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Filed Pursuant to Rule 497(c)
Registration File No.: 333-17217
1
EQ Advisors Trust(SM)
PROSPECTUS DATED MAY 1, 2000
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This Prospectus describes the fourteen (14) Portfolios** offered by EQ Advisors
Trust and the Class IA or 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.
DOMESTIC PORTFOLIOS FIXED INCOME PORTFOLIOS
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EQ/Aggressive Stock* Alliance High Yield
Alliance Common Stock Alliance Intermediate Government Securities
Alliance Growth and Income Alliance Money Market
BT Equity 500 Index
Lazard Small Cap Value BALANCED/HYBRID PORTFOLIOS
MFS Emerging Growth Companies --------------------------
EQ/Balanced*
Alliance Conservative Investors
INTERNATIONAL STOCK PORTFOLIOS Alliance Growth Investors
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Alliance Global
T. Rowe Price International Stock
* Effective May 1, 2000, the name of the Alliance Aggressive Stock
Portfolio was changed to the "EQ/Aggressive Stock Portfolio" and the
Alliance Balanced Portfolio was changed to the "EQ/Balanced Portfolio."
** All of these Portfolios may not be available in your variable life or
annuity product. Please consult your product prospectus to see which
Portfolios are available under your contract.
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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.
Version 16
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2
Overview
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EQ ADVISORS TRUST
This Prospectus tells you about the fourteen (14) current Portfolios of EQ
Advisors Trust ("Trust") and the Class IA or 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
Lazard Small Cap Value Portfolio is diversified for purposes of the Investment
Company Act of 1940, as amended ("1940 Act").
The Trust's shares are currently sold only to insurance company separate
accounts in connection with variable life insurance contracts and variable
annuity certificates and contracts (the "Contract" or collectively, the
"Contracts") issued by The Equitable Life Assurance Society of the United States
("Equitable") and Equitable of Colorado, Inc. ("EOC") as well as insurance
companies that are not affiliated with Equitable or EOC ("non-affiliated
insurance companies") and 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.
Equitable currently serves as the Manager of the Trust. In such capacity,
Equitable currently has overall responsibility for the general management and
administration of the Trust.
Information about the Advisers 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
new or additional Advisers for each of the Trust's Portfolios; (ii) enter into
new investment advisory agreements and materially modify existing investment
advisory agreements; and (iii) terminate and replace the Advisers.
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Table of contents
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1 SUMMARY INFORMATION CONCERNING EQ ADVISORS TRUST 4
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2 ABOUT THE INVESTMENT PORTFOLIOS 10
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DOMESTIC PORTFOLIOS 13
EQ/Aggressive Stock 13
Alliance Common Stock 16
Alliance Growth and Income 19
BT Equity 500 Index 22
Lazard Small Cap Value 24
MFS Emerging Growth Companies 26
INTERNATIONAL STOCK PORTFOLIOS 28
Alliance Global 28
T. Rowe Price International Stock 31
FIXED INCOME PORTFOLIO 34
Alliance High Yield 34
Alliance Intermediate Government Securities 38
Alliance Money Market 42
BALANCED/HYBRID PORTFOLIOS 45
EQ/Balanced 45
Alliance Conservative Investors 50
Alliance Growth Investors 54
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3 MORE INFORMATION ON PRINCIPAL RISKS 57
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4 MANAGEMENT OF THE TRUST 63
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The Trust 63
The Manager 63
Expense Limitation Agreement 65
The Advisers 66
The Administrator 66
The Transfer Agent 66
Brokerage Practices 66
Brokerage Transactions with Affiliates 67
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5 FUND DISTRIBUTION ARRANGEMENTS 68
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6 PURCHASE AND REDEMPTION 69
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7 HOW ASSETS ARE VALUED 70
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8 TAX INFORMATION 71
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9 FINANCIAL HIGHLIGHTS 72
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10 PRIOR PERFORMANCE OF EACH ADVISER 86
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1 Summary information concerning EQ Advisors Trust
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The following chart highlights the fourteen (14) Portfolios described in this
Prospectus that you can choose as investment alternatives under your Contracts
offered by Equitable or EOC. 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 57.
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EQ ADVISORS TRUST DOMESTIC PORTFOLIOS
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PORTFOLIO INVESTMENT OBJECTIVE(S)
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EQ/AGGRESSIVE STOCK Seeks to achieve long-term growth
of capital
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ALLIANCE COMMON STOCK Seeks to achieve long-term growth
of capital and increased income
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ALLIANCE GROWTH AND INCOME Seeks to provide a high total
return through a combination of
current income and capital
appreciation by investing primarily
in income-producing common stocks
and securities convertible into
common stocks
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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
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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
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MFS EMERGING GROWTH COMPANIES Seeks to provide long-term capital
growth
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5
<TABLE>
<CAPTION>
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PRINCIPAL INVESTMENT STRATEGIES PRINCIPAL RISKS
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<S> <C>
Stocks and other equity securities of small and General investment, small-cap and mid-cap company,
medium-sized companies (including securities of growth investing, leveraging, derivatives, liquidity,
companies in cyclical industries, companies whose securities lending, and foreign securities 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)
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Stocks and other equity securities (including preferred General investment, foreign securities, leveraging,
stocks or convertible debt) and fixed income securities derivatives, convertible securities, small-cap and mid-cap
(including junk bonds), foreign securities, derivatives, and company, junk bond, securities lending, and fixed income
securities lending risks
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Stocks and securities convertible into stocks (including junk General investment, convertible securities, leveraging,
bonds) derivatives, foreign securities, junk bond, and fixed income
risks
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Common stocks of companies in the S&P 500 Index General investment, index-fund, and fixed income risks
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Equity securities of small-cap U.S. companies in the range General investment, small-cap and mid-cap company,
of companies included in the Russell 2000 Index that the value investing, non-diversification, and fixed income risks
Adviser believes are undervalued based on their return on
equity or capital
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Equity securities of emerging growth companies with the General investment, small-cap and mid-cap company,
potential to become major enterprises or that are major foreign securities, and growth investing risks
enterprises whose rates of earnings growth are expected to
accelerate
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</TABLE>
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EQ ADVISORS TRUST INTERNATIONAL STOCK PORTFOLIOS
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PORTFOLIO INVESTMENT OBJECTIVE(S)
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ALLIANCE GLOBAL Seeks long-term growth of capital
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T. ROWE PRICE INTERNATIONAL STOCK Seeks long-term growth of capital
through investment primarily in
common stocks of established
non-U.S. companies
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ALLIANCE HIGH YIELD Seeks to achieve a high return by
maximizing current income and, to
the extent consistent with that
objective, capital appreciation
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ALLIANCE INTERMEDIATE GOVERNMENT SECURITIES 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
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ALLIANCE MONEY MARKET Seeks to obtain a high level of
current income, preserve its assets
and maintain liquidity
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<TABLE>
<CAPTION>
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PRINCIPAL INVESTMENT STRATEGIES PRINCIPAL RISKS
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Equity securities of U.S. and established foreign companies General investment, foreign securities, liquidity, derivatives,
(including shares of other mutual funds investing in foreign securities lending, and fixed income risks
securities), debt securities, derivatives, and securities
lending
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Common stocks of established foreign companies General investment, foreign securities, liquidity, and
derivatives risks
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High yield debt securities rated BB/Ba or below or unrated General investment, fixed income, leveraging, loan
securities of comparable quality ("junk bonds"), common participation and assignment, derivatives, liquidity, junk
stocks and other equity securities, foreign securities, bond, foreign securities, small-cap and mid-cap company,
derivatives, and securities lending and securities lending risks
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Securities issued or guaranteed by the U.S. Government, General investment, fixed income, leveraging, derivatives,
including repurchase agreements and forward and securities lending risks
commitments related to U.S. Government securities, debt
securities of non-governmental issuers that own
mortgages, short sales, the purchase or sale of securities
on a when-issued or delayed delivery basis, derivatives,
and securities lending
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High quality U.S. dollar-denominated money market General investment, money market, leveraging, foreign
instruments (including foreign securities) and securities securities, and securities lending risks
lending
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</TABLE>
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EQ ADVISORS TRUST BALANCED/HYBRID PORTFOLIOS
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PORTFOLIO INVESTMENT OBJECTIVE(S)
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EQ/BALANCED Seeks to achieve a high return
through both appreciation
of capital and current income
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ALLIANCE CONSERVATIVE INVESTORS Seeks to achieve a high total
return without, in the opinion
of the Adviser, undue risk to
principal
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ALLIANCE GROWTH INVESTORS Seeks to achieve the highest
total return consistent with
the Adviser's determination of
reasonable risk
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<TABLE>
<CAPTION>
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PRINCIPAL INVESTMENT STRATEGIES PRINCIPAL RISKS
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Debt and equity securities, money market instruments, General investment, asset allocation, fixed income,
foreign securities, derivatives, and securities lending derivatives, leveraging, liquidity, securities lending,
portfolio turnover, and foreign securities risks
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Investment grade debt securities and equity securities of General investment, asset allocation, fixed income,
U.S. and foreign issuers, derivatives, and securities lending derivatives, convertible securities, liquidity, leveraging,
securities lending, portfolio turnover, and foreign securities
risks
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Equity securities (including foreign stocks, preferred stocks, General investment, asset allocation, fixed income,
convertible securities, securities of small and medium-sized leveraging, derivatives, liquidity, convertible securities,
companies) and debt securities (including foreign debt small-cap and mid-cap company, securities lending, junk
securities and junk bonds), derivatives, and securities bond, portfolio turnover, and foreign securities risks
lending
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</TABLE>
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2 About the investment portfolios
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This section of the Prospectus provides a more complete description of the
principal investment objectives, strategies, and risks of each of the
Portfolios. Of course, 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.
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. 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 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.
THE CREDIT SUISSE FIRST BOSTON GLOBAL HIGH YIELD INDEX ("CSFB Index") has been
maintained since January 1986 and has several modules representing different
sectors of the high yield market, including a cash paying module, a pay-in-kind
module, and a default module. The CSFB Index is priced weekly and can be sorted
by industry, rating, seniority, liquidity, country of issue, price, yield and
spread.
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).
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THE LEHMAN GOVERNMENT/CORPORATE BOND INDEX ("Lehman Gov't/Corp") represents an
unmanaged group of securities widely regarded by investors as representative of
the bond market.
THE 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 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, Australasia and the Far East.
MSCI EAFE Index returns assume dividends reinvested net of withholding taxes and
do not reflect any fees or expenses.
THE MORGAN STANLEY CAPITAL INTERNATIONAL EMERGING MARKETS FREE INDEX ("MSCI
EMF") is a market capitalization weighted equity index composed of companies
that are representative of the market structure of the following 25 countries:
Argentina, Brazil Free, Chile, China Free, Colombia, Czech Republic, Greece,
Hungary, India, Indonesia Free, Israel, Jordan, Korea, Mexico Free, Pakistan,
Peru, Philippines Free, Poland, Russia, South Africa, Sri Lanka, Taiwan,
Thailand Free, Turkey and Venezuela. "Free" MSCI indices excludes those shares
not purchasable by foreign investors.
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 INDEX ("Russell 2000") is an unmanaged index which tracks the
performance of 2,000 publicly-traded U.S. stocks. It is often used to indicate
the performance of smaller company stocks. It is compiled by the Frank Russell
Company.
THE RUSSELL 2000 GROWTH INDEX ("Russell 2000 Growth") is an unmanaged index
which measures the performance of those companies in the Russell 2000 Index with
higher price-to-book ratios and higher forecasted growth than other companies in
the Russell 2000 Index. It is compiled by the Frank Russell Company.
THE STANDARD & POOR'S 500 COMPOSITE STOCK PRICE INDEX ("S&P 500") is an
unmanaged weighted 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 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.
THE LIPPER AVERAGES are contained in Lipper's survey of the performance of funds
underlying a large universe of
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12
variable life and annuity contracts, where performance averages are based on net
asset values which reflect the deduction of investment management fees and
direct operating expenses, and, for funds with Rule 12b-1 plans, asset-based
sales charges. This survey is published by Lipper Analytical Services, Inc., a
firm recognized for its reporting of performance of actively managed funds.
Performance data shown for the portfolios does not reflect the deduction of any
insurance-related expenses (which are assessed at the contract-level).
"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. We believe
that these indices reflect more closely the market sectors in which certain
Portfolios invest.
50% S&P 400 MIDCAP INDEX/50% RUSSELL 2000 INDEX is made up of 50% of the S&P 400
Index, which 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; and 50% of the Russell 2000 Index, which is an
unmanaged index which tracks the performance of 2,000 publicly-traded U.S.
stocks.
50% S&P 500 INDEX/50% LEHMAN GOV'T/CORP. INDEX is made up of 50% of the S&P 500
Index, which is an unmanaged weighted 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, and 50% of the Lehman Government/Corporate Index, which
represents an unmanaged group of securities widely regarded by investors as
representative of the bond market.
75% S&P 500 INDEX/25% VALUE LINE CONVERTIBLE INDEX is made up of 75% of the S&P
500 Index, which is an unmanaged weighted 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, and 25% of the Value Line Convertible Index, which is
comprised of 585 of the most actively traded convertible bonds and preferred
stocks on an unweighted basis.
70% S&P 500 INDEX/30% LEHMAN GOV'T/CORP. INDEX is made up of 70% of the S&P 500
Index, which is an unmanaged weighted 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, and 30% of the Lehman Government/Corporate Index, which
represents an unmanaged group of securities widely regarded by investors as
representative of the bond market.
70% LEHMAN TREASURY/30% S&P 500 INDEX is made up of 70% of the Lehman Treasury
Bond Index, which 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, and 30% of the S&P 500 Index, which is an
unmanaged weighted 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.
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DOMESTIC PORTFOLIOS
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EQ/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 appreciation 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), companies stocks whose growth prospects
are not recognized by the market and less widely known companies.
The Portfolio may also invest up to 25% of its total assets in foreign
securities and may also make use of various other investment strategies, (e.g.,
investments in debt securities, making secured loans of its 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 of
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:
MULTIPLE-ADVISER RISK: The EQ/Aggressive Stock Portfolio employs multiple
Advisers. Each of the Advisers independently chooses and maintains a portfolio
of common stocks for the Portfolio and each is responsible for investing a
specific allocated portion of the Portfolio's assets. Because each Adviser will
be managing its allocated portion of the Portfolio independently from the other
Advisers, the same security may be held in two different portions of the
Portfolio, or may be acquired for one portion of the Portfolio at a time when
the Adviser of another portion deems it appropriate to dispose of the security
from that other portion. Similarly, under some market conditions, one Adviser
may believe that temporary, defensive investments in short-term instruments or
cash are appropriate when the other Adviser or Advisers believe continued
exposure to the equity markets is appropriate for their portions of the
Portfolio. Because each Adviser directs the trading for its own portion of the
Portfolio, and does not aggregate its transactions with those of the other
Advisers, the Portfolio may incur higher brokerage costs than would be the case
if a single Adviser were managing the entire Portfolio.
