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Registration Nos. 33-__________
811-__________
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 3, 1996.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 /x/
Pre-Effective Amendment No. / /
Post-Effective Amendment No. / /
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 /x/
Amendment No. / /
(Check appropriate box or boxes)
787 TRUST
(Exact name of registrant as specified in charter)
787 Seventh Avenue
New York, New York 10019
(Address of principal executive offices)
Registrant's Telephone Number, including area code: (212) 554-1234
Peter D. Noris, Executive Vice President and
Chief Investment Officer
The Equitable Life Assurance Society of the United States
787 Seventh Avenue, 47th Floor
New York, New York 10019
(Name and address of agent for service)
Please send copies of all communications to:
Jane A. Kanter Naomi Friedland-Wechsler
Katten Muchin & Zavis General Counsel
1025 Thomas Jefferson Street, N.W. EQ Financial Consultants, Inc.
East Lobby, Suite 700 787 Seventh Avenue
Washington, D.C. 20007 New York, New York 10019
Approximate date of proposed public offering: As soon as practicable after the
effective date of this Registration Statement.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.
Pursuant to the provisions of Rule 24f-2 under the Investment Company Act of
1940, an indefinite number of shares of common stock is being registered by
this Registration Statement.
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787 TRUST
Contents of Registration Statement
This registration statement consists of the following papers and documents:
Cover Sheet
Contents of Registration Statement
Cross Reference Sheet
Part A - Prospectus
Part B - Statement of Additional Information
Part C - Other Information
Signature Page
Exhibits
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787 TRUST:
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CROSS REFERENCE SHEET
PART A. ITEM NO. AND CAPTIONS CAPTION IN PROSPECTUS
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1. Cover Page Cover Page
2. Synopsis Not Applicable
3. Condensed Financial Information Not Applicable
4. General Description of Registrant The Trust; Description of the Trust
and Trust's Shares -- The Trust
5. Management of the Fund Management of the Trust
5A. Management's Discussion of Fund Not Applicable
Performance
6. Capital Stock and Other Securities Dividends, Distributions And Taxes
7. Purchase of Securities Being Offered Description of the Trust and Trust's
Shares -- Purchase and Redemption of
Shares
8. Redemption or Repurchase Description of the Trust and Trust's
Shares -- Purchase and Redemption of
Shares
9. Pending Legal Proceedings Not Applicable
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PART B. ITEM NO. AND CAPTIONS CAPTION IN STATEMENT OF ADDITIONAL
INFORMATION
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10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History General Information and History
13. Investment Objectives and Policies Description of Certain Securities In
Which the Portfolios May Invest;
Investment Restrictions
14. Management of the Fund Management of the Trust
15. Control Persons and Principal Holders of General Information and History
Securities
16. Investment Advisory and Other Services Investment Management and Other
Services
17. Brokerage Allocation and Other Practices Brokerage Allocation
18. Capital Stock and Other Securities General Information and History
19. Purchase, Redemption, and Pricing of Purchase and Pricing of Securities;
Securities Being Offered Redemption of Shares
20. Tax Status Certain Tax Considerations
21. Underwriters Investment Management and Other
Services
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22. Calculation of Performance Data Not Applicable
23. Financial Statements Not Applicable
PART C. Information required to be included in Part C is set
forth under the appropriate item, so numbered, in Part C of
this Registration Statement.
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787 TRUST
787 SEVENTH AVENUE
NEW YORK, NEW YORK 10019
787 Trust ("Trust") is a diversified, open-end management investment company,
that offers a selection of professionally managed investment portfolios
("Portfolios"). Each Portfolio has its own investment objective and policies
that are designed to meet different investment goals.
This Prospectus describes the following five Portfolios currently offered by
the Trust.
* T. Rowe Price International Stock Portfolio
* T. Rowe Price Equity Income Portfolio
* Putnam Growth and Income Portfolio
* Putnam International Growth Portfolio
* MFS Research Portfolio
The Trust offers two classes of shares on behalf of each Portfolio: Class IA
shares offered hereby and Class IB shares offered pursuant to another
prospectus.
This Prospectus sets forth concisely the information about the Trust and the
Portfolios that a prospective investor should know before investing. Please
read the Prospectus and retain it for future reference. Additional information
contained in a Statement of Additional Information also dated __________, 1997
has been filed with the Securities and Exchange Commission and is available
upon request without charge by writing to the Trust at the address noted above
or calling 1-800-__________. The Statement of Additional Information is
incorporated into this Prospectus by reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The Date of This Prospectus is ________________, 1997.
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THE TRUST
The Trust is an open-end management investment company registered under the
Investment Company Act of 1940, as amended ("1940 Act"). As a "series" type of
mutual fund, the Trust issues shares of beneficial interest that are currently
divided among five Portfolios. Each Portfolio is a separate diversified series
of the Trust with its own objective and policies. The Trustees of the Trust
may establish additional Portfolios at any time.
Each Portfolio is managed by EQ Financial Consultants, Inc. ("Manager") which
directs the day-to-day operations of each Portfolio. Rowe Price-Fleming
International, Inc., T. Rowe Price Associates, Inc., Putnam Investment
Management, Inc., and Massachusetts Financial Services Company serve as the
advisers (each an "Adviser" and, together the "Advisers") to one or more of
the Portfolios, as detailed in the table below.
PORTFOLIO ADVISER
T. Rowe Price International Stock Rowe Price-Fleming International,
Portfolio Inc.
T. Rowe Price Equity Income T. Rowe Price Associates, Inc.
Portfolio
Putnam Growth and Income Putnam Investment Management,
Portfolio Inc.
Putnam International Growth Putnam Investment Management,
Portfolio Inc.
MFS Research Portfolio Massachusetts Financial Services
Company
The Trust offers two classes of shares on behalf of each Portfolio: Class IA
shares and Class IB shares. EQ Financial Consultants, Inc. ("Distributor"), the
Trust's Manager, also serves as the distributor for the Class IA shares of the
Trust offered by this Prospectus. 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 (collectively, the
"Contracts") issued by The Equitable Life Assurance Society of the United States
("Equitable"). Both classes of shares are offered and redeemed at their net
asset value without the imposition of any sales load.
Class IB shares are offered pursuant to another prospectus and are subject to
the same expenses as the Class IA shares, but unlike the Class IA shares they
are subject to distribution fees imposed pursuant to a distribution plan
adopted pursuant to Rule 12b-1 under the 1940 Act.
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Inquiries regarding Class IB shares should be addressed to Equitable, at 1290
Avenue of the Americas, New York, NY 10104 (Attention: ____________).
INVESTMENT OBJECTIVES AND POLICIES
The following is a brief description of the investment objectives and policies
of each of the Portfolios. All of the objectives and policies of each
Portfolio, unless otherwise noted, are not fundamental and may be changed by
the Board of Trustees of the Trust without the approval of shareholders.
Certain investment strategies and instruments discussed below are described in
greater detail in the Statement of Additional Information. Because of the
uncertainty inherent in all investments, there can be no assurance that the
Portfolios will be able to achieve their respective investment objectives.
T. ROWE PRICE INTERNATIONAL STOCK PORTFOLIO
The investment objective of the T. Rowe Price International Stock Portfolio is
to seek long-term growth of capital through investment primarily in common
stocks of established non-U.S. companies. The Adviser intends to invest
substantially all of the Portfolio's assets outside the United States and to
diversify broadly among countries throughout the world--developed, newly
industrialized and emerging--by having at least five different countries
represented in the Portfolio. The Portfolio may invest in countries of the Far
East and Europe as well as South Africa, Australia, Canada, and other areas
(including developing countries). No more than 20% of the Portfolio's net
assets will be invested in securities of issuers located in any one country
with the exception of issuers located in Australia, Canada, France, Japan, the
United Kingdom or Germany (where the investment limitation is 35%). In
determining the appropriate distribution of investments among various
countries and geographic regions, the Adviser ordinarily considers the
following factors: prospects for relative economic growth between foreign
countries; expected levels of inflation; government policies influencing
business conditions; the outlook for currency relationships; and the range of
individual investment opportunities available to international investors.
The Portfolio expects to invest substantially all of its assets in common
stocks. However, the Portfolio may also invest in a variety of other
equity-related securities (such as preferred stocks, warrants and convertible
securities) as well as corporate and governmental debt securities, when
considered consistent with the Portfolio's investment objective and program.
The Portfolio may also invest in certain foreign investment portfolios or
trusts commonly referred to as passive foreign investment companies. These
entities have been authorized by the governments of certain countries
specifically to permit foreign investment in securities of companies listed or
traded on the stock exchanges in those countries. The Portfolio may also
engage in a variety of investment management practices such as buying and
selling options and futures contracts and engaging in foreign currency
exchange contracts and may invest up to 10% of its total assets in hybrid
instruments, which are a type of high-risk instrument that can combine the
characteristics of securities, futures contracts and options.
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Under normal conditions, the Portfolio's investment in securities other than
common stocks is limited to no more than 35% of its total assets. However, for
temporary defensive purposes, the Portfolio may invest all or a significant
portion of its assets in United States government securities and corporate
debt obligations. The Portfolio will not purchase any debt security which, at
the time of purchase, is rated below investment grade by a nationally
recognized statistical rating organization ("NRSRO"). This restriction would
not prevent the Portfolio from retaining a security downgraded to below
investment grade after purchase. In addition, the Portfolio may invest without
limitation in high-quality U.S. and foreign dollar-denominated money market
securities for temporary defensive purposes or to meet redemption requests.
In analyzing companies for investment, the Adviser uses a "bottom up"
approach. A company's prospects for achieving and sustaining above-average,
long-term earnings growth is generally the Adviser's primary focus. However
the Adviser also considers certain other factors in making its investment
decisions, including: above-average earnings growth per share; high return on
invested capital; healthy balance sheet; sound financial and accounting
policies and overall financial strength; strong competitive advantages;
effective research, product development and marketing; efficient service;
pricing flexibility; strength of management; and general operating
characteristics that should enable the companies to compete successfully in
their market place. While current dividend income is not a prerequisite in the
selection of portfolio companies, the companies in which the Portfolio invests
normally will have a record of paying dividends, and will generally be
expected to increase the amounts of such dividends in future years as earnings
increase. It is expected that the Portfolio's investments will ordinarily be
made on exchanges located at least in the respective countries in which the
various issuers of such securities are principally based.
Certain investment strategies and instruments which may be employed by the
Portfolio (such as the purchase and sale of options, futures contracts, hybrid
instruments, foreign securities, foreign currency transactions, passive
foreign investment companies, securities loans and illiquid securities) are
discussed under the caption "Investment Strategies" below and in the Statement
of Additional Information.
T. ROWE PRICE EQUITY INCOME PORTFOLIO
The investment objective of the T. Rowe Price Equity Income Portfolio is to
seek to provide substantial dividend income and also capital appreciation by
investing primarily in dividend-paying common stocks of established companies.
In pursuing its objective, the Portfolio emphasizes companies with favorable
prospects for increasing dividend income and capital appreciation. Over time,
the income component (dividends and interest earned) of the Portfolio's
investments is expected to be a significant contributor to the Portfolio's
total return. The Portfolio's yield is expected to be significantly above that
of the Standard & Poor's 500 Composite Stock Price Index ("S&P 500"). Total
return will consist primarily of dividend income and secondarily of capital
appreciation (or depreciation).
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The investment program of the Portfolio is based on several premises. First,
the Adviser believes that over time, dividend income can account for a
significant component of the total return from equity investments. Second,
dividends are normally a more stable and predictable source of return than
capital appreciation. While the price of a company's stock generally increases
or decreases in response to short-term earnings and market fluctuations, its
dividends are generally less volatile. Finally, the Adviser believes that
stocks that distribute a high level of current income tend to have less price
volatility than those that pay below average dividends.
Under normal circumstances, the Portfolio will invest at least 65% of its
total assets in income-producing common stocks of established companies paying
above-average dividends. The Adviser uses a "value" approach and invests in
common stocks and other equities-related securities it believes are
temporarily undervalued by various measures, such as price/earnings ratios.
The Portfolio's investments will generally be made in companies that share
some of the following characteristics: established operating histories;
above-average current dividend yields relative to the S&P 500; low
price/earnings ratios relative to the S&P 500; sound balance sheets and other
financial characteristics; and low stock price relative to company's
underlying value as measured by assets, earnings, cash flow or business
franchises.
Although the Portfolio will invest primarily in U.S. common stocks, it may
also purchase other types of securities (for example, foreign securities,
preferred stocks, convertible securities and warrants) when considered
consistent with the Portfolio's investment objective and program. The
Portfolio may invest up to 25% of its total assets in foreign securities.
These include non- dollar denominated securities traded outside the U.S. and
dollar-denominated securities traded in the U.S. (such as American Depositary
Receipts ("ADRs") and European Depositary Receipts ("EDRs")). Such investments
increase a portfolio's diversification and may enhance return, but they may
represent a greater degree of risk than investing in domestic securities.
The Portfolio may also engage in a variety of investment practices, such as
buying and selling options and futures contracts and engaging in foreign
currency exchange transactions. In addition, the Portfolio may invest up to
10% of its total assets in hybrid instruments.
The Portfolio may also invest a portion of its assets in United States
government securities and high-quality United States and foreign
dollar-denominated money market securities (i.e., within the two highest
rating categories assigned by a NRSRO) including certificates of deposit,
bankers' acceptances, commercial paper, short-term corporate securities and
repurchase agreements. For temporary defensive purposes or to meet redemption
requests, the Portfolio may invest without limitation in such securities.
The Portfolio may also invest in debt securities of any type including
municipal securities, without regard to quality or rating. Such securities
would be purchased in companies that meet the investment criteria for the
Portfolio. The price of a bond generally fluctuates with changes in interest
rates, rising when interest rates fall and falling when interest rates rise.
The Portfolio, however, will not invest more than 10% of its total assets in
securities rated below investment grade (commonly known as "junk bonds").
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Certain investment strategies and instruments which may be employed by the
Portfolio (such as the purchase and sale of options, futures contracts,
foreign securities, hybrid instruments, securities loans, illiquid securities
and junk bonds) are discussed under the caption "Investment Strategies" below
and in the Statement of Additional Information.
PUTNAM GROWTH AND INCOME PORTFOLIO
The investment objective of the Putnam Growth and Income Portfolio is capital
growth. Current income is a secondary objective. The Adviser intends to invest
primarily in common stocks that offer potential for capital growth and may,
consistent with the Portfolio's investment objective, invest in common stocks
that offer potential for current income. The Portfolio may also purchase
corporate bonds, notes and debentures, preferred stocks and convertible
securities (which include both debt securities and preferred stocks). The
types of securities held by the Portfolio may vary from time to time in light
of the Portfolio's investment objective, changes in interest rates, and
economic and other factors.
In analyzing companies for investment, the Adviser will seek to identify
companies whose securities are significantly undervalued in relation to their
underlying asset values or earnings potential. Attractively priced,
dividend-paying common stocks that offer the strongest potential for total
return are generally the primary investments of this Portfolio.
At times, the Adviser may judge that conditions in the securities markets may
make pursuing the Portfolio's basic investment strategy inconsistent with the
best interests of the Portfolio's shareholders. At such times, the Adviser may
temporarily use alternative strategies that are primarily designed to reduce
fluctuations in the value of the Portfolio's assets. In implementing these
defensive strategies, the Portfolio may invest without limit in debt
securities or preferred stocks, or may invest in any other securities the
Adviser considers consistent with such defensive strategies. It is impossible
to predict when, or for how long, the Adviser will use these alternative
defensive strategies.
The Portfolio may invest up to 20% of its total assets in foreign securities.
The Portfolio may also purchase Eurodollar certificates of deposit (i.e.,
short-term time deposits issued by European banks) without regard to this 20%
limit. Such investments increase the Portfolio's diversification and may enhance
return, but they may represent a greater degree of risk than investing in
domestic securities.
In addition, the Portfolio may also invest a portion of its assets in United
States government securities and high-quality United States and foreign
dollar-denominated money market securities (i.e., within the two highest
rating categories assigned by a NRSRO) including certificates of deposit,
bankers' acceptances, commercial paper, short-term corporate securities and
repurchase agreements. For temporary defensive purposes or to meet redemption
requests, the Portfolio may invest without limitation in such securities.
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The Portfolio may also invest in investment grade debt securities and may
invest a portion of its total assets in debt securities rated below investment
grade (commonly known as "junk bonds"). The price of a bond generally
fluctuates with changes in interest rates, rising when interest rates fall and
falling when interest rates rise.
The Portfolio may also engage in a variety of investment management practices
such as buying and selling options and futures contracts and engaging in
foreign currency exchange contracts.
Certain investment strategies and instruments which may be employed by the
Portfolio (such as the purchase and sale of options, futures contracts, hybrid
instruments, foreign securities, securities loans, illiquid securities,
"zero-coupon" bonds, "payment-in-kind" bonds, and junk bonds) are discussed
under the caption "Investment Strategies" below and in the Statement of
Additional Information.
PUTNAM INTERNATIONAL GROWTH PORTFOLIO
The investment objective of the Putnam International Growth Portfolio is
capital appreciation. The Portfolio is designed for investors seeking capital
appreciation primarily through a diversified portfolio of equity securities of
companies located outside North America. Such equity securities normally will
include common stocks, preferred stocks, securities convertible into common or
preferred stocks, and warrants. The Portfolio may also invest to a lesser
extent in debt securities and other types of investments if the Adviser
believes that purchasing them would help to achieve the Portfolio's objective.
