date first
mentioned above.
EQ FINANCIAL CONSULTANTS, INC.
By: /s/ Peter D. Noris
--------------------------------
Peter D. Noris
Executive Vice President
CREDIT SUISSE ASSET MANAGEMENT, LLC
By: /s/ Hal Liebes
--------------------------------
Hal Liebes
Director and General Counsel
- 10 -
<PAGE>
APPENDIX A
Portfolio Advisory Fee
Warburg Pincus Small .50% of the Portfolio's
Company Value Portfolio average daily assets
Dated: July 1, 1999
<PAGE>
INVESTMENT ADVISORY AGREEMENT
AGREEMENT, dated as of August 30, 1999, by and between EQ Financial
Consultants, Inc., a Delaware corporation (the "Manager"), and Calvert Asset
Management Company, Inc., a Delaware corporation ("Adviser").
WHEREAS, EQ Advisors Trust ("Trust") is registered as an investment
company under the Investment Company Act of 1940, as amended ("Investment
Company Act");
WHEREAS, the Trust's shareholders are and will be separate accounts
maintained by insurance companies for variable life insurance policies and
variable annuity contracts under which income, gains, and losses, whether or not
realized, from assets allocated to such accounts are, in accordance with such
policies and contracts, credited to or charged against such accounts without
regard to other income, gains, or losses of such insurance companies;
WHEREAS, the Trust is and will continue to be a series fund having two
or more investment portfolios, each with its own investment objectives, policies
and restrictions;
WHEREAS, the Manager is registered as an investment adviser under the
Investment Advisers Act of 1940, as amended ("Advisers Act"), and is the
investment manager to the Trust;
WHEREAS, the Adviser is registered as an investment adviser under the
Advisers Act;
WHEREAS, the Investment Company Act prohibits any person from acting as
an investment adviser to a registered investment company except pursuant to a
written contract; and
WHEREAS, the Board of Trustees of the Trust and the Manager desire that
the Manager retain the Adviser and Brown Capital Management, Inc. ("Brown
Capital") to render investment advisory and other services to the portfolio to
be known as the Calvert Socially Responsible Portfolio ("Portfolio") in the
manner and on the terms hereinafter set forth.
NOW, THEREFORE, the Manager and the Adviser agree as follows:
1. APPOINTMENT OF ADVISER
The Manager hereby appoints the Adviser to act as investment adviser
for the Portfolio, subject to the supervision and control of the Manager and the
Trustees of the Trust, and in accordance with the terms and conditions of this
Agreement. The Adviser will be an independent contractor and will have no
authority to act for or represent the Trust or the Manager in any way or
otherwise be deemed an agent of the Trust or the
<PAGE>
Manager except as expressly authorized in this Agreement or another writing by
the Trust, the Manager and the Adviser.
2. SERVICES TO BE RENDERED BY THE ADVISER TO THE TRUST
A. As investment adviser to the Portfolio, the Adviser will coordinate
the investment and reinvestment of the assets of the Portfolio and the
composition of the assets of the Portfolio, subject always to the supervision
and control of the Manager and the Trustees of the Trust. The Adviser shall
allocate responsibilities for specific tasks relating to the Portfolio between
the Adviser and Brown Capital. The Adviser will provide the social screening
services used in selecting each investment for the Portfolio and has the
authority to deny the purchase by the Portfolio or cause divestiture of any
investments of the Portfolio if such investment, in the sole opinion of the
Adviser, fails to pass the social screens established for the Portfolio.
B. As part of the services it will provide hereunder, the Adviser will:
(i) Monitor and continually develop the social investment
criteria of the Portfolio;
(ii) obtain and evaluate pertinent data and other information
relating to social investing issues affecting the individual companies
or industries, the securities of which are included in the Portfolio or
are under consideration for inclusion in the Portfolio to ensure that
the Portfolio's investments satisfy the social criteria of the
Portfolio;
(iii) coordinate the Adviser's activities with Brown Capital,
relating to Brown Capital's formulation and implementation of a
continuous investment program for the Portfolio;
(iv) keep the Trustees of the Trust and the Manager fully
informed in writing on an ongoing basis of all material facts
concerning the investment and reinvestment of the assets in the
Portfolio, the Adviser and its personnel and operations, make regular
and special written reports of such additional information concerning
the same as may reasonably be requested from time to time by the
Manager or the Trustees of the Trust and attend meetings with the
Manager and/or the Trustees, as reasonably requested, to discuss the
foregoing,
(v) provide assistance in determining the fair value of
certain portfolio securities when market quotations are not readily
available for the purpose of calculating the Portfolio's net asset
value in accordance with procedures and methods established by the
Trustees of the Trust;
(vi) provide any and all information, records and supporting
documentation about accounts the Adviser and Brown Capital manage
together or
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individually, if appropriate, that have investment objectives,
policies, and strategies substantially similar to those employed by the
Adviser and Brown Capital in managing the Portfolio which may be
reasonably necessary, under applicable laws, to allow the Portfolio or
its agent to present information concerning the Adviser's and Brown
Capital's prior performance in the Trust's Prospectus and SAI (as
hereinafter defined) and any permissible reports and materials prepared
by the Portfolio or its agent; and
(vii) cooperate with and provide reasonable assistance to the
Manager, the Trust administrator, the Trust's custodian and foreign
custodians, the Trust's transfer agent and pricing agents and all other
agents and representatives of the Trust and the Manager, keep all such
persons fully informed as to such matters as they may reasonably deem
necessary to the performance of their obligations to the Trust and the
Manager, provide prompt responses to reasonable requests made by such
persons and establish appropriate interfaces with each so as to promote
the efficient exchange of information.
C. In furnishing services hereunder, the Adviser shall be subject to,
and shall perform in accordance with, the Trust's Agreement and Declaration of
Trust, as the same may be hereafter modified and/or amended from time to time
("Trust Declaration"), the By-Laws of the Trust, as the same may be hereafter
modified and/or amended from time to time ("By-Laws"), the currently effective
Prospectus and Statement of Additional Information of the Trust relating to the
Portfolio filed with the Securities and Exchange Commission ("SEC"), as the same
may be hereafter modified, amended and/or supplemented ("Prospectus and SAI"),
the Investment Company Act, with the requirements applicable to both regulated
investment companies and segregated asset accounts under Subchapters M and L of
the Internal Revenue Code of 1986, as amended, all other applicable state and
federal securities and other laws, all regulations with respect to the
foregoing, the policies and procedures adopted from time to time by the Board of
Trustees of the Trust and the written instructions of the Manager. The Manager
shall provide the Adviser with current copies of the Trust Declaration, By-Laws,
and Prospectus and SAI.
D. The Adviser, at its expense, will furnish: (i) all necessary
facilities and personnel, including salaries, expenses and fees of any personnel
required for it to faithfully perform its duties under this Agreement; and (ii)
administrative facilities, including bookkeeping, clerical personnel and
equipment necessary for the efficient conduct of the investment affairs of the
Portfolio (excluding that necessary for the determination of net asset value and
shareholder accounting services).
E. The Adviser, together with Brown Capital, will select brokers and
dealers to effect all portfolio transactions subject to the conditions set forth
herein. The Adviser, or Brown Capital, will place all necessary orders with
brokers, dealers, or issuers, and will negotiate brokerage commissions, if
applicable. The Adviser is directed at all times to seek to execute brokerage
transactions for the Portfolio in accordance with such
3
<PAGE>
policies or practices as may be established by the Board of Trustees and
described in the Trust's Prospectus and SAI. In placing any orders for the
purchase or sale of investments for the Portfolio, in the name of the Portfolio
or its nominees, the Adviser shall use its best efforts to obtain for the
Portfolio the most favorable price and best execution available, considering all
of the circumstances, and shall maintain records adequate to demonstrate
compliance with this requirement.