GROWTH INVESTING RISK: Certain of the Advisers for this Portfolio may use 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:
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14
DOMESTIC PORTFOLIOS (CONTINUED)
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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 or 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.
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; 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 principally the performance of its
predecessor registered investment company (HRT/Alliance Aggressive Stock
Portfolio) managed by Alliance 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 is January 27, 1986. The assets
of the predecessor were transferred to the Portfolio on October 18, 1999.
Following that transfer, the performance shown (for the period October 19, 1999
through December 31, 1999) is that of the Portfolio. For these purposes, the
performance results of the Portfolio and its predecessor registered investment
company have been linked.
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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15
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CALENDAR YEAR ANNUAL TOTAL RETURN
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1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
8.2% 86.9% -3.2% 16.8% 3.8% 31.4% 22.2% 10.9% 0.3% 18.84%
Best quarter (% and time period) Worst quarter (% and time period)
40.10% (1991 1st Quarter) (27.19)% (1998 3rd Quarter)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
ONE YEAR FIVE YEARS TEN YEARS
- --------------------------------------------------------------------------------
EQ/Aggressive Stock Portfolio -
Class IA Shares 18.84% 16.29% 16.68%
- --------------------------------------------------------------------------------
50% S&P 400 MidCap
Index/50% Russell 2000*, ** 18.09% 19.92% 15.41%
- --------------------------------------------------------------------------------
S&P 400 MidCap Index* 14.72% 23.05% 17.32%
- --------------------------------------------------------------------------------
Lipper MidCap Growth Funds
Average** 46.25% 22.54% 16.19%
- --------------------------------------------------------------------------------
* For more information on this index, see the preceding section "The
Benchmarks."
** We believe that this index reflects more closely the market sectors in
which the Portfolio invests.
WHO MANAGES THE PORTFOLIO
In accordance with the Multi-Manager Order, the Manager may, among other things,
select new or additional Advisers for the Portfolio and may allocate and
re-allocate the Portfolio's assets among Advisers. Currently, Alliance Capital
Management, L.P. and Massachusetts Financial Services Company have been selected
by the Manager to serve as Advisers for this Portfolio. It is anticipated that
additional Advisers may be added in the future.
The Manager initially allocated the assets of the Portfolio and will allocate
all daily cash inflows (share purchases) and outflows (redemptions and expense
items) among the Advisers, subject to the oversight of the Board. The Manager
intends, on a periodic basis, to review the asset allocation in the Portfolio.
The Manager does not intend, but reserves the right, subject to the oversight of
the Board, to reallocate assets from one Adviser to another when it would be in
the best interest of the Portfolio and its shareholders to do so. In some
instances, the effect of the reallocation will be to shift assets from a better
performing Adviser to other Adviser(s).
ALLIANCE CAPITAL MANAGEMENT, L.P. ("Alliance"), 1345 Avenue of the Americas, New
York, New York 10105. Alliance was the exclusive 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.
MASSACHUSETTS FINANCIAL SERVICES COMPANY ("MFS"), 500 Boylston Street, Boston,
MA 02116. MFS was added as an Adviser to the Portfolio as of May 1, 2000. 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 TONI Y. SHIMURA, a Senior Vice President of MFS,
who has been employed by MFS as a portfolio manager since 1995; and JOHN W.
BALLEN, Chief Investment Officer and President of MFS, who provides general
oversight in the management of the Portfolio.
<PAGE>
16
DOMESTIC PORTFOLIOS (CONTINUED)
- --------------------------------------------------------------------------------
ALLIANCE COMMON STOCK PORTFOLIO
INVESTMENT OBJECTIVE: Seeks to achieve long-term growth of capital and increase
income.
THE INVESTMENT STRATEGY
The Portfolio invests primarily in common stocks and other equity-type
securities (such as preferred stocks or convertible debt) that the Adviser
believes will share in the growth of the nation's economy over a long period.
Most of the time, the Portfolio will invest primarily in common stocks that are
listed on national securities exchanges. Smaller amounts will be invested in
stocks that are traded over-the-counter and in other equity-type securities.
Current income is an incidental consideration. The Portfolio generally will not
invest more than 20% of its total assets in foreign securities.
The Portfolio may also make use of various other investment strategies,
including making secured loans of up to 50% of its total assets. The Portfolio
may also use derivatives, including: writing covered call and put options,
buying call and put options on individual common stocks and other equity-type
securities, securities indexes, and foreign currencies. The Portfolio may also
purchase and sell stock index and foreign currency futures contracts and options
thereon.
When market or financial conditions warrant or it appears that the Portfolio's
investment objective will not be achieved by purchasing equity securities, the
Portfolio may invest a portion of its assets in debt securities, including
nonparticipating and nonconvertible preferred stocks, investment grade debt
securities and junk bonds, e.g., rated BB or lower by Standard & Poor's ("S&P")
or Ba or lower by Moody's Investor Service, Inc. ("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 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; expropriation or nationalization; adverse changes in foreign economic and
tax policies; and foreign government instability, war or other adverse political
or economic actions.
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.
<PAGE>
17
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 or technologies of such
companies may be at a relatively early stage of development or not fully tested.
FIXED INCOME RISK: 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 nationally recognized statistical rating organization ("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 principally 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 is June 16, 1975. The assets of the
predecessor were transferred to the Portfolio on October 18, 1999. Following
that transfer, the performance shown (for the period October 19, 1999 through
December 31, 1999) is that of the Portfolio. For these
<PAGE>
18
DOMESTIC PORTFOLIOS (CONTINUED)
- --------------------------------------------------------------------------------
purposes, the performance results of the Portfolio and its predecessor
registered investment company have been linked.
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 1999
- -8.1% 37.9% 3.2% 24.8% -2.1% 32.5% 24.3% 29.4% 29.4% 25.19%
Best quarter (% and time period) Worst quarter (% and time period)
28.42% (1998 4th Quarter) (20.22)% (1990 3rd Quarter)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
ONE YEAR FIVE YEARS TEN YEARS
- --------------------------------------------------------------------------------
Alliance Common Stock Portfolio
- Class IA Shares 25.19% 28.11% 18.61%
- --------------------------------------------------------------------------------
S&P 500 Index* 21.03% 28.56% 18.21%
- --------------------------------------------------------------------------------
Lipper Growth Equity Mutual
Funds Average* 31.48% 26.45% 17.79%
- --------------------------------------------------------------------------------
* For more information on this index, see the preceding section "The
Benchmarks."
WHO MANAGES THE PORTFOLIO
ALLIANCE CAPITAL MANAGEMENT, L.P. ("Alliance"), 1345 Avenue of the Americas, New
York, New York 10105. Alliance has been the Adviser to the 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.
<PAGE>
19
DOMESTIC PORTFOLIOS (CONTINUED)
- --------------------------------------------------------------------------------
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, B 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.
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 RISK: To the extent that a substantial amount of the Portfolio's
assets are invested in fixed income
<PAGE>
20
DOMESTIC PORTFOLIOS (CONTINUED)
- --------------------------------------------------------------------------------
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 RISK: 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 six 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 principally 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 and Growth Income Portfolio) whose inception date is October 1,
1993. The assets of the predecessor were transferred to the Portfolio on October
18, 1999. Following that transfer, the performance shown (for the period October
19, 1999 through December 31, 1999) is that of the Portfolio. For these
purposes, the performance results of the Portfolio and its predecessor
registered investment company have been linked.
Both the bar chart and table assume reinvestment of dividends and distributions.
The performance results do not
<PAGE>
21
reflect any insurance and Contract-related fees and expenses, which would reduce
the performance results.
- --------------------------------------------------------------------------------
CALENDAR YEAR ANNUAL TOTAL RETURN
- --------------------------------------------------------------------------------
1994 1995 1996 1997 1998 1999
- -0.6% 24.1% 20.1% 26.9% 20.9% 18.66%
Best quarter (% and time period) Worst quarter (% and time period)
26.28% (1998 4th Quarter) (15.03)% (1998 3rd Quarter)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
SINCE
ONE YEAR FIVE YEARS INCEPTION
- --------------------------------------------------------------------------------
Alliance Growth and Income
Portfolio - Class IA Shares 18.66% 22.08% 17.15%
- --------------------------------------------------------------------------------
S&P 500 Index* 21.03% 28.56% 23.43%
- --------------------------------------------------------------------------------
75% S&P 500 Index/25%
Value Line Convertible*, ** 20.71% 25.01% 18.77%
- --------------------------------------------------------------------------------
Lipper Growth and Income Funds
Average* 14.51% 21.78% 17.57%
- --------------------------------------------------------------------------------
* For more information on this index, see the preceding section "The
Benchmarks."
** We believe that this index reflects more closely the market sectors in
which the Portfolio invests.
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.
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.
<PAGE>
22
DOMESTIC PORTFOLIOS (CONTINUED)
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
For more information on the S&P 500, see the preceding section "The Benchmarks."
The Portfolio is not sponsored, endorsed, sold or promoted by Standard & Poor's
Corporation ("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 futures 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:
<PAGE>
23
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.
PORTFOLIO PERFORMANCE
The bar chart below illustrates the Portfolio's annual total return for 1998 and
1999, the Portfolio's first two years 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 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
- --------------------------------------------------------------------------------
1998 1999
25.14% 20.30%
Best quarter: Worst quarter:
21.26% (1998 4th Quarter) (10.03)% (1998 3rd Quarter)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
SINCE
ONE YEAR INCEPTION
- --------------------------------------------------------------------------------
BT Equity 500 Index Portfolio 20.30% 22.66%
- --------------------------------------------------------------------------------
S&P 500 Index* 21.03% 24.76%
- --------------------------------------------------------------------------------
* 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. In 1999, Bankers Trust Corporation finalized a
merger in which Bankers Trust Corporation was acquired by and became a
subsidiary of Deutsche Bank AG.
<PAGE>
24
DOMESTIC PORTFOLIOS (CONTINUED)
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
For more information on The Russell 2000, see the preceding section "The
Benchmarks".
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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.
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 or technologies
of such companies may be at a relatively early stage of development or not fully
tested.
<PAGE>
25
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 RISK: 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 higher-rated obligations because
BBB rated investment grade 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 and
1999, the Portfolio's first two years 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 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 perfomance results. The Portfolio's inception
date was January 1, 1998.
- --------------------------------------------------------------------------------
CALENDAR YEAR ANNUAL TOTAL RETURN
- --------------------------------------------------------------------------------
1998 1999
- -7.03% 1.66%
Best quarter: Worst quarter:
19.39% (1999 2nd Quarter) (20.10)% (1998 3rd Quarter)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
SINCE
ONE YEAR INCEPTION
- --------------------------------------------------------------------------------
Lazard Small Cap Value Portfolio 1.66% (2.77)%
- --------------------------------------------------------------------------------
Russell 2000 Index* 21.26% 8.70%
- --------------------------------------------------------------------------------
* 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 Fr-res & Co. LLC ("Lazard Fr-res"), 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
responsible for U.S./Global equity management and overseeing the day-to-day
operations of the U.S./Global equity teams, 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.
<PAGE>
26
DOMESTIC PORTFOLIOS (CONTINUED)
- --------------------------------------------------------------------------------
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 (such as an
analysis of earnings, cash flows, competitive position and management's
abilities) performed by the Adviser.
In addition, up to 25% 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 unexpected
changes in their earnings and growth prospects; and the products or technologies
of such companies may be at a relatively early stage of development or not fully
tested.
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
<PAGE>
27
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 and
1999, the Portfolio's first two years of operations, 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 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 is May 1, 1997.
- --------------------------------------------------------------------------------
CALENDAR YEAR ANNUAL TOTAL RETURN
- --------------------------------------------------------------------------------
1998 1999
34.57% 73.62%
Best quarter: Worst quarter:
53.01% (1999 4th Quarter) (12.69)% (1998 3rd Quarter)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
SINCE
ONE YEAR INCEPTION
- --------------------------------------------------------------------------------
MFS Emerging Growth Companies
Portfolio 73.62% 48.20%
- --------------------------------------------------------------------------------
Russell 2000 Index* 21.26% 16.99%
- --------------------------------------------------------------------------------
* 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 TONI Y. SHIMURA, a Senior Vice President of MFS, who
has been employed by MFS as a portfolio manager for the Portfolio since 1995 and
JOHN W. BALLEN, Chief Investment Officer and President of MFS, who provides
general oversight in the management of the Portfolio.
<PAGE>
28
INTERNATIONAL STOCK 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).
- --------------------------------------------------------------------------------
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 RISK: 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 may invest 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.
<PAGE>
29
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.
REGULATORY RISK: In general, foreign companies are also not subject to
uniform accounting, auditing and financial reporting standards or to other
regulatory practices and requirements as are U.S. companies, which could
adversely affect their value.
LIQUIDITY RISK: Certain securities held by the Portfolio may be difficult (or
impossible) to sell at the time and at the price the seller would like which may
cause the Portfolio to lose money or be prevented from earning capital gains.
DERIVATIVES RISK: The Portfolio's investments in derivatives can significantly
increase the Portfolio's exposure to market risk or credit risk of the
counterparty. Derivatives also involve the risk of mispricing or improper
valuation and the risk that changes in value of the derivative may not correlate
perfectly with the relevant assets, rates and indices.
LEVERAGING RISK: When 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.
FIXED INCOME RISK: 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 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 principally 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 is August 27, 1987. The assets of the
<PAGE>
30
INTERNATIONAL STOCK PORTFOLIOS (CONTINUED)
- --------------------------------------------------------------------------------
predecessor were transferred to the Portfolio on October 18, 1999. Following
that transfer, the performance shown (for the period October 19, 1999 through
December 31, 1999) is that of the Portfolio. For these purposes, the performance
results of the Portfolio and its predecessor registered investment company have
been linked.
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 1999
- -6.1% 30.5% -0.5% 32.1% 5.2% 18.8% 14.6% 11.7% 21.8% 38.59%
Best quarter (% and time period) Worst quarter (% and time period)
26.59% (1998 4th Quarter) (16.99)% (1998 3rd Quarter)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
ONE YEAR FIVE YEARS TEN YEARS
- --------------------------------------------------------------------------------
Alliance Global
Portfolio -
Class IA Shares 38.53% 20.74% 15.84%
- --------------------------------------------------------------------------------
Lipper Global
Mutual Funds
Average* 44.18% 19.42% 11.73%
- --------------------------------------------------------------------------------
MSCI World
Index* 24.93% 19.76% 11.42%
- --------------------------------------------------------------------------------
* 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.
<PAGE>
31
INTERNATIONAL STOCK PORTFOLIOS (CONTINUED)
- --------------------------------------------------------------------------------
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.
Country allocation is driven largely by stock selection, though the Adviser may
limit investments in markets that appear to have poor overall prospects.