The Portfolio may hold a portion of its assets in cash or money market
instruments. The Portfolio may also engage in a variety of investment
management practices such as buying and selling options and futures contracts
and engaging in foreign currency exchange contracts.
Under normal circumstances the Portfolio will invest at least 65% of its
assets in issuers located in at least three different countries outside North
America. The Portfolio will consider an issuer to be located outside North
America if (i) the issuer is organized under the laws of a country outside
North America and (ii) if the issuer derives 50% or more of its total revenues
from business outside North America. The Portfolio may invest in securities of
issuers in emerging markets, as well as more developed markets. Investing in
securities of issuers in emerging markets generally involves more risks than
investing in securities of issuers in developed markets.
The Adviser believes that the securities markets of many countries move
relatively independently of one another because business cycles and other
economic or political events that influence one country's securities markets
may have little effect on securities markets in other countries. By investing
in a diversified portfolio of securities of issuers located in different
foreign countries, the Adviser attempts to reduce the risks associated with
being invested in the securities of issuers within the economy of only one
country. Countries that the Adviser believes offer attractive opportunities
for investment may change from time to time.
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CAPITAL PRINTING SYSTEMS]
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The Portfolio will not limit its investments to any particular type of
company. The Portfolio may invest in companies, large or small, whose earnings
are believed by the Adviser to be in a relatively strong growth trend or it
may invest in companies that are not expected to experience significant
further growth but whose market value per share is considered by the Adviser
to be undervalued. The Portfolio also may invest in small and relatively less
well-known companies that meet these characteristics.
At times, the Adviser may believe that conditions in the international
securities markets may make pursuing the Portfolio's basic investment strategy
inconsistent with the best interests of its shareholders. At such times, the
Portfolio may temporarily use alternative strategies that are primarily
designed to reduce fluctuations in the value of the Portfolio's assets. In
implementing these defensive strategies, the Portfolio may invest, without
limitation, in securities of any kind, including securities traded primarily
in United States markets and in cash and money market instruments. It is
impossible to predict when, or for how long, the Portfolio will use these
alternative strategies.
Certain investment strategies and instruments which may be employed by the
Portfolio (such as the purchase and sale of options, futures contracts,
foreign securities, foreign currency transactions, securities loans and
illiquid securities) are discussed under the caption "Investment Strategies"
below and in the Statement of Additional Information.
MFS RESEARCH PORTFOLIO
The investment objective of the MFS Research Portfolio is to provide long-term
growth of capital and future income. In pursuing its objective, the Portfolio
invests a substantial portion of its assets in the common stock or securities
convertible into common stock of companies believed by the Adviser to possess
better than average prospects for long-term growth. A smaller proportion of
the assets of the Portfolio may be invested in bonds, short-term debt
obligations, preferred stocks or common stocks whose principal characteristic
is income production rather than growth. Such securities may also offer
opportunities for growth of capital as well as income. In the case of both
growth stocks and income securities, the Adviser emphasizes progressive,
well-managed companies.
Investment research analysts in the Adviser's Equity Research Group select the
portfolio securities of the Portfolio. The assets of the Portfolio are
allocated to specific industry groups (e.g., pharmaceuticals, retail and
computer software) depending on the determinations made by the Adviser's
investment research analysts as a group. Individual analysts for each industry
group are responsible for selecting those securities within their particular
industry group that they consider to be the best suited to meet the objective
of the Portfolio. In addition, the Adviser, from time to time, will exercise
its judgment with respect to the proportion of assets of the Portfolio
invested in growth stocks, income producing securities or cash (including
foreign currency) and cash equivalents, depending on the Adviser's view of the
relative attractiveness of each type of security.
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To the extent that such investments comply with the Portfolio's investment
objective, the Portfolio may invest up to 20% of its total assets in foreign
securities, including those in emerging markets. These securities include
non-United States dollar-denominated securities traded outside the United
States and dollar denominated securities traded in the United States (such as
ADRs). Such foreign investments increase a portfolio's diversification and may
enhance return, but they may represent a greater degree of risk than investing
exclusively in domestic securities.
The Portfolio may invest in investment grade debt securities and may invest up
to 10% of its total assets in securities rated below investment grade
(commonly known as "junk bonds"). The price of a bond generally fluctuates
with changes in interest rates, rising when interest rates fall and falling
when interest rates rise.
Certain investment strategies and practices which may be employed by the
Portfolio (such as foreign securities, repurchase agreements, forward
commitments, securities loans, illiquid securities and junk bonds) are
discussed under the caption "Investment Strategies" below and in the Statement
of Additional Information.
INVESTMENT STRATEGIES
In addition to making investments directly in securities, to the extent
described above, each of the Portfolios (except for MFS Research Portfolio)
may purchase and sell call and put options, engage in transactions in futures
contracts and related options, and invest in hybrid instruments. All of the
Portfolios may engage in forward foreign currency exchange transactions and
may invest in ADRs, EDRs and other similar instruments. They may also enter
into repurchase agreements, make forward commitments to purchase securities,
lend their portfolio securities, and borrow funds under certain limited
circumstances. The investment strategies and instruments referred to above and
the risks related to them are summarized below and certain of these strategies
and instruments are described in more detail in the Statement of Additional
Information.
OPTIONS AND FUTURES TRANSACTIONS. Each Portfolio (except the MFS Research
Portfolio) may invest in futures contracts and options. Futures (a type of
potentially high-risk security) enable the investor to buy or sell an asset in
the future at an agreed upon price. Options (another type of potentially
high-risk security) give the investor the right, but not the obligation, to
buy or sell an asset at a predetermined price in the future. Each Portfolio
may utilize futures contracts and related options for other than hedging
purposes to the extent that aggregate initial margin deposits and premiums
paid do not exceed 5% of the Portfolio's net assets. Each Portfolio will not
commit more than 5% of its total assets to premiums when purchasing call or
put options. In addition, the total market value of securities against which a
Portfolio has written call or put options may not exceed 25% of its total
assets.
Each Portfolio may buy and sell futures and options contracts for any number
of reasons, including: to manage its exposure to changes in securities prices
and foreign currencies; as an
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efficient means of adjusting its overall exposure to certain markets; in an
effort to enhance income; and to protect the value of portfolio securities.
Each Portfolio may purchase, sell, or write call and put options on
securities, financial indices, and foreign currencies.
The risk of loss in trading futures contracts can be substantial because of
the low margin deposits required and the extremely high degree of leveraging
involved in futures pricing. As a result, a relatively small price movement in
a futures contract may cause an immediate and substantial loss or gain. The
primary risks associated with the use of futures contracts and options are:
(i) imperfect correlation between the change in market value of the stocks
held by a Portfolio and the prices of futures contracts and options; and (ii)
possible lack of a liquid secondary market for a futures contract and the
resulting inability to close a futures position prior to its maturity date.
HYBRID INSTRUMENTS. Each Portfolio (except the MFS Research Portfolio) may
invest in hybrid instruments. Hybrid instruments have recently been developed
and combine the elements of futures contacts or options with those of debt,
preferred equity or a depository instrument. Often these hybrid instruments
are indexed to the price of a commodity, particular currency, or a domestic or
foreign debt or equity securities index. Hybrid instruments may take a variety
of forms, including, but not limited to, debt instruments with interest or
principal payments or redemption terms determined by reference to the value of
a currency or commodity or securities index at a future point in time,
preferred stock with dividend rates determined by reference to the value of a
currency, or convertible securities with the conversion terms related to a
particular commodity. Hybrid instruments may bear interest or pay dividends at
below market (or even relatively nominal) rates. Under certain conditions, the
redemption value of such an instrument could be zero. Hybrid instruments can
have volatile prices and limited liquidity and their use by a Portfolio may
not be successful.
FOREIGN SECURITIES. Foreign investments involve certain risks that are not
present in domestic securities. Because each of the Portfolios may purchase
securities denominated in foreign currencies, a change in the value of any
such currency against the U.S. dollar will result in a change in the U.S.
dollar value of a Portfolio's assets and income. In addition, although a
portion of a Portfolio's investment income may be received or realized in such
currencies, the Portfolio will be required to compute and distribute its
income in U.S. dollars. Therefore, if the exchange rate for any such currency
declines after a Portfolio's income has been earned and computed in U.S.
dollars but before conversion and payment, the Portfolio could be required to
liquidate portfolio securities to make such distributions.
The value of foreign investments and the investment income derived from them
may also be affected unfavorably by changes in currency exchange control
regulations. Although the Portfolios will invest only in securities
denominated in foreign currencies that are fully exchangeable into U.S.
dollars without legal restriction at the time of investment, there can be no
assurance that currency controls will not be imposed subsequently. In
addition, the value of foreign fixed income investments may fluctuate in
response to changes in U.S. and foreign interest rates.
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There may be less information publicly available about a foreign issuer than
about a U.S. issuer, and a foreign issuer is not generally subject to
accounting, auditing and financial reporting standards and practices
comparable to those in the U.S. Foreign stock markets are generally not as
developed or efficient as, and may be more volatile than, those in the United
States. While growing in volume, they usually have substantially less volume
than U.S. markets and a Portfolio's investment securities may be less liquid
and subject to more rapid and erratic price movements than securities of
comparable U.S. companies. Equity securities may trade at price/earnings
multiples higher than comparable U.S. securities and such levels may not be
sustainable. There is generally less government supervision and regulation of
foreign stock exchanges, brokers and listed companies than in the U.S.
Moreover, settlement practices for transactions in foreign markets may differ
from those in U.S. markets. Such differences may include delays beyond periods
customary in the U.S. and practices, such as delivery of securities prior to
receipt of payment, which increase the likelihood of a "failed settlement."
Failed settlements can result in losses to the Portfolio. In less liquid and
well developed stock markets, such as those in some Asian and Latin American
countries, volatility may be heightened by actions of a few major investors.
For example, substantial increases or decreases in cash flows of mutual funds
investing in these markets could significantly affect stock prices and,
therefore, share prices.
Foreign brokerage commissions, custodial expenses and other fees are also
generally higher than for securities traded in the United States.
Consequently, the overall expense ratios of international funds are usually
somewhat higher than those of typical domestic stock funds.
In addition, the economies, markets and political structures of a number of
the countries in which the Portfolios can invest do not compare favorably with
the United States and other mature economies in terms of wealth and stability.
Therefore, investments in these countries may be riskier, and will be subject
to erratic and abrupt price movements. Some economies are less well developed
and less diverse (for example, Latin America, Eastern Europe and certain Asian
countries), and more vulnerable to the ebb and flow of international trade,
trade barriers and other protectionist or retaliatory measures (for example,
Japan, southeast Asia and Latin America). Some countries, particularly in
Latin America, are grappling with severe inflation and high levels of national
debt. Investments in countries that have recently begun moving away from
central planning and state-owned industries toward free markets, such as the
Eastern European or Chinese economies, should be regarded as speculative.
FOREIGN CURRENCY TRANSACTIONS. Each of the Portfolios may purchase foreign
currency on a spot (or cash) basis, and may enter into contracts to purchase
or sell foreign currencies at a future date ("forward contracts"). Each of the
Portfolios (except MFS Research Portfolio) may also purchase and sell foreign
currency futures contracts and may purchase exchange traded and
over-the-counter call and put options on foreign currency futures contracts
and on foreign currencies. The Advisers may engage in these transactions to
protect against uncertainty in the level of future exchange rates in
connection with the purchase and sale of portfolio securities ("transaction
hedging") and to protect the value of specific portfolio positions ("position
hedging").
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Hedging transactions involve costs and may result in losses. Each of the
Portfolios (except MFS Research Portfolio) may also write covered call options
on foreign currencies to offset some of the costs of hedging those currencies.
A Portfolio will engage in over-the-counter options transactions on foreign
currencies only when appropriate exchange traded transactions are unavailable
and when, in the Adviser's opinion, the pricing mechanism and liquidity are
satisfactory and the participants are responsible parties likely to meet their
contractual obligations. A Portfolio's ability to engage in hedging and
related option transactions may be limited by tax considerations.
Transactions and position hedging do not eliminate fluctuations in the
underlying prices of the securities which the Portfolios own or intend to
purchase or sell. They simply establish a rate of exchange which one can
achieve at some future point in time. Additionally, although these techniques
tend to minimize the risk of loss due to a decline in the value of the hedged
currency, they tend to limit any potential gain which might result from the
increase in the value of such currency.
PASSIVE FOREIGN INVESTMENT COMPANIES. The T. Rowe Price International Stock
Portfolio may purchase the securities of certain foreign investment funds or
trusts called passive foreign investment companies. Such entities have been
the only or primary way to invest in certain countries. In addition to bearing
their proportionate share of the Trust's expenses (management fees and
operating expenses), shareholders will also indirectly bear similar expenses
of such entities.
AMERICAN AND EUROPEAN DEPOSITARY RECEIPTS. The Portfolios may purchase foreign
securities in the form of ADRs, EDRs or other securities convertible into
securities of corporations in which the Portfolios are permitted to invest
pursuant to their respective investment objectives and policies. These
securities may not necessarily be denominated in the same currency into which
they may be converted. ADRs are receipts typically issued by a United States
bank or trust company which evidence ownership of underlying securities issued
by a foreign corporation. EDRs are receipts issued in Europe typically by
banks or depositories which evidence a similar ownership arrangement.
Generally, ADRs, in registered form, are designed for use in United States
securities markets and EDRs, in bearer form, are designed for use in European
securities markets.
BORROWINGS. The Portfolios may borrow money from banks or other lenders as a
temporary measure for emergency purposes, to facilitate redemption requests,
or for other purposes consistent with each Portfolio's investment objective
and program. Borrowings for the T. Rowe Price International Stock and T. Rowe
Price Equity Income Portfolios may not exceed 33 1/3% of any Portfolio's total
assets. Borrowings for the Putnam Growth and Income Portfolio and the Putnam
International Growth Portfolio may not exceed 10% of each Portfolio's total
assets. Borrowings for the MFS Research Portfolio may not exceed 5% of such
Portfolio's total assets. Each Portfolio may pledge its assets to secure these
permissible borrowings. No Portfolio may purchase additional securities when
its borrowings exceed 5% of its total assets.
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REPURCHASE AGREEMENTS. Each Portfolio may enter into repurchase agreements
with a bank, broker-dealer or other financial institution as a means of
earning a fixed rate of return on its cash reserves for periods as short as
overnight. A repurchase agreement is a contract pursuant to which a Portfolio,
against receipt of securities of at least equal value including accrued
interest, agrees to advance a specified sum to the financial institution which
agrees to reacquire the securities at a mutually agreed upon time (usually one
day) and price. Each repurchase agreement entered into by a Portfolio will
provide that the value of the collateral underlying the repurchase agreement
will always be at least equal to the repurchase price, including any accrued
interest. A Portfolio's right to liquidate such securities in the event of a
default by the seller could involve certain costs, losses or delays and, to
the extent that proceeds from any sale upon a default of the obligation to
repurchase are less than the repurchase price, the Portfolio could suffer a
loss.
FORWARD COMMITMENTS. Each Portfolio may make contracts to purchase securities
for a fixed price at a future date beyond customary settlement time ("forward
commitments") if it holds, and maintains until the settlement date in a
segregated account, cash or high-grade debt obligations in an amount
sufficient to meet the purchase price, or if it enters into offsetting
contracts for the forward sale of other securities it owns. Forward
commitments may be considered securities in themselves and involve a risk of
loss if the value of the security to be purchased declines prior to the
settlement date, which risk is in addition to the risk of decline in value of
the Portfolio's other assets. Where such purchases are made through dealers, a
Portfolio relies on the dealer to consummate the sale. The dealer's failure to
do so may result in the loss to a Portfolio of an advantageous yield or price.
SECURITIES LOANS. The T. Rowe Price International Stock and T. Rowe Price
Equity Income Portfolios may seek to obtain additional income by making
secured loans of portfolio securities with a value up to 331/3% of their
respective total assets. The Putnam Growth and Income Portfolio and Putnam
International Growth Portfolio may lend portfolio securities amounting to not
more than 25% of their respective total assets. The MFS Research Portfolio may
lend portfolio securities in an amount up to 30% of its total assets. All
securities loans will be made pursuant to agreements requiring the loans to be
continuously secured by collateral in cash or high-grade debt obligations at
least equal at all times to the market value of the loaned securities. The
borrower pays to the Portfolios an amount equal to any dividends or interest
received on loaned securities. The Portfolios retain all or a portion of the
interest received on investment of cash collateral or receives a fee from the
borrower. Lending portfolio securities involves risks of delay in recovery of
the loaned securities or in some cases loss of rights in the collateral should
the borrower fail financially.
ILLIQUID SECURITIES. The MFS Research Portfolio may invest up to 10% of its
assets and each other Portfolio may invest up to 15% of their respective net
assets in illiquid securities and other securities which are not readily
marketable, including non-negotiable time deposits, certain restricted
securities not deemed by the Trust's Board of Trustees to be liquid, and
repurchase agreements with maturities longer than seven days. Securities
eligible for resale pursuant to Rule 144A under the Securities Act of 1933, as
amended, which have been determined by the
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Board of Trustees to be liquid, will not be considered by the Adviser to be
illiquid or not readily marketable and, therefore, are not subject to the 15%
limit. The inability of a Portfolio to dispose of illiquid or not readily
marketable investments readily or at a reasonable price could impair the
Portfolio's ability to raise cash for redemptions or other purposes. The
liquidity of securities purchased by a Portfolio which are eligible for resale
pursuant to Rule 144A will be monitored by each Portfolio's Adviser on an
ongoing basis, subject to the oversight of the Board of Trustees of the Trust.