F. Subject to the appropriate policies and procedures approved by the
Board of Trustees, the Adviser may, to the extent authorized by Section 28(e) of
the Securities Exchange Act of 1934, cause the Portfolio to pay a broker or
dealer that provides brokerage or research services to the Manager, the Adviser,
Brown Capital and the Portfolio an amount of commission for effecting a
portfolio transaction in excess of the amount of commission another broker or
dealer would have charged for effecting that transaction if the Adviser
determines, in good faith, that such amount of commission is reasonable in
relationship to the value of such brokerage or research services provided viewed
in terms of that particular transaction or the Adviser's or Brown Capital's
overall responsibilities to the Portfolio or its or their other advisory
clients. To the extent authorized by Section 28(e) and the Trust's Board of
Trustees, the Adviser shall not be deemed to have acted unlawfully or to have
breached any duty created by this Agreement or otherwise solely by reason of
such action. In addition, subject to seeking the most favorable price and best
execution available, the Manager or the Adviser may also consider sales of
shares of the Trust as a factor in the selection of brokers and dealers.
G. On occasions when the Adviser deems the purchase or sale of a
security to be in the best interest of the Portfolio as well as other clients of
the Adviser, the Adviser to the extent permitted by applicable laws and
regulations, may, but shall be under no obligation to, aggregate the securities
to be purchased or sold to attempt to obtain a more favorable price or lower
brokerage commissions and efficient execution. In such event, allocation of the
securities so purchased or sold, as well as the expenses incurred in the
transaction, will be made by the Adviser in the manner the Adviser considers to
be the most equitable and consistent with its fiduciary obligations to the
Portfolio and to its other clients.
H. The Adviser will maintain all accounts, books and records with
respect to the Portfolio as are required of an investment adviser of a
registered investment company pursuant to the Investment Company Act and
Advisers Act and the rules thereunder and shall file with the SEC all forms
pursuant to Section 13 of the Securities Exchange Act of 1934, as amended, with
respect to its duties as are set forth herein.
3. COMPENSATION OF ADVISER
The Manager will pay the Adviser for its services as specified in this
Agreement an advisory fee with respect to the Portfolio at the following annual
rate: 0.10% of the average daily net assets of the Portfolio up to and including
$150 million; and 0.125% of the average daily net assets of the Portfolio in
excess of $150 million. The advisory fee
4
<PAGE>
due and payable hereunder on account of any day shall be calculated by
multiplying the net asset value of the Portfolio at the close of the immediately
preceding business day (as defined in the Prospectus and SAI) by the applicable
annual rate specified above and dividing the result by the number of days in the
year. The advisory fee due and payable hereunder on account of the days in any
calendar month shall be due and payable within ten (10) business days following
the end of such calendar month.
4. LIABILITY AND INDEMNIFICATION
(a) Except as may otherwise be provided by the Investment Company Act
or any other federal securities law, the Adviser shall not be liable for any
losses, claims, damages, liabilities or litigation (including legal and other
expenses) incurred or suffered by the Manager or the Trust as a result of any
error of judgment or mistake of law by the Adviser with respect to the
Portfolio, except that nothing in this Agreement shall operate or purport to
operate in any way to exculpate, waive or limit the liability of the Adviser
for, and the Adviser shall indemnify and hold harmless the Trust, the Manager,
all affiliated persons thereof (within the meaning of Section 2(a)(3) of the
Investment Company Act) and all controlling persons (as described in Section 15
of the Securities Act of 1933, as amended ("1933 Act")) (collectively, the
"Manager Indemnitees") against any and all losses, claims, damages, liabilities
or litigation (including reasonable legal and other expenses) to which any of
the Manager Indemnities may become subject under the 1933 Act, the Investment
Company Act, the Advisers Act, or under any other statute, at common law or
otherwise arising out of or based on (a) any willful misconduct, bad faith,
reckless disregard or gross negligence of the Adviser in the performance of any
if its duties or obligations hereunder or (b) any untrue statement of a material
fact contained in the Prospectus and SAI, proxy materials, reports,
advertisements, sales literature, or other materials pertaining to the Portfolio
or the omission to state therein a material fact known to the Adviser which was
required to be stated therein or necessary to make the statements therein not
misleading, if such statement or omission was made in reliance upon information
furnished to the Manager or the Trust by an Adviser Indemnitee (as defined
below) for use therein.
(b) Except as may otherwise be provided by the Investment Company Act
or any other federal securities law, the Manager and the Trust shall not be
liable for any losses, claims, damages, liabilities or litigation (including
legal and other expenses) incurred or suffered by the Adviser as a result of any
error of judgment or mistake of law by the Manager with respect to the
Portfolio, except that nothing in this Agreement shall operate or purport to
operate in any way to exculpate, waive or limit the liability of the Manager
for, and the Manager shall indemnify and hold harmless the Adviser, all
affiliated persons thereof (within the meaning of Section 2(a)(3) of the
Investment Company Act) and all controlling persons (as described in Section 15
of the 1933 Act) (collectively, the "Adviser Indemnitees") against any and all
losses, claims, damages, liabilities or litigation (including reasonable legal
and other expenses) to which any of the Adviser Indemnities may become subject
under the 1933 Act, the Investment Company Act, the Advisers Act, or under any
other statute, at common law or otherwise arising out
5
<PAGE>
of or based on (a) any willful misconduct, bad faith, reckless disregard or
gross negligence of the Manager in the performance of any if its duties or
obligations hereunder or (b) any untrue statement of a material fact contained
in the Prospectus and SAI, proxy materials, reports, advertisements, sales
literature, or other materials pertaining to the Portfolio or the omission to
state therein a material fact known to the Manager which was required to be
stated therein or necessary to make the statements therein not misleading,
unless such statement or omission was made in reliance upon information
furnished to the Manager or the Trust by an Adviser Indemnitee for use therein.
5. NON-EXCLUSIVITY
The services of the Adviser to the Portfolio and the Trust are not to
be deemed to be exclusive, and the Adviser shall be free to render investment
advisory or other services to others (including other investment companies) and
to engage in other activities. It is understood and agreed that the directors,
officers, and employees of the Adviser are not prohibited from engaging in any
other business activity or from rendering services to any other person, or from
serving as partners, officers, directors, trustees, or employees of any other
firm or corporation, including other investment companies.
6. SUPPLEMENTAL ARRANGEMENTS
The Adviser may from time to time employ or associate with itself any
person it believes to be particularly fitted to assist it in providing the
services to be performed by the Adviser hereunder, provided that no such person
shall perform any services with respect to the Portfolio which would constitute
an assignment or require a written advisory agreement pursuant the Investment
Company Act. Any compensation payable to such persons such be the sole
responsibility of the Adviser, and neither the Manager nor the Trust shall have
any obligations with respect thereto.
7. REGULATION
The Adviser shall submit to all regulatory and administrative bodies
having jurisdiction over the services provided pursuant to this Agreement any
information, reports, or other material which any such body by reason of this
Agreement may request or require pursuant to applicable laws and regulations.
8. RECORDS
The records relating to the services provided under this Agreement
shall be the property of the Trust and shall be under its control; however, the
Trust shall furnish to the Adviser such records and permit it to retain such
records (either in original or in duplicate form) as it shall reasonably require
in order to carry out its duties. In the event of the termination of this
Agreement, such records shall promptly be returned to the Trust by the Adviser
free from any claim or retention of rights therein. The Manager and the Adviser
shall keep confidential any information obtained in connection with its duties
hereunder
6
<PAGE>
and disclose such information only if the Trust has authorized such disclosure
or if such disclosure is expressly required or requested by applicable federal
or state regulatory authorities.
9. DURATION OF AGREEMENT
This Agreement shall become effective with respect to the Portfolio on
the later of the date of its execution or the date of the commencement of the
Portfolio. This Agreement will continue in effect for a period more than two
years from the date of its execution only so long as such continuance is
specifically approved at least annually by the Board of Trustees provided that
in such event such continuance shall also be approved by the vote of a majority
of the Trustees who are not "interested persons" (as defined in the Investment
Company Act) ("Independent Trustees") of any party to this Agreement cast in
person at a meeting called for the purpose of voting on such approval.