The Portfolio expects to invest substantially all of its assets in common stocks
of large and, to a lesser extent, medium-sized companies. Typically, 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. Stock selection reflects a
growth style. In analyzing companies for investment, the Adviser uses a
"bottom-up" approach and looks for companies that have one or more of the
following characteristics:
o leading market position;
o attractive business niche;
o strong franchise or natural monopoly;
o technological leadership or proprietary advantages;
o seasoned management;
o earnings growth and cash flow sufficient to support growing dividends;
o healthy balance sheet with relatively low debt.
This means that the securities are selected based upon fundamental analysis
performed by the Adviser in an effort to identify companies capable of achieving
and sustaining above-average long-term earnings growth.
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.
THE PRINCIPAL RISKS
This Portfolio invests in common stocks, therefore, its performance may go up or
down depending on general market conditions. Funds that invest overseas
generally carry more risk than funds that invest strictly in U.S. stocks. 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.
<PAGE>
32
INTERNATIONAL STOCK PORTFOLIOS (CONTINUED)
- --------------------------------------------------------------------------------
FOREIGN SECURITIES RISK: 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:
CURRENCY RISK: The risk that changes in currency exchange rates will
negatively affect securities denominated in, and/or receiving revenues in,
foreign currencies. Adverse changes in currency exchange rates (relative to
the U.S. dollar) may erode or reverse any potential gains from a
Portfolio's investment in securities denominated in a foreign currency or
may widen existing losses.
EMERGING MARKET RISK: There are greater risks involved in investing in
emerging markets 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. Fund
performance will likely be negatively affected by portfolio exposure to
nations suffering severe inflation or currency devaluation.
EURO RISK: The Portfolio may invest 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.
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.
GEOGRAPHIC RISK: The economies and financial markets of certain regions,
such as Latin America and Asia, can be highly interdependent and may
decline all at the same time.
FUTURES/OPTIONS RISK: To the extent the Portfolio uses futures and options, it
is exposed to additional volatility and potential losses.
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.
<PAGE>
33
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 and
1999, the Portfolio's first two years of operations, 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 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 is May 1, 1997.
- --------------------------------------------------------------------------------
CALENDAR YEAR ANNUAL TOTAL RETURN
- --------------------------------------------------------------------------------
1998 1999
13.68% 31.83%
Best quarter: Worst quarter:
24.01% (1999 4th Quarter) (13.68)% (1998 3rd Quarter)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
SINCE
ONE YEAR INCEPTION
- --------------------------------------------------------------------------------
T. Rowe Price International
Stock Portfolio Class IB Shares 31.92% 15.73%
- --------------------------------------------------------------------------------
MSCI EAFE Index* 26.96% 18.32%
- --------------------------------------------------------------------------------
* 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 a subsidiary of Jardine Fleming Group Limited ("Jardine
Fleming"). Flemings owns 10% of Jardine Fleming.
Investment decisions with respect to the Portfolio are made by an Investment
Advisory Group. The Investment Advisory Group has day-to-day responsibility for
managing the Portfolio and developing and executing the Portfolio's investment
program.
<PAGE>
34
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 a 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 Ba or lower by Moody's or
BB 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.
THE PRINCIPAL RISKS
JUNK BOND RISK: The Portfolio invests primarily in "junk bonds" or lower-rated
securities rated BB or lower by S&P or an equivalent rating by any other NRSRO
or unrated securities of similar quality. Junk bonds have speculative elements
or are predominantly speculative credit risks, therefore, credit risk is
particularly significant for this Portfolio. 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
<PAGE>
35
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 RISK: This Portfolio invests primarily in fixed income securities,
therefore, the Portfolio's performance will be affected by changes in interest
rates, credit risks of the issuer, the duration and maturity of the Portfolio's
fixed income holdings, and adverse market and economic conditions. Other risks
that relate to the Portfolio's investment in fixed income securities include:
INTEREST RATE RISK: When interest rates rise, the value (i.e., share price
and total return) of the Portfolio's fixed income securities, particularly
those with longer durations or maturities, will go down. When interest
rates fall, the reverse is true.
MORTGAGE-BACKED SECURITIES RISK: Rising interest rates may cause the
duration of mortgage-backed securities to increase, making them even more
susceptible to interest rate changes. Falling interest rates may cause the
value and yield of mortgage-backed securities to fall. Falling interest
rates also may encourage borrowers to pay off their mortgages sooner than
anticipated (pre-payment). The Portfolio would need to reinvest the
pre-paid funds at the newer, lower interest rates.
LOAN PARTICIPATION AND ASSIGNMENT RISK: In addition to the risks associated with
fixed income investments generally, the Portfolio's investments in loan
participations and assignments are subject to the risk that the financial
institution acting as agent for all interests in a loan, might fail financially.
It is also possible that, under emerging legal theories of lender liability, the
Portfolio could be held liable as a co-lender.
SMALL-CAP AND MID-CAP COMPANY RISK: The Portfolio's investments in small-cap and
mid-cap companies may be subject to more abrupt or erratic movements in price
than are those of larger, more established companies because: the securities of
such companies are less well-known; held primarily by insiders or institutional
investors and may trade less frequently and in lower volume; such companies are
more likely to experience greater or more unexpected changes in their earnings
and growth prospects; such companies have limited financial resources or may
depend on a few key employees; and the products of technologies of such
companies may be at a relatively early stage of development or not fully tested.
DERIVATIVES RISK: The Portfolio's investments in derivatives can significantly
increase the Portfolio's exposure to market risk or credit risk of the
counterparty. Derivatives also involve the risk of mispricing or improper
valuation and the risk that changes in value of the derivative may not correlate
perfectly with the relevant assets, rates and indices.
FOREIGN SECURITIES 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; 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.
<PAGE>
36
FIXED INCOME PORTFOLIOS (CONTINUED)
- --------------------------------------------------------------------------------
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 principally 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 is January 2, 1987. The assets of the
predecessor were transferred to the Portfolio on October 18, 1999. Following
that transfer, the performance shown (for the period October 19, 1999 through
December 31, 1999) is that of the Portfolio. For these purposes, the performance
results of the Portfolio and its predecessor registered investment company have
been linked.
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 1999
- -1.1% 24.5% 12.3% 23.2% -2.8% 19.9% 23.0% 18.5% -5.2% -3.35%
Best quarter (% and time period) Worst quarter (% and time period)
8.00% (1997 2nd Quarter) (10.97)% (1998 3rd Quarter)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
ONE YEAR FIVE YEARS TEN YEARS
- --------------------------------------------------------------------------------
Alliance High Yield Portfolio
- Class IA Shares (3.35)% 9.86% 10.23%
- --------------------------------------------------------------------------------
CSFB Index*,** 3.28% 9.07% 11.06%
- --------------------------------------------------------------------------------
ML Master* 1.57% 9.61% 10.79%
- --------------------------------------------------------------------------------
Lipper High Current Yield Bond
Funds Average* 3.83% 9.48% 10.15%
- --------------------------------------------------------------------------------
* For more information on this index, see the preceding section "The
Benchmarks."
** We believe that this index reflects more closely the market sectors in
which the Portfolio invests.
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,
<PAGE>
37
qualified and non-tax qualified corporate funds, public and private pension and
profit-sharing plans, foundations and tax-exempt organizations.
NELSON JANTZEN has been responsible for the day-to-day management of the
Portfolio since January 2000. Mr. Jantzen is a Senior Vice President and
Portfolio Manager in the Global High Yield Group and is responsible for the
management of domestic high yield securities. Mr. Jantzen joined Alliance in
1993.
<PAGE>
38
FIXED INCOME PORTFOLIOS (CONTINUED)
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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, 1999, the Adviser considered the duration of a
10-year Treasury bond to be 7.3 years. The Portfolio's investments will
generally have a final maturity of not more than ten years or a duration not
exceeding that of a 10-year Treasury note.
- --------------------------------------------------------------------------------
The Portfolio buys and sells securities with a view to maximizing current return
without, in the opinion of the Adviser, undue risk to principal. Potential
capital gains resulting from possible changes in interest rates will not be a
major consideration. The Portfolio may take full advantage of a wide range of
maturities of U.S. Government securities and may adjust the dollar-weighted
average maturity of its portfolio from time to time, depending on the Adviser's
assessment of relative yields on securities of different maturities and the
expected effect of future changes in interest rates on the market value of the
securities held by the Portfolio. The Portfolio may also invest a substantial
portion of its assets in money market instruments.
In order to enhance its current return, to reduce fluctuations in net asset
value, and to hedge against changes in interest rates, the Portfolio may write
covered call and put options on U.S. Government securities and may purchase call
and put options on U.S. Government securities. The Portfolio may also enter into
interest rate futures contracts with respect to U.S. Government securities, and
may write and purchase options thereon. The Portfolio may also make secured
loans of its portfolio securities without limitation and enter into repurchase
agreement with respect to U.S. Government securities with commercial banks and
registered broker-dealers.
The Portfolio may also make use of various other investment strategies,
including covered short sales, and the purchase or sale of securities on a
when-issued, delayed delivery or forward commitment basis.
Under normal market conditions, the Portfolio will invest at least 65%, and
expects to invest at least 80%, of its total assets in U.S. Government
securities and repurchase agreements and forward commitments relating to U.S.
Government Securities. U.S. Government securities include:
o U.S. Treasury Bills: Direct obligations of the U.S. Treasury which are
issued in maturities of one year or less.
o U.S. Treasury Notes: Direct obligations of the U.S. Treasury issued in
maturities which vary between one and ten years, with interest payable
every six months.
<PAGE>
39
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 Farmers Home Administration or
guaranteed by the Veterans 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.
- --------------------------------------------------------------------------------
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.
THE PRINCIPAL RISKS
FIXED INCOME RISK: 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:
ASSET-BACKED SECURITIES RISK: The Portfolio's investments in asset-backed
securities represent interests
<PAGE>
40
FIXED INCOME PORTFOLIOS (CONTINUED)
- --------------------------------------------------------------------------------
in pools of consumer loans such as credit card receivables, automobile
loans and leases, leases on equipment such as computers, and other
financial instruments and are subject to certain additional risks. Rising
interest rates tend to extend the duration of asset-backed securities,
making them more sensitive to changes in interest rates. As a result, in a
period of rising interest rates, the Portfolio may exhibit additional
volatility. When interest rates are declining, there are usually more
prepayments of loans which will shorten the life of these securities.
Prepayments also vary based on among other factors, general economic
conditions and other demographic conditions. The reinvestment of cash
received from prepayments will, therefore, usually be at a lower interest
rate than the original investment, lowering the Portfolio's yield.
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 eight 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
<PAGE>
41
with similar investment objectives. Past performance is not an indication of
future performance.
The Portfolio's performance shown below is principally 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 is April 1, 1991. The assets of the predecessor were transferred
to the Portfolio on October 18, 1999. Following that transfer, the performance
shown (for the period October 19, 1999 through December 31, 1999) is that of the
Portfolio. For these purposes, the performance results of the Portfolio and its
predecessor registered investment company have been linked.
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 1993 1994 1995 1996 1997 1998 1999
5.5% 10.6% -4.4% 13.3% 3.8% 7.3% 7.7% 0.14%
Best quarter (% and time period) Worst quarter (% and time period)
5.31% (1991 3rd Quarter) (2.96)% (1994 1st Quarter)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
SINCE
ONE YEAR FIVE YEARS INCEPTION
- --------------------------------------------------------------------------------
Alliance Intermediate
Government Securities
Portfolio - Class IA Shares 0.02% 6.34% 6.26%
- --------------------------------------------------------------------------------
Lehman Intermediate
Government Bonds* 0.49% 6.93% 6.76%
- --------------------------------------------------------------------------------
Lipper Intermediate Government
Funds Average* (2.13)% 6.94% 6.84%
- --------------------------------------------------------------------------------
* 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.
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 for more than five
years.
<PAGE>
42
FIXED INCOME PORTFOLIOS (CONTINUED)
- --------------------------------------------------------------------------------
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 S&P or Prime-1 by 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
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.
<PAGE>
43
Although the Portfolio seeks to preserve the value of your investment, it is
possible to lose money by investing in the Portfolio.
ASSET-BACKED SECURITIES RISK: The Portfolio's investments in asset-backed
securities represent interests in pools of consumer loans such as credit card
receivables, automobile loans and leases, leases on equipment such as computers,
and other financial instruments and are subject to certain additional risks.
Rising interest rates tend to extend the duration of asset-backed securities,
making them more sensitive to changes in interest rates. As a result, in a
period of rising interest rates, the Portfolio may exhibit additional
volatility. When interest rates are declining, there are usually more
prepayments of loans which will shorten the life of these securities.
Prepayments also vary based on among other factors, general economic conditions
and other demographic conditions. The reinvestment of cash received from
prepayments will, therefore, usually be at a lower interest rate than the
original investment, lowering the Portfolio's yield.
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 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: 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 principally 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 is July 13, 1981. The assets of the
predecessor were transferred to the Portfolio on October 18, 1999. Following
that transfer, the performance shown (for the period October 19, 1999 through
December 31, 1999) is that of the Portfolio. For these purposes, the performance
results of the Portfolio and its predecessor registered investment company have
been linked.
Both the bar chart and table assume reinvestment of dividends and distributions.
The performance results do not
<PAGE>
44
FIXED INCOME PORTFOLIOS (CONTINUED)
- --------------------------------------------------------------------------------
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 1999
8.2% 6.2% 3.6% 3.0% 4.0% 5.7% 5.3% 5.4% 5.3% 4.96%
Best quarter (% and time period) Worst quarter (% and time period)
2.08% (1990 4th Quarter) .46% (2000 1st Quarter)
The Portfolio's 7-day yield for the quarter ended December 31, 1999 was 5.30%.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
ONE YEAR FIVE YEARS TEN YEARS
- --------------------------------------------------------------------------------
Alliance Money Market Portfolio
- Class IA Shares 4.96% 5.36% 5.16%
- --------------------------------------------------------------------------------
3-Month Treasury Bill 4.74% 5.20% 5.06%
- --------------------------------------------------------------------------------
Lipper Money Market Mutual
Fund Average* 4.75% 5.13% 4.87%
- --------------------------------------------------------------------------------
* 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.
<PAGE>
45
BALANCED/HYBRID PORTFOLIOS
- --------------------------------------------------------------------------------
EQ/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 primarily 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 may also invest up to 20% 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).
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 are expected to
average approximately 50% in fixed income securities and approximately 50% in
equity securities. Asset mixes will periodically be rebalanced by the Manager to
maintain the expected asset mix.