In the event that such a security is deemed to be no longer liquid, a
Portfolio's holdings will be reviewed to determine what action, if any, is
required to ensure that the retention of such security does not result in a
Portfolio's having more than 15% of its assets invested in illiquid or not
readily marketable securities.
INVESTMENT GRADE AND LOWER QUALITY FIXED INCOME SECURITIES. Each Portfolio
(except the T. Rowe Price International Stock Portfolio) may invest a portion
of its total assets in investment grade and lower quality fixed income
securities. Investment grade fixed income securities rated Baa by Moody's
Investors Service, Inc. ("Moody's") or BBB by Standard & Poor's Ratings
Service ("S&P") and comparable unrated securities, while normally exhibiting
adequate protection parameters, have speculative characteristics; consequently,
changes in economic conditions or other circumstances are more likely to lead
to a weakened capacity to make principal and interest payments than in the case
of higher grade fixed income securities. Fixed income investments that are rated
in the lower categories by NRSROs (i.e., Ba or lower by Moody's or BB or lower
by S&P) or are unrated securities of comparable quality are known as "junk
bonds" and are regarded as predominantly speculative with respect to the
issuer's continuing ability to meet principal and interest payments. Each
NRSRO's descriptions of these bond ratings are set forth in the Appendix to
the Statement of Additional Information. Because investment in these lower
quality junk bonds involves greater investment risk, achievement of a
Portfolio's investment objective will be more dependent on the Adviser's
analysis than would be the case if that Portfolio were investing in higher
quality bonds. In addition, lower quality junk bonds may be more susceptible
to real or perceived adverse economic and individual corporate developments
than would investment grade bonds. Moreover, the secondary trading market for
lower quality junk bonds may be less liquid than the market for investment
grade bonds. This potential lack of liquidity may make it more difficult for
the Adviser to value accurately certain portfolio securities.
PAYMENT-IN-KIND BONDS. The Putnam Growth and Income Portfolio may invest in
payment-in- kind bonds. Payment-in-kind bonds allow the issuer, at its option,
to make current interest payments on the bonds either in cash or in additional
bonds. The value of payment-in-kind bonds is subject to greater fluctuation in
response to changes in market interest rates than bonds which pay interest in
cash currently. Payment-in-kind bonds allow an issuer to avoid the need to
generate cash to meet current interest payments. Accordingly, such bonds may
involve greater credit risks than bonds paying interest currently. Even though
such bonds do not pay current interest in cash, the Portfolio is nonetheless
required to accrue interest income on such investments and to distribute such
amounts at least annually to shareholders. Thus, the Putnam Growth and Income
Portfolio could be required, at times, to liquidate other investments in order
to satisfy its distribution requirements.
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ZERO-COUPON BONDS. The Putnam Growth and Income Portfolio may invest in
zero-coupon bonds. Zero-coupon bonds are issued at a significant discount from
their principal amount and pay interest only at maturity rather than at
intervals during the life of the security. The value of zero-coupon bonds is
subject to greater fluctuation in response to changes in market interest rates
than bonds which pay interest in cash currently. Zero-coupon bonds allow an
issuer to avoid the need to generate cash to meet current interest payments.
Accordingly, such bonds may involve greater credit risks than bonds paying
interest currently. Even though such bonds do not pay current interest in
cash, the Portfolio is nonetheless required to accrue interest income on such
investments and to distribute such amounts at least annually to shareholders.
Thus, the Putnam Growth and Income Portfolio could be required, at times, to
liquidate other investments in order to satisfy its distribution requirements.
PORTFOLIO TURNOVER. The length of time a Portfolio has held a particular
security is not generally a consideration in investment decisions. A change in
the securities held by a Portfolio is known as "portfolio turnover." Each
Portfolio's turnover rate is not expected to exceed 100% during its first year
of operation. A high turnover rate increases transaction costs (e.g.,
brokerage commissions) and increases realized gains and losses.
MANAGEMENT OF THE TRUST
THE BOARD OF TRUSTEES
The Board of Trustees of the Trust provides broad supervision over the
business and affairs of the Portfolios and the Trust as provided in the
Trust's Declaration of Trust and By-Laws.
THE MANAGER
The Trust is managed by EQ Financial Consultants, Inc. which, subject to the
supervision and direction of the Trustees of the Trust, has overall
responsibility for the general management and administration of the Trust. The
Manager is an investment adviser registered under the Investment Advisers Act
of 1940, as amended, and a broker-dealer registered under the Securities
Exchange Act of 1934, as amended ("1934 Act"). The Manager currently furnishes
specialized investment advice to other clients, including individuals, pension
and profit sharing plans, trusts, charitable organizations, corporations and
other business entities. The Manager is a Delaware corporation and an indirect,
wholly-owned subsidiary of Equitable, a New York stock life insurance company.
The Manager is responsible for providing investment management and
administrative services to the Trust and in the exercise of such
responsibility selects the investment advisers for the Trust's Portfolios and
monitors the Advisers' investment programs and results, reviews brokerage
matters, oversees compliance by the Trust with various federal and state
statutes, and carries out the directives of the Board of Trustees. The Manager
is responsible for providing the Trust with office space, office equipment,
and personnel necessary to operate and administer the
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Trust's business, and also supervises the provision of services by third
parties such as the Trust's custodian.
As compensation for managing the T. Rowe Price Equity Income Portfolio, the
Trust pays the Manager a monthly fee at the annual rate of .80% of the
Portfolio's average daily net assets. As compensation for managing the T. Rowe
Price International Stock Portfolio, the Trust pays the Manager a monthly fee
at the annual rate equal to: 1.15% of the Portfolio's average daily net assets
up to and including $20 million; 1.00% of the Portfolio's average daily net
assets over $20 million and up to and including $50 million; and .90% of the
Portfolio's average daily net assets in excess of $50 million. As compensation
for managing the Putnam Growth and Income Portfolio, the Trust pays the
Manager a monthly fee at an annual rate equal to: .90% of the Portfolio's
average daily net assets up to and including $150 million; .85% of the
Portfolio's average daily net assets over $150 million and up to and including
$300 million; and .75% of the Portfolio's average daily net assets in excess
of $300 million. As compensation for managing the Putnam International Growth
Portfolio, the Trust pays the Manager a monthly fee at an annual rate equal
to: 1.05% of the Portfolio's average daily net assets up to and including $150
million; .95% of the Portfolio's average daily net assets over $150 million
and up to and including $300 million; and .85% of the Portfolio's average
daily net assets in excess of $300 million. As compensation for managing the
MFS Research Portfolio, the Trust pays the Manager a monthly fee at an annual
rate equal to: .80% of the Portfolio's average daily net assets up to and
including $150 million; .775% of the Portfolio's average daily net assets over
$150 million and up to and including $300 million; and .75% of the Portfolio's
average daily net assets in excess of $300 million.
The management fees paid by the Portfolios, although higher than the fees paid
by other investment companies in general, are comparable to management fees
paid for similar services by many investment companies with similar investment
objectives and policies. From the management fees, the Manager pays the
expenses of providing investment advisory services to the Portfolios,
including the fees of the Adviser of each Portfolio.
In addition to the management fees, the Trust pays all expenses not assumed by
the Manager, including, without limitation: the fees and expenses of its
independent auditors and of its legal counsel; the costs of printing and
mailing annual and semi-annual reports to shareholders, proxy statements,
prospectuses, prospectus supplements and statements of additional information,
all to the extent they are sent to existing Contract owners; the costs of
printing registration statements; bank transaction charges and custodian's
fees; any proxy solicitors' fees and expenses; filing fees; any federal, state
or local income or other taxes; any interest; any membership fees of the
Investment Company Institute and similar organizations; fidelity bond and
Trustees' liability insurance premiums; and any extraordinary expenses, such
as indemnification payments or damages awarded in litigation or settlements
made. All general Trust expenses are allocated among and charged to the assets
of the Portfolios of the Trust on a basis that the Trustees deem fair and
equitable, which may be on the basis of relative net assets of each Portfolio
or the nature of the services performed and relative applicability to each
Portfolio. As discussed in greater detail below, under "Distribution of the
Trust's Shares", the
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Class IB shares may pay for certain distribution related expenses in
connection with activities primarily intended to result in the sale of its
shares.
THE ADVISERS
Pursuant to an investment advisory agreement with the Manager, each Adviser to
a Portfolio furnishes continuously an investment program for the Portfolio,
makes investment decisions on behalf of the Portfolio, places all orders for
the purchase and sale of investments for the Portfolio's account with brokers
or dealers selected by such Adviser and may perform certain limited related
administrative functions in connection therewith. For its services, the
Manager pays each Adviser a fee based on a percentage of the average daily net
assets of the Portfolio that it advises.
The Trust has filed an exemptive application with the Securities and Exchange
Commission ("SEC") that would permit the Trust's Board of Trustees, in
consultation with the Manager and without the approval of shareholders to: (a)
employ a new Adviser for any Portfolio pursuant to the terms of a new Advisory
Agreement, either as a replacement for an existing Adviser or as an additional
Adviser; (b) change the terms of any Advisory Agreement; and (c) continue the
employment of an existing Adviser on the same advisory contact terms where a
contract has been assigned because of a change in control of the Adviser.
Shareholders would receive notice of such action, including the information
concerning the Adviser that normally is provided in the Prospectus. There can
be no assurance that the SEC will grant the Trust's application.
T. Rowe Price Associates, Inc. ("T. Rowe Price") is the Adviser to the T. Rowe
Price Equity Income Portfolio. As compensation for services as the Portfolio's
Adviser, the Manager pays T. Rowe Price a monthly fee at the annual rate of
.40% of the Portfolio's average daily net assets.
T. Rowe Price was incorporated in Maryland in 1947 as successor to the
investment counseling business founded by the late Thomas Rowe Price, Jr., in
1937. As of December 31, 1996, T. Rowe Price and its affiliates managed more
than $__ billion of assets. T. Rowe Price serves as investment manager to a
variety of individual and institutional investor accounts, including limited
and real estate partnerships and other mutual funds. Investment decisions with
respect to the T. Rowe Price Equity Income Portfolio are made by an Investment
Advisory Committee composed of the following members: Brian C. Rogers,
Chairman, Thomas H. Broadus, Jr., Richard P. Howard, and William J. Stromberg.
The Committee Chairman has day-to-day responsibility for managing the
Portfolio and works with the Committee in developing and executing the
Portfolio's investment program. Mr. Rogers has been Chairman of the Committee
since 1993. He joined T. Rowe Price in 1982 and has been managing investments
since 1983.
Rowe Price-Fleming International, Inc. ("Price-Fleming") is the Adviser to the
T. Rowe Price International Stock Portfolio. As compensation for services as
the Portfolio's Adviser, the Manager pays Price-Fleming a monthly fee at the
annual rate equal to: .75% of the Portfolio's average daily net assets up to
and including $20 million; .60% of the Portfolio's average daily
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net assets over $20 million and up to and including $50 million; and .50% of
the Portfolio's average daily net assets in excess of $50 million.
Price-Fleming was incorporated in Maryland in 1979 as a joint venture between
T. Rowe Price and Robert Fleming Holdings Limited ("Flemings"). As of December
31, 1996, Price-Fleming managed the U.S. equivalent of approximately $___
billion. Flemings was incorporated in 1974 in the United Kingdom as successor
to the business founded by Robert Fleming in 1873. Flemings is a diversified
investment organization which participates in a global network of regional
investment offices in New York, London, Zurich, Geneva, Tokyo, Hong Kong,
Manila, Kuala Lumpur, South Korea and Taiwan. The common stock of
Price-Fleming is 50% owned by a wholly-owned subsidiary of T. Rowe Price, 25%
by a subsidiary of Flemings and 25% by Jardine Fleming Group Limited ("Jardine
Fleming"). (Half of Jardine Fleming is owned by Flemings and half by Jardine
Matheson Holdings Limited.) T. Rowe Price has the right to elect a majority of
the board of directors of Price-Fleming, and Flemings has the right to elect
the remaining directors, one of whom will be nominated by Jardine Fleming.
Investment decisions with respect to the T. Rowe Price International Stock
Portfolio are made by an investment advisory group composed of the following
members: Martin G. Wade, Christopher D. Alderson, Peter B. Askew, Richard J.
Bruce, Mark J. T. Edwards, John R. Ford, Robert C. Howe, James B. M. Seddon,
Benedict R. F. Thomas and David J. L. Warren. Martin Wade joined Price-Fleming
in 1979 and has 27 years of experience with the Fleming Group in research,
client service and investment management. (Fleming Group includes Flemings
and/or Jardine Fleming.) Christopher Alderson joined Price-Fleming in 1988 and
has 10 years of experience with the Fleming Group in research and portfolio
management. Peter Askew joined Price-Fleming in 1988 and has 21 years of
experience managing multi-currency fixed income portfolios. Richard Bruce
joined Price-Fleming in 1991 and has eight years of experience in investment
management with the Fleming Group in Tokyo. Mark Edwards joined Price-Fleming
in 1986 and has 15 years of experience in financial analysis. John Ford joined
Price-Fleming in 1982 and has 16 years of experience with Fleming Group in
research and portfolio management. Robert Howe joined Price Fleming in 1986
and has 15 years of experience in economic research, company research and
portfolio management. James Seddon joined Price-Fleming in 1987 and has nine
years of experience in investment management. Benedict Thomas joined
Price-Fleming in 1988 and has seven years of portfolio management experience.
David Warren joined Price-Fleming in 1984 and has 16 years of experience in
equity research, fixed income research and portfolio management.
Putnam Investment Management, Inc. ("Putnam Management") is the adviser to the
Putnam Growth and Income Portfolio and Putnam International Growth Portfolio.
As compensation for services as the Putnam Growth and Income Portfolio's
Adviser, the Manager pays Putnam Management a monthly fee at an annual rate
equal to: .50% of the Portfolio's average daily net assets up to and including
$150 million; .45% of the Portfolio's average daily net assets over $150
million and up to and including $300 million; and .35% of the Portfolio's
average daily net assets in excess of $300 million. As compensation for
services as the Putnam International Growth Portfolio's Adviser, the Manager
pays Putnam Management a monthly fee at the annual
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rate equal to: .65% of the Portfolio's average daily net assets up to and
including $150 million; .55% of the Portfolio's average daily net assets over
$150 million and up to and including $300 million; and .45% of the Portfolio's
average daily net assets in excess of $300 million.
Putnam Management was incorporated in ___________, and has been managing
mutual funds since 1937. As of December 31, 1996, Putnam Management managed
more than $___ billion of assets. Putnam Management is a subsidiary of Putnam
Investments, Inc., which is wholly owned by Marsh & McLennan Companies, Inc.,
a publicly-owned holding company whose principal businesses are international
insurance and reinsurance brokerage, employee benefit consulting and
investment management. Anthony I. Kreisel is responsible for the day-to-day
management of the Putnam Growth and Income Portfolio, which includes
investment decisions made on behalf of the Portfolio. Mr. Kreisel has been
employed by Putnam Management as an investment professional since 1986. Justin
Scott is responsible for the day-to-day management of the Putnam International
Growth Portfolio, which includes investment decisions made on behalf of the
Portfolio. Mr. Scott has been employed by Putnam Management as an investment
professional since 1988.
Massachusetts Financial Services Company ("MFS") is the adviser to the MFS
Research Portfolio. As compensation for services as the Portfolio's Adviser,
the Manager pays MFS a monthly fee at an annual rate equal to: .40% of the
Portfolio's average daily net assets up to and including $150 million; .375%
of the Portfolio's average daily net assets over $150 million and up to and
including $300 million; and .35% of the Portfolio's average daily net assets
in excess of $300 million. MFS will waive its management fees for the first
six months after the commencement of the Portfolio's investment 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. As of December 31, 1996, MFS managed more than $___ billion
on behalf of over 1.8 million investors accounts. MFS is a wholly-owned
subsidiary of Sun Life of Canada (U.S.), which, in turn, is a wholly-owned
subsidiary of Sun Life Assurance Company of Canada. The Portfolio is currently
managed by a committee comprised of various equity research analysts employed
by MFS.
MFS has established a strategic alliance with Foreign & Colonial Management
Ltd. ("Foreign & Colonial"). Foreign & Colonial is a subsidiary of two of the
world's oldest financial services institutions, the London-based Foreign &
Colonial Investment Trust PLC, which pioneered the idea of investment
management in 1868, and HYPO-BANK (Bayerische Hypotheken-und Weschsel-Bank
AG), the oldest publicly listed bank in Germany, founded in 1835. As part of
this alliance, the portfolio managers and investment analysts of MFS and
Foreign & Colonial share their views on a variety of investment related
issues, such as the economy, securities markets, portfolio securities and
their issuers, investment recommendations, strategies and techniques, risk
analysis, trading strategies and other portfolio management matters.
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THE ADMINISTRATOR
Pursuant to an administrative agreement ("Administrative Services Agreement"),
______________ (the "Administrator") assists the Manager in the performance of
its administrative responsibilities to the Trust and provides the Trust with
other necessary administrative services. In addition, the Administrator makes
available the office space, equipment, personnel and facilities required to
provide such administrative services to the Trust. For these administrative
services, the Trust pays the Administrator a monthly fee at the annual rate of
___% of the average daily net assets of the Trust.
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.