10. TERMINATION OF AGREEMENT
This Agreement may be terminated at any time, without the payment of
any penalty, by the Board of Trustees, including a majority of the Independent
Trustees, by the vote of a majority of the outstanding voting securities of the
Portfolio, on sixty (60) day's written notice to the Manager and the Adviser, or
by the Manager or Adviser on sixty (60) day's written notice to the Trust and
the other party. This Agreement will automatically terminate, without the
payment of any penalty, (i) in the event of its assignment (as defined in the
Investment Company Act), (ii) in the event the Investment Management Agreement
between the Manager and the Trust is assigned or terminates for any other
reason, or (iii) unless otherwise agreed between the Manager and Adviser, and
subject to approval of the Board of Trustees of the Trust, in the event that the
Investment Advisory Agreement, dated as of the date hereof, between the Manager
and Brown Capital is terminated for any reason. This Agreement will also
terminate upon written notice to the other party that the other party is in
material breach of this Agreement, unless the other party in material breach of
this Agreement cures such breach to the reasonable satisfaction of the party
alleging the breach within thirty (30) days after written notice.
11. PROVISION OF CERTAIN INFORMATION BY ADVISER
The Adviser will promptly notify the Manager in writing of the
occurrence of any of the following events:
A. the Adviser fails to be registered as an investment adviser under
the Advisers Act or under the laws of any jurisdiction in which the Adviser is
required to be registered as an investment adviser in order to perform its
obligations under this Agreement;
7
<PAGE>
B. the Adviser is served or otherwise receives notice of any action,
suit, proceeding, inquiry, or investigation, at law or in equity, before or by
any court, public board, or body, involving the affairs of the Trust; and/or
C. the chief executive officer or controlling stockholder of the
Adviser or the portfolio manager of the Portfolio changes or there is otherwise
an actual change in control or management of the Adviser.
12. USE OF ADVISER'S NAME
The parties agree that the name "Calvert Asset Management Company,
Inc.", the names of the Adviser's affiliates within the Calvert Group of
companies, and any derivative or logo or trademark or service mark or trade name
are the valuable property of the Adviser and its affiliates. The Manager and the
Trust shall have the right to use such name(s), derivatives, logos, trademarks
or service marks or trade names only with the prior written approval of the
Adviser, which approval shall not be unreasonably withheld or delayed so long as
this Agreement is in effect. The Adviser hereby consents to the name "Calvert
Socially Responsible Portfolio" as the designated name of the Portfolio. Upon
termination of this Agreement, the Manager and the Trust shall cease to use such
name(s), derivatives, logos, trademarks or service marks or trade names.
13. YEAR 2000 PREPAREDNESS
The Adviser warrants and represents that the Adviser has adopted a
written plan for Year 2000 compliance for the correct operation of the Adviser's
computer systems because of the approaching millennium ("Plan"), that the Plan
provides for the identification, testing and, where appropriate, upgrading of
the Adviser's computer systems, in accordance with reasonable industry
standards, so that both the Adviser's computer systems and their interfaces with
third party computer systems will function accurately and without interruption
before, during and after December 31, 1999 and that the Adviser is actively in
the process of implementing the Plan and presently has no reason to believe that
the Adviser's 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. The Adviser 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 notify the Manager and the
Trust of any Year 2000 compliance problems and the nature thereof on or before
September 1, 1999 if the Adviser determines that it is not or is not likely to
be Year 2000 compliant in a timely and efficient manner. The failure of the
Adviser to be Year 2000 compliant shall not be deemed to be a force majeure
event or provide a defense to performance hereunder.
14. AMENDMENTS TO THE AGREEMENT
Except to the extent permitted by the Investment Company Act or the
rules or regulations thereunder or pursuant to any exemptive relief granted by
the SEC, this
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<PAGE>
Agreement may be amended by the parties only if such amendment, if material, is
specifically approved by the vote of a majority of the outstanding voting
securities of the Portfolio (unless such approval is not required by Section 15
of the Investment Company Act as interpreted by the SEC or its staff) and by the
vote of a majority of the Independent Trustees cast in person at a meeting
called for the purpose of voting on such approval. The required shareholder
approval shall be effective with respect to the Portfolio if a majority of the
outstanding voting securities of the Portfolio vote to approve the amendment,
notwithstanding that the amendment may not have been approved by a majority of
the outstanding voting securities of any other Portfolio affected by the
amendment or all the portfolios of the Trust.
15. ASSIGNMENT
No assignment (as that term is defined in the Investment Company Act)
shall be made by the Adviser without the prior written consent of the Trust and
the Manager. Notwithstanding the foregoing, no assignment shall be deemed to
result from any changes in the directors, officers or employees of the Adviser
except as may be provided to the contrary in the Investment Company Act. The
Adviser agrees that it will notify the Trust and the Manager of from any changes
in the directors, officers or employees of the Adviser within a reasonable time
thereafter.
16. ENTIRE AGREEMENT
This Agreement contains the entire understanding and agreement of the
parties with respect to the Portfolio.
17. HEADINGS
The headings in the sections of this Agreement are inserted for
convenience of reference only and shall not constitute a part hereof.
18. NOTICES
All notices required to be given pursuant to this Agreement shall be
delivered or mailed to the last known business address of each applicable party
in person or by registered mail or a private mail or delivery service providing
the sender with notice of receipt. The specific person to whom notice shall be
provided for each party will be specified in writing to the other party. Notice
shall be deemed given on the date delivered or mailed in accordance with this
paragraph.
19. SEVERABILITY
Should any portion of this Agreement for any reason be held to be void
in law or in equity, the Agreement shall be construed, insofar as is possible,
as if such portion had never been contained herein.
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<PAGE>
20. GOVERNING LAW
The provisions of this Agreement shall be construed and interpreted in
accordance with the laws of the State of Delaware, or any of the applicable
provisions of the Investment Company Act. To the extent that the laws of the
State of Delaware, or any of the provisions in this Agreement, conflict with
applicable provisions of the Investment Company Act, the latter shall control.
21. INTERPRETATION
Any question of interpretation of any term or provision of this
Agreement having a counterpart in or otherwise derived from a term or provision
of the Investment Company Act shall be resolved by reference to such term or
provision of the Investment Company Act and to interpretations thereof, if any,
by the United States courts or, in the absence of any controlling decision of
any such court, by rules, regulations or orders of the SEC validly issued
pursuant to the Investment Company Act. Specifically, the terms "vote of a
majority of the outstanding voting securities," "interested persons,"
"assignment," and "affiliated persons," as used herein shall have the meanings
assigned to them by Section 2(a) of the Investment Company Act. In addition,
where the effect of a requirement of the Investment Company Act reflected in any
provision of this Agreement is relaxed by a rule, regulation or order of the
SEC, whether of special or of general application, such provision shall be
deemed to incorporate the effect of such rule, regulation or order.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers as of the date first mentioned above.
EQ FINANCIAL CONSULTANTS, INC. CALVERT ASSET MANAGEMENT
COMPANY, INC.
By: /s/ Peter D. Noris By: /s/ William Tartikopf
--------------------------- --------------------------
Peter D. Noris William Tartikopf
Executive Vice President General Counsel
10
<PAGE>
INVESTMENT ADVISORY AGREEMENT
AGREEMENT, dated as of August 30, 1999, by and between EQ Financial
Consultants, Inc., a Delaware corporation ("Manager"), and Brown Capital
Management, Inc., a Maryland corporation (the "Adviser").