The Portfolio may also invest up to 20% of its total assets in foreign
securities (which may include American depositary receipts and other depositary
arrangements) and may also make use of various other investment strategies,
including using up to 50% of its total portfolio assets for securities lending
purposes. 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 an 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:
MULTIPLE-ADVISER RISK: The EQ/Balanced Portfolio employs multiple Advisers. Each
of the Advisers independently chooses and maintains a portfolio of common stocks
for the Portfolio and each is responsible for investing a specific allocated
portion of the Portfolio's assets. Because each Adviser will be managing its
allocated portion of the Portfolio independently from the other
<PAGE>
46
BALANCED/HYBRID PORTFOLIOS (CONTINUED)
- --------------------------------------------------------------------------------
Advisers, the same security may be held in two different portions of the
Portfolio, or may be acquired for one portion of the Portfolio at a time when
the Adviser of another portion deems it appropriate to dispose of the security
from that other portion. Similarly, under some market conditions, one Adviser
may believe that temporary, defensive investments in short-term instruments or
cash are appropriate when the other Adviser or Advisers believe continued
exposure to the equity markets is appropriate for their portions of the
Portfolio. Because each Adviser directs the trading for its own portion of the
Portfolio, and does not aggregate its transactions with those of the other
Advisers, the Portfolio may incur higher brokerage costs than would be the case
if a single Adviser were managing the entire Portfolio.
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
actual allocation of the Portfolio's assets between debt and equity securities
may adversely affect the Portfolio's value between the Manager's periodic
rebalancing.
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; 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 RISK: 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.
<PAGE>
47
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 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 that could be passed through to shareholders.
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 principally 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/EQ/Balanced
Portfolio) whose inception date is January 27, 1986. The assets of the
predecessor were transferred to the Portfolio on October 18, 1999. Following
that transfer, the performance shown (for the period October 19, 1999 through
December 31, 1999) is that of the Portfolio. For these purposes, the performance
results of the Portfolio and its predecessor registered investment company have
been linked.
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 1999
0.3% 41.3% -2.8% 12.3% -8.0% 19.8% 11.7% 15.1% 18.1% 17.79%
Best quarter (% and time period) Worst quarter (% and time period)
13.76% (1998 4th Quarter) (7.77)% (1998 3rd Quarter)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
ONE YEAR FIVE YEARS TEN YEARS
- --------------------------------------------------------------------------------
EQ/Balanced Portfolio - Class
IA Shares 17.79% 16.44% 11.77%
- --------------------------------------------------------------------------------
50% S&P 500 Index/50%
Lehman Gov't/Corp.*,** 9.07% 17.93% 13.04%
- --------------------------------------------------------------------------------
S&P 500* 21.03% 28.56% 18.21%
- --------------------------------------------------------------------------------
Lipper Flex. Port. Funds
Average* 12.07% 17.11% 12.94%
- --------------------------------------------------------------------------------
* For more information on this index, see the preceding section "The
Benchmarks."
** We believe that this index reflects more closely the market sectors in
which the Portfolio invests.
WHO MANAGES THE PORTFOLIO
In accordance with the Multi-Manager Order, the Manager may, among other things,
select new or additional Advisers for the Portfolio and may allocate and
re-allocate the Portfolio's assets among Advisers. Currently, Alliance Capital
Management, L.P., Capital Guardian Trust Company, Prudential Investments Fund
Management LLC and Jennison Associates, LLC have been selected by the Manager to
serve
<PAGE>
48
BALANCED/HYBRID PORTFOLIOS (CONTINUED)
- --------------------------------------------------------------------------------
as Advisers for this Portfolio. It is anticipated that additional advisers may
be added in the future.
The Manager initially allocated the assets of the Portfolio and will allocate
all daily cash inflows (share purchases) and outflows (redemptions and expense
items) among the Advisers, subject to the oversight of the Board. The Manager
intends, on a periodic basis, to review the asset allocation in the Portfolio.
The Manager does not intend, but reserves the right, subject to the oversight of
the Board, to reallocate assets from one Adviser to another when it would be in
the best interest of the Portfolio and its shareholders to do so. In some
instances, the effect of the reallocation will be to shift assets from a better
performing Adviser to other Adviser(s).
ALLIANCE CAPITAL MANAGEMENT, L.P. ("Alliance"), 1345 Avenue of the Americas, New
York, New York 10105. Alliance was the exclusive 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.
The portfolio manager responsible for that portion of the Portfolio's total
assets that will be advised by Alliance as an Adviser is as follows:
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.
CAPITAL GUARDIAN TRUST COMPANY. ("Capital Guardian"), 333 South Hope Street, Los
Angeles, CA 90071 Capital Guardian was added as an Adviser to the Portfolio as
of May 1, 2000. 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 $123 billion as of December 31,
1999.
Capital Guardian uses a multiple portfolio manager system under which assets of
the Portfolio for which Capital Guardian serves as Adviser are 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's total
assets allocated to Capital Guardian as Adviser is managed by a group of
investment research analysts.
The individual portfolio managers of each segment of the Portfolio's total
assets that will be advised by Capital Guardian as an Adviser, 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
<PAGE>
49
of the Investment Committee for Capital Guardian. He joined the Capital
Guardian organization in 1972.
TERRY BERKEMEIER. Terry Berkemeier is a Vice President of Capital
International Research, Inc. with U.S. equity portfolio management
responsibility in Capital Guardian Trust Company and research
responsibilities for the global metals and mining industries. He joined the
Capital Guardian organization in 1992.
PRUDENTIAL INVESTMENTS FUND MANAGEMENT LLC ("PIFM"), Gateway Center Three, 100
Mulberry Street, Newark, New Jersey 07102 was added as an Adviser to the
Portfolio as of May 1, 2000. PIFM and its predecessors have served as manager or
administrator to investment companies since 1987. As of October 31, 1999, PIFM
served as either the manager or administrator to various investment companies,
with aggregate assets of approximately $72 billion.
JENNISON ASSOCIATES LLC ("Jennison"), 466 Lexington Avenue, New York, New York
10017 was added as an Adviser to the Portfolio as of May 1, 2000. PIFM
supervises Jennison. Jennison has served as an investment adviser to investment
companies since 1990 and manages approximately $48.4 billion in assets as of
September 30, 1999.
The individual portfolio managers for that portion of the Portfolio's total
assets that will be advised by PIFM as an Adviser and Jennison are as follows:
MICHAEL A. DEBALSO. Michael A. DeBalso is a Director, Executive Vice
President, Director of Equity Research and Equity Portfolio Manager of
Jennison. Mr. DeBalso joined Jennison in 1972.
KATHLEEN A. MCCARRAGHER. Ms. McCarragher is a Director, Executive Vice
President, Domestic Growth Equity Investment Strategist and Equity
Portfolio Manager of Jennison. Ms. McCarragher joined Jennison in 1998.
From 1992-1998, she was a Managing Director and Director of Large Cap
Growth Equities at Weiss, Peck & Greer.
PIFM and Jennison are wholly-owned subsidiaries of The Prudential Insurance
Company of America.
<PAGE>
50
BALANCED/HYBRID PORTFOLIOS (CONTINUED)
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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, 1999, the Adviser considered the duration of a
10-year Treasury bond to be 7.3 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). 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 and
derivatives. Up to 50% of its total assets may be used for securities lending
purposes.
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 RISK: 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
<PAGE>
51
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 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; 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.
<PAGE>
52
BALANCED/HYBRID PORTFOLIOS (CONTINUED)
- --------------------------------------------------------------------------------
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 that could be passed through to shareholders.
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 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 principally 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 is October
2, 1989. The assets of the predecessor were transferred to the Portfolio on
October 18, 1999. Following that transfer, the performance shown (for the period
October 19, 1999 through December 31, 1999) is that of the Portfolio. For these
purposes, the performance results of the Portfolio and its predecessor
registered investment company have been linked.
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 1999
6.3% 19.8% 5.6% 10.8% -4.1% 20.4% 5.2% 13.3% 13.9% 9.87%
Best quarter (% and time period) Worst quarter (% and time period)
- --------------------------------------------------------------------------------
7.65% (1998 4th Quarter) (2.05)% (1994 1st Quarter)
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
ONE YEAR FIVE YEARS TEN YEARS
- --------------------------------------------------------------------------------
Alliance Conservative
Investors Portfolio -
Class IA Shares 10.14% 12.47% 9.94%
- --------------------------------------------------------------------------------
70% Lehman Treasury/30%
S&P 500 Index*,** 4.19% 13.60% 10.75%
- --------------------------------------------------------------------------------
S&P 500 Index* 21.03% 28.56% 18.21%
- --------------------------------------------------------------------------------
Lipper Income Average* 4.65% 14.57% 10.84%
- --------------------------------------------------------------------------------
* For more information on this index, see the preceding section "The
Benchmarks."
** We believe that this index reflects more closely the market sectors in
which the Portfolio invests.
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
<PAGE>
53
since February 12, 1996. Mr. Heisterberg, a Senior Vice President of Alliance
and Global Economic Policy Analysis, has been associated with Alliance since
1977.
<PAGE>
54
BALANCED/HYBRID PORTFOLIOS (CONTINUED)
- --------------------------------------------------------------------------------
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 and
derivatives. Up to 50% of its total assets may be used for securities lending
purposes. 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 RISK: 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 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
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55
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 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; expropriation or nationalization; adverse changes in foreign economic and
tax policies; and foreign government instability, war or other adverse political
or economic actions.
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 that could be passed through to shareholders.
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 year, five years
and ten years and compares the
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56
BALANCED/HYBRID PORTFOLIOS (CONTINUED)
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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 principally 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 is October 2,
1989. The assets of the predecessor were transferred to the Portfolio on October
18, 1999. Following that transfer, the performance shown (for the period October
19, 1999 through December 31, 1999) is that of the Portfolio. For these
purposes, the performance results of the Portfolio and its predecessor
registered investment company have been linked.
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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CALENDAR YEAR ANNUAL TOTAL RETURN
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1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
10.7% 48.8% 4.9% 15.3% -3.2% 26.4% 12.6% 16.9% 19.1% 26.58%
Best quarter (% and time period) Worst quarter (% and time period)
18.16% (1998 4th Quarter) (10.60)% (1990 3rd Quarter)
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- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
ONE YEAR FIVE YEARS TEN YEARS
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Alliance Growth Investors
Portfolio - Class IA Shares 26.58% 20.19% 17.08%
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70% S&P 500 Index/30%
Lehman Gov't/Corp.*,** 13.77% 22.15% 15.13%
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S&P 500 Index* 21.03% 28.56% 18.21%
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Lipper Flexible Portfolio
Average* 12.07% 17.11% 12.94%
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* For more information on this index, see the preceding section "The
Benchmarks."
** We believe that this index reflects more closely the market sectors in
which the Portfolio invests.
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.
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57
3 More information on principal risks
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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 Adviser(s) for each Portfolio rely on the insights
of different specialists in making investment decisions based on the 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.
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 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 the 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 RISK: To the extent that any of the Portfolios invest a substantial
amount of its assets in fixed income securities, a Portfolio may be subject to
the following risks:
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58
ASSET-BACKED SECURITIES RISK: The Portfolio's investments in asset-backed
securities represent interests in pools of consumer loans such as credit
card receivables, automobile loans and leases, leases on equipment such as
computers, and other financial instruments and are subject to certain
additional risks. Rising interest rates tend to extend the duration of
asset-backed securities, making them more sensitive to changes in interest
rates. As a result, in a period of rising interest rates, the Portfolio may
exhibit additional volatility. When interest rates are declining, there are
usually more prepayments of loans which will shorten the life of these
securities. Prepayments also vary based on among other factors, general
economic conditions and other demographic conditions. The reinvestment of
cash received from prepayments will, therefore, usually be at a lower
interest rate than the original investment, lowering the Portfolio's yield.
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 the Portfolios, such as the
Alliance Growth Investors Portfolio and the Alliance High Yield Portfolio,
that invest a material portion of their assets in "JUNK BONDS" or
lower-rated securities (i.e., rated BB or lower by S&P or an equivalent
rating by any other NRSRO or unrated securities of similar quality). These
debt securities and similar unrated securities have speculative elements or
are predominantly speculative credit risks. Portfolios such as the Alliance
Growth Investors Portfolio and the Alliance High Yield Portfolio may also
be subject to greater credit risk because they may invest in debt
securities issued in connection with corporate restructurings by highly
leveraged issuers or in debt securities not current in the payment of
interest or principal, or in default.
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,
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59
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.
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 RISK: 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 markets countries may be affected by national
policies that restrict foreign investment in certain issuers or industries.
The small size of their securities markets and low trading volumes can make
investments illiquid and more volatile than investments in developed
countries and such securities may be subject to abrupt and severe price
declines. As a result, a Portfolio investing in emerging market countries
may be required to establish special custody or other arrangements before
investing.
EURO RISK: Certain of the Portfolios may invest 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
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60
systems and other operational problems may cause market disruptions that
could adversely affect investments quoted in the Euro.
POLITICAL/ECONOMIC RISK: Changes in economic and tax policies, 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 BT Equity 500 Index Portfolio is not actively managed
(which involves buying and selling of securities based upon economic, financial
and market analysis and investment judgment). Rather, the BT Equity 500 Index
Portfolio utilizes 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) through statistical procedures. Therefore, 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.
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, high-yield bonds,
mortgage-backed securities or foreign or emerging market 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 a relatively
low risk investment, it is not entirely free of risk. Despite the short
maturities and high credit quality of the Alliance Money Market Portfolio's
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61
investments, increases in interest rates and deteriorations in the credit
quality of the instruments the Portfolio has purchased may reduce the
Portfolio's yield. In addition, the Portfolio is still subject to the risk that
the value of an investment may be eroded over time by inflation.
MULTIPLE-ADVISER RISK: The EQ/Aggressive Stock and EQ/Balanced Portfolios employ
multiple Advisers. Each of the Advisers independently chooses and maintains a
portfolio of common stocks for the Portfolio and each is responsible for
investing a specific allocated portion of the Portfolio's assets. Because each
Adviser will be managing its allocated portion of the Portfolio independently
from the other Advisers, the same security may be held in two different portions
of the Portfolio, or may be acquired for one portion of the Portfolio at a time
when the Adviser of another portion deems it appropriate to dispose of the
security from that other portion. Similarly, under some market conditions, one
Adviser may believe that temporary, defensive investments in short-term
instruments or cash are appropriate when the other Adviser or Advisers believe
continued exposure to the equity markets is appropriate for their portions of
the Portfolio. Because each Adviser directs the trading for its own portion of
the Portfolio, and does not aggregate its transactions with those of the other
Advisers, the Portfolio may incur higher brokerage costs than would be the case
if a single Adviser were managing the entire Portfolio.
NON-DIVERSIFICATION RISK: The Lazard Small Cap Value Portfolio is classified as
a "non-diversified" investment company, which means that the proportion of the
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 the
non-diversified Portfolio 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. 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, the 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. The 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 that could be 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
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62
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.