EXPENSE LIMITATION AGREEMENTS
In the interest of limiting expenses of the Portfolios, the Manager has
entered into expense limitation agreements with the Trust ("Expense Limitation
Agreements"), with respect to each Portfolio, pursuant to which the Manager
has agreed to waive or limit its fees and total annual operating expenses
(expressed as a percentage of the Portfolios' average daily net assets) to
[____]%. The Portfolios may at a later date reimburse to the Manager the
management fees waived or limited and other expenses paid by the Manager
pursuant to the Expense Limitation Agreements provided the Portfolios have
reached a sufficient asset size to permit such reimbursement to be made
without causing the total annual expense rate of each Portfolio to exceed
[____]%. Consequently, no reimbursement by a Portfolio will be made unless:
(i) the Portfolio's assets exceed [$__] million; (ii) the Portfolio's total
annual expense ratio is less than [____]%; and (iii) the payment of such
reimbursement has been approved by the Trust's Board of Trustees on a
quarterly basis.
BROKERAGE PRACTICES
In selecting brokers and dealers, the Manager and each Adviser may consider
research and brokerage services furnished to either company and their
affiliates. Subject to seeking the most favorable 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.
TRANSACTIONS WITH AFFILIATES
In December 1984, Equitable acquired Donaldson, Lufkin & Jenrette, Inc.
("DLJ"). A DLJ subsidiary, Donaldson, Lufkin & Jenrette Securities
Corporation, is one of the nation's largest investment banking and securities
firms. Another DLJ subsidiary, Autranet, Inc., is a securities broker that
markets independently originated research to institutions. Through the
Pershing Division of Donaldson, Lufkin & Jenrette Securities Corporation, DLJ
supplies security
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execution and clearance services to financial intermediaries including
broker-dealers and banks. To the extent permitted by law, the Trust may engage
in securities and other transactions with the above entities or may invest in
shares of the investment companies with which those entities have
affiliations. The Adviser to the T. Rowe Price International Stock and T. Rowe
Price Equity Income Portfolios may execute portfolio transactions through
certain affiliates of Robert Fleming Holdings Limited and Jardine Fleming
Group Limited, persons indirectly related to the Adviser, acting as an agent
in accordance with procedures established by the Trust's Board of Trustees.
The 1940 Act generally prohibits the Trust from engaging in principal
securities transactions with an affiliate of the Manager or Advisers unless
pursuant to an exemptive order from the SEC. The Trust may apply for such
exemptive relief. The Trust has adopted procedures, prescribed by Section
17(e)(2)(A) of the 1940 Act and Rule 17e-1 thereunder, which 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. In
addition, the Trust will adhere to Section 11(a) of the 1934 Act and any
applicable rules thereunder governing floor trading. The Trust has 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.
DESCRIPTION OF THE TRUST AND TRUST'S SHARES
THE TRUST
The Trust is a registered open-end management investment company that was
organized as a Delaware business trust on October 31, 1996. As of __________
__, 1997, Equitable owned 100% of the shares of each Portfolio and through
such ownership may be deemed a controlling person of each Portfolio. The Trust
currently is divided into [five] portfolios, each of which has Class IA and
Class IB shares. The Board of Trustees may establish additional portfolios and
additional classes of shares.
CHARACTERISTICS OF TRUST'S SHARES
The Board of Trustees of the Trust has authority to issue an unlimited number
of shares of beneficial interest, without par value. Each share of each class
of a Portfolio shall be entitled to one vote (or fraction thereof in respect
of a fractional share) on matters that such shares (or class of shares) shall
be entitled to vote. Shareholders of each Portfolio shall vote together on any
matter, except to the extent otherwise required by the 1940 Act, or when the
Board of Trustees of the Trust has determined that the matter affects only the
interest of shareholders of one or more classes, in which case only the
shareholders of such class or classes shall be entitled to vote thereon. Any
matter shall be deemed to have been effectively acted upon with respect to
each Portfolio if acted upon as provided in Rule 18f-2 under the 1940 Act, or
any successor rule, and in the Declaration of Trust. The Trust is not required
to hold annual shareholder meetings, but special meetings may be called for
purposes such as electing or removing
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Trustees, changing fundamental policies or approving an investment management
or advisory agreement.
Under the Trust's multi-class system, shares of each class of a Portfolio
represent an equal pro rata interest in that Portfolio and, generally, shall
have identical voting, dividend, liquidation, and other rights, preferences,
powers, restrictions, limitations, qualifications and terms and conditions,
except that: (a) each class shall have a different designation; (b) each class
of shares shall bear its "Class Expenses;" (c) each class shall have exclusive
voting rights on any matter submitted to shareholders that relates solely to
its distribution arrangements; (d) each class shall have separate voting
rights on any matter submitted to shareholders in which the interests of one
class differ from the interests of any other class; (e) each class may have
separate exchange privileges, although exchange privileges are not currently
contemplated; and (f) each class may have different conversion features,
although a conversion feature is not currently contemplated. Expenses
currently designated as "Class Expenses" by the Trust's Board of Trustees
under the plan pursuant to Rule 18f-3 are currently limited to payments made
to the distributor for the Class IB shares, pursuant to the distribution plan
for the Class IB shares adopted pursuant to Rule 12b-1 under the 1940 Act.
PURCHASE AND REDEMPTION OF SHARES
EQ Financial Consultants, Inc., formerly Equico Securities, Inc., a
wholly-owned subsidiary of Equitable, serves as distributor for the Trust's
Class IA shares pursuant to a distribution agreement with the Trust. The
Distributor's address is 1755 Broadway, New York, New York 10019. Class IA
shares are offered and redeemed without a sales charge, at net asset value.
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 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, 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 national business holidays.
All shares are purchased and redeemed in accordance with the Trust's
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 normally will 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.
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HOW ASSETS ARE VALUED
Values are determined according to accepted accounting practices and all laws
and regulations that apply. The assets of each Portfolio are generally valued
as follows:
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 in the U.S. are
valued at representative quoted prices in the currency of
the country of origin. Foreign currency amounts are
translated into U.S. dollars at the bid price last quoted by
a composite list of major U.S. banks.
o Short-term debt securities in the Portfolios which mature in
60 days or less are valued at amortized cost, which
approximates market value.
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.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Under current federal income tax law, the Trust believes that each Portfolio
is entitled, and the Trust intends that each Portfolio shall qualify each year
and elect, to be treated as a regulated investment company ("RIC") under
Subchapter M of the Internal Revenue Code of 1986, as amended ("Internal
Revenue Code"). As a RIC, a Portfolio will not be subject to federal tax on
its net investment income and net realized capital gains to the extent such
income and gains are timely distributed to its insurance company shareholders.
Accordingly, each Portfolio intends to distribute all of its net investment
income and net realized capital gains to its shareholders. An insurance
company that is a shareholder of a Portfolio will generally not be taxed on
distributions from that Portfolio. All dividend distributions will be
reinvested in full and fractional shares of the Portfolio to which they
relate.
Although the Trust intends that it and the Portfolios will be operated so that
they will have no federal income or excise tax liability, if any such
liability is nevertheless incurred, the investment performance of the
Portfolio or Portfolios incurring such liability will be adversely affected.
In addition, Portfolios investing in foreign securities and currencies may be
subject to foreign taxes which could reduce the investment performance of such
Portfolio.
In addition to meeting investment diversification rules applicable to
regulated investment companies under Subchapter M of the Internal Revenue
Code, each Portfolio is also subject to the investment diversification
requirements of Subchapter L of the Internal Revenue Code. Were any Portfolio
to fail to comply with those requirements, owners of Contracts (other than
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"pension plan contracts") funded through the Trust would be taxed immediately
on the accumulated investment earnings under their Contracts and would thereby
lose any benefit of tax deferral. Compliance is therefore carefully monitored
by the Manager.
Certain additional tax information appears in the Statement of Additional
Information.
For more information regarding the tax implications for owners of Contracts
investing in the Trust, refer to the prospectuses for those Contracts.
PERFORMANCE INFORMATION
From time to time, the Trust may advertise the "average annual or cumulative
total return" and may compare the performance of the Portfolios with that of
other mutual funds with similar investment objectives as listed in rankings
prepared by Lipper Analytical Services, Inc., or similar independent services
monitoring mutual fund performance, and with appropriate securities or other
relevant indices. The "average annual total return" of a Portfolio refers to
the average annual compounded rate of return over the stated period that would
equate an initial investment in that Portfolio at the beginning of the period
to its ending redeemable value, assuming reinvestment of all dividends and
distributions and deduction of all recurring charges, other than charges and
deductions which may be imposed under the Contracts. Performance figures will
be given for the recent one, five and ten year periods and for the life of the
Portfolio if it has not been in existence for any such periods. When
considering "average annual total return" figures for periods longer than one
year, it is important to note that a Portfolio's annual total return for any
given year might have been greater or less than its average for the entire
period. "Cumulative total return" represents the total change in value of an
investment in a Portfolio for a specified period (again reflecting changes in
Portfolio share prices and assuming reinvestment of Portfolio distributions).
The methods used to calculate "average annual and cumulative total return" are
described further in the Statement of Additional Information.
The performance of each Portfolio will vary from time to time in response to
fluctuations in market conditions, interest rates, the composition of the
Portfolio's investments and expenses. Consequently, a Portfolio's performance
figures are historical and should not be considered representative of the
performance of the Portfolio for any future period. Such performance does not
reflect fees and charges imposed under the Contracts, which fees and charges
will reduce such performance figures; therefore, these figures may be of
limited use for comparative purposes. No Portfolio will use information
concerning its investment performance in advertisements or sales materials
unless appropriate information concerning the relevant separate account is
also included.
PRIOR PERFORMANCE OF EACH ADVISER
The following table provides information concerning the historical performance
of another registered investment company managed by each Adviser, that has
investment objectives,
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policies, strategies and risks substantially similar to those of its
respective Portfolio(s) of the Trust. The data is provided to illustrate the
past performance of each Adviser in managing a substantially similar
investment vehicle as measured against specified market indices and does not
represent the future performance of any of the Portfolios 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.
Each Adviser's performance data shown below for the [name of other fund] was
calculated in accordance with standards proscribed by the SEC for the
calculation of average annual total return information for registered
investment companies. Share prices and investment returns will fluctuate
reflecting market conditions as well as changes in company-specific
fundamentals of portfolio securities.
In the table below, the only account that is included is another registered
investment company, i.e., [name of other fund] that is managed by the Adviser.
However, such other investment company may be subject to different expenses
than the Portfolios.
The investment results of [name of other fund] presented below are unaudited
and are not intended to predict or suggest the returns that might be
experienced by the Portfolios or an individual investor investing in such
Portfolios.
NAME OF PORTFOLIO
[NAME OF [S&P 500
YEAR OTHER FUND1, 2] INDEX3]
One Year4
Three Years4
Five Years4
Since inception4
- ----------------------------------
[1 Average annual total return reflects changes in share prices and
reinvestment of dividends and distributions and is net of fund
expenses.]
[2 The expense ratio of [name of fund] was capped at ____% for the
period __________ to __________ (reflecting annualized reimbursement
of expenses of ____%). Thereafter the expense ratio declined from
_____% to ____%, reflecting, in general, economies of scale
associated with an increase in assets under management. The expense
ratio of the [name of fund] is capped at ____% through December 31,
1996.]
[3 The S&P 500 Index ("Index") is an unmanaged index containing common
stocks of 500 industrial, transportation, utility and financial
companies, regarded as generally representative of the U.S. stock
market. The Index reflects the reinvestment of income dividends and
capital gain distributions, if any, but does not reflect fees,
brokerage commissions, or other expenses of investing.]
[4 Through December 31, 1996.]
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787 TRUST
787 SEVENTH AVENUE
NEW YORK, NEW YORK 10019
787 Trust ("Trust") is a diversified, open-end management investment company,
that offers a selection of professionally managed investment portfolios
("Portfolios"). Each Portfolio has its own investment objective and policies
that are designed to meet different investment goals.
This Prospectus describes the following five Portfolios currently offered by
the Trust.
* T. Rowe Price International Stock Portfolio
* T. Rowe Price Equity Income Portfolio
* Putnam Growth and Income Portfolio
* Putnam International Growth Portfolio
* MFS Research Portfolio
The Trust offers two classes of shares on behalf of each Portfolio: Class IA
shares, offered pursuant to another prospectus, and Class IB shares offered
hereby.
This Prospectus sets forth concisely the information about the Trust and the
Portfolios that a prospective investor should know before investing. Please
read the Prospectus and retain it for future reference. Additional information
contained in a Statement of Additional Information also dated __________, 1997
has been filed with the Securities and Exchange Commission and is available
upon request without charge by writing to the Trust at the address noted above
or calling 1-800-__________. The Statement of Additional Information is
incorporated into this Prospectus by reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The Date of This Prospectus is ________________, 1997.
<PAGE>
THE TRUST
The Trust is an open-end management investment company registered under the
Investment Company Act of 1940, as amended ("1940 Act"). As a "series" type of
mutual fund, the Trust issues shares of beneficial interest that are currently
divided among five Portfolios. Each Portfolio is a separate diversified series
of the Trust with its own objective and policies. The Trustees of the Trust
may establish additional Portfolios at any time.
Each Portfolio is managed by EQ Financial Consultants, Inc. ("Manager") which
directs the day-to-day operations of each Portfolio. Rowe Price-Fleming
International, Inc., T. Rowe Price Associates, Inc., Putnam Investment
Management, Inc., and Massachusetts Financial Services Company serve as the
advisers (each an "Adviser" and, together the "Advisers") to one or more of
the Portfolios, as detailed in the table below.
PORTFOLIO ADVISER
T. Rowe Price International Stock Rowe Price-Fleming International,
Portfolio Inc.
T. Rowe Price Equity Income T. Rowe Price Associates, Inc.
Portfolio
Putnam Growth and Income Putnam Investment Management,
Portfolio Inc.
Putnam International Growth Putnam Investment Management,
Portfolio Inc.
MFS Research Portfolio Massachusetts Financial Services
Company
The Trust offers two classes of shares on behalf of each Portfolio: Class IA
shares and Class IB shares. Equitable Distributors, Inc. ("Distributor")
serves as the distributor for the Class IB shares of the Trust offered by this
Prospectus. 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 (collectively, the "Contracts")
issued by The Equitable Life Assurance Society of the United States
("Equitable"). Both classes of shares are offered and redeemed at their net
asset value without the imposition of any sales load.
Class IA shares are offered pursuant to another prospectus and are subject to
the same expenses as the Class IB shares, but unlike the Class IB shares they
are not subject to distribution fees imposed pursuant to a distribution plan.
Class IB shares are subject to distribution fees imposed under a distribution
plan (the "Distribution Plan") adopted pursuant to Rule 12b-1 under the
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<PAGE>
1940 Act. Inquiries regarding Class IA shares should be addressed to
Equitable, at 1290 Avenue of the Americas, New York, NY 10104 (Attention:
____________).
INVESTMENT OBJECTIVES AND POLICIES
The following is a brief description of the investment objectives and policies
of each of the Portfolios. All of the objectives and policies of each
Portfolio, unless otherwise noted, are not fundamental and may be changed by
the Board of Trustees of the Trust without the approval of shareholders.
Certain investment strategies and instruments discussed below are described in
greater detail in the Statement of Additional Information. Because of the
uncertainty inherent in all investments, there can be no assurance that the
Portfolios will be able to achieve their respective investment objectives.
T. ROWE PRICE INTERNATIONAL STOCK PORTFOLIO
The investment objective of the T. Rowe Price International Stock Portfolio is
to seek long-term growth of capital through investment primarily in common
stocks of established non-U.S. companies. The Adviser intends to invest
substantially all of the Portfolio's assets outside the United States and to
diversify broadly among countries throughout the world--developed, newly
industrialized and emerging--by having at least five different countries
represented in the Portfolio. The Portfolio may invest in countries of the Far
East and Europe as well as South Africa, Australia, Canada, and other areas
(including developing countries). No more than 20% of the Portfolio's net
assets will be invested in securities of issuers located in any one country
with the exception of issuers located in Australia, Canada, France, Japan, the
United Kingdom or Germany (where the investment limitation is 35%). In
determining the appropriate distribution of investments among various
countries and geographic regions, the Adviser ordinarily considers the
following factors: prospects for relative economic growth between foreign
countries; expected levels of inflation; government policies influencing
business conditions; the outlook for currency relationships; and the range of
individual investment opportunities available to international investors.
The Portfolio expects to invest substantially all of its assets in common
stocks. However, the Portfolio may also invest in a variety of other
equity-related securities (such as preferred stocks, warrants and convertible
securities) as well as corporate and governmental debt securities, when
considered consistent with the Portfolio's investment objective and program.
The Portfolio may also invest in certain foreign investment portfolios or
trusts commonly referred to as passive foreign investment companies. These
entities have been authorized by the governments of certain countries
specifically to permit foreign investment in securities of companies listed or
traded on the stock exchanges in those countries. The Portfolio may also
engage in a variety of investment management practices such as buying and
selling options and futures contracts and engaging in foreign currency
exchange contracts and may invest up to 10% of its total assets in hybrid
instruments, which are a type of high-risk instrument that can combine the
characteristics of securities, futures contracts and options.
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Under normal conditions, the Portfolio's investment in securities other than
common stocks is limited to no more than 35% of its total assets. However, for
temporary defensive purposes, the Portfolio may invest all or a significant
portion of its assets in United States government securities and corporate
debt obligations. The Portfolio will not purchase any debt security which, at
the time of purchase, is rated below investment grade by a nationally
recognized statistical rating organization ("NRSRO"). This restriction would
not prevent the Portfolio from retaining a security downgraded to below
investment grade after purchase. In addition, the Portfolio may invest without
limitation in high-quality U.S. and foreign dollar-denominated money market
securities for temporary defensive purposes or to meet redemption requests.