WHEREAS, EQ Advisors Trust ("Trust") is registered as an investment
company under the Investment Company Act of 1940, as amended ("Investment
Company Act");
WHEREAS, the Trust's shareholders are and will be separate accounts
maintained by insurance companies for variable life insurance policies and
variable annuity contracts under which income, gains, and losses, whether or not
realized, from assets allocated to such accounts are, in accordance with such
policies and contracts, credited to or charged against such accounts without
regard to other income, gains, or losses of such insurance companies;
WHEREAS, the Trust is and will continue to be a series fund having two
or more investment portfolios, each with its own investment objectives, policies
and restrictions;
WHEREAS, the Manager is registered as an investment adviser under the
Investment Advisers Act of 1940, as amended ("Advisers Act"), and is the
investment manager to the Trust;
WHEREAS, the Adviser is registered as an investment adviser under the
Advisers Act;
WHEREAS, the Investment Company Act prohibits any person from acting as
an investment adviser to a registered investment company except pursuant to a
written contract; and
WHEREAS, the Board of Trustees of the Trust and the Manager desire that
the Manager retain the Adviser and Calvert Asset Management Company, Inc.
("Calvert") to render investment advisory services to the portfolio to be known
as the Calvert Socially Responsible Portfolio ("Portfolio") in the manner and on
the terms hereinafter set forth.
1. APPOINTMENT OF ADVISER
The Manager hereby appoints the Adviser to act as investment adviser
for the Portfolio, subject to the supervision and control of the Manager and the
Trustees of the Trust, and in accordance with the terms and conditions of this
Agreement. The Adviser will be an independent contractor and will have no
authority to act for or represent the Trust or the Manager in any way or
otherwise be deemed an agent of the Trust or the Manager except as expressly
authorized in this Agreement or another writing by the Trust, the Manager and
the Adviser.
<PAGE>
2. SERVICES TO BE RENDERED BY THE ADVISER TO THE TRUST
A. As investment adviser to the Portfolio, the Adviser, together with
Calvert, will manage the investment and reinvestment of the assets of the
Portfolio and determine the composition of the assets of the Portfolio, subject
always to the supervision and control of the Manager and the Trustees of the
Trust. Without limiting the generality of the foregoing, Calvert shall allocate
responsibilities for specific tasks relating to the Portfolio between Calvert
and the Adviser. Calvert will provide the social screening services used in
selecting each investment for the Portfolio and has the authority to deny the
purchase by the Portfolio or cause divestiture of any investments of the
Portfolio if such investment, in the sole opinion of Calvert, fails to pass the
social screens established for the Portfolio.
B. As part of the services it will provide hereunder, the Adviser will:
(i) obtain and evaluate pertinent economic, statistical,
financial, and other information affecting the economy generally and
individual companies or industries, the securities of which are
included in the Portfolio or are under consideration for inclusion in
the Portfolio;
(ii) formulate and implement a continuous investment program
for the Portfolio;
(iii) take whatever steps are necessary to implement the
investment program for the Portfolio by the purchase and sale of
securities and other investments, including, as appropriate, the
placing of orders for such purchases and sales;
(iv) keep the Trustees of the Trust and the Manager fully
informed in writing on an ongoing basis of all material facts
concerning the investment and reinvestment of the assets in the
Portfolio, the Adviser and its personnel and operations, make regular
and special written reports of such additional information concerning
the same as may reasonably be requested from time to time by the
Manager or the Trustees of the Trust and attend meetings with the
Manager and/or the Trustees, as reasonably requested, to discuss the
foregoing,
(v) provide assistance in determining the fair value of
certain portfolio securities when market quotations are not readily
available for the purpose of calculating the Portfolio's net asset
value in accordance with procedures and methods established by the
Trustees of the Trust;
(vi) provide any and all information, records and supporting
documentation about accounts the Adviser and Calvert manage together or
individually, if appropriate, that have investment objectives,
policies, and strategies substantially similar to those employed by the
Adviser and Calvert in
2
<PAGE>
managing the Portfolio which may be reasonably necessary, under
applicable laws, to allow the Portfolio or its agent to present
information concerning the Adviser's and Calvert's prior performance in
the Trust's Prospectus and SAI (as hereinafter defined) and any
permissible reports and materials prepared by the Portfolio or its
agent; and
(vii) cooperate with and provide reasonable assistance to the
Manager, the Trust administrator, the Trust's custodian and foreign
custodians, the Trust's transfer agent and pricing agents and all other
agents and representatives of the Trust and the Manager, keep all such
persons fully informed as to such matters as they may reasonably deem
necessary to the performance of their obligations to the Trust and the
Manager, provide prompt responses to reasonable requests made by such
persons and establish appropriate interfaces with each so as to promote
the efficient exchange of information.
C. In furnishing services hereunder, the Adviser shall be subject to,
and shall perform in accordance with, the Trust's Agreement and Declaration of
Trust, as the same may be hereafter modified and/or amended from time to time
("Trust Declaration"), the By-Laws of the Trust , as the same may be hereafter
modified and/or amended from time to time ("By-Laws"), the currently effective
Prospectus and Statement of Additional Information of the Trust relating to the
Portfolio filed with the Securities and Exchange Commission ("SEC"), as the same
may be hereafter modified, amended and/or supplemented ("Prospectus and SAI"),
the Investment Company Act, with the requirements applicable to both regulated
investment companies and segregated asset accounts under Subchapters M and L of
the Internal Revenue Code of 1986, as amended, all other applicable state and
federal securities and other laws, all regulations with respect to the
foregoing, the policies and procedures adopted from time to time by the Board of
Trustees of the Trust and the written instructions of the Manager. The Manager
shall provide the Adviser with current copies of the Trust Declaration, By-Laws,
and Prospectus and SAI.
D. The Adviser, at its expense, will furnish: (i) all necessary
investment and management facilities and investment personnel, including
salaries, expenses and fees of any personnel required for it to faithfully
perform its duties under this Agreement; and (ii) administrative facilities,
including bookkeeping, clerical personnel and equipment necessary for the
efficient conduct of the investment affairs of the Portfolio (excluding that
necessary for the determination of net asset value and shareholder accounting
services).
E. The Adviser, together with Calvert, will select brokers and dealers
to effect all portfolio transactions subject to the conditions set forth herein.
The Adviser, or Calvert, will place all necessary orders with brokers, dealers,
or issuers, and will negotiate brokerage commissions, if applicable. The Adviser
is directed at all times to seek to execute brokerage transactions for the
Portfolio in accordance with such policies or practices as may be established by
the Board of Trustees and described in the Trust's
3
<PAGE>
Prospectus and SAI. In placing any orders for the purchase or sale of
investments for the Portfolio, in the name of the Portfolio or its nominees,
the Adviser shall use its best efforts to obtain for the Portfolio the most
favorable price and best execution available, considering all of the
circumstances, and shall maintain records adequate to demonstrate compliance
with this requirement.
F. Subject to the appropriate policies and procedures approved by the
Board of Trustees, the Adviser, may, to the extent authorized by Section 28(e)
of the Securities Exchange Act of 1934, cause the Portfolio to pay a broker or
dealer that provides brokerage or research services to the Manager, the Adviser,
Calvert and the Portfolio an amount of commission for effecting a portfolio
transaction in excess of the amount of commission another broker or dealer would
have charged for effecting that transaction if the Adviser determines, in good
faith, that such amount of commission is reasonable in relationship to the value
of such brokerage or research services provided viewed in terms of that
particular transaction or the Adviser's or Calvert's overall responsibilities to
the Portfolio or its or their other advisory clients. To the extent authorized
by Section 28(e) and the Trust's Board of Trustees, the Adviser shall not be
deemed to have acted unlawfully or to have breached any duty created by this
Agreement or otherwise solely by reason of such action. In addition, subject to
seeking the most favorable price and best execution available, the Manager or
the Adviser may also consider sales of shares of the Trust as a factor in the
selection of brokers and dealers.