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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63
4 Management of the Trust
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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-one (41) 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
The Equitable Life Assurance Society of the United States ("Equitable"), 1290
Avenue of the Americas, New York, New York 10104, currently serves as the
Manager of the Trust. EQ Financial Consultants, Inc. ("EQFC") previously served
as the Manager of the Trust, until September 17, 1999 when the Trust's
Investment Management Agreement was transferred to Equitable. Equitable is an
investment adviser registered under the Investment Advisers Act of 1940, as
amended, and a wholly-owned subsidiary of AXA Financial, Inc. ("AXA Financial"),
a subsidiary of AXA, a French insurance holding company.
Subject to the supervision and direction of the Board of Trustees, the Manager
has overall responsibility for the general management of the Trust. In the
exercise of that responsibility, and under the Multi-Manager Order, the Manager,
without obtaining shareholder approval but subject to the review and approval by
the Board of Trustees, may: (i) select new or additional Advisers for the
Portfolios; (ii) enter into new investment advisory agreements 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, 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.
The contractual management fee rates payable by the Trust are at the following
annual percentages of the value of each Portfolio's average daily net assets:
CONTRACTUAL FEE UNDER MANAGEMENT AGREEMENT (AS A PERCENTAGE OF AVERAGE DAILY NET
ASSETS)(FEE ON ALL ASSETS)
- --------------------------------------------------------------------------------
INDEX PORTFOLIO
- --------------------------------------------------------------------------------
BT Equity 500 Index 0.250%
- --------------------------------------------------------------------------------
<PAGE>
64
CONTRACTUAL FEE UNDER MANAGEMENT AGREEMENT
(AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
FIRST NEXT NEXT NEXT
DEBT PORTFOLIOS $750 MILLION $750 MILLION $1 BILLION $2.5 BILLION THEREAFTER
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Alliance High Yield 0.600% 0.575% 0.550% 0.530% 0.520%
Alliance Intermediate Government Securities 0.500% 0.475% 0.450% 0.430% 0.420%
Alliance Money Market 0.350% 0.325% 0.300% 0.280% 0.270%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
CONTRACTUAL FEE UNDER MANAGEMENT AGREEMENT
(AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
FIRST NEXT NEXT NEXT
EQUITY PORTFOLIOS $1 BILLION $1 BILLION $3 BILLION $5 BILLION THEREAFTER
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
EQ/Aggressive Stock 0.650% 0.600% 0.575% 0.550% 0.525%
EQ/Balanced 0.600% 0.550% 0.525% 0.500% 0.475%
Alliance Common Stock 0.550% 0.500% 0.475% 0.450% 0.425%
Alliance Conservative Investors 0.600% 0.550% 0.525% 0.500% 0.475%
Alliance Global 0.750% 0.700% 0.675% 0.650% 0.625%
Alliance Growth and Income 0.600% 0.550% 0.525% 0.500% 0.475%
Alliance Growth Investors 0.600% 0.550% 0.525% 0.500% 0.475%
Lazard Small Cap Value 0.750% 0.700% 0.675% 0.650% 0.625%
MFS Emerging Growth Companies 0.650% 0.600% 0.575% 0.550% 0.525%
T. Rowe Price International Stock 0.850% 0.800% 0.775% 0.750% 0.725%
- ---------------------------------------------------------------------------------------------------
</TABLE>
For the T. Rowe Price International Stock Portfolio, the Manager has agreed not
to implement any increase in the applicable management fee rates (as approved by
shareholders) until July 31, 2001, unless the Board agrees that such a
management fee increase should be put into operation earlier.
<PAGE>
65
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 (or the predecessor
Manager for certain of the Portfolios) received in 1999 for managing each of the
Portfolios and the rate of the management fees waived by the Manager (or the
predecessor Manager for certain of the Portfolios) in 1999 in accordance with
the provisions of the Expense Limitation Agreement, as defined directly below,
between the Manager and the Trust with respect to certain of the Portfolios.
MANAGEMENT FEES PAID BY THE PORTFOLIOS IN 1999
- -------------------------------------------------------------------------
ANNUAL RATE OF
RATE FEES
PORTFOLIOS RECEIVED WAIVED
- -------------------------------------------------------------------------
EQ/Aggressive Stock 0.54% 0.00%
EQ/Balanced 0.41% 0.00%
Alliance Common Stock 0.36% 0.00%
Alliance Conservative Investors 0.48% 0.00%
Alliance Global 0.63% 0.00%
Alliance Growth & Income 0.54% 0.00%
Alliance Growth Investors 0.50% 0.00%
Alliance High Yield 0.60% 0.00%
Alliance Intermediate 0.50% 0.00%
Government Securities
Alliance Money Market 0.34% 0.00%
BT Equity Index 500 0.25% 0.12%
Lazard Small Cap Value 0.80% 0.10%
MFS Emerging Growth 0.55% 0.10%
Companies
T. Rowe Price International 0.75% 0.09%
- -------------------------------------------------------------------------
EXPENSE LIMITATION AGREEMENT
In the interest of limiting until April 30, 2001 the expenses of each Portfolio
(except for the Portfolios for which Alliance serves as Investment Adviser), the
Manager has entered into an amended and restated expense limitation agreement
with the Trust with respect to those Portfolios ("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 respective expense ratios:
EXPENSE LIMITATION PROVISIONS
- -----------------------------------------------------------------------------
TOTAL EXPENSES
LIMITED TO (% OF
PORTFOLIOS DAILY NET ASSETS)
- -----------------------------------------------------------------------------
BT Equity 500 Index 0.35%
Lazard Small Cap Value 0.85%
MFS Emerging Growth Companies 0.75%
T. Rowe Price International Stock 1.00%
- -----------------------------------------------------------------------------
Each Portfolio may at a later date reimburse to the Manager the management fees
waived or limited and other expenses assumed and paid by the Manager pursuant to
the Expense Limitation Agreement provided such Portfolio has reached a
sufficient asset size to permit such reimbursement to be made without causing
the total annual expense ratio of each Portfolio to exceed the percentage limits
stated above. Consequently, no reimbursement by a Portfolio will be made unless:
(i) the Portfolio's assets exceed $100 million; (ii) the Portfolio's total
annual expense ratio is less than the respective percentages stated above; and
(iii) the payment of such reimbursement has been approved by the Trust's Board
of Trustees on a quarterly basis.
The 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 in accordance with the Expense Limitation
Agreement during any of the previous five (5) fiscal years, (or three (3) fiscal
years for certain Portfolios) less any reimbursement that the Portfolio has
previously paid to the Manager with respect to (a) such
<PAGE>
66
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 one or more Advisers that furnish an investment program for
the Portfolio (or portion thereof for which the entity serves as Adviser)
pursuant to an investment advisory agreement with the Manager. Each Adviser
makes investment decisions on behalf of the Portfolio (or portion thereof for
which the entity serves as Adviser), places all orders for the purchase and sale
of investments for the Portfolio's account with brokers or dealers selected by
such Adviser or the Manager 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 additional Advisers for any
Portfolio; (b) enter into new investment advisory agreements and materially
modify existing investment advisory agreements; and (c) terminate and replace
the Advisers without obtaining approval of the relevant Portfolio's
shareholders. However, the Manager may not enter into an investment advisory
agreement with an "affiliated person" of the Manager (as that term is defined in
Section 2(a)(3) of the 1940 Act ("Affiliated Adviser"), such as Alliance, unless
the investment advisory agreement with the Affiliated Adviser, including
compensation, is approved by the affected Portfolio's shareholders, including,
in instances in which the investment advisory agreement pertains to a newly
formed Portfolio, the Portfolio's initial shareholder. In such circumstances,
shareholders would receive notice of such action, including the information
concerning the Adviser that normally is provided in an information statement
under Schedule 14C of the Securities Exchange Act of 1934, as amended ("1934
Act").
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, Equitable currently serves as the Administrator to the
Trust. As Administrator, Equitable provides the Trust with necessary
administrative, fund accounting and compliance services, and makes available the
office space, equipment, personnel and facilities required to provide such
services to the Trust.
Equitable may carry out its responsibilities either directly or through
sub-contracting with third party service providers. For these services, the
Trust pays Equitable $30,000 for each Portfolio, and a monthly fee at the annual
rate of 0.04 of 1% of the first $3 billion of total Trust assets, 0.03 of 1% of
the next $3 billion of the total Trust assets; 0.025 of 1% of the next $4
billion of the total Trust assets; and 0.0225% of 1% of the total Trust assets
in excess of $10 billion.
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 in accordance with Section 28(e) of the 1934
Act, the Manager and each Adviser may consider research and brokerage services
received by the Manager, the Advisers, the Trust or any Portfolio. 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. Finally, at the discretion of the Board, the
Trust may direct the Manager to cause Advisers to effect securities transactions
through broker-dealers in a manner that would help to generate resources to (i)
pay the cost of certain expenses which the Trust is required to pay or for
<PAGE>
67
which the Trust is required to arrange payment or (ii) finance activities that
are primarily intended to result in the sale of Trust shares.
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 the 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 an Adviser to another Portfolio for which such Adviser does
not provide investment advice in whole or in part. 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.
<PAGE>
68
5 Fund distribution arrangements
- -----------------------------------------------------------------------------
The Trust offers two classes of shares on behalf of each Portfolio: Class IA
shares and Class IB shares. AXA Advisors, LLC ("AXA Advisors") serves as one of
the distributors for the Class IA and Class IB shares of the Trust offered by
this Prospectus. Equitable Distributors, Inc. ("EDI") serves as the other
distributor for the Class IA and Class IB shares of the Trust. Both classes of
shares are offered and redeemed at their net asset value without any sales load.
AXA Advisors and EDI are affiliates of Equitable. Both AXA Advisors and EDI are
registered as broker-dealers under the 1934 Act 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.
<PAGE>
69
6 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 depositary receipts) 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 the New York Stock Exchange is closed or during which trading is
restricted by the SEC or the SEC declares that an emergency exists. Redemption
may also be suspended during other periods permitted by the SEC for the
protection of the Trust's shareholders. 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.
You should note that the Trust is not designed for professional "market timing"
organizations, or other organizations or individuals engaging in a market timing
strategy, making programmed transfers, frequent transfers or transfers that are
large in relation to the total assets of each of the Trust's Portfolios. Market
timing strategies are disruptive to the Trust's Portfolios. If we determine that
your transfer patterns among the Trust's Portfolios reflect a market timing
strategy, we reserve the right to take action including, but not limited to:
restricting the availability of transfers through telephone requests, facsimile
transmissions, automated telephone services, internet services or any electronic
transfer services. We may also refuse to act on transfer instructions of an
agent acting under a power of attorney who is acting on behalf of more than one
owner.
<PAGE>
70
7 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, including depositary receipts, 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 shares 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.
<PAGE>
71
8 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 determining 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.
Equitable, in its capacity as Administrator therefore carefully monitors
compliance with all of the regulated investment company rules and variable
insurance contract investment diversification rules.
<PAGE>
72
9 Financial Highlights
- -----------------------------------------------------------------------------
The financial highlights table is intended to help you understand the
financial performance for the Trust's Class IA and Class IB shares since May 1,
1997. With respect to the Portfolios that are advised by Alliance, financial
information in the table below is for the past five (5) years (or, if shorter,
the period of the Portfolio's operations). Since the EQ/Alliance Technology
Stock Portfolio will commence operations on May 1, 2000, no information for that
Portfolio is provided below. The information below for the Class IA and Class IB
shares has been derived from the financial statements of the Trust, which have
been audited by PricewaterhouseCoopers LLP, independent public accountants.
PricewaterhouseCoopers LLP's report on the Trust's financial statements as of
December 31, 1999 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.