In analyzing companies for investment, the Adviser uses a "bottom up"
approach. A company's prospects for achieving and sustaining above-average,
long-term earnings growth is generally the Adviser's primary focus. However
the Adviser also considers certain other factors in making its investment
decisions, including: above-average earnings growth per share; high return on
invested capital; healthy balance sheet; sound financial and accounting
policies and overall financial strength; strong competitive advantages;
effective research, product development and marketing; efficient service;
pricing flexibility; strength of management; and general operating
characteristics that should enable the companies to compete successfully in
their market place. While current dividend income is not a prerequisite in the
selection of portfolio companies, the companies in which the Portfolio invests
normally will have a record of paying dividends, and will generally be
expected to increase the amounts of such dividends in future years as earnings
increase. It is expected that the Portfolio's investments will ordinarily be
made on exchanges located at least in the respective countries in which the
various issuers of such securities are principally based.
Certain investment strategies and instruments which may be employed by the
Portfolio (such as the purchase and sale of options, futures contracts, hybrid
instruments, foreign securities, foreign currency transactions, passive
foreign investment companies, securities loans and illiquid securities) are
discussed under the caption "Investment Strategies" below and in the Statement
of Additional Information.
T. ROWE PRICE EQUITY INCOME PORTFOLIO
The investment objective of the T. Rowe Price Equity Income Portfolio is to
seek to provide substantial dividend income and also capital appreciation by
investing primarily in dividend-paying common stocks of established companies.
In pursuing its objective, the Portfolio emphasizes companies with favorable
prospects for increasing dividend income and capital appreciation. Over time,
the income component (dividends and interest earned) of the Portfolio's
investments is expected to be a significant contributor to the Portfolio's
total return. The Portfolio's yield is expected to be significantly above that
of the Standard & Poor's 500 Composite Stock Price Index ("S&P 500"). Total
return will consist primarily of dividend income and secondarily of capital
appreciation (or depreciation).
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The investment program of the Portfolio is based on several premises. First,
the Adviser believes that over time, dividend income can account for a
significant component of the total return from equity investments. Second,
dividends are normally a more stable and predictable source of return than
capital appreciation. While the price of a company's stock generally increases
or decreases in response to short-term earnings and market fluctuations, its
dividends are generally less volatile. Finally, the Adviser believes that
stocks that distribute a high level of current income tend to have less price
volatility than those that pay below average dividends.
Under normal circumstances, the Portfolio will invest at least 65% of its
total assets in income-producing common stocks of established companies paying
above-average dividends. The Adviser uses a "value" approach and invests in
common stocks and other equities-related securities it believes are
temporarily undervalued by various measures, such as price/earnings ratios.
The Portfolio's investments will generally be made in companies that share
some of the following characteristics: established operating histories;
above-average current dividend yields relative to the S&P 500; low
price/earnings ratios relative to the S&P 500; sound balance sheets and other
financial characteristics; and low stock price relative to company's
underlying value as measured by assets, earnings, cash flow or business
franchises.
Although the Portfolio will invest primarily in U.S. common stocks, it may
also purchase other types of securities (for example, foreign securities,
preferred stocks, convertible securities and warrants) when considered
consistent with the Portfolio's investment objective and program. The
Portfolio may invest up to 25% of its total assets in foreign securities.
These include non- dollar denominated securities traded outside the U.S. and
dollar-denominated securities traded in the U.S. (such as American Depositary
Receipts ("ADRs") and European Depositary Receipts ("EDRs")). Such investments
increase a portfolio's diversification and may enhance return, but they may
represent a greater degree of risk than investing in domestic securities.
The Portfolio may also engage in a variety of investment practices, such as
buying and selling options and futures contracts and engaging in foreign
currency exchange transactions. In addition, the Portfolio may invest up to
10% of its total assets in hybrid instruments.
The Portfolio may also invest a portion of its assets in United States
government securities and high-quality United States and foreign
dollar-denominated money market securities (i.e., within the two highest
rating categories assigned by a NRSRO) including certificates of deposit,
bankers' acceptances, commercial paper, short-term corporate securities and
repurchase agreements. For temporary defensive purposes or to meet redemption
requests, the Portfolio may invest without limitation in such securities.
The Portfolio may also invest in debt securities of any type including
municipal securities, without regard to quality or rating. Such securities
would be purchased in companies that meet the investment criteria for the
Portfolio. The price of a bond generally fluctuates with changes in interest
rates, rising when interest rates fall and falling when interest rates rise.
The Portfolio, however, will not invest more than 10% of its total assets in
securities rated below investment grade (commonly known as "junk bonds").
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Certain investment strategies and instruments which may be employed by the
Portfolio (such as the purchase and sale of options, futures contracts,
foreign securities, hybrid instruments, securities loans, illiquid securities
and junk bonds) are discussed under the caption "Investment Strategies" below
and in the Statement of Additional Information.
PUTNAM GROWTH AND INCOME PORTFOLIO
The investment objective of the Putnam Growth and Income Portfolio is capital
growth. Current income is a secondary objective. The Adviser intends to invest
primarily in common stocks that offer potential for capital growth and may,
consistent with the Portfolio's investment objective, invest in common stocks
that offer potential for current income. The Portfolio may also purchase
corporate bonds, notes and debentures, preferred stocks and convertible
securities (which include both debt securities and preferred stocks). The
types of securities held by the Portfolio may vary from time to time in light
of the Portfolio's investment objective, changes in interest rates, and
economic and other factors.
In analyzing companies for investment, the Adviser will seek to identify
companies whose securities are significantly undervalued in relation to their
underlying asset values or earnings potential. Attractively priced,
dividend-paying common stocks that offer the strongest potential for total
return are generally the primary investments of this Portfolio.
At times, the Adviser may judge that conditions in the securities markets may
make pursuing the Portfolio's basic investment strategy inconsistent with the
best interests of the Portfolio's shareholders. At such times, the Adviser may
temporarily use alternative strategies that are primarily designed to reduce
fluctuations in the value of the Portfolio's assets. In implementing these
defensive strategies, the Portfolio may invest without limit in debt
securities or preferred stocks, or may invest in any other securities the
Adviser considers consistent with such defensive strategies. It is impossible
to predict when, or for how long, the Adviser will use these alternative
defensive strategies.
The Portfolio may invest up to 20% of its total assets in foreign securities.
The Portfolio may also purchase Eurodollar certificates of deposit (i.e.,
short-term time deposits issued by European banks) without regard to this 20%
limit. Such investments increase the Portfolio's diversification and may enhance
return, but they may represent a greater degree of risk than investing in
domestic securities.
In addition, the Portfolio may also invest a portion of its assets in United
States government securities and high-quality United States and foreign
dollar-denominated money market securities (i.e., within the two highest
rating categories assigned by a NRSRO) including certificates of deposit,
bankers' acceptances, commercial paper, short-term corporate securities and
repurchase agreements. For temporary defensive purposes or to meet redemption
requests, the Portfolio may invest without limitation in such securities.
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The Portfolio may also invest in investment grade debt securities and may
invest a portion of its total assets in debt securities rated below investment
grade (commonly known as "junk bonds"). The price of a bond generally
fluctuates with changes in interest rates, rising when interest rates fall and
falling when interest rates rise.
The Portfolio may also engage in a variety of investment management practices
such as buying and selling options and futures contracts and engaging in
foreign currency exchange contracts.
Certain investment strategies and instruments which may be employed by the
Portfolio (such as the purchase and sale of options, futures contracts, hybrid
instruments, foreign securities, securities loans, illiquid securities,
"zero-coupon" bonds, "payment-in-kind" bonds, and junk bonds) are discussed
under the caption "Investment Strategies" below and in the Statement of
Additional Information.
PUTNAM INTERNATIONAL GROWTH PORTFOLIO
The investment objective of the Putnam International Growth Portfolio is
capital appreciation. The Portfolio is designed for investors seeking capital
appreciation primarily through a diversified portfolio of equity securities of
companies located outside North America. Such equity securities normally will
include common stocks, preferred stocks, securities convertible into common or
preferred stocks, and warrants. The Portfolio may also invest to a lesser
extent in debt securities and other types of investments if the Adviser
believes that purchasing them would help to achieve the Portfolio's objective.
The Portfolio may hold a portion of its assets in cash or money market
instruments. The Portfolio may also engage in a variety of investment
management practices such as buying and selling options and futures contracts
and engaging in foreign currency exchange contracts.
Under normal circumstances the Portfolio will invest at least 65% of its
assets in issuers located in at least three different countries outside North
America. The Portfolio will consider an issuer to be located outside North
America if (i) the issuer is organized under the laws of a country outside
North America and (ii) if the issuer derives 50% or more of its total revenues
from business outside North America. The Portfolio may invest in securities of
issuers in emerging markets, as well as more developed markets. Investing in
securities of issuers in emerging markets generally involves more risks than
investing in securities of issuers in developed markets.
The Adviser believes that the securities markets of many countries move
relatively independently of one another because business cycles and other
economic or political events that influence one country's securities markets
may have little effect on securities markets in other countries. By investing
in a diversified portfolio of securities of issuers located in different
foreign countries, the Adviser attempts to reduce the risks associated with
being invested in the securities of issuers within the economy of only one
country. Countries that the Adviser believes offer attractive opportunities
for investment may change from time to time.
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The Portfolio will not limit its investments to any particular type of
company. The Portfolio may invest in companies, large or small, whose earnings
are believed by the Adviser to be in a relatively strong growth trend or it
may invest in companies that are not expected to experience significant
further growth but whose market value per share is considered by the Adviser
to be undervalued. The Portfolio also may invest in small and relatively less
well-known companies that meet these characteristics.
At times, the Adviser may believe that conditions in the international
securities markets may make pursuing the Portfolio's basic investment strategy
inconsistent with the best interests of its shareholders. At such times, the
Portfolio may temporarily use alternative strategies that are primarily
designed to reduce fluctuations in the value of the Portfolio's assets. In
implementing these defensive strategies, the Portfolio may invest, without
limitation, in securities of any kind, including securities traded primarily
in United States markets and in cash and money market instruments. It is
impossible to predict when, or for how long, the Portfolio will use these
alternative strategies.
Certain investment strategies and instruments which may be employed by the
Portfolio (such as the purchase and sale of options, futures contracts,
foreign securities, foreign currency transactions, securities loans and
illiquid securities) are discussed under the caption "Investment Strategies"
below and in the Statement of Additional Information.
MFS RESEARCH PORTFOLIO
The investment objective of the MFS Research Portfolio is to provide long-term
growth of capital and future income. In pursuing its objective, the Portfolio
invests a substantial portion of its assets in the common stock or securities
convertible into common stock of companies believed by the Adviser to possess
better than average prospects for long-term growth. A smaller proportion of
the assets of the Portfolio may be invested in bonds, short-term debt
obligations, preferred stocks or common stocks whose principal characteristic
is income production rather than growth. Such securities may also offer
opportunities for growth of capital as well as income. In the case of both
growth stocks and income securities, the Adviser emphasizes progressive,
well-managed companies.
Investment research analysts in the Adviser's Equity Research Group select the
portfolio securities of the Portfolio. The assets of the Portfolio are
allocated to specific industry groups (e.g., pharmaceuticals, retail and
computer software) depending on the determinations made by the Adviser's
investment research analysts as a group. Individual analysts for each industry
group are responsible for selecting those securities within their particular
industry group that they consider to be the best suited to meet the objective
of the Portfolio. In addition, the Adviser, from time to time, will exercise
its judgment with respect to the proportion of assets of the Portfolio
invested in growth stocks, income producing securities or cash (including
foreign currency) and cash equivalents, depending on the Adviser's view of the
relative attractiveness of each type of security.
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To the extent that such investments comply with the Portfolio's investment
objective, the Portfolio may invest up to 20% of its total assets in foreign
securities, including those in emerging markets. These securities include
non-United States dollar-denominated securities traded outside the United
States and dollar denominated securities traded in the United States (such as
ADRs). Such foreign investments increase a portfolio's diversification and may
enhance return, but they may represent a greater degree of risk than investing
exclusively in domestic securities.
The Portfolio may invest in investment grade debt securities and may invest up
to 10% of its total assets in securities rated below investment grade
(commonly known as "junk bonds"). The price of a bond generally fluctuates
with changes in interest rates, rising when interest rates fall and falling
when interest rates rise.
Certain investment strategies and practices which may be employed by the
Portfolio (such as foreign securities, repurchase agreements, forward
commitments, securities loans, illiquid securities and junk bonds) are
discussed under the caption "Investment Strategies" below and in the Statement
of Additional Information.
INVESTMENT STRATEGIES
In addition to making investments directly in securities, to the extent
described above, each of the Portfolios (except for MFS Research Portfolio)
may purchase and sell call and put options, engage in transactions in futures
contracts and related options, and invest in hybrid instruments. All of the
Portfolios may engage in forward foreign currency exchange transactions and
may invest in ADRs, EDRs and other similar instruments. They may also enter
into repurchase agreements, make forward commitments to purchase securities,
lend their portfolio securities, and borrow funds under certain limited
circumstances. The investment strategies and instruments referred to above and
the risks related to them are summarized below and certain of these strategies
and instruments are described in more detail in the Statement of Additional
Information.
OPTIONS AND FUTURES TRANSACTIONS. Each Portfolio (except the MFS Research
Portfolio) may invest in futures contracts and options. Futures (a type of
potentially high-risk security) enable the investor to buy or sell an asset in
the future at an agreed upon price. Options (another type of potentially
high-risk security) give the investor the right, but not the obligation, to
buy or sell an asset at a predetermined price in the future. Each Portfolio
may utilize futures contracts and related options for other than hedging
purposes to the extent that aggregate initial margin deposits and premiums
paid do not exceed 5% of the Portfolio's net assets. Each Portfolio will not
commit more than 5% of its total assets to premiums when purchasing call or
put options. In addition, the total market value of securities against which a
Portfolio has written call or put options may not exceed 25% of its total
assets.
Each Portfolio may buy and sell futures and options contracts for any number
of reasons, including: to manage its exposure to changes in securities prices
and foreign currencies; as an
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efficient means of adjusting its overall exposure to certain markets; in an
effort to enhance income; and to protect the value of portfolio securities.
Each Portfolio may purchase, sell, or write call and put options on
securities, financial indices, and foreign currencies.
The risk of loss in trading futures contracts can be substantial because of
the low margin deposits required and the extremely high degree of leveraging
involved in futures pricing. As a result, a relatively small price movement in
a futures contract may cause an immediate and substantial loss or gain. The
primary risks associated with the use of futures contracts and options are:
(i) imperfect correlation between the change in market value of the stocks
held by a Portfolio and the prices of futures contracts and options; and (ii)
possible lack of a liquid secondary market for a futures contract and the
resulting inability to close a futures position prior to its maturity date.
HYBRID INSTRUMENTS. Each Portfolio (except the MFS Research Portfolio) may
invest in hybrid instruments. Hybrid instruments have recently been developed
and combine the elements of futures contacts or options with those of debt,
preferred equity or a depository instrument. Often these hybrid instruments
are indexed to the price of a commodity, particular currency, or a domestic or
foreign debt or equity securities index. Hybrid instruments may take a variety
of forms, including, but not limited to, debt instruments with interest or
principal payments or redemption terms determined by reference to the value of
a currency or commodity or securities index at a future point in time,
preferred stock with dividend rates determined by reference to the value of a
currency, or convertible securities with the conversion terms related to a
particular commodity. Hybrid instruments may bear interest or pay dividends at
below market (or even relatively nominal) rates. Under certain conditions, the
redemption value of such an instrument could be zero. Hybrid instruments can
have volatile prices and limited liquidity and their use by a Portfolio may
not be successful.
FOREIGN SECURITIES. Foreign investments involve certain risks that are not
present in domestic securities. Because each of the Portfolios may purchase
securities denominated in foreign currencies, a change in the value of any
such currency against the U.S. dollar will result in a change in the U.S.
dollar value of a Portfolio's assets and income. In addition, although a
portion of a Portfolio's investment income may be received or realized in such
currencies, the Portfolio will be required to compute and distribute its
income in U.S. dollars. Therefore, if the exchange rate for any such currency
declines after a Portfolio's income has been earned and computed in U.S.
dollars but before conversion and payment, the Portfolio could be required to
liquidate portfolio securities to make such distributions.
The value of foreign investments and the investment income derived from them
may also be affected unfavorably by changes in currency exchange control
regulations. Although the Portfolios will invest only in securities
denominated in foreign currencies that are fully exchangeable into U.S.
dollars without legal restriction at the time of investment, there can be no
assurance that currency controls will not be imposed subsequently. In
addition, the value of foreign fixed income investments may fluctuate in
response to changes in U.S. and foreign interest rates.
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There may be less information publicly available about a foreign issuer than
about a U.S. issuer, and a foreign issuer is not generally subject to
accounting, auditing and financial reporting standards and practices
comparable to those in the U.S. Foreign stock markets are generally not as
developed or efficient as, and may be more volatile than, those in the United
States. While growing in volume, they usually have substantially less volume
than U.S. markets and a Portfolio's investment securities may be less liquid
and subject to more rapid and erratic price movements than securities of
comparable U.S. companies. Equity securities may trade at price/earnings
multiples higher than comparable U.S. securities and such levels may not be
sustainable. There is generally less government supervision and regulation of
foreign stock exchanges, brokers and listed companies than in the U.S.