G. On occasions when the Adviser deems the purchase or sale of a
security to be in the best interest of the Portfolio as well as other clients of
the Adviser, the Adviser to the extent permitted by applicable laws and
regulations, may, but shall be under no obligation to, aggregate the securities
to be purchased or sold to attempt to obtain a more favorable price or lower
brokerage commissions and efficient execution. In such event, allocation of the
securities so purchased or sold, as well as the expenses incurred in the
transaction, will be made by the Adviser in the manner the Adviser considers to
be the most equitable and consistent with its fiduciary obligations to the
Portfolio and to its other clients.
H. The Adviser will maintain all accounts, books and records with
respect to the Portfolio as are required of an investment adviser of a
registered investment company pursuant to the Investment Company Act and
Advisers Act and the rules thereunder and shall file with the SEC all forms
pursuant to Section 13 of the Securities Exchange Act of 1934, as amended, with
respect to the discretionary management of the assets of the Portfolio.
3. COMPENSATION OF ADVISER
The Manager will pay the Adviser for its services as specified in this
Agreement an advisory fee with respect to the Portfolio at the following annual
rate: 0.25% of the average daily net assets of the Portfolio up to and including
$150 million; 0.20% of the average daily net assets of the Portfolio in excess
of $150 million and up to and including
4
<PAGE>
$300 million; and 0.175% of the average daily net assets of the Portfolio in
excess of $150 million; provided, however, that no advisory fee will be payable
by the Manager to the Adviser until the sooner of either (i) the end of the
first year of operations of the Portfolio (following its public offering) or
(ii) the end of the business day (as defined in the Prospectus and SAI) during
which the average daily net assets of the Portfolio exceeds $20 million. The
advisory fee due and payable hereunder on account of any day shall be calculated
by multiplying the net asset value of the Portfolio at the close of the
immediately preceding business day (as defined in the Prospectus and SAI) by the
applicable annual rate specified above and dividing the result by the number of
days in the year. The advisory fee due and payable hereunder on account of the
days in any calendar month shall be due and payable within ten (10) business
days following the end of such calendar month.
4. LIABILITY AND INDEMNIFICATION
(a) Except as may otherwise be provided by the Investment Company Act
or any other federal securities law, the Adviser shall not be liable for any
losses, claims, damages, liabilities or litigation (including legal and other
expenses) incurred or suffered by the Manager or the Trust as a result of any
error of judgment or mistake of law by the Adviser with respect to the
Portfolio, except that nothing in this Agreement shall operate or purport to
operate in any way to exculpate, waive or limit the liability of the Adviser
for, and the Adviser shall indemnify and hold harmless the Trust, the Manager,
all affiliated persons thereof (within the meaning of Section 2(a)(3) of the
Investment Company Act) and all controlling persons (as described in Section 15
of the Securities Act of 1933 as amended ("1933 Act") (collectively, the
"Manager Indemnitees") against any and all losses, claims, damages, liabilities
or litigation (including reasonable legal and other expenses) to which any of
the Manager Indemnities may become subject under the 1933 Act, the Investment
Company Act, the Advisers Act, or under any other statute, at common law or
otherwise arising out of or based on (a) any willful misconduct, bad faith,
reckless disregard or gross negligence of the Adviser in the performance of any
if its duties or obligations hereunder or (b) any untrue statement of a material
fact contained in the Prospectus and SAI, proxy materials, reports,
advertisements, sales literature, or other materials pertaining to the Portfolio
or the omission to state therein a material fact known to the Adviser which was
required to be stated therein or necessary to make the statements therein not
misleading, if such statement or omission was made in reliance upon information
furnished to the Manager or the Trust by an Adviser Indemnitee (as defined
below) for use therein.
(b) Except as may otherwise be provided by the Investment Company Act
or any other federal securities law, the Manager and the Trust shall not be
liable for any losses, claims, damages, liabilities or litigation (including
legal and other expenses) incurred or suffered by the Adviser as a result of any
error of judgment or mistake of law by the Manager with respect to the
Portfolio, except that nothing in this Agreement shall operate or purport to
operate in any way to exculpate, waive or limit the liability of the Manager
for, and the Manager shall indemnify and hold harmless the Adviser, all
5
<PAGE>
affiliated persons thereof (within the meaning of Section 2(a)(3) of the
Investment Company Act) and all controlling persons (as described in Section 15
of the 1933 Act) (collectively, the "Adviser Indemnitees") against any and all
losses, claims, damages, liabilities or litigation (including reasonable legal
and other expenses) to which any of the Adviser Indemnities may become subject
under the 1933 Act, the Investment Company Act, the Advisers Act, or under any
other statute, at common law or otherwise arising out of or based on (a) any
willful misconduct, bad faith, reckless disregard or gross negligence of the
Manager in the performance of any if its duties or obligations hereunder or (b)
any untrue statement of a material fact contained in the Prospectus and SAI,
proxy materials, reports, advertisements, sales literature, or other materials
pertaining to the Portfolio or the omission to state therein a material fact
known to the Manager which was required to be stated therein or necessary to
make the statements therein not misleading, unless such statement or omission
was made in reliance upon information furnished to the Manager or the Trust by
an Adviser Indemnitee for use therein.
5. NON-EXCLUSIVITY
The services of the Adviser to the Portfolio and the Trust are not to
be deemed to be exclusive, and the Adviser shall be free to render investment
advisory or other services to others (including other investment companies) and
to engage in other activities. It is understood and agreed that the directors,
officers, and employees of the Adviser are not prohibited from engaging in any
other business activity or from rendering services to any other person, or from
serving as partners, officers, directors, trustees, or employees of any other
firm or corporation, including other investment companies.
6. SUPPLEMENTAL ARRANGEMENTS
The Adviser may from time to time employ or associate with itself any
person it believes to be particularly fitted to assist it in providing the
services to be performed by the Adviser hereunder, provided that no such person
shall perform any services with respect to the Portfolio which would constitute
an assignment or require a written advisory agreement pursuant the Investment
Company Act. Any compensation payable to such persons such be the sole
responsibility of the Adviser, and neither the Manager nor the Trust shall have
any obligations with respect thereto.
7. REGULATION
The Adviser shall submit to all regulatory and administrative bodies
having jurisdiction over the services provided pursuant to this Agreement any
information, reports, or other material which any such body by reason of this
Agreement may request or require pursuant to applicable laws and regulations.
8. RECORDS
6
<PAGE>
The records relating to the services provided under this Agreement
shall be the property of the Trust and shall be under its control; however, the
Trust shall furnish to the Adviser such records and permit it to retain such
records (either in original or in duplicate form) as it shall reasonably require
in order to carry out its duties. In the event of the termination of this
Agreement, such records shall promptly be returned to the Trust by the Adviser
free from any claim or retention of rights therein. The Manager and the Adviser
shall keep confidential any information obtained in connection with its duties
hereunder and disclose such information only if the Trust has authorized such
disclosure or if such disclosure is expressly required or requested by
applicable federal or state regulatory authorities.
9. DURATION OF AGREEMENT
This Agreement shall become effective with respect to the Portfolio on
the later of the date of its execution or the date of the commencement of the
Portfolio. This Agreement will continue in effect for a period more than two
years from the date of its execution only so long as such continuance is
specifically approved at least annually by the Board of Trustees provided that
in such event such continuance shall also be approved by the vote of a majority
of the Trustees who are not "interested persons" (as defined in the Investment
Company Act) ("Independent Trustees") of any party to this Agreement cast in
person at a meeting called for the purpose of voting on such approval.
10. TERMINATION OF AGREEMENT
This Agreement may be terminated at any time, without the payment of
any penalty, by the Board of Trustees, including a majority of the Independent
Trustees, by the vote of a majority of the outstanding voting securities of the
Portfolio, on sixty (60) day's written notice to the Manager and the Adviser, or
by the Manager or Adviser on sixty (60) day's written notice to the Trust and
the other party. This Agreement will automatically terminate, without the
payment of any penalty, (i) in the event of its assignment (as defined in the
Investment Company Act) (iii) in the event the Investment Management Agreement
between the Manager and the Trust is assigned or terminates for any other
reason, or (iii) in the event that the Investment Advisory Agreement, dated as
of the date hereof, between the Manager and Calvert is terminated for any
reason. This Agreement will also terminate upon written notice to the other
party that the other party is in material breach of this Agreement, unless the
other party in material breach of this Agreement cures such breach to the
reasonable satisfaction of the party alleging the breach within thirty (30) days
after written notice.