EQ/AGGRESSIVE STOCK PORTFOLIO (FKA ALLIANCE AGGRESSIVE STOCK PORTFOLIO)(D)(E):
<TABLE>
<CAPTION>
CLASS IA
--------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------
1999 1998 1997 1996 1995
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ..... $ 34.15 $ 36.22 $ 35.85 $ 35.68 $ 30.63
--------- --------- --------- --------- ---------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income (loss) ........... 0.12 0.09 0.04 0.09 0.10
Net realized and unrealized gain
(loss) on investments ................. 6.22 (0.28) 3.71 7.52 9.54
--------- --------- --------- --------- ---------
Total from investment operations........ 6.34 (0.19) 3.75 7.61 9.64
--------- --------- --------- --------- ---------
LESS DISTRIBUTIONS:
Dividends from net investment
income ................................ (0.12) (0.16) (0.05) (0.09) (0.10)
Dividends in excess of net
investment income ..................... - - - - -
Distributions from realized gains ...... (2.36) (1.72) (3.33) (7.33) (4.49)
Distributions in excess of realized
gains ................................. - - - (0.02) -
Tax return of capital distributions .... - - - - -
--------- --------- --------- --------- ---------
Total dividends and distributions ...... (2.48) (1.88) (3.38) (7.44) (4.59)
--------- --------- --------- --------- ---------
Net asset value, end of period ........... $ 38.01 $ 34.15 $ 36.22 $ 35.85 $ 35.68
========= ========= ========= ========= =========
Total return ............................. 18.84% 0.29% 10.94% 22.20% 31.63%
========= ========= ========= ========= =========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) ........ $4,368,877 $4,346,907 $4,589,771 $3,865,256 $2,700,515
Ratio of expenses to average net
assets ................................. 0.56% 0.56% 0.54% 0.48% 0.49%
Ratio of net investment income (loss)
to average net assets .................. 0.33% 0.24% 0.11% 0.24% 0.28%
Portfolio turnover rate .................. 87% 105% 123% 108% 127%
</TABLE>
<TABLE>
<CAPTION>
CLASS IB
--------------------------------------------------------
OCTOBER 2,*
YEAR ENDED DECEMBER 31, 1996 TO
------------------------------------- DECEMBER 31,
1999 1998 1997 1996
------------ ------------ ----------- ------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period ..... $ 34.01 $ 36.13 $ 35.83 $ 37.28
-------- -------- ------- ----------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income (loss) ........... 0.03 0.01 (0.11) (0.01)
Net realized and unrealized gain
(loss) on investments ................. 6.20 (0.29) 3.77 0.85
-------- -------- ------- ----------
Total from investment operations........ 6.23 (0.28) 3.66 0.84
-------- -------- ------- ----------
LESS DISTRIBUTIONS:
Dividends from net investment
income ................................ (0.05) (0.12) (0.03) -
Dividends in excess of net
investment income ..................... - - - (0.02)
Distributions from realized gains ...... (2.36) (1.72) (3.33) (0.23)
Distributions in excess of realized
gains ................................. - - - (2.04)
Tax return of capital distributions .... - - - -
-------- -------- ------- ----------
Total dividends and distributions ...... (2.41) (1.84) (3.36) (2.29)
-------- -------- ------- ----------
Net asset value, end of period ........... $ 37.83 $ 34.01 $ 36.13 $ 35.83
======== ======== ======= ==========
Total return ............................. 18.55% 0.05% 10.66% 2.32%(b)
======== ======== ======= ==========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) ........ $233,265 $153,782 $73,486 $ 613
Ratio of expenses to average net
assets ................................. 0.81% 0.82% 0.81% 0.73%(a)
Ratio of net investment income (loss)
to average net assets .................. 0.07% 0.02% (0.28)% (0.10)%(a)
Portfolio turnover rate .................. 87% 105% 123% 108%
</TABLE>
<PAGE>
73
EQ/BALANCED PORTFOLIO (FKA ALLIANCE BALANCED PORTFOLIO)(D)(E):
<TABLE>
<CAPTION>
CLASS IA
--------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------
1999 1998 1997 1996 1995
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ..... $ 18.51 $ 17.58 $ 16.64 $ 16.76 $ 14.87
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income .................. 0.52 0.56 0.58 0.53 0.54
Net realized and unrealized gain
on investments and foreign
currency transactions ................. 2.69 2.54 1.86 1.31 2.36
---------- ---------- ---------- ---------- ----------
Total from investment operations ....... 3.21 3.10 2.44 1.84 2.90
---------- ---------- ---------- ---------- ----------
LESS DISTRIBUTIONS:
Dividends from net investment
income ................................ (0.56) (0.50) (0.59) (0.53) (0.54)
Dividends in excess of net
investment income ..................... - - - - -
Distributions from realized gains ...... (1.98) (1.67) (0.91) (1.40) (0.47)
Distributions in excess of realized
gains ................................. - - - (0.03) -
Tax return of capital distributions .... - - - - -
---------- ---------- ---------- ---------- ----------
Total dividends and distributions ...... (2.54) (2.17) (1.50) (1.96) (1.01)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period ........... $ 19.18 $ 18.51 $ 17.58 $ 16.64 $ 16.76
========== ========== ========== ========== ==========
Total return ............................. 17.79% 18.11% 15.06% 11.68% 19.75%
========== ========== ========== ========== ==========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) ........ $2,126,313 $1,936,429 $1,724,089 $1,637,856 $1,523,142
Ratio of expenses to average net
assets ................................. 0.44% 0.45% 0.45% 0.41% 0.40%
Ratio of net investment income to
average net assets ..................... 2.68% 3.00% 3.30% 3.15% 3.33%
Portfolio turnover rate .................. 107% 95% 146% 177% 186%
</TABLE>
<TABLE>
<CAPTION>
CLASS IB
-------------------------------------
JULY 8, 1998*
YEAR ENDED TO
DECEMBER 31, 1999 DECEMBER 31, 1998
------------------ ------------------
<S> <C> <C>
Net asset value, beginning of period ..... $ 18.51 $ 19.48
------- ---------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income .................. 0.47 0.24
Net realized and unrealized gain
on investments and foreign
currency transactions ................. 2.69 0.66
------- ---------
Total from investment operations ....... 3.16 0.90
------- ---------
LESS DISTRIBUTIONS:
Dividends from net investment
income ................................ (0.54) (0.20)
Dividends in excess of net
investment income ..................... - -
Distributions from realized gains ...... (1.98) (1.67)
Distributions in excess of realized
gains ................................. - -
Tax return of capital distributions .... - -
------- ---------
Total dividends and distributions ...... (2.52) (1.87)
------- ---------
Net asset value, end of period ........... $ 19.15 $ 18.51
======= =========
Total return ............................. 17.50% 4.92%(b)
======= =========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) ........ $10,701 $ 10
Ratio of expenses to average net
assets ................................. 0.69% 0.70%(a)
Ratio of net investment income to
average net assets ..................... 2.43% 2.65%(a)
Portfolio turnover rate .................. 107% 95%
</TABLE>
<PAGE>
74
ALLIANCE COMMON STOCK PORTFOLIO(D)(E):
<TABLE>
<CAPTION>
CLASS IA
-----------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------------ ------------------ ---------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of period ................. $ 24.35 $ 21.61 $ 18.23 $ 16.48 $ 13.36
------------ ------------- ----------- ------------ -----------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income...... 0.17 0.18 0.14 0.15 0.20
Net realized and
unrealized gain on
investments and
foreign currency
transactions ............. 5.84 5.99 5.12 3.73 4.12
------------ ------------- ----------- ------------ -----------
Total from investment
operations ............... 6.01 6.17 5.26 3.88 4.32
------------ ------------- ----------- ------------ -----------
LESS DISTRIBUTIONS:
Dividends from net
investment income ........ (0.16) (0.15) (0.11) (0.15) (0.20)
Dividends in excess of
net investment
income ................... -- -- -- -- (0.02)
Distributions from
realized gains ........... (4.03) (3.28) (1.77) (1.76) (0.95)
Distributions in excess
of realized gains ........ -- -- -- (0.22) (0.03)
Tax return of capital
distributions ............ -- -- -- -- --
------------- -------------- ------------ ------------- ------------
Total dividends and
distributions ............ (4.19) (3.43) (1.88) (2.13) (1.20)
------------- -------------- ------------ ------------- ------------
Net asset value, end of
period .................... $ 26.17 $ 24.35 $ 21.61 $ 18.23 $ 16.48
============= ============== ============ ============= ============
Total return ............... 25.19% 29.39% 29.40% 24.28% 32.45%
============= ============== ============ ============= ============
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000's) ................... $14,951,495 $ 12,061,977 $ 9,331,994 $ 6,625,390 $ 4,879,677
Ratio of expenses to
average net assets ........ 0.38% 0.39% 0.39% 0.38% 0.38%
Ratio of net investment
income to average net
assets .................... 0.65% 0.75% 0.69% 0.85% 1.27%
Portfolio turnover rate .... 57% 46% 52% 55% 61%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CLASS IB
-------------------------------------------------------
OCTOBER 2,*
YEAR ENDED DECEMBER 31, 1996 TO
---------------------------------------- DECEMBER 31,
1999 1998 1997 1996
-------------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
Net asset value, beginning
of period ................. $ 24.30 $ 21.58 $ 18.22 $17.90
---------- -------- -------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income...... 0.10 0.10 0.10 0.02
Net realized and
unrealized gain on
investments and
foreign currency
transactions ............. 5.82 6.00 5.11 1.52
---------- -------- -------- -------
Total from investment
operations ............... 5.92 6.10 5.21 1.54
---------- -------- -------- -------
LESS DISTRIBUTIONS:
Dividends from net
investment income ........ (0.14) (0.10) (0.08) --
Dividends in excess of
net investment
income ................... -- -- -- (0.03)
Distributions from
realized gains ........... (4.03) (3.28) (1.77) (0.16)
Distributions in excess
of realized gains ........ -- -- -- (1.03)
Tax return of capital
distributions ............ -- -- -- --
---------- -------- -------- -------
Total dividends and
distributions ............ (4.17) (3.38) (1.85) (1.22)
---------- -------- -------- -------
Net asset value, end of
period .................... $ 26.05 $ 24.30 $ 21.58 $18.22
========== ======== ======== =======
Total return ............... 24.88% 29.06% 29.07% 8.49%(b)
========== ======== ======== =======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000's) ................... $1,642,066 $834,144 $228,780 $ 1,244
Ratio of expenses to
average net assets ........ 0.63% 0.64% 0.64% 0.63% (a)
Ratio of net investment
income to average net
assets .................... 0.39% 0.44% 0.46% 0.61% (a)
Portfolio turnover rate .... 57% 46% 52% 55%
</TABLE>
<PAGE>
75
ALLIANCE CONSERVATIVE INVESTORS PORTFOLIO(D)(E):
<TABLE>
<CAPTION>
CLASS IA
----------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1999 1998 1997 1996 1995
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period ........................ $ 12.32 $ 11.89 $ 11.29 $ 11.52 $ 10.15
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income ......... 0.47 0.49 0.49 0.50 0.60
Net realized and unrealized
gain on investments and
foreign currency
transactions ................. 0.76 1.12 0.97 0.07 1.43
-------- -------- -------- -------- --------
Total from investment
operations ................... 1.23 1.61 1.46 0.57 2.03
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net
investment income ............ (0.44) (0.48) (0.49) (0.51) (0.59)
Distributions from realized
gains ........................ (0.56) (0.70) (0.37) (0.27) (0.07)
Distributions in excess of
realized gains ............... - - - (0.02) -
Tax return of capital
distributions ................ - - - - -
-------- -------- -------- -------- --------
Total dividends and
distributions ................ (1.00) (1.18) (0.86) (0.80) (0.66)
-------- -------- -------- -------- --------
Net asset value, end of
period ......................... $ 12.55 $ 12.32 $ 11.89 $ 11.29 $ 11.52
======== ======== ======== ======== ========
Total return .................... 10.14% 13.88% 13.25% 5.21% 20.40%
======== ======== ======== ======== ========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000's) ....................... $394,489 $355,441 $307,847 $282,402 $252,101
Ratio of expenses to average
net assets .................... 0.53% 0.53% 0.57% 0.61% 0.59%
Ratio of net investment
income to average
net assets .................... 3.73% 3.99% 4.17% 4.48% 5.48%
Portfolio turnover rate ......... 111% 103% 206% 181% 287%
</TABLE>
<TABLE>
<CAPTION>
CLASS 1B
----------------------------------------
YEAR ENDED MAY 1, 1997*
DECEMBER 31, TO
----------------------- DECEMBER 31,
1999 1998 1997
----------- ----------- ----------------
<S> <C> <C> <C>
Net asset value, beginning of
period ........................ $ 12.31 $ 11.88 $ 11.29
------- ------- ---------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income ......... 0.44 0.46 0.31
Net realized and unrealized
gain on investments and
foreign currency
transactions ................. 0.75 1.12 1.01
------- ------- ---------
Total from investment
operations ................... 1.19 1.58 1.32
------- ------- ---------
LESS DISTRIBUTIONS:
Dividends from net
investment income ............ (0.43) (0.45) (0.36)
Distributions from realized
gains ........................ (0.56) (0.70) (0.37)
Distributions in excess of
realized gains ............... - - -
Tax return of capital
distributions ................ - - -
------- ------- ---------
Total dividends and
distributions ................ (0.99) (1.15) (0.73)
------- ------- ---------
Net asset value, end of
period ......................... $ 12.51 $ 12.31 $ 11.88
======= ======= =========
Total return .................... 9.87% 13.60% 11.84%(b)
======= ======= =========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000's) ....................... $81,555 $32,653 $ 5,694
Ratio of expenses to average
net assets .................... 0.78% 0.78% 0.80%(a)
Ratio of net investment
income to average
net assets .................... 3.48% 3.68% 3.82%(a)
Portfolio turnover rate ......... 111% 103% 206%
</TABLE>
<PAGE>
76
ALLIANCE GLOBAL PORTFOLIO(D)(E):
<TABLE>
<CAPTION>
CLASS IA
----------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
1999 1998 1997 1996 1995
-------------- -------------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period .......................... $ 19.46 $ 17.29 $ 16.92 $ 15.74 $ 13.87
---------- ---------- ---------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income ........... 0.10 0.14 0.17 0.21 0.26
Net realized and unrealized
gain on investments and
foreign currency
transactions ................... 7.25 3.56 1.75 2.05 2.32
---------- ---------- ---------- -------- --------
Total from investment
operations ..................... 7.35 3.70 1.92 2.26 2.58
---------- ---------- ---------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net
investment income .............. (0.02) (0.22) (0.36) (0.21) (0.25)
Dividends in excess of net
investment income .............. - - - (0.08) -
Distributions from realized
gains .......................... (1.63) (1.31) (1.19) (0.79) (0.42)
Distributions in excess of
realized gains ................. - - - - (0.03)
Tax return of capital
distributions .................. - - - - (0.01)
---------- ---------- ---------- -------- --------
Total dividends and
distributions .................. (1.65) (1.53) (1.55) (1.08) (0.71)
---------- ---------- ---------- -------- --------
Net asset value, end of period..... $ 25.16 $ 19.46 $ 17.29 $ 16.92 $ 15.74
========== ========== ========== ======== ========
Total return ...................... 38.53% 21.80% 11.66% 14.60% 18.81%
========== ========== ========== ======== ========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000's) ......................... $1,869,185 $1,360,220 $1,203,867 $997,041 $686,140
Ratio of expenses to average
net assets ...................... 0.70% 0.71% 0.69% 0.60% 0.61%
Ratio of net investment
income to average net
assets .......................... 0.45% 0.72% 0.97% 1.28% 1.76%
Portfolio turnover rate ........... 93% 105% 57% 59% 67%
</TABLE>
<TABLE>
<CAPTION>
CLASS 1B
-----------------------------------------------------
OCTOBER 2,*
YEAR ENDED DECEMBER 31, 1996 TO
------------------------------------ DECEMBER 31,
1999 1998 1997 1996
------------ ----------- ----------- ----------------
<S> <C> <C> <C> <C>
Net asset value, beginning of
period .......................... $ 19.41 $ 17.27 $ 16.91 $ 16.57
-------- ------- ------- ---------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income ........... 0.03 0.08 0.12 0.02
Net realized and unrealized
gain on investments and
foreign currency
transactions ................... 7.24 3.56 1.76 0.81
-------- ------- ------- ---------
Total from investment
operations ..................... 7.27 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 .......................... (1.63) (1.31) (1.19) (0.10)
Distributions in excess of
realized gains ................. - - - (0.28)
Tax return of capital
distributions .................. - - - -
-------- ------- ------- ---------
Total dividends and
distributions .................. (1.63) (1.50) (1.52) (0.49)