Moreover, settlement practices for transactions in foreign markets may differ
from those in U.S. markets. Such differences may include delays beyond periods
customary in the U.S. and practices, such as delivery of securities prior to
receipt of payment, which increase the likelihood of a "failed settlement."
Failed settlements can result in losses to the Portfolio. In less liquid and
well developed stock markets, such as those in some Asian and Latin American
countries, volatility may be heightened by actions of a few major investors.
For example, substantial increases or decreases in cash flows of mutual funds
investing in these markets could significantly affect stock prices and,
therefore, share prices.
Foreign brokerage commissions, custodial expenses and other fees are also
generally higher than for securities traded in the United States.
Consequently, the overall expense ratios of international funds are usually
somewhat higher than those of typical domestic stock funds.
In addition, the economies, markets and political structures of a number of
the countries in which the Portfolios can invest do not compare favorably with
the United States and other mature economies in terms of wealth and stability.
Therefore, investments in these countries may be riskier, and will be subject
to erratic and abrupt price movements. Some economies are less well developed
and less diverse (for example, Latin America, Eastern Europe and certain Asian
countries), and more vulnerable to the ebb and flow of international trade,
trade barriers and other protectionist or retaliatory measures (for example,
Japan, southeast Asia and Latin America). Some countries, particularly in
Latin America, are grappling with severe inflation and high levels of national
debt. Investments in countries that have recently begun moving away from
central planning and state-owned industries toward free markets, such as the
Eastern European or Chinese economies, should be regarded as speculative.
FOREIGN CURRENCY TRANSACTIONS. Each of the Portfolios may purchase foreign
currency on a spot (or cash) basis, and may enter into contracts to purchase
or sell foreign currencies at a future date ("forward contracts"). Each of the
Portfolios (except MFS Research Portfolio) may also purchase and sell foreign
currency futures contracts and may purchase exchange traded and
over-the-counter call and put options on foreign currency futures contracts
and on foreign currencies. The Advisers may engage in these transactions to
protect against uncertainty in the level of future exchange rates in
connection with the purchase and sale of portfolio securities ("transaction
hedging") and to protect the value of specific portfolio positions ("position
hedging").
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Hedging transactions involve costs and may result in losses. Each of the
Portfolios (except MFS Research Portfolio) may also write covered call options
on foreign currencies to offset some of the costs of hedging those currencies.
A Portfolio will engage in over-the-counter options transactions on foreign
currencies only when appropriate exchange traded transactions are unavailable
and when, in the Adviser's opinion, the pricing mechanism and liquidity are
satisfactory and the participants are responsible parties likely to meet their
contractual obligations. A Portfolio's ability to engage in hedging and
related option transactions may be limited by tax considerations.
Transactions and position hedging do not eliminate fluctuations in the
underlying prices of the securities which the Portfolios own or intend to
purchase or sell. They simply establish a rate of exchange which one can
achieve at some future point in time. Additionally, although these techniques
tend to minimize the risk of loss due to a decline in the value of the hedged
currency, they tend to limit any potential gain which might result from the
increase in the value of such currency.
PASSIVE FOREIGN INVESTMENT COMPANIES. The T. Rowe Price International Stock
Portfolio may purchase the securities of certain foreign investment funds or
trusts called passive foreign investment companies. Such entities have been
the only or primary way to invest in certain countries. In addition to bearing
their proportionate share of the Trust's expenses (management fees and
operating expenses), shareholders will also indirectly bear similar expenses
of such entities.
AMERICAN AND EUROPEAN DEPOSITARY RECEIPTS. The Portfolios may purchase foreign
securities in the form of ADRs, EDRs or other securities convertible into
securities of corporations in which the Portfolios are permitted to invest
pursuant to their respective investment objectives and policies. These
securities may not necessarily be denominated in the same currency into which
they may be converted. ADRs are receipts typically issued by a United States
bank or trust company which evidence ownership of underlying securities issued
by a foreign corporation. EDRs are receipts issued in Europe typically by
banks or depositories which evidence a similar ownership arrangement.
Generally, ADRs, in registered form, are designed for use in United States
securities markets and EDRs, in bearer form, are designed for use in European
securities markets.
BORROWINGS. The Portfolios may borrow money from banks or other lenders as a
temporary measure for emergency purposes, to facilitate redemption requests,
or for other purposes consistent with each Portfolio's investment objective
and program. Borrowings for the T. Rowe Price International Stock and T. Rowe
Price Equity Income Portfolios may not exceed 33 1/3% of any Portfolio's total
assets. Borrowings for the Putnam Growth and Income Portfolio and the Putnam
International Growth Portfolio may not exceed 10% of each Portfolio's total
assets. Borrowings for the MFS Research Portfolio may not exceed 5% of such
Portfolio's total assets. Each Portfolio may pledge its assets to secure these
permissible borrowings. No Portfolio may purchase additional securities when
its borrowings exceed 5% of its total assets.
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REPURCHASE AGREEMENTS. Each Portfolio may enter into repurchase agreements
with a bank, broker-dealer or other financial institution as a means of
earning a fixed rate of return on its cash reserves for periods as short as
overnight. A repurchase agreement is a contract pursuant to which a Portfolio,
against receipt of securities of at least equal value including accrued
interest, agrees to advance a specified sum to the financial institution which
agrees to reacquire the securities at a mutually agreed upon time (usually one
day) and price. Each repurchase agreement entered into by a Portfolio will
provide that the value of the collateral underlying the repurchase agreement
will always be at least equal to the repurchase price, including any accrued
interest. A Portfolio's right to liquidate such securities in the event of a
default by the seller could involve certain costs, losses or delays and, to
the extent that proceeds from any sale upon a default of the obligation to
repurchase are less than the repurchase price, the Portfolio could suffer a
loss.
FORWARD COMMITMENTS. Each Portfolio may make contracts to purchase securities
for a fixed price at a future date beyond customary settlement time ("forward
commitments") if it holds, and maintains until the settlement date in a
segregated account, cash or high-grade debt obligations in an amount
sufficient to meet the purchase price, or if it enters into offsetting
contracts for the forward sale of other securities it owns. Forward
commitments may be considered securities in themselves and involve a risk of
loss if the value of the security to be purchased declines prior to the
settlement date, which risk is in addition to the risk of decline in value of
the Portfolio's other assets. Where such purchases are made through dealers, a
Portfolio relies on the dealer to consummate the sale. The dealer's failure to
do so may result in the loss to a Portfolio of an advantageous yield or price.
SECURITIES LOANS. The T. Rowe Price International Stock and T. Rowe Price
Equity Income Portfolios may seek to obtain additional income by making
secured loans of portfolio securities with a value up to 331/3% of their
respective total assets. The Putnam Growth and Income Portfolio and Putnam
International Growth Portfolio may lend portfolio securities amounting to not
more than 25% of their respective total assets. The MFS Research Portfolio may
lend portfolio securities in an amount up to 30% of its total assets. All
securities loans will be made pursuant to agreements requiring the loans to be
continuously secured by collateral in cash or high-grade debt obligations at
least equal at all times to the market value of the loaned securities. The
borrower pays to the Portfolios an amount equal to any dividends or interest
received on loaned securities. The Portfolios retain all or a portion of the
interest received on investment of cash collateral or receives a fee from the
borrower. Lending portfolio securities involves risks of delay in recovery of
the loaned securities or in some cases loss of rights in the collateral should
the borrower fail financially.
ILLIQUID SECURITIES. The MFS Research Portfolio may invest up to 10% of its
assets and each other Portfolio may invest up to 15% of their respective net
assets in illiquid securities and other securities which are not readily
marketable, including non-negotiable time deposits, certain restricted
securities not deemed by the Trust's Board of Trustees to be liquid, and
repurchase agreements with maturities longer than seven days. Securities
eligible for resale pursuant to Rule 144A under the Securities Act of 1933, as
amended, which have been determined by the
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Board of Trustees to be liquid, will not be considered by the Adviser to be
illiquid or not readily marketable and, therefore, are not subject to the 15%
limit. The inability of a Portfolio to dispose of illiquid or not readily
marketable investments readily or at a reasonable price could impair the
Portfolio's ability to raise cash for redemptions or other purposes. The
liquidity of securities purchased by a Portfolio which are eligible for resale
pursuant to Rule 144A will be monitored by each Portfolio's Adviser on an
ongoing basis, subject to the oversight of the Board of Trustees of the Trust.
In the event that such a security is deemed to be no longer liquid, a
Portfolio's holdings will be reviewed to determine what action, if any, is
required to ensure that the retention of such security does not result in a
Portfolio's having more than 15% of its assets invested in illiquid or not
readily marketable securities.
INVESTMENT GRADE AND LOWER QUALITY FIXED INCOME SECURITIES. Each Portfolio
(except the T. Rowe Price International Stock Portfolio) may invest a portion
of its total assets in investment grade and lower quality fixed income
securities. Investment grade fixed income securities rated Baa by Moody's
Investors Service, Inc. ("Moody's") or BBB by Standard & Poor's Ratings Service
("S&P") and comparable unrated securities, while normally exhibiting adequate
protection parameters, have speculative characteristics; consequently, changes
in economic conditions or other circumstances are more likely to lead to a
weakened capacity to make principal and interest payments than in the case of
higher grade fixed income securities. Fixed income investments that are rated
in the lower categories by NRSROs (i.e., Ba or lower by Moody's or BB or lower
by S&P) or are unrated securities of comparable quality are known as "junk
bonds" and are regarded as predominantly speculative with respect to the
issuer's continuing ability to meet principal and interest payments. Each
NRSRO's descriptions of these bond ratings are set forth in the Appendix to
the Statement of Additional Information. Because investment in these lower
quality junk bonds involves greater investment risk, achievement of a
Portfolio's investment objective will be more dependent on the Adviser's
analysis than would be the case if that Portfolio were investing in higher
quality bonds. In addition, lower quality junk bonds may be more susceptible
to real or perceived adverse economic and individual corporate developments
than would investment grade bonds. Moreover, the secondary trading market for
lower quality junk bonds may be less liquid than the market for investment
grade bonds. This potential lack of liquidity may make it more difficult for
the Adviser to value accurately certain portfolio securities.
PAYMENT-IN-KIND BONDS. The Putnam Growth and Income Portfolio may invest in
payment-in- kind bonds. Payment-in-kind bonds allow the issuer, at its option,
to make current interest payments on the bonds either in cash or in additional
bonds. The value of payment-in-kind bonds is subject to greater fluctuation in
response to changes in market interest rates than bonds which pay interest in
cash currently. Payment-in-kind bonds allow an issuer to avoid the need to
generate cash to meet current interest payments. Accordingly, such bonds may
involve greater credit risks than bonds paying interest currently. Even though
such bonds do not pay current interest in cash, the Portfolio is nonetheless
required to accrue interest income on such investments and to distribute such
amounts at least annually to shareholders. Thus, the Putnam Growth and Income
Portfolio could be required, at times, to liquidate other investments in order
to satisfy its distribution requirements.
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ZERO-COUPON BONDS. The Putnam Growth and Income Portfolio may invest in
zero-coupon bonds. Zero-coupon bonds are issued at a significant discount from
their principal amount and pay interest only at maturity rather than at
intervals during the life of the security. The value of zero-coupon bonds is
subject to greater fluctuation in response to changes in market interest rates
than bonds which pay interest in cash currently. Zero-coupon bonds allow an
issuer to avoid the need to generate cash to meet current interest payments.
Accordingly, such bonds may involve greater credit risks than bonds paying
interest currently. Even though such bonds do not pay current interest in
cash, the Portfolio is nonetheless required to accrue interest income on such
investments and to distribute such amounts at least annually to shareholders.
Thus, the Putnam Growth and Income Portfolio could be required, at times, to
liquidate other investments in order to satisfy its distribution requirements.
PORTFOLIO TURNOVER. The length of time a Portfolio has held a particular
security is not generally a consideration in investment decisions. A change in
the securities held by a Portfolio is known as "portfolio turnover." Each
Portfolio's turnover rate is not expected to exceed 100% during its first year
of operation. A high turnover rate increases transaction costs (e.g.,
brokerage commissions) and increases realized gains and losses.
MANAGEMENT OF THE TRUST
THE BOARD OF TRUSTEES
The Board of Trustees of the Trust provides broad supervision over the
business and affairs of the Portfolios and the Trust as provided in the
Trust's Declaration of Trust and By-Laws.
THE MANAGER
The Trust is managed by EQ Financial Consultants, Inc. which, subject to the
supervision and direction of the Trustees of the Trust, has overall
responsibility for the general management and administration of the Trust. The
Manager is an investment adviser registered under the Investment Advisers Act
of 1940, as amended, and a broker-dealer registered under the Securities
Exchange Act of 1934, as amended ("1934 Act"). The Manager currently furnishes
specialized investment advice to other clients, including individuals, pension
and profit sharing plans, trusts, charitable organizations, corporations and
other business entities. The Manager is a Delaware corporation and an indirect,
wholly-owned subsidiary of Equitable, a New York stock life insurance company.
The Manager is responsible for providing investment management and
administrative services to the Trust and in the exercise of such
responsibility selects the investment advisers for the Trust's Portfolios and
monitors the Advisers' investment programs and results, reviews brokerage
matters, oversees compliance by the Trust with various federal and state
statutes, and carries out the directives of the Board of Trustees. The Manager
is responsible for providing the Trust with office space, office equipment,
and personnel necessary to operate and administer the
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Trust's business, and also supervises the provision of services by third
parties such as the Trust's custodian.
As compensation for managing the T. Rowe Price Equity Income Portfolio, the
Trust pays the Manager a monthly fee at the annual rate of .80% of the
Portfolio's average daily net assets. As compensation for managing the T. Rowe
Price International Stock Portfolio, the Trust pays the Manager a monthly fee
at the annual rate equal to: 1.15% of the Portfolio's average daily net assets
up to and including $20 million; 1.00% of the Portfolio's average daily net
assets over $20 million and up to and including $50 million; and .90% of the
Portfolio's average daily net assets in excess of $50 million. As compensation
for managing the Putnam Growth and Income Portfolio, the Trust pays the
Manager a monthly fee at an annual rate equal to: .90% of the Portfolio's
average daily net assets up to and including $150 million; .85% of the
Portfolio's average daily net assets over $150 million and up to and including
$300 million; and .75% of the Portfolio's average daily net assets in excess
of $300 million. As compensation for managing the Putnam International Growth
Portfolio, the Trust pays the Manager a monthly fee at an annual rate equal
to: 1.05% of the Portfolio's average daily net assets up to and including $150
million; .95% of the Portfolio's average daily net assets over $150 million
and up to and including $300 million; and .85% of the Portfolio's average
daily net assets in excess of $300 million. As compensation for managing the
MFS Research Portfolio, the Trust pays the Manager a monthly fee at an annual
rate equal to: .80% of the Portfolio's average daily net assets up to and
including $150 million; .775% of the Portfolio's average daily net assets over
$150 million and up to and including $300 million; and .75% of the Portfolio's
average daily net assets in excess of $300 million.
The management fees paid by the Portfolios, although higher than the fees paid
by other investment companies in general, are comparable to management fees
paid for similar services by many investment companies with similar investment
objectives and policies. From the management fees, the Manager pays the
expenses of providing investment advisory services to the Portfolios,
including the fees of the Adviser of each Portfolio.
In addition to the management fees, the Trust pays all expenses not assumed by
the Manager, including, without limitation: the fees and expenses of its
independent auditors and of its legal counsel; the costs of printing and
mailing annual and semi-annual reports to shareholders, proxy statements,
prospectuses, prospectus supplements and statements of additional information,
all to the extent they are sent to existing Contract owners; the costs of
printing registration statements; bank transaction charges and custodian's
fees; any proxy solicitors' fees and expenses; filing fees; any federal, state
or local income or other taxes; any interest; any membership fees of the
Investment Company Institute and similar organizations; fidelity bond and
Trustees' liability insurance premiums; and any extraordinary expenses, such
as indemnification payments or damages awarded in litigation or settlements
made. All general Trust expenses are allocated among and charged to the assets
of the Portfolios of the Trust on a basis that the Trustees deem fair and
equitable, which may be on the basis of relative net assets of each Portfolio
or the nature of the services performed and relative applicability to each
Portfolio. As discussed in greater detail below, under "Distribution of the
Trust's Shares", the
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Class IB shares may pay for certain distribution related expenses in
connection with activities primarily intended to result in the sale of its
shares.
THE ADVISERS
Pursuant to an investment advisory agreement with the Manager, each Adviser to
a Portfolio furnishes continuously an investment program for the Portfolio,
makes investment decisions on behalf of the Portfolio, places all orders for
the purchase and sale of investments for the Portfolio's account with brokers
or dealers selected by such Adviser and may perform certain limited related
administrative functions in connection therewith. For its services, the
Manager pays each Adviser a fee based on a percentage of the average daily net
assets of the Portfolio that it advises.
The Trust has filed an exemptive application with the Securities and Exchange
Commission ("SEC") that would permit the Trust's Board of Trustees, in
consultation with the Manager and without the approval of shareholders to: (a)
employ a new Adviser for any Portfolio pursuant to the terms of a new Advisory
Agreement, either as a replacement for an existing Adviser or as an additional
Adviser; (b) change the terms of any Advisory Agreement; and (c) continue the
employment of an existing Adviser on the same advisory contact terms where a
contract has been assigned because of a change in control of the Adviser.