11. PROVISION OF CERTAIN INFORMATION BY ADVISER
The Adviser will promptly notify the Manager in writing of the
occurrence of any of the following events:
7
<PAGE>
A. the Adviser fails to be registered as an investment adviser under
the Advisers Act or under the laws of any jurisdiction in which the Adviser is
required to be registered as an investment adviser in order to perform its
obligations under this Agreement;
B. the Adviser is served or otherwise receives notice of any action,
suit, proceeding, inquiry, or investigation, at law or in equity, before or by
any court, public board, or body, involving the affairs of the Trust; and/or
C. the chief executive officer or controlling stockholder of the
Adviser or the portfolio manager of the Portfolio changes or there is otherwise
an actual change in control or management of the Adviser.
12. USE OF ADVISER'S NAME
The Manager will not use the Adviser's name (or that of any affiliate)
in Trust literature without prior review and approval by the Adviser, which may
not be unreasonably withheld or delayed.
13. YEAR 2000 PREPAREDNESS
The Adviser warrants and represents that the Adviser has adopted a
written plan for Year 2000 compliance for the correct operation of the Adviser's
computer systems because of the approaching millennium ("Plan"), that the Plan
provides for the identification, testing and, where appropriate, upgrading of
the Adviser's computer systems, in accordance with reasonable industry
standards, so that both the Adviser's computer systems and their interfaces with
third party computer systems will function accurately and without interruption
before, during and after December 31, 1999 and that the Adviser is actively in
the process of implementing the Plan and presently has no reason to believe that
the Adviser's 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. The Adviser 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 notify the Manager and the
Trust of any Year 2000 compliance problems and the nature thereof on or before
September 1, 1999 if the Adviser determines that it is not or is not likely to
be Year 2000 compliant in a timely and efficient manner. The failure of the
Adviser to be Year 2000 compliant shall not be deemed to be a force majeure
event or provide a defense to performance hereunder.
14. AMENDMENTS TO THE AGREEMENT
Except to the extent permitted by the Investment Company Act or the
rules or regulations thereunder or pursuant to any exemptive relief granted by
the SEC, this Agreement may be amended by the parties only if such amendment, if
material, is specifically approved by the vote of a majority of the outstanding
voting securities of the
8
<PAGE>
Portfolio (unless such approval is not required by Section 15 of the Investment
Company Act as interpreted by the SEC or its staff) and by the vote of a
majority of the Independent Trustees cast in person at a meeting called for the
purpose of voting on such approval. The required shareholder approval shall be
effective with respect to the Portfolio if a majority of the outstanding voting
securities of the Portfolio vote to approve the amendment, notwithstanding that
the amendment may not have been approved by a majority of the outstanding voting
securities of any other Portfolio affected by the amendment or all the
portfolios of the Trust.
15. ASSIGNMENT
No assignment (as that term is defined in the Investment Company Act)
shall be made by the Adviser without the prior written consent of the Trust and
the Manager. Notwithstanding the foregoing, no assignment shall be deemed to
result from any changes in the directors, officers or employees of the Adviser
except as may be provided to the contrary in the Investment Company Act. The
Adviser agrees that it will notify the Trust and the Manager of from any changes
in the directors, officers or employees of the Adviser within a reasonable time
thereafter.
16. ENTIRE AGREEMENT
This Agreement contains the entire understanding and agreement of the
parties with respect to the Portfolio.
17. HEADINGS
The headings in the sections of this Agreement are inserted for
convenience of reference only and shall not constitute a part hereof.
18. NOTICES
All notices required to be given pursuant to this Agreement shall be
delivered or mailed to the last known business address of each applicable party
in person or by registered mail or a private mail or delivery service providing
the sender with notice of receipt. The specific person to whom notice shall be
provided for each party will be specified in writing to the other party. Notice
shall be deemed given on the date delivered or mailed in accordance with this
paragraph.
19. SEVERABILITY
Should any portion of this Agreement for any reason be held to be void
in law or in equity, the Agreement shall be construed, insofar as is possible,
as if such portion had never been contained herein.
20. GOVERNING LAW
9
<PAGE>
The provisions of this Agreement shall be construed and interpreted in
accordance with the laws of the State of Delaware, or any of the applicable
provisions of the Investment Company Act. To the extent that the laws of the
State of Delaware, or any of the provisions in this Agreement, conflict with
applicable provisions of the Investment Company Act, the latter shall control.
21. INTERPRETATION
Any question of interpretation of any term or provision of this
Agreement having a counterpart in or otherwise derived from a term or provision
of the Investment Company Act shall be resolved by reference to such term or
provision of the Investment Company Act and to interpretations thereof, if any,
by the United States courts or, in the absence of any controlling decision of
any such court, by rules, regulations or orders of the SEC validly issued
pursuant to the Investment Company Act. Specifically, the terms "vote of a
majority of the outstanding voting securities," "interested persons,"
"assignment," and "affiliated persons," as used herein shall have the meanings
assigned to them by Section 2(a) of the Investment Company Act. In addition,
where the effect of a requirement of the Investment Company Act reflected in any
provision of this Agreement is relaxed by a rule, regulation or order of the
SEC, whether of special or of general application, such provision shall be
deemed to incorporate the effect of such rule, regulation or order.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers as of the date first mentioned above.
EQ FINANCIAL CONSULTANTS, INC. BROWN CAPITAL MANAGEMENT, INC.
By: /s/ Peter D. Noris By: /s/ Eddie C. Brown
--------------------------- ------------------------------------
Peter D. Noris Eddie C. Brown
Executive Vice President President
10
<PAGE>
FORM OF OPINION AND CONSENT OF COUNSEL
August 30, 1999
EQ Advisors Trust
1290 Avenue of the Americas
New York, New York 10104
Dear Ladies and Gentlemen:
This opinion is given in connection with the filing by EQ Advisors
Trust, a Delaware business trust ("Trust"), of Post-Effective Amendment No. 13
to the Registration Statement on Form N-1A ("Registration Statement") under the
Securities Act of 1933 ("1933 Act") and Amendment No. 15 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 fifteen 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, Alliance International, and Calvert Socially
Responsible Portfolio (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 ("PEA") No. 1 to the
Registration Statement on filed August 28, 1997, PEA No. 2 to the Registration
Statement filed October 15, 1997; PEA No. 3 to the Registration Statement filed
October 31, 1997; PEA No. 4 to the Registration Statement filed December 29,
1997, PEA No. 5 to the Registration Statement filed March 5, 1998; PEA No. 6 to
the Registration Statement filed April 22, 1998; PEA No. 7 to the Registration
Statement filed October 15, 1998; PEA No. 8 to the Registration Statement filed
February 16, 1999, PEA No. 9 to the Registration Statement filed February 16,
1999; PEA No. 10 to the Registration Statement filed April 29, 1999; PEA No. 11
to the Registration Statement filed May 27, 1999; and PEA No. 12 to the
Registration Statement filed June 10, 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.