-------- ------- ------- ---------
Net asset value, end of period..... $ 25.05 $ 19.41 $ 17.27 $ 16.91
======== ======= ======= =========
Total return ...................... 38.17% 21.50% 11.38% 4.98%(b)
======== ======= ======= =========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000's) ......................... $121,052 $47,982 $21,520 $ 290
Ratio of expenses to average
net assets ...................... 0.95% 0.96% 0.97% 0.86%(a)
Ratio of net investment
income to average net
assets .......................... 0.16% 0.41% 0.67% 0.48%(a)
Portfolio turnover rate ........... 93% 105% 57% 59%
</TABLE>
<PAGE>
77
ALLIANCE GROWTH AND INCOME PORTFOLIO(D)(E):
<TABLE>
<CAPTION>
CLASS IA
-----------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
1999 1998 1997 1996 1995
-------------- ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period ........................... $ 16.99 $ 15.38 $ 13.01 $ 11.70 $ 9.70
----------- -------- -------- -------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income ............ 0.06 0.06 0.15 0.24 0.33
Net realized and unrealized
gain (loss) on investments....... 3.05 3.08 3.30 2.05 1.97
----------- -------- -------- -------- -------
Total from investment
operations ...................... 3.11 3.14 3.45 2.29 2.30
----------- -------- -------- -------- -------
LESS DISTRIBUTIONS:
Dividends from net
investment income ............... (0.05) (0.05) (0.15) (0.23) (0.30)
Distributions from realized
gains ........................... (1.81) (1.48) (0.93) (0.75) -
Tax return of capital
distributions ................... - - - - -
----------- -------- -------- -------- -------
Total dividends and
distributions ................... (1.86) (1.53) (1.08) (0.98) (0.30)
----------- -------- -------- -------- -------
Net asset value, end of period ..... $ 18.24 $ 16.99 $ 15.38 $ 13.01 $ 11.70
----------- -------- -------- -------- -------
Total return ....................... 18.66% 20.86% 26.90% 20.09% 24.07%
=========== ======== ======== ======== =======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000's) .......................... $ 1,241,619 $877,744 $555,059 $232,080 $98,053
Ratio of expenses to average net
assets ........................... 0.57% 0.58% 0.58% 0.58% 0.60%
Ratio of net investment income
to average net assets ............ 0.33% 0.38% 0.99% 1.94% 3.11%
Portfolio turnover rate ............ 70% 74% 79% 88% 65%
</TABLE>
<TABLE>
<CAPTION>
CLASS IB
--------------------------------------------
YEAR END DECEMBER 31, MAY 1, 1997*
------------------------- TO
1999 1998 DECEMBER 31, 1997
------------ ------------ ------------------
<S> <C> <C> <C>
Net asset value, beginning of
period ........................... $ 16.95 $ 15.36 $ 13.42
-------- -------- ---------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income ............ 0.01 0.03 0.05
Net realized and unrealized
gain (loss) on investments....... 3.04 3.07 2.91
-------- -------- ---------
Total from investment
operations ...................... 3.05 3.10 2.96
-------- -------- ---------
LESS DISTRIBUTIONS:
Dividends from net
investment income ............... (0.03) (0.03) (0.09)
Distributions from realized
gains ........................... (1.81) (1.48) (0.93)
Tax return of capital
distributions ................... - - -
-------- -------- ---------
Total dividends and
distributions ................... (1.84) (1.51) (1.02)
-------- -------- ---------
Net asset value, end of period ..... $ 18.16 $ 16.95 $ 15.36
-------- -------- ---------
Total return ....................... 18.37% 20.56% 22.41%(b)
======== ======== =========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000's) .......................... $261,663 $120,558 $ 32,697
Ratio of expenses to average net
assets ........................... 0.82% 0.83% 0.83%(a)
Ratio of net investment income
to average net assets ............ 0.06% 0.17% 0.43%(a)
Portfolio turnover rate ............ 70% 74% 79%
</TABLE>
<PAGE>
78
ALLIANCE GROWTH INVESTORS PORTFOLIO(D)(E):
<TABLE>
<CAPTION>
CLASS IA
------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
1999 1998 1997 1996 1995
-------------- -------------- --------------- -------------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of period ...................... $ 19.87 $ 18.55 $ 17.20 $ 17.68 $ 14.66
---------- ---------- ----------- ---------- --------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income .......... 0.37 0.41 0.41 0.40 0.57
Net realized and
unrealized gain on
investments and foreign
currency transactions ......... 4.83 3.03 2.43 1.66 3.24
---------- ---------- ----------- ---------- --------
Total from investment
operations .................... 5.20 3.44 2.84 2.06 3.81
---------- ---------- ----------- ---------- --------
LESS DISTRIBUTIONS:
Dividends from net
investment income ............. (0.35) (0.41) (0.46) (0.40) (0.54)
Dividends in excess of net
investment income ............. -- -- -- (0.03) (0.01)
Distributions from
realized gains................. (2.15) (1.71) (1.03) (2.10) (0.24)
Distributions in excess of
realized gains................. -- -- -- (0.01) --
Tax return of capital
distributions ................. -- -- -- -- --
---------- ---------- ----------- ---------- --------
Total dividends and
distributions ................. (2.50) (2.12) (1.49) (2.54) (0.79)
---------- ---------- ----------- ---------- --------
Net asset value, end of
period .......................... $ 22.57 $ 19.87 $ 18.55 $ 17.20 $ 17.68
========== ========== =========== ========== ========
Total return .................... 26.58% 19.13% 16.87% 12.61% 26.37%
========== ========== =========== ========== ========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000's) ........................ $2,495,787 $1,963,074 $ 1,630,389 $1,301,643 $896,134
Ratio of expenses to
average net assets ............. 0.53% 0.55% 0.57% 0.57% 0.56%
Ratio of net investment
income to average net
assets ......................... 1.71% 2.10% 2.18% 2.31% 3.43%
Portfolio turnover rate ......... 98% 102% 121% 190% 107%
</TABLE>
<TABLE>
<CAPTION>
CLASS IB
----------------------------------------------------------
OCTOBER 2,*
YEAR ENDED DECEMBER 31, 1996 TO
----------------------------------------- DECEMBER 31,
1999 1998 1997 1996
------------- -------------- ------------ ----------------
<S> <C> <C> <C> <C>
Net asset value, beginning
of period ...................... $ 19.84 $ 18.52 $ 17.19 $ 16.78
---------- ---------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income .......... 0.31 0.36 0.36 0.07
Net realized and
unrealized gain on
investments and foreign
currency transactions ......... 4.82 3.03 2.43 0.71
---------- ---------- -------- --------
Total from investment
operations .................... 5.13 3.39 2.79 0.78
---------- ---------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net
investment income ............. (0.31) (0.36) (0.43) (0.02)
Dividends in excess of net
investment income ............. -- -- -- (0.09)
Distributions from
realized gains................. (2.15) (1.71) (1.03) (0.02)
Distributions in excess of
realized gains................. -- -- -- (0.24)
Tax return of capital
distributions ................. -- -- -- --
---------- ---------- -------- --------
Total dividends and
distributions ................. (2.46) (2.07) (1.46) (0.37)
---------- ---------- -------- --------
Net asset value, end of
period .......................... $ 22.51 $ 19.84 $ 18.52 $ 17.19
========== ========== ======== ========
Total return .................... 26.27% 18.83% 16.58% 4.64%(b)
========== ========== ======== ========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000's) ........................ $ 202,850 $ 92,027 $ 35,730 $ 472
Ratio of expenses to
average net assets ............. 0.78% 0.80% 0.82% 0.84%(a)
Ratio of net investment
income to average net
assets ......................... 1.44% 1.85% 1.88% 1.69%(a)
Portfolio turnover rate ......... 98% 102% 121% 190%
</TABLE>
<PAGE>
79
ALLIANCE HIGH YIELD PORTFOLIO(D)(E):
<TABLE>
<CAPTION>
CLASS IA
-----------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
1999 1998 1997 1996 1995
------------ ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period ............................. $ 8.71 $ 10.41 $ 10.02 $ 9.64 $ 8.91
------- ------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income .............. 0.90 1.07 1.04 1.02 0.98
Net realized and unrealized
gain (loss) on investments......... (1.19) (1.56) 0.75 1.07 0.73
------- ------- ------- ------- -------
Total from investment
operations ........................ (0.29) (0.49) 1.79 2.09 1.71
------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net
investment income ................. (0.96) (1.03) (0.97) (0.98) (0.94)
Dividends in excess of net
investment income ................. - - - (0.03) (0.04)
Distributions from realized
gains ............................. (0.01) (0.18) (0.43) (0.70) -
Distributions in excess of
realized gains .................... - - - - -
Return of capital distributions..... (0.02) - - - -
------- ------- ------- ------- -------
Total dividends and
distributions ..................... (0.99) (1.21) (1.40) (1.71) (0.98)
------- ------- ------- ------- -------
Net asset value, end of period ....... $ 7.43 $ 8.71 $ 10.41 $ 10.02 $ 9.64
======= ======= ======= ======= =======
Total return ......................... (3.35)% (5.15)% 18.48% 22.89% 19.92%
======= ======= ======= ======= =======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000's) ............................ $336,292 $405,308 $355,473 $199,360 $118,129
Ratio of expenses to average net
assets ............................. 0.63% 0.63% 0.62% 0.59% 0.60%
Ratio of net investment income
to average net assets .............. 10.53% 10.67% 9.82% 9.93% 10.34%
Portfolio turnover rate .............. 178% 181% 390% 485% 350%
</TABLE>
<TABLE>
<CAPTION>
CLASS IB
-------------------------------------------------------
OCTOBER 2,*
YEAR ENDED DECEMBER 31, 1996 TO
-------------------------------------- DECEMBER 31,
1999 1998 1997 1996
------------ ------------- ----------- ----------------
<S> <C> <C> <C> <C>
Net asset value, beginning of
period ............................. $ 8.69 $ 10.39 $ 10.01 $ 10.25
------- ------- ------- ---------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income .............. 0.87 1.04 1.05 0.19
Net realized and unrealized
gain (loss) on investments......... (1.18) (1.56) 0.71 0.15
------- ------- ------- ---------
Total from investment
operations ........................ (0.31) (0.52) 1.76 0.34
------- ------- ------- ---------
LESS DISTRIBUTIONS:
Dividends from net
investment income ................. (0.95) (1.00) (0.95) (0.03)
Dividends in excess of net
investment income ................. - - - (0.25)
Distributions from realized
gains ............................. (0.01) (0.18) (0.43) (0.01)
Distributions in excess of
realized gains .................... - - - (0.29)
Return of capital distributions..... (0.02) - - -
------- ------- ------- ---------
Total dividends and
distributions ..................... (0.98) (1.18) (1.38) (0.58)
------- ------- ------- ---------
Net asset value, end of period ....... $ 7.40 $ 8.69 $ 10.39 $ 10.01
======= ======= ======= =========
Total return ......................... (3.58)% (5.38)% 18.19% 3.32%(b)
======= ======= ======= =========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000's) ............................ $230,290 $207,042 $66,338 $ 685
Ratio of expenses to average net
assets ............................. 0.88% 0.88% 0.88% 0.82%(a)
Ratio of net investment income
to average net assets .............. 10.25% 10.60% 9.76% 8.71%(a)
Portfolio turnover rate .............. 178% 181% 390% 485%
</TABLE>
<PAGE>
80
ALLIANCE INTERMEDIATE GOVERNMENT SECURITIES PORTFOLIO(D)(E):
<TABLE>
<CAPTION>
CLASS IA
----------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1999 1998 1997 1996 1995
------------ ------------ ------------ ----------- -------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ............ $ 9.67 $ 9.44 $ 9.29 $ 9.47 $ 8.87
-------- ------- ------- ------ --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ......................... 0.50 0.50 0.53 0.54 0.58
Net realized and unrealized gain (loss) on
investments .................................. (0.49) 0.21 0.13 (0.19) 0.57
-------- ------- ------- ------- --------
Total from investment operations .............. 0.01 0.71 0.66 0.35 1.15
-------- ------- ------- ------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income. ......... (0.50) (0.48) (0.51) (0.53) (0.55)
-------- -------- -------- ------- ---------
Net asset value, end of period .................. $ 9.18 $ 9.67 $ 9.44 $ 9.29 $ 9.47
======== ======== ======== ======= =========
Total return .................................... 0.02% 7.74% 7.29% 3.78% 13.33%
======== ======== ======== ======= =========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) ............... $156,864 $153,383 $115,114 $88,384 $71,780
Ratio of expenses to average net assets ......... 0.55% 0.55% 0.55% 0.56% 0.57%
Ratio of net investment income to average
net assets .................................... 5.16% 5.21% 5.61% 5.73% 6.15%
Portfolio turnover rate ......................... 408% 539% 285% 318% 255%
</TABLE>
<TABLE>
<CAPTION>
CLASS IB
--------------------------------------------------
MAY 1, 1997*
YEAR ENDED DECEMBER 31, TO
------------------------------ DECEMBER 31,
1999 1998 1997
-------------- --------------- -------------------
<S> <C> <C> <C>
Net asset value, beginning of period ............ $ 9.66 $ 9.43 $ 9.27
-------- ---------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ......................... 0.47 0.47 0.32
Net realized and unrealized gain (loss) on
investments .................................. (0.49) 0.22 0.22
-------- ---------- --------
Total from investment operations .............. (0.02) 0.69 0.54
-------- ---------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income. ......... (0.49) (0.46) (0.38)
-------- ---------- --------
Net asset value, end of period .................. $ 9.15 $ 9.66 $ 9.43
======== ========== ========
Total return .................................... (0.23)% 7.48% 5.83%(b)
======== ========== ========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) ............... $45,911 $30,898 $5,052
Ratio of expenses to average net assets ......... 0.80% 0.80% 0.81%(a)
Ratio of net investment income to average
net assets .................................... 4.91% 4.87% 5.15%(a)
Portfolio turnover rate ......................... 408% 539% 285%
</TABLE>
<PAGE>
81
ALLIANCE MONEY MARKET PORTFOLIO(D)(E):
<TABLE>
<CAPTION>
CLASS IA
----------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
1999 1998 1997 1996 1995
--------------- -------------- -------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.22 $ 10.18 $ 10.17 $ 10.16 $ 10.14
----------- ---------- ---------- ----------- ----------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income ................ 0.51 0.53 0.54 0.54 0.57
Net realized and unrealized gain
(loss) on investments ............... - - - (0.01) -
----------- ---------- ---------- ----------- ----------
Total from investment operations...... 0.51 0.53 0.54 0.53 0.57
----------- ---------- ---------- ----------- ----------
LESS DISTRIBUTIONS:
Dividends from net investment
income .............................. (0.45) (0.49) (0.53) (0.52) (0.55)
Dividends in excess of net
investment income ................... - - - - -
Dividends from realized gains ........ - - - - -
----------- ---------- ---------- ----------- ----------
Total dividends and distributions..... (0.45) (0.49) (0.53) (0.52) (0.55)
----------- ---------- ---------- ----------- ----------
Net asset value, end of period ......... $ 10.28 $ 10.22 $ 10.18 $ 10.17 $ 10.16
=========== ========== ========== =========== ==========
Total return ........................... 4.96% 5.34% 5.42% 5.33% 5.74%
=========== ========== ========== =========== ==========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) ...... $ 883,988 $723,311 $449,960 $463,422 $386,691
Ratio of expenses to average net
assets ............................... 0.37% 0.37% 0.39% 0.43% 0.44%
Ratio of net investment income to
average net assets ................... 4.91% 5.13% 5.28% 5.17% 5.53%
</TABLE>
<TABLE>
<CAPTION>
CLASS IB
------------------------------------------------------------------
OCTOBER 2,
YEAR ENDED DECEMBER 31, 1996* TO
------------------------------------------------ DECEMBER 31,
1999 1998 1997 1996
--------------- ---------------- --------------- -----------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.21 $ 10.17 $ 10.16 $ 10.16
----------- ----------- ---------- ---------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income ................ 0.49 0.49 0.52 0.11
Net realized and unrealized gain
(loss) on investments ............... (0.01) 0.02 - 0.01
----------- ----------- ----------- ---------
Total from investment operations...... 0.48 0.51 0.52 0.12
----------- ----------- ----------- ---------
LESS DISTRIBUTIONS:
Dividends from net investment
income .............................. (0.44) (0.47) (0.51) (0.02)
Dividends in excess of net
investment income ................... - - - (0.10)
Dividends from realized gains ........ - - - -
----------- ------------ ----------- ---------
Total dividends and distributions..... (0.44) (0.47) (0.51) (0.12)
----------- ------------ ----------- ---------
Net asset value, end of period ......... $ 10.25 $ 10.21 $ 10.17 $ 10.16
=========== ============ =========== =========
Total return ........................... 4.71% 5.08% 5.16% 1.29%(b)