Shareholders would receive notice of such action, including the information
concerning the Adviser that normally is provided in the Prospectus. There can
be no assurance that the SEC will grant the Trust's application.
T. Rowe Price Associates, Inc. ("T. Rowe Price") is the Adviser to the T. Rowe
Price Equity Income Portfolio. As compensation for services as the Portfolio's
Adviser, the Manager pays T. Rowe Price a monthly fee at the annual rate of
.40% of the Portfolio's average daily net assets.
T. Rowe Price was incorporated in Maryland in 1947 as successor to the
investment counseling business founded by the late Thomas Rowe Price, Jr., in
1937. As of December 31, 1996, T. Rowe Price and its affiliates managed more
than $__ billion of assets. T. Rowe Price serves as investment manager to a
variety of individual and institutional investor accounts, including limited
and real estate partnerships and other mutual funds. Investment decisions with
respect to the T. Rowe Price Equity Income Portfolio are made by an Investment
Advisory Committee composed of the following members: Brian C. Rogers,
Chairman, Thomas H. Broadus, Jr., Richard P. Howard, and William J. Stromberg.
The Committee Chairman has day-to-day responsibility for managing the
Portfolio and works with the Committee in developing and executing the
Portfolio's investment program. Mr. Rogers has been Chairman of the Committee
since 1993. He joined T. Rowe Price in 1982 and has been managing investments
since 1983.
Rowe Price-Fleming International, Inc. ("Price-Fleming") is the Adviser to the
T. Rowe Price International Stock Portfolio. As compensation for services as
the Portfolio's Adviser, the Manager pays Price-Fleming a monthly fee at the
annual rate equal to: .75% of the Portfolio's average daily net assets up to
and including $20 million; .60% of the Portfolio's average daily
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net assets over $20 million and up to and including $50 million; and .50% of
the Portfolio's average daily net assets in excess of $50 million.
Price-Fleming was incorporated in Maryland in 1979 as a joint venture between
T. Rowe Price and Robert Fleming Holdings Limited ("Flemings"). As of December
31, 1996, Price-Fleming managed the U.S. equivalent of approximately $___
billion. Flemings was incorporated in 1974 in the United Kingdom as successor
to the business founded by Robert Fleming in 1873. Flemings is a diversified
investment organization which participates in a global network of regional
investment offices in New York, London, Zurich, Geneva, Tokyo, Hong Kong,
Manila, Kuala Lumpur, South Korea and Taiwan. The common stock of
Price-Fleming is 50% owned by a wholly-owned subsidiary of T. Rowe Price, 25%
by a subsidiary of Flemings and 25% by Jardine Fleming Group Limited ("Jardine
Fleming"). (Half of Jardine Fleming is owned by Flemings and half by Jardine
Matheson Holdings Limited.) T. Rowe Price has the right to elect a majority of
the board of directors of Price-Fleming, and Flemings has the right to elect
the remaining directors, one of whom will be nominated by Jardine Fleming.
Investment decisions with respect to the T. Rowe Price International Stock
Portfolio are made by an investment advisory group composed of the following
members: Martin G. Wade, Christopher D. Alderson, Peter B. Askew, Richard J.
Bruce, Mark J. T. Edwards, John R. Ford, Robert C. Howe, James B. M. Seddon,
Benedict R. F. Thomas and David J. L. Warren. Martin Wade joined Price-Fleming
in 1979 and has 27 years of experience with the Fleming Group in research,
client service and investment management. (Fleming Group includes Flemings
and/or Jardine Fleming.) Christopher Alderson joined Price-Fleming in 1988 and
has 10 years of experience with the Fleming Group in research and portfolio
management. Peter Askew joined Price-Fleming in 1988 and has 21 years of
experience managing multi-currency fixed income portfolios. Richard Bruce
joined Price-Fleming in 1991 and has eight years of experience in investment
management with the Fleming Group in Tokyo. Mark Edwards joined Price-Fleming
in 1986 and has 15 years of experience in financial analysis. John Ford joined
Price-Fleming in 1982 and has 16 years of experience with Fleming Group in
research and portfolio management. Robert Howe joined Price Fleming in 1986
and has 15 years of experience in economic research, company research and
portfolio management. James Seddon joined Price-Fleming in 1987 and has nine
years of experience in investment management. Benedict Thomas joined
Price-Fleming in 1988 and has seven years of portfolio management experience.
David Warren joined Price-Fleming in 1984 and has 16 years of experience in
equity research, fixed income research and portfolio management.
Putnam Investment Management, Inc. ("Putnam Management") is the adviser to the
Putnam Growth and Income Portfolio and Putnam International Growth Portfolio.
As compensation for services as the Putnam Growth and Income Portfolio's
Adviser, the Manager pays Putnam Management a monthly fee at an annual rate
equal to: .50% of the Portfolio's average daily net assets up to and including
$150 million; .45% of the Portfolio's average daily net assets over $150
million and up to and including $300 million; and .35% of the Portfolio's
average daily net assets in excess of $300 million. As compensation for
services as the Putnam International Growth Portfolio's Adviser, the Manager
pays Putnam Management a monthly fee at the annual
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rate equal to: .65% of the Portfolio's average daily net assets up to and
including $150 million; .55% of the Portfolio's average daily net assets over
$150 million and up to and including $300 million; and .45% of the Portfolio's
average daily net assets in excess of $300 million.
Putnam Management was incorporated in ___________, and has been managing
mutual funds since 1937. As of December 31, 1996, Putnam Management managed
more than $___ billion of assets. Putnam Management is a subsidiary of Putnam
Investments, Inc., which is wholly owned by Marsh & McLennan Companies, Inc.,
a publicly-owned holding company whose principal businesses are international
insurance and reinsurance brokerage, employee benefit consulting and
investment management. Anthony I. Kreisel is responsible for the day-to-day
management of the Putnam Growth and Income Portfolio, which includes
investment decisions made on behalf of the Portfolio. Mr. Kreisel has been
employed by Putnam Management as an investment professional since 1986. Justin
Scott is responsible for the day-to-day management of the Putnam International
Growth Portfolio, which includes investment decisions made on behalf of the
Portfolio. Mr. Scott has been employed by Putnam Management as an investment
professional since 1988.
Massachusetts Financial Services Company ("MFS") is the adviser to the MFS
Research Portfolio. As compensation for services as the Portfolio's Adviser,
the Manager pays MFS a monthly fee at an annual rate equal to: .40% of the
Portfolio's average daily net assets up to and including $150 million; .375%
of the Portfolio's average daily net assets over $150 million and up to and
including $300 million; and .35% of the Portfolio's average daily net assets
in excess of $300 million. MFS will waive its management fees for the first
six months after the commencement of the Portfolio's investment 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. As of December 31, 1996, MFS managed more than $___ billion
on behalf of over 1.8 million investors accounts. MFS is a wholly-owned
subsidiary of Sun Life of Canada (U.S.), which, in turn, is a wholly-owned
subsidiary of Sun Life Assurance Company of Canada. The Portfolio is currently
managed by a committee comprised of various equity research analysts employed
by MFS.
MFS has established a strategic alliance with Foreign & Colonial Management
Ltd. ("Foreign & Colonial"). Foreign & Colonial is a subsidiary of two of the
world's oldest financial services institutions, the London-based Foreign &
Colonial Investment Trust PLC, which pioneered the idea of investment
management in 1868, and HYPO-BANK (Bayerische Hypotheken-und Weschsel-Bank
AG), the oldest publicly listed bank in Germany, founded in 1835. As part of
this alliance, the portfolio managers and investment analysts of MFS and
Foreign & Colonial share their views on a variety of investment related
issues, such as the economy, securities markets, portfolio securities and
their issuers, investment recommendations, strategies and techniques, risk
analysis, trading strategies and other portfolio management matters.
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THE ADMINISTRATOR
Pursuant to an administrative agreement ("Administrative Services Agreement"),
______________ (the "Administrator") assists the Manager in the performance of
its administrative responsibilities to the Trust and provides the Trust with
other necessary administrative services. In addition, the Administrator makes
available the office space, equipment, personnel and facilities required to
provide such administrative services to the Trust. For these administrative
services, the Trust pays the Administrator a monthly fee at the annual rate of
___% of the average daily net assets of the Trust.
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.
EXPENSE LIMITATION AGREEMENTS
In the interest of limiting expenses of the Portfolios, the Manager has
entered into expense limitation agreements with the Trust ("Expense Limitation
Agreements"), with respect to each Portfolio, pursuant to which the Manager
has agreed to waive or limit its fees and total annual operating expenses
(expressed as a percentage of the Portfolios' average daily net assets) to
[____]%. The Portfolios may at a later date reimburse to the Manager the
management fees waived or limited and other expenses paid by the Manager
pursuant to the Expense Limitation Agreements provided the Portfolios have
reached a sufficient asset size to permit such reimbursement to be made
without causing the total annual expense rate of each Portfolio to exceed
[____]%. Consequently, no reimbursement by a Portfolio will be made unless:
(i) the Portfolio's assets exceed [$__] million; (ii) the Portfolio's total
annual expense ratio is less than [____]%; and (iii) the payment of such
reimbursement has been approved by the Trust's Board of Trustees on a
quarterly basis.
BROKERAGE PRACTICES
In selecting brokers and dealers, the Manager and each Adviser may consider
research and brokerage services furnished to either company and their
affiliates. Subject to seeking the most favorable 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.
TRANSACTIONS WITH AFFILIATES
In December 1984, Equitable acquired Donaldson, Lufkin & Jenrette, Inc.
("DLJ"). A DLJ subsidiary, Donaldson, Lufkin & Jenrette Securities
Corporation, is one of the nation's largest investment banking and securities
firms. Another DLJ subsidiary, Autranet, Inc., is a securities broker that
markets independently originated research to institutions. Through the
Pershing Division of Donaldson, Lufkin & Jenrette Securities Corporation, DLJ
supplies security
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execution and clearance services to financial intermediaries including
broker-dealers and banks. To the extent permitted by law, the Trust may engage
in securities and other transactions with the above entities or may invest in
shares of the investment companies with which those entities have
affiliations. The Adviser to the T. Rowe Price International Stock and T. Rowe
Price Equity Income Portfolios may execute portfolio transactions through
certain affiliates of Robert Fleming Holdings Limited and Jardine Fleming
Group Limited, persons indirectly related to the Adviser, acting as an agent
in accordance with procedures established by the Trust's Board of Trustees.
The 1940 Act generally prohibits the Trust from engaging in principal
securities transactions with an affiliate of the Manager or Advisers unless
pursuant to an exemptive order from the SEC. The Trust may apply for such
exemptive relief. The Trust has adopted procedures, prescribed by Section
17(e)(2)(A) of the 1940 Act and Rule 17e-1 thereunder, which 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. In
addition, the Trust will adhere to Section 11(a) of the 1934 Act and any
applicable rules thereunder governing floor trading. The Trust has 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.
DESCRIPTION OF THE TRUST AND TRUST'S SHARES
THE TRUST
The Trust is a registered open-end management investment company that was
organized as a Delaware business trust on October 31, 1996. As of __________
__, 1997, Equitable owned 100% of the shares of each Portfolio and through
such ownership may be deemed a controlling person of each Portfolio. The Trust
currently is divided into [five] portfolios, each of which has Class IA and
Class IB shares. The Board of Trustees may establish additional portfolios and
additional classes of shares.
CHARACTERISTICS OF TRUST'S SHARES
The Board of Trustees of the Trust has authority to issue an unlimited number
of shares of beneficial interest, without par value. Each share of each class
of a Portfolio shall be entitled to one vote (or fraction thereof in respect
of a fractional share) on matters that such shares (or class of shares) shall
be entitled to vote. Shareholders of each Portfolio shall vote together on any
matter, except to the extent otherwise required by the 1940 Act, or when the
Board of Trustees of the Trust has determined that the matter affects only the
interest of shareholders of one or more classes, in which case only the
shareholders of such class or classes shall be entitled to vote thereon. Any
matter shall be deemed to have been effectively acted upon with respect to
each Portfolio if acted upon as provided in Rule 18f-2 under the 1940 Act, or
any successor rule, and in the Declaration of Trust. The Trust is not required
to hold annual shareholder meetings, but special meetings may be called for
purposes such as electing or removing
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Trustees, changing fundamental policies or approving an investment management
or advisory agreement.
Under the Trust's multi-class system, shares of each class of a Portfolio
represent an equal pro rata interest in that Portfolio and, generally, shall
have identical voting, dividend, liquidation, and other rights, preferences,
powers, restrictions, limitations, qualifications and terms and conditions,
except that: (a) each class shall have a different designation; (b) each class
of shares shall bear its "Class Expenses;" (c) each class shall have exclusive
voting rights on any matter submitted to shareholders that relates solely to
its distribution arrangements; (d) each class shall have separate voting
rights on any matter submitted to shareholders in which the interests of one
class differ from the interests of any other class; (e) each class may have
separate exchange privileges, although exchange privileges are not currently
contemplated; and (f) each class may have different conversion features,
although a conversion feature is not currently contemplated. Expenses
currently designated as "Class Expenses" by the Trust's Board of Trustees
under the plan pursuant to Rule 18f-3 are currently limited to payments made
to the Distributor for the Class IB shares, pursuant to the Distribution Plan
for the Class IB shares adopted pursuant to Rule 12b-1 under the 1940 Act.
PURCHASE AND REDEMPTION OF SHARES
Class IB shares are offered and redeemed, without a sales charge, at net asset
value and are subject to distribution fees under the Distribution Plan. 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 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, 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 national business holidays.
The Trust has a distribution agreement for its Class IB shares with Equitable
Distributors, Inc., a Delaware corporation and an indirect, wholly-owned
subsidiary of Equitable pursuant to which it acts as the Distributor for the
Class IB shares of the Trust.
The Trust has adopted the Distribution Plan pursuant to Rule 12b-1 under the
1940 Act for the Class IB shares of the Trust. Pursuant to the Distribution
Plan, the Trust compensates the Distributor from assets attributable to the
Class IB shares for services rendered and expenses borne in connection with
activities primarily intended to result in the sale of the Trust's Class IB
shares. It is anticipated that a portion of the amounts received by the
Distributor will be used to defray various costs incurred or paid by the
Distributor in connection with the printing and mailing of Trust prospectuses,
statements of additional information, any supplements thereto and shareholder
reports and holding seminars and sales meetings with wholesale and retail
sales personnel designed to promote the distribution of Class IB shares. The
Distributor may also use
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a portion of the amounts received to provide compensation to financial
intermediaries and third-party broker-dealers for their services in connection
with the distribution of Class IB shares.
The Distribution Plan provides that the Trust, on behalf of each Portfolio,
may pay annually up to 0.50% of the average daily net assets of a Portfolio
attributable to its Class IB shares in respect of activities primarily
intended to result in the sale of Class IB shares. However, under the
Distribution Agreement, payments to the Distributor for activities pursuant to
the Distribution Plan are limited to payments at an annual rate equal to 0.25%
of average daily net assets of a Portfolio attributable to its Class IB
shares. Under terms of the Distribution Plan and the Distribution Agreement,
each Portfolio is authorized to make payments monthly to the Distributor which
may be used to pay or reimburse entities providing distribution and
shareholder servicing with respect to the Class IB shares for such entities'
fees or expenses incurred or paid in that regard.
The Distribution Plan is of a type known as a "compensation" plan because
payments are made for services rendered to the Trust with respect to Class IB
shares regardless of the level of expenditures by the Distributor. The
Trustees will, however, take into account such expenditures for purposes of
reviewing operations under the Distribution Plan and in connection with their
annual consideration of the Plan's renewal. The Distributor has indicated that
it expects its expenditures to include, without limitation: (a) the printing
and mailing of Trust prospectuses, statements of additional information, any
supplements thereto and shareholder reports for prospective Contract owners
with respect to the Class IB shares of the Trust; (b) those relating to the
development, preparation, printing and mailing of advertisements, sales
literature and other promotional materials describing and/or relating to the
Class IB shares of the Trust; (c) holding seminars and sales meetings designed
to promote the distribution of Trust Class IB shares; (d) obtaining
information and providing explanations to wholesale and retail distributors of
Contracts regarding Trust investment objectives and policies and other
information about the Trust and its Portfolios, including the performance of
the Portfolios; (e) training sales personnel regarding the Class IB shares of
the Trust; and (f) financing any other activity that the Distributor
determines is primarily intended to result in the sale of Class IB shares.
All shares are purchased and redeemed in accordance with the Trust's
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 normally will be processed and payment with
respect thereto will 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.
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HOW ASSETS ARE VALUED
Values are determined according to accepted accounting practices and all laws
and regulations that apply. The assets of each Portfolio are generally valued
as follows:
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 in the U.S. are
valued at representative quoted prices in the currency of
the country of origin. Foreign currency amounts are
translated into U.S. dollars at the bid price last quoted by
a composite list of major U.S. banks.
o Short-term debt securities in the Portfolios which mature in
60 days or less are valued at amortized cost, which
approximates market value.
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.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Under current federal income tax law, the Trust believes that each Portfolio
is entitled, and the Trust intends that each Portfolio shall qualify each year
and elect, to be treated as a regulated investment company ("RIC") under
Subchapter M of the Internal Revenue Code of 1986, as amended ("Internal
Revenue Code"). As a RIC, a Portfolio will not be subject to federal tax on
its net investment income and net realized capital gains to the extent such
income and gains are timely distributed to its insurance company shareholders.