<PAGE>
Based on such examination, we are of the opinion that:
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,
/s/ Dechert Price & Rhoads
DECHERT PRICE & RHOADS
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 13 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 are also incorporated by
reference into the Registration Statement. We also consent to the reference to
us under the heading "Financial Highlights" in the Prospectuses and under the
heading "Other Services-Independent Accountant" in the Statement of Additional
Information.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
August 27, 1999
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 13 to the registration statement on Form N-1A of EQ Advisors Trust
(the "Registration Statement") of our report dated February 8, 1999, relating to
the financial statements and financial highlights appearing in the December 31,
1998 Annual Report to Shareholders of The Hudson River Trust. We also consent to
the references to us under the heading "Financial Highlights" in such
Prospectuses and to the reference to us under the heading "Other Services -
Independent Accountant" in such Statement of Additional Information.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
August 27, 1999
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<NAME> EQ ADVISORS TRUST
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<NAME> MERRILL LYNCH BASIC VALUE EQUITY PORTFOLIO
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<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 178,491,483
<INVESTMENTS-AT-VALUE> 178,204,274
<RECEIVABLES> 1,459,837
<ASSETS-OTHER> 936
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<OTHER-ITEMS-LIABILITIES> 4,308,752
<TOTAL-LIABILITIES> 9,575,208
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<PAID-IN-CAPITAL-COMMON> 174,475,456
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<SHARES-COMMON-PRIOR> 4,273,605
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<ACCUM-APPREC-OR-DEPREC> (287,209)
<NET-ASSETS> 174,104,203
<DIVIDEND-INCOME> 1,561,724
<INTEREST-INCOME> 1,005,517
<OTHER-INCOME> 31,782
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<NET-INVESTMENT-INCOME> 1,620,403
<REALIZED-GAINS-CURRENT> 5,652,703
<APPREC-INCREASE-CURRENT> (239,779)
<NET-CHANGE-FROM-OPS> 7,033,327
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,645,626)
<DISTRIBUTIONS-OF-GAINS> (5,704,532)
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<NUMBER-OF-SHARES-REDEEMED> (3,467,476)
<SHARES-REINVESTED> 600,506
<NET-CHANGE-IN-ASSETS> 124,609,159
<ACCUMULATED-NII-PRIOR> 12,476
<ACCUMULATED-GAINS-PRIOR> (23,202)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 632,783
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,214,788
<AVERAGE-NET-ASSETS> 115,066,308
<PER-SHARE-NAV-BEGIN> 11.58
<PER-SHARE-NII> 0.12
<PER-SHARE-GAIN-APPREC> 1.21
<PER-SHARE-DIVIDEND> (.12)
<PER-SHARE-DISTRIBUTIONS> (.43)
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<EXPENSE-RATIO> 0.85
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<CIK> 0001027263
<NAME> EQ ADVISORS TRUST
<SERIES>
<NUMBER> 11
<NAME> MERRILL LYNCH WORLD STRATEGY PORTFOLIO
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 27,988,402
<INVESTMENTS-AT-VALUE> 30,464,229
<RECEIVABLES> 289,793
<ASSETS-OTHER> 212
<OTHER-ITEMS-ASSETS> 3,565,190
<TOTAL-ASSETS> 34,319,424
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,688,462
<TOTAL-LIABILITIES> 3,688,462
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 29,940,774
<SHARES-COMMON-STOCK> 2,802,280
<SHARES-COMMON-PRIOR> 1,765,917
<ACCUMULATED-NII-CURRENT> (117,119)
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<NAME> EQ ADVISORS TRUST
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<NAME> EQ ADVISORS TRUST
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<NUMBER-OF-SHARES-SOLD> 2,524,430
<NUMBER-OF-SHARES-REDEEMED> (142,092)
<SHARES-REINVESTED> 76,456
<NET-CHANGE-IN-ASSETS> 144,468,708
<ACCUMULATED-NII-PRIOR> 2,001
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<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,000,224
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,884,780
<AVERAGE-NET-ASSETS> 182,822,296
<PER-SHARE-NAV-BEGIN> 13.22
<PER-SHARE-NII> 0.06
<PER-SHARE-GAIN-APPREC> (0.09)
<PER-SHARE-DIVIDEND> (0.24)
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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> 011
<NAME> T. ROWE PRICE EQUITY INCOME PORTFOLIO, CLASS 1B
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<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
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<INVESTMENTS-AT-COST> 234,198,903
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<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 10,308,991
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<INTEREST-INCOME> 684,439
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<EXPENSES-NET> (1,545,834)
<NET-INVESTMENT-INCOME> 3,995,399
<REALIZED-GAINS-CURRENT> 5,426,850
<APPREC-INCREASE-CURRENT> 4,862,976
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<DISTRIBUTIONS-OF-INCOME> (3,933,650)
<DISTRIBUTIONS-OF-GAINS> (5,062,958)
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<NUMBER-OF-SHARES-SOLD> 13,571,713
<NUMBER-OF-SHARES-REDEEMED> (3,466,621)
<SHARES-REINVESTED> 723,375
<NET-CHANGE-IN-ASSETS> 144,468,708
<ACCUMULATED-NII-PRIOR> 2,001
<ACCUMULATED-GAINS-PRIOR> 91,125
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,000,224
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,884,780
<AVERAGE-NET-ASSETS> 182,822,296
<PER-SHARE-NAV-BEGIN> 12.08
<PER-SHARE-NII> 0.22
<PER-SHARE-GAIN-APPREC> 0.87
<PER-SHARE-DIVIDEND> (0.22)
<PER-SHARE-DISTRIBUTIONS> (0.28)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.67
<EXPENSE-RATIO> 0.85
[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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<NAME> EQ ADVISORS TRUST
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<NUMBER> 02
<NAME> T. ROWE PRICE INTERNATIONAL STOCK PORTFOLIO
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<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
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<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 114,376,426
<INVESTMENTS-AT-VALUE> 123,442,396
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<SENIOR-LONG-TERM-DEBT> 0
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<ACCUM-APPREC-OR-DEPREC> 9,070,359
<NET-ASSETS> 134,653,337
<DIVIDEND-INCOME> 1,646,765
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<REALIZED-GAINS-CURRENT> (1,331,394)
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<NET-CHANGE-FROM-OPS> 12,064,665
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,135,514)
<DISTRIBUTIONS-OF-GAINS> (1,173)
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<NUMBER-OF-SHARES-SOLD> 16,778,911
<NUMBER-OF-SHARES-REDEEMED> (12,323,215)
<SHARES-REINVESTED> 104,054
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<ACCUMULATED-NII-PRIOR> (20,377)
<ACCUMULATED-GAINS-PRIOR> (225,339)
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<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 788,805
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,478,305
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<PER-SHARE-NAV-BEGIN> 9.85
<PER-SHARE-NII> 0.06
<PER-SHARE-GAIN-APPREC> 1.28
<PER-SHARE-DIVIDEND> (0.07)
<PER-SHARE-DISTRIBUTIONS> (0.02)
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<PER-SHARE-NAV-END> 11.10
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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>
<NUMBER> 101
<NAME> WARBURG PINCUS SMALL COMPANY VALUE PORTFOLIO - CLASS IB
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
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<INVESTMENTS-AT-COST> 166,971,230
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<RECEIVABLES> 1,369,955
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<PAID-IN-CAPITAL-COMMON> 187,720,498
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<EXPENSES-NET> (1,557,659)
<NET-INVESTMENT-INCOME> 736,249
<REALIZED-GAINS-CURRENT> (19,257,182)
<APPREC-INCREASE-CURRENT> 56,703
<NET-CHANGE-FROM-OPS> (18,464,230)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (643,796)
<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-REDEEMED> (4,636,677)
<SHARES-REINVESTED> 76,073
<NET-CHANGE-IN-ASSETS> 46,613,579
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<ACCUMULATED-GAINS-PRIOR> 1,485,832
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<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,012,129
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,831,218
<AVERAGE-NET-ASSETS> 155,597,667
<PER-SHARE-NAV-BEGIN> 11.85
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> (1.24)
<PER-SHARE-DIVIDEND> (0.04)
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<PER-SHARE-NAV-END> 10.61
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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>
<NUMBER> 102
<NAME> WARBURG PINCUS SMALL COMPANY VALUE PORTFOLIO - CLASS IA
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> NOV-24-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 166,971,230
<INVESTMENTS-AT-VALUE> 167,467,416
<RECEIVABLES> 1,369,955
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<SENIOR-LONG-TERM-DEBT> 0
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<PAID-IN-CAPITAL-COMMON> 187,720,498
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<NUMBER-OF-SHARES-REDEEMED> (7,045)
<SHARES-REINVESTED> 345
<NET-CHANGE-IN-ASSETS> 46,613,579
<ACCUMULATED-NII-PRIOR> (28)
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<PER-SHARE-NAV-BEGIN> 10.40
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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> 09
<NAME> MORGAN STANLEY EMERGING MARKETS EQUITY PORTFOLIO
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<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
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<INVESTMENTS-AT-COST> 38,914,579
<INVESTMENTS-AT-VALUE> 36,389,482