=========== ============ =========== =========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) ...... $559,713 $386,718 $123,675 $ 3,184
Ratio of expenses to average net
assets ............................... 0.62% 0.62% 0.63% 0.67%(a)
Ratio of net investment income to
average net assets ................... 4.68% 4.82% 5.02% 4.94%(a)
</TABLE>
<PAGE>
82
BT EQUITY 500 INDEX PORTFOLIO:**
<TABLE>
<CAPTION>
CLASS IB
--------------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998
------------------- ------------------
<S> <C> <C>
Net asset value, beginning of period .................................................... $ 12.45 $ 10.00
-------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ................................................................. 0.08 0.06
Net realized and unrealized gain on investments and foreign currency transactions ..... 2.44 2.45
-------- --------
Total from investment operations ...................................................... 2.52 2.51
-------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income .................................................. (0.08) (0.06)
Distributions from realized gains ..................................................... (0.04) -
-------- --------
Total dividends and distributions ..................................................... (0.12) (0.06)
-------- --------
Net asset value, end of period .......................................................... $ 14.85 $ 12.45
======== ========
Total return ............................................................................ 20.30% 25.14%
======== ========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) ....................................................... $683,544 $224,247
Ratio of expenses to average net assets after waivers ................................... 0.55% 0.55%
Ratio of expenses to average net assets before waivers (f) .............................. 0.67% 0.83%
Ratio of net investment income to average net assets after waivers ...................... 0.84% 1.22%
Ratio of net investment income to average net assets before waivers (f) ................. 0.72% 0.94%
Portfolio turnover rate ................................................................. 2% 2%
Effect of voluntary expense limitation during the period: (f)
Per share benefit to net investment income ........................................... $ 0.01 $ 0.01
</TABLE>
<PAGE>
83
LAZARD SMALL CAP VALUE PORTFOLIO:**
<TABLE>
<CAPTION>
CLASS IB
----------------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998
------------------- ------------------
<S> <C> <C>
Net asset value, beginning of period ............................................ $ 9.27 $ 10.00
------ -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ......................................................... 0.04 0.02
Net realized and unrealized gain (loss) on investments and foreign currency
transactions 0.11 (0.72)
------ -------
Total from investment operations .............................................. 0.15 (0.70)
------ -------
LESS DISTRIBUTIONS:
Dividends from net investment income .......................................... (0.04) (0.03)
Distributions from realized gains ............................................. (0.06) -
------- -------
Total dividends and distributions ............................................. (0.10) (0.03)
------- -------
Net asset value, end of period .................................................. $ 9.32 $ 9.27
======= =======
Total return .................................................................... 1.66% (7.03)%
======= =======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) ............................................... $72,607 $51,046
Ratio of expenses to average net assets after waivers ........................... 1.20% 1.20%
Ratio of expenses to average net assets before waivers (f) ...................... 1.30% 1.54%
Ratio of net investment income to average net assets after waivers .............. 0.48% 0.52%
Ratio of net investment income to average net assets before waivers (f) ......... 0.39% 0.18%
Portfolio turnover rate ......................................................... 48% 21%
Effect of voluntary expense limitation during the period: (f)
Per share benefit to net investment income ................................... $ 0.01 $ 0.02
</TABLE>
<PAGE>
84
MFS EMERGING GROWTH COMPANIES PORTFOLIO:
<TABLE>
<CAPTION>
CLASS IA
--------------------------------------------
NOVEMBER 24, 1998*
YEAR ENDED TO
DECEMBER 31, 1999 DECEMBER 31, 1998
------------------- ------------------------
<S> <C> <C>
Net asset value, beginning of period ..... $ 16.04 $ 14.18
--------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income (loss) ........... 0.01 -
Net realized and unrealized gain on
investments and foreign currency
transactions .......................... 11.83 1.86
--------- -------
Total from investment operations ....... 11.84 1.86
--------- -------
LESS DISTRIBUTIONS:
Dividends from net investment
income ................................ - -
Dividends in excess of net
investment income ..................... - -
Distributions from realized gains ...... (0.48) -
Distributions in excess of realized
gains ................................. - -
--------- -------
Total dividends and distributions ...... (0.48) -
--------- -------
Net asset value, end of period ........... $ 27.40 $ 16.04
========= =======
Total return ............................. 74.43% 13.12%(b)
========= =======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) ........ $ 46,248 $ 5,978
Ratio of expenses to average net
assets after waivers ................... 0.60 %(c) 0.60%(a)(c)
Ratio of expenses to average net
assets before waivers (f) .............. 0.70 %(c) 0.79%(a)(c)
Ratio of net investment income to
average net assets after waivers ....... 0.09 %(c) (0.05)%(a)(c)
Ratio of net investment income to
average net assets before
waivers (f) ............................ (0.01)%(c) (0.24)%(a)(c)
Portfolio turnover rate .................. 184% 79%
Effect of voluntary expense
limitation during the period: (f)
Per share benefit to net
investment income .................... $ 0.01 $ -
</TABLE>
<TABLE>
<CAPTION>
CLASS IB
----------------------------------------------------------
MAY 1, 1997*
YEAR ENDED YEAR ENDED TO
DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997
------------------- ------------------- ------------------
<S> <C> <C> <C>
Net asset value, beginning of period ..... $ 16.04 $ 11.92 $ 10.00
--------- ------- --------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income (loss) ........... (0.02) (0.03) 0.02
Net realized and unrealized gain on
investments and foreign currency
transactions .......................... 11.79 4.15 2.21
--------- ------- --------
Total from investment operations ....... 11.77 4.12 2.23
--------- ------- --------
LESS DISTRIBUTIONS:
Dividends from net investment
income ................................ - - (0.02)
Dividends in excess of net
investment income ..................... - - -
Distributions from realized gains ...... (0.48) - (0.18)
Distributions in excess of realized
gains ................................. - - (0.11)
--------- ------- --------
Total dividends and distributions ...... (0.48) - (0.31)
--------- ------- --------
Net asset value, end of period ........... $ 27.33 $ 16.04 $ 11.92
========= ======= ========
Total return ............................. 73.62% 34.57% 22.42%(b)
========= ======= ========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) ........ $1,665,635 $461,307 $ 99,317
Ratio of expenses to average net
assets after waivers ................... 0.85%(c) 0.85%(c) 0.85%(a)
Ratio of expenses to average net
assets before waivers (f) .............. 0.95%(c) 1.04%(c) 1.82%(a)
Ratio of net investment income to
average net assets after waivers ....... (0.16)%(c) (0.30)%(c) 0.61%(a)
Ratio of net investment income to
average net assets before
waivers (f) ............................ (0.26)%(c) (0.49)%(c) (0.36)%(a)
Portfolio turnover rate .................. 184% 79% 116%
Effect of voluntary expense
limitation during the period: (f)
Per share benefit to net
investment income .................... $ 0.01 $ 0.02 $ 0.04
</TABLE>
<PAGE>
85
T. ROWE PRICE INTERNATIONAL STOCK PORTFOLIO:
<TABLE>
<CAPTION>
CLASS IB
---------------------------------------------------------
MAY 1, 1997*
YEAR ENDED YEAR ENDED TO
DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997
------------------ ------------------ ------------------
<S> <C> <C> <C>
Net asset value, beginning of period .................................... $ 11.10 $ 9.85 $ 10.00
-------- -------- ---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ................................................. 0.06 0.06 0.02
Net realized and unrealized gain (loss) on investments and foreign
currency transactions ................................................ 3.46 1.28 (0.17)
-------- -------- ---------
Total from investment operations ...................................... 3.52 1.34 (0.15)
-------- -------- ---------
LESS DISTRIBUTIONS:
Dividends from net investment income .................................. (0.05) (0.07) -
Dividends in excess of net investment income .......................... - (0.02) -
Distributions in excess of realized gains ............................. (0.15) - -
Tax return of capital distributions ................................... - - -
-------- -------- ---------
Total dividends and distributions ..................................... (0.20) (0.09) -
-------- -------- ---------
Net asset value, end of period .......................................... $ 14.42 $ 11.10 $ 9.85
======== ======== =========
Total return ............................................................ 31.92% 13.68% (1.49)%(b)
======== ======== =========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) ....................................... $214,899 $134,653 $ 69,572
Ratio of expenses to average net assets after waivers ................... 1.20% 1.20% 1.20%(a)
Ratio of expenses to average net assets before waivers (f) .............. 1.29% 1.40% 2.56%(a)
Ratio of net investment income to average net assets after waivers ...... 0.51% 0.67% 0.45%(a)
Ratio of net investment income to average net assets before waivers (f).. 0.42% 0.47% (0.91)%(a)
Portfolio turnover rate ................................................. 25% 22% 17%
Effect of voluntary expense limitation during the period: (f)
Per share benefit to net investment income ........................... $ 0.01 $ 0.02 $ 0.05
</TABLE>
- ----------
* Commencement of Operations
** Commenced operations on January 1, 1998.
(a) Annualized
(b) Total return is not annualized.
(c) Reflects overall Portfolio ratios for investment income and non-class
specific expense.
(d) On October 18, 1999, this Portfolio received, through a substitution
transaction, the assets and liabilities of the Hudson River Trust Portfolio
that followed the same investment objectives as this Portfolio. The
information for each of the preceding periods is that of the predecessor
Hudson River Trust Portfolio. Information for the year ended December 31,
1999 includes the results of operations of the predecessor Hudson River
Trust Portfolio from January 1, 1999 through October 17, 1999.
(e) Net investment income and capital changes per share are based on monthly
average shares outstanding.
(f) For further information concerning fee waivers see the section entitled
"Expense Limitation Agreement" in this Prospectus.
<PAGE>
86
10 Prior performance of each adviser
- --------------------------------------------------------------------------------
The following table provides information concerning the historical performance
of another registered investment company (or series) and/or other institutional
private accounts managed by each Adviser that have 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 the Advisers in managing substantially
similar investment vehicles as measured against 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 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.
The performance results for the registered investment companies presented below
are generally subject to somewhat lower fees and expenses than the relevant
Portfolios although in most instances the fees and expenses are substantially
similar. In addition, holders of Contracts representing interests in the
Portfolios below will be subject to charges and expenses relating to such
Contracts. The performance results presented below do not reflect any insurance
related expenses and would be reduced if such charges were reflected.
The investment results presented below are unaudited. For more information on
the specified market indices used below, see the section "The Benchmarks."
<PAGE>
87
ANNUAL RATES OF RETURN OF OTHER FUNDS OR ACCOUNTS MANAGED BY ADVISERS
AS OF 12/31/99
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>
- ----------------------------------------------------------------------------------------------------------------------------
1 5 10 Since Inception
OTHER FUND OR ACCOUNT MANAGED BY ADVISER (EQAT Portfolio) Year Years Years Inception Date
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Benchmark
- ----------------------------------------------------------------------------------------------------------------------------
BT INSTITUTIONAL FUNDS - EQUITY 500 INDEX FUND - INSTITUTIONAL CLASS(5) (BT EQUITY 500 INDEX PORTFOLIO)
- ----------------------------------------------------------------------------------------------------------------------------
20.75% 28.46% N/A 21.45% 12/31/92
- ----------------------------------------------------------------------------------------------------------------------------
S&P 500 Index(1) 21.04% 28.56% N/A 21.53%
- ----------------------------------------------------------------------------------------------------------------------------
THE LAZARD FUNDS, INC. - LAZARD SMALL CAP PORTFOLIO(5) (LAZARD SMALL CAP VALUE PORTFOLIO)
- ----------------------------------------------------------------------------------------------------------------------------
1.77% 11.39% N/A 14.24% 10/1/91
- ----------------------------------------------------------------------------------------------------------------------------
Russell 2000 Index(2) 21.26% 16.69% N/A 14.77%
- ----------------------------------------------------------------------------------------------------------------------------
MFS EMERGING GROWTH FUND(4,6) (MFS EMERGING GROWTH COMPANIES PORTFOLIO)
- ----------------------------------------------------------------------------------------------------------------------------
41.45% 28.05% 24.72% N/A 12/29/86
- ----------------------------------------------------------------------------------------------------------------------------
Russell 2000 Index(2) 21.26% 16.69% 13.40% N/A
- ----------------------------------------------------------------------------------------------------------------------------
T. ROWE PRICE INTERNATIONAL STOCK FUND(5) (T. ROWE PRICE INTERNATIONAL STOCK PORTFOLIO)
- ----------------------------------------------------------------------------------------------------------------------------
34.60% 15.71% 11.38% 15.17% 5/9/80
- ----------------------------------------------------------------------------------------------------------------------------
MSCI EAFE Index(3) 27.30% 13.15% 7.33% N/A
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) 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.
(2) 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.
(3) The Morgan Stanley Capital International EAFE Index ("EAFE Index") is an
unmanaged capitalization-weighted measure of stock markets in Europe,
Australasia 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.
(4) The results for the MFS Emerging Growth Fund (Class B shares) do not
reflect sales charges that may be imposed on the such shares.
(5) The annual fees and expenses of the similar registered investment company
(or series thereof) (or composite) whose prior performance is shown in the
table above were less than that of the relevant Trust Portfolio.
Consequently, if the Trust Portfolio's annual fees and expenses were used
in the calculation of the performance of the similar registered investment
company (or composite) that performance would be reduced.
(6) The annual fees and expenses of the similar registered investment company
(or series thereof) (or composite) whose prior performance is shown in the
table above were higher than that of the relevant Trust Portfolio.
Consequently, if the Trust Portfolio's annual fees and expenses were used
in the calculation of the performance of the similar registered investment
company (or composite) that performance would be increased.
<PAGE>
88
If you wish to know more, you will find additional information about the Trust
and its Portfolios in the following documents, which are available, free of
charge by calling our toll-free number at 1-800-528-0204:
ANNUAL AND SEMI-ANNUAL REPORTS
The Annual and Semi-Annual Reports include more information about the Trust's
performance and are 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 May 1, 2000, 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.
or by electronic request at [email protected] or by writing the SEC's Public
Reference Section, Washington, D.C. 20549-0102 You may have to pay a duplicating
fee. To find out more about the Public Reference Room, call the SEC at
1-202-942-8090.
Investment Company Act File Number: 811-07953