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<ACCUMULATED-NII-CURRENT> (35,802)
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<ACCUM-APPREC-OR-DEPREC> (2,625,040)
<NET-ASSETS> 41,359,222
<DIVIDEND-INCOME> 602,417
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<EXPENSES-NET> (573,509)
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<REALIZED-GAINS-CURRENT> (10,376,643)
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<NUMBER-OF-SHARES-SOLD> 14,735,898
<NUMBER-OF-SHARES-REDEEMED> (10,307,350)
<SHARES-REINVESTED> 26,892
<NET-CHANGE-IN-ASSETS> 19,926,591
<ACCUMULATED-NII-PRIOR> 33,290
<ACCUMULATED-GAINS-PRIOR> (380,622)
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<GROSS-ADVISORY-FEES> 364,795
<INTEREST-EXPENSE> 17,812
<GROSS-EXPENSE> 833,187
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<PER-SHARE-NAV-BEGIN> 7.96
<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>
<NUMBER> 13
<NAME> BT EQUITY 500 INDEX PORTFOLIO
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
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<INVESTMENTS-AT-COST> 214,993,662
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<NUMBER-OF-SHARES-REDEEMED> (2,017,457)
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<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
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<OVERDIST-NET-GAINS-PRIOR> 0
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<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 694,170
<AVERAGE-NET-ASSETS> 84,094,065
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.06
<PER-SHARE-GAIN-APPREC> 2.45
<PER-SHARE-DIVIDEND> (0.06)
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<PER-SHARE-NAV-END> 12.45
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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>
<NUMBER> 142
<NAME> BT INTERNATIONAL EQUITY INDEX PORTFOLIO - CLASS IA
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<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1998
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<NUMBER-OF-SHARES-SOLD> 112,153
<NUMBER-OF-SHARES-REDEEMED> (50,836)
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<NET-CHANGE-IN-ASSETS> 48,809,340
<ACCUMULATED-NII-PRIOR> 0
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<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 98,039
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 417,015
<AVERAGE-NET-ASSETS> 28,411,242
<PER-SHARE-NAV-BEGIN> 11.67
<PER-SHARE-NII> 0.03
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<PER-SHARE-DIVIDEND> (0.17)
<PER-SHARE-DISTRIBUTIONS> 0
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<PER-SHARE-NAV-END> 11.84
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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.
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<PAGE>
<ARTICLE> 6
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<NAME> EQ ADVISORS TRUST
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<NAME> BT INTERNATIONAL EQUITY INDEX PORTFOLIO - CLASS IB
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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.
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<PAGE>
<ARTICLE> 6
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<NAME> BT SMALL COMPANY INDEX PORTFOLIO
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<S> <C>
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<NUMBER-OF-SHARES-REDEEMED> (156,037)
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<ACCUMULATED-NII-PRIOR> 0
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<GROSS-EXPENSE> 330,361
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<PER-SHARE-NII> 0.07
<PER-SHARE-GAIN-APPREC> (0.30)
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<PER-SHARE-NAV-END> 9.56
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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>
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<CIK> 0001027263
<NAME> EQ ADVISORS TRUST
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<NAME> JPM CORE BOND PORTFOLIO
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<NUMBER-OF-SHARES-REDEEMED> (416,891)
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<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.21
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<PER-SHARE-NAV-END> 10.57
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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> LAZARD LARGE CAP VALUE PORTFOLIO
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<S> <C>
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<NET-CHANGE-IN-ASSETS> 74,586,649
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<OVERDIST-NET-GAINS-PRIOR> 0
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<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> (0.06)
<PER-SHARE-GAIN-APPREC> 1.94
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<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.94
<EXPENSE-RATIO> 0.90
[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>
<NUMBER> 18
<NAME> LAZARD SMALL CAP VALUE PORTFOLIO
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
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<NUMBER-OF-SHARES-SOLD> 5,784,545
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<NET-CHANGE-IN-ASSETS> 51,044,665
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<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 375,492
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<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.02
<PER-SHARE-GAIN-APPREC> (0.72)
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<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.27
<EXPENSE-RATIO> 1.20
[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>
<NUMBER> 19
<NAME> EQ/EVERGREEN FOUNDATION PORTFOLIO
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<S> <C>
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<PER-SHARE-NAV-END> 10.00
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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>
<NUMBER> 20
<NAME> EQ/EVERGREEN PORTFOLIO
<MULTIPLIER> 1
<S> <C>
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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>
<NUMBER> 21
<NAME> MFS GROWTH WITH INCOME PORTFOLIO
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<S> <C>
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<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
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<NUMBER-OF-SHARES-SOLD> 100
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<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 1,000
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<GROSS-EXPENSE> 0
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<PER-SHARE-NAV-BEGIN> 10.00
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<PER-SHARE-NAV-END> 10.00
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[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0001027263
<NAME> THE HUDSON RIVER TRUST
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<NUMBER> 041
<NAME> ALLIANCE AGGRESSIVE STOCK PORTFOLIO - CLASS IA
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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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<NAME> THE HUDSON RIVER TRUST
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<NAME> ALLIANCE QUALITY BOND PORTFOLIO - CLASS IA
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<NAME> THE HUDSON RIVER TRUST
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<NAME> ALLIANCE QUALITY BOND PORTFOLIO - CLASS IB
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<NAME> THE HUDSON RIVER TRUST
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<NAME> ALLIANCE SMALL CAP GROWTH PORTFOLIO - CLASS IA
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
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<NAME> THE HUDSON RIVER TRUST
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<NAME> ALLIANCE SMALL CAP GROWTH PORTFOLIO - CLASS IB
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<PAGE>
POWER OF ATTORNEY
The undersigned Officer of EQ Advisors Trust (the "Trust"), whose
signature appears below, hereby makes, constitutes and appoints Peter D. Noris,
Mary Joan Hoene, Esq. and Jane A. Kanter, Esq. and each of them acting
individually, to be his true and lawful attorneys and agents, each of them with
the power to act without any other and with full power of substitution, to
execute, deliver and file in the undersigned capacity as shown below, any and
all instruments that said attorneys and agents may deem necessary or advisable
to enable the Trust to comply with the Securities Act of 1933, as amended,
including any and all amendments to the Trust's registration statement, and any
rules, regulations, orders or other requirements of the Securities and Exchange
Commission thereunder in connection with the registration of shares or
additional shares of beneficial interest of the Trust or any of its series or
classes thereof, and the registration of the Trust or any of its series under
the Investment Company Act of 1940, as amended, including any and all amendments
to the Trust's registration statement; and without limitation of the foregoing,
the power and authority to sign said Officer's name on his behalf, and said
Officer hereby grants to said attorney or attorneys, full power and authority to
do and perform each and every act and thing whatsoever as said attorney or
attorneys may deem necessary or advisable to carry out fully the intent of this
Power of Attorney to the same extent and with the same effect as of said Officer
might or could do personally in his capacity as aforesaid and said Officer
ratifies, confirms and approves all acts and things which said attorney or
attorneys might do or cause to be done by virtue of this Power of Attorney and
his signature as the same may be signed by said attorney or attorneys.
Signature Title Date
- --------- ----- ----
/s/ Steven M. Joenk Vice President August 27, 1999
- --------------------------- Chief Financial Officer
Steven M. Joenk