Accordingly, each Portfolio intends to distribute all of its net investment
income and net realized capital gains to its shareholders. An insurance
company that is a shareholder of a Portfolio will generally not be taxed on
distributions from that Portfolio. All dividend distributions will be
reinvested in full and fractional shares of the Portfolio to which they
relate.
Although the Trust intends that it and the Portfolios will be operated so that
they will have no federal income or excise tax liability, if any such
liability is nevertheless incurred, the investment performance of the
Portfolio or Portfolios incurring such liability will be adversely affected.
In addition, Portfolios investing in foreign securities and currencies may be
subject to foreign taxes which could reduce the investment performance of such
Portfolio.
In addition to meeting investment diversification rules applicable to
regulated investment companies under Subchapter M of the Internal Revenue
Code, each Portfolio is also subject to the investment diversification
requirements of Subchapter L of the Internal Revenue Code. Were any Portfolio
to fail to comply with those requirements, owners of Contracts (other than
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"pension plan contracts") funded through the Trust would be taxed immediately
on the accumulated investment earnings under their Contracts and would thereby
lose any benefit of tax deferral. Compliance is therefore carefully monitored
by the Manager.
Certain additional tax information appears in the Statement of Additional
Information.
For more information regarding the tax implications for owners of Contracts
investing in the Trust, refer to the prospectuses for those Contracts.
PERFORMANCE INFORMATION
From time to time, the Trust may advertise the "average annual or cumulative
total return" and may compare the performance of the Portfolios with that of
other mutual funds with similar investment objectives as listed in rankings
prepared by Lipper Analytical Services, Inc., or similar independent services
monitoring mutual fund performance, and with appropriate securities or other
relevant indices. The "average annual total return" of a Portfolio refers to
the average annual compounded rate of return over the stated period that would
equate an initial investment in that Portfolio at the beginning of the period
to its ending redeemable value, assuming reinvestment of all dividends and
distributions and deduction of all recurring charges, other than charges and
deductions which may be imposed under the Contracts. Performance figures will
be given for the recent one, five and ten year periods and for the life of the
Portfolio if it has not been in existence for any such periods. When
considering "average annual total return" figures for periods longer than one
year, it is important to note that a Portfolio's annual total return for any
given year might have been greater or less than its average for the entire
period. "Cumulative total return" represents the total change in value of an
investment in a Portfolio for a specified period (again reflecting changes in
Portfolio share prices and assuming reinvestment of Portfolio distributions).
The methods used to calculate "average annual and cumulative total return" are
described further in the Statement of Additional Information.
The performance of each Portfolio will vary from time to time in response to
fluctuations in market conditions, interest rates, the composition of the
Portfolio's investments and expenses. Consequently, a Portfolio's performance
figures are historical and should not be considered representative of the
performance of the Portfolio for any future period. Such performance does not
reflect fees and charges imposed under the Contracts, which fees and charges
will reduce such performance figures; therefore, these figures may be of
limited use for comparative purposes. No Portfolio will use information
concerning its investment performance in advertisements or sales materials
unless appropriate information concerning the relevant separate account is
also included.
PRIOR PERFORMANCE OF EACH ADVISER
The following table provides information concerning the historical performance
of another registered investment company managed by each Adviser, that has
investment objectives, policies, strategies and risks substantially similar to
those of its respective Portfolio(s) of the
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Trust. The data is provided to illustrate the past performance of each Adviser
in managing a substantially similar investment vehicle as measured against
specified market indices and does not represent the future performance of any
of the Portfolios 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.
Each Adviser's performance data shown below for the [name of other fund] was
calculated in accordance with standards proscribed by the SEC for the
calculation of average annual total return information for registered
investment companies. Share prices and investment returns will fluctuate
reflecting market conditions as well as changes in company-specific
fundamentals of portfolio securities.
In the table below, the only account that is included is another registered
investment company, i.e., [name of other fund] that is managed by the Adviser.
However, such other investment company may be subject to different expenses
than the Portfolios.
The investment results of [name of other fund] presented below are unaudited
and are not intended to predict or suggest the returns that might be
experienced by the Portfolios or an individual investor investing in such
Portfolios.
NAME OF PORTFOLIO
[NAME OF [S&P 500
YEAR OTHER FUND1, 2] INDEX3]
One Year4
Three Years4
Five Years4
Since inception4
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[1 Average annual total return reflects changes in share prices and
reinvestment of dividends and distributions and is net of fund
expenses.]
[2 The expense ratio of [name of fund] was capped at ____% for the
period __________ to __________ (reflecting annualized reimbursement
of expenses of ____%). Thereafter the expense ratio declined from
_____% to ____%, reflecting, in general, economies of scale
associated with an increase in assets under management. The expense
ratio of the [name of fund] is capped at ____% through December 31,
1996.]
[3 The S&P 500 Index ("Index") is an unmanaged index containing common
stocks of 500 industrial, transportation, utility and financial
companies, regarded as generally representative of the U.S. stock
market. The Index reflects the reinvestment of income dividends and
capital gain distributions, if any, but does not reflect fees,
brokerage commissions, or other expenses of investing.]
[4 Through December 31, 1996.]
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787 TRUST
STATEMENT OF ADDITIONAL INFORMATION
____________, 1997
This Statement of Additional Information is not a prospectus. It should be
read in conjunction with the Prospectus for the 787 Trust ("Trust") dated
_______, 1997, which may be obtained without charge by writing to the Trust at
787 Seventh Avenue, New York, New York 10019 or by calling 1-800-___-____.
Unless otherwise defined herein, capitalized terms have the meanings given to
them in the Prospectus.
TABLE OF CONTENTS
Page
General Information and History.........................................
Investment Restrictions.................................................
Description of Certain Securities in Which the
Portfolio May Invest..................................................
Management of the Trust.................................................
Investment Management and Other Services................................
Brokerage Allocation....................................................
Purchase and Pricing of Securities......................................
Redemption of Shares ...................................................
Certain Tax Considerations..............................................
Portfolio Performance...................................................
Other Services..........................................................
Financial Statements....................................................
Appendix ...............................................................
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GENERAL INFORMATION AND HISTORY
THE TRUST
The Trust is an open-end management investment company--a type of company
commonly known as a "mutual fund." It is registered as such under the
Investment Company Act of 1940, as amended ("1940 Act"). The Trust, organized
as a Delaware business trust, currently offers two classes of shares on behalf
of the T. Rowe Price International Stock Portfolio, T. Rowe Price Equity
Income Portfolio, Putnam Growth and Income Portfolio, Putnam International
Growth Portfolio and MFS Research Portfolio (each a "Portfolio," and together
the "Portfolios"). Class IA shares are offered at net asset value and are not
subject to distribution fees imposed pursuant to a distribution plan. Class IB
shares are offered at net asset value and are subject to distribution fees
imposed under a distribution plan ("Distribution Plan") adopted pursuant to
Rule 12b-1 under the 1940 Act.
The two classes of shares are currently offered under the Trust's multi-class
distribution system approved by the Trust's Board of Trustees on _________,
1997, which is designed to allow promotion of insurance products investing in
the Trust though alternative distribution channels. Under the Trust's
multi-class distribution system, shares of each class of a Portfolio represent
an equal pro rata interest in that Portfolio and, generally, will have
identical voting, dividend, liquidation, and other rights, other than the
payment of distribution fees under the Distribution Plan.
The Trust continuously offers its shares exclusively to separate accounts of
insurance companies in connection with variable life insurance contracts and
variable annuity certificates and contracts (collectively, "Contracts"). Class
IA shares and Class IB shares currently are sold only to separate accounts of
The Equitable Life Assurance Society of the United States ("Equitable"). As of
_________, 1997, Equitable owned 100% of the Trust's outstanding Class IA
shares and Class IB shares and, as a result, may be deemed to be a control
person with respect to the Trust.
As a "series" type of mutual fund, the Trust issues separate series of shares
of beneficial interest with respect to each Portfolio. Each Portfolio
resembles a separate fund issuing a separate class of stock. Because of
current federal securities law requirements, the Trust expects that its
shareholders will offer to owners of the Contracts ("Contractowners") the
opportunity to instruct them as to how shares allocable to their Contracts
will be voted with respect to certain matters, such as approval of investment
advisory agreements. To the Trust's knowledge, as of ___________, 1997, no
Contractowners owned Contracts entitling such persons to give voting
instructions regarding more than 5% of the outstanding shares of any
Portfolio.
The Trust may in the future offer its shares to separate accounts of other
insurance companies. The Trust does not currently foresee any disadvantages to
Contractowners arising from offering the Trust's shares to separate accounts
of insurance companies that are unaffiliated with each other. However, it is
theoretically possible that, at some time, the interests of various
Contractowners participating in the Trust through their separate accounts
might conflict. In the
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case of a material irreconcilable conflict, one or more separate accounts
might withdraw their investments in the Trust, which would possibly force the
Trust to sell portfolio securities at disadvantageous prices. The Trustees of
the Trust intend to monitor events for the existence of any material
irreconcilable conflicts between or among such separate accounts and will take
whatever remedial action may be necessary.
EQ Financial Consultants, Inc. ("Manager") is the investment manager for each
Portfolio. T. Rowe Price Associates, Inc. ("T. Rowe Price"), Price-Fleming
International, Inc. ("Price- Fleming"), Putnam Investment Management Inc.
("Putnam Management") and Massachusetts Financial Services Company ("MFS")
(each an "Adviser," and together the "Advisers") serve as investment advisers
to one or more of the Portfolios.
LEGAL CONSIDERATIONS
Under Delaware law, annual election of Trustees is not required, and, in the
normal course, the Trust does not expect to hold annual meetings of
shareholders. There will normally be no meetings of shareholders for the
purpose of electing Trustees unless and until such time as less than a
majority of the Trustees holding office have been elected by shareholders, at
which time the Trustees then in office will call a shareholders' meeting for
the election of Trustees. Pursuant to the procedures set forth in Section
16(c) of the 1940 Act, shareholders of record of not less than two-thirds of
the outstanding shares of the Trust may remove a Trustee by a vote cast in
person or by proxy at a meeting called for that purpose.
Except as set forth above, the Trustees will continue to hold office and may
appoint successor Trustees. Voting rights are not cumulative, so that the
holders of more than 50% of the shares voting in the election of Trustees can,
if they choose to do so, elect all the Trustees of the Trust, in which event
the holders of the remaining shares will be unable to elect any person as a
Trustee. The Declaration of Trust of the Trust requires the affirmative vote
of a majority of the outstanding shares of the Trust.
The shares of each Portfolio, when issued, will be fully paid and
non-assessable and will have no preference, preemptive, conversion, exchange
or similar rights.
INVESTMENT RESTRICTIONS
FUNDAMENTAL RESTRICTIONS
Each Portfolio has also adopted certain investment restrictions which are
fundamental and may not be changed without approval by a "majority" vote of
the Portfolio's shareholders. Such majority is defined in the 1940 Act as the
lesser of (i) 67% or more of the voting securities of such Portfolio present
in person or by proxy at a meeting, if the holders of more than 50% of the
outstanding voting securities are present or represented by proxy; or (ii)
more than 50% of the outstanding voting securities of such Portfolio. Set
forth below are each of the fundamental
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restrictions adopted by each of the Portfolios. Certain non-fundamental
operating policies are also described in this section because of their direct
relevance to the fundamental restrictions adopted by the Portfolios.
As a matter of fundamental policy, each Portfolio may not:
(1) Borrow money, except that:
a. each Portfolio may (i) borrow for non-leveraging,
temporary or emergency purposes and (ii) engage in
reverse repurchase agreements and make other
investments or engage in other transactions, which
may involve a borrowing, in a manner consistent
with the Portfolios' respective investment
objective and program, provided that the
combination of (i) and (ii) shall not exceed 331/3%
of the value of the Portfolios' respective total
assets (including the amount borrowed) less
liabilities (other than borrowings) or such other
percentage permitted by law. Any borrowings which
come to exceed this amount will be reduced in
accordance with applicable law. Each Portfolio may
borrow from banks or other persons to the extent
permitted by applicable law;
b. as a matter of non-fundamental operating policy, no
Portfolio will purchase additional securities when
money borrowed exceeds 5% of its total assets;
c. the Putnam Growth and Income Portfolio and Putnam
International Growth Portfolio, as a matter of
non-fundamental operating policy, may borrow only
from banks (i) as a temporary measure to facilitate
the meeting of redemption requests (not for
leverage) which might otherwise require the
untimely disposition of portfolio investments or
(ii) for extraordinary or emergency purposes,
provided that the combination of (i) and (ii) shall
not exceed 10% of the value (taken at lower of cost
or current value) of the Portfolios' respective
total assets (not including the amount borrowed) at
the time the borrowing is made. Each Portfolio will
will repay borrowings before any additional
investments are purchased;
d. the MFS Research Portfolio, as a matter of
non-fundamental operating policy, may borrow
amounts not in excess of 5% of its total assets
(taken at the lower of cost or market value), and
then only as a temporary measure for extraordinary
or emergency purposes;
(2) Purchase or sell physical commodities, except that it may enter into
futures contracts and options thereon. No Portfolio will consider
currency contracts or hybrid investments to be commodities;
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(3) Purchase the securities of any issuer if, as a result, more than 25%
of the value of the Portfolio's total assets would be invested in the
securities of issuers having their principal business activities in
the same industry. United States, state or local governments, or
related agencies or instrumentalities, are not considered an
industry. Industries are determined by reference to the
classifications of industries set forth in each Portfolio's
semi-annual and annual reports;
(4) Make loans, except that:
a. each Portfolio may: (i) lend portfolio securities
provided that no such loan may be made if, as a
result, the aggregate of such loans would exceed
331/3% of the value of the Portfolio's total
assets; (ii) purchase money market securities and
enter into repurchase agreements; and (iii) acquire
publicly-distributed or privately-placed debt
securities and purchase debt securities. Each
Portfolio will consider the acquisition of a debt
security to include the execution of a note or
other evidence of an extension of credit with a
term of more than nine months;
b. the Putnam Growth and Income Portfolio and Putnam
International Growth Portfolio, as a matter of
non-fundamental operating policy, may purchase debt
obligations consistent with the respective
investment objectives and policies of each of those
Portfolios; (i) by entering into repurchase
agreements with respect to not more than 25% of the
Portfolios' respective total assets (taken at
current value) or (ii) through the lending of the
Portfolios' portfolio securities with respect to
not more than 25% of the Portfolios' respective
total assets (taken at current value);
(5) Purchase a security if, as a result, with respect to 75% of the value
of its total assets, more than 5% of the value of the Portfolio's
total assets would be invested in the securities of a single issuer,
except securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities;
(6) Purchase a security if, as a result, with respect to 75% of the value
of the Portfolio's total assets, more than 10% of the outstanding
voting securities of any issuer would be held by the Portfolio (other
than obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities). The MFS Research Portfolio, as a
matter of non-fundamental operating policy, may not purchase
securities of any issuer if such purchase, at the time thereof, would
cause the Portfolio to hold more than 10% of any class of securities
of such issuer.
(7) Purchase or sell real estate, although the Portfolio may purchase
securities of issuers which deal in real estate, securities which are
secured by interests in real estate, and securities which represent
interests in real estate, and the Portfolio may acquire and
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dispose of real estate or interests in real estate acquired through
the exercise of its rights as a holder of debt obligations secured by
real estate or interests therein;
(8) Issue senior securities except in compliance with the 1940 Act; or
(9) Underwrite securities issued by other persons, except to the extent
that the Portfolio may be deemed to be an underwriter within the
meaning of the Securities Act of 1933, as amended ("1933 Act"), in
connection with the purchase and sale of its portfolio securities in
the ordinary course of pursuing its investment objective, policies
and program.
NON-FUNDAMENTAL RESTRICTIONS
The following investment restrictions apply to each Portfolio, but are not
fundamental. They may be changed for any Portfolio without a vote of that
Portfolio's shareholders.
Each Portfolio may not:
(1) Purchase a futures contract or an option thereon if, with respect to
positions in futures or options on futures which do not represent
bona fide hedging, the aggregate initial margin and premiums on such
options would exceed 5% of the Portfolio's net asset value;
(2) Purchase (a) illiquid securities, (b) securities restricted as to
resale (excluding securities determined by the Board of Trustees to
be readily marketable), and (c) repurchase agreements maturing in
more than seven days if, as a result, more than 15% of each
Portfolio's (except the MFS Research Portfolio) and 10% of the MFS
Research Portfolio's net assets would be invested in such securities;
(3) Purchase securities on margin, except (a) for use of short-term
credit necessary for clearance of purchases of portfolio securities
and (b) it may make margin deposits in connection with futures
contracts or other permissible investments;
(4) Mortgage, pledge, hypothecate or, in any manner, transfer any
security owned by the Portfolio as security for indebtedness, except
as may be necessary in connection with permissible borrowings or
investments; and then such mortgaging, pledging or hypothecating may
not exceed 331/3% of the T. Rowe Price International Stock, T. Rowe
Price Equity Income, and Putnam Growth and Income Portfolios'
respective total assets and 15% of Putnam International Growth and
MFS Research Portfolios' respective total assets at the time of the
permissable borrowing or investment. The deposit of underlying
securities and other assets in escrow and collateral arrangements
with respect to margin accounts for futures contracts and options are
not deemed to be mortgages, pledges, or hypothecations for these
purposes.
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(5) Purchase participations or other direct interests in or enter into
leases with respect to, oil, gas, or other mineral exploration or
development programs;
(6) Invest in puts, calls, straddles, spreads, or any combination thereof,
except to the extent permitted by the Portfolio's Prospectus and
Statement of Additional Information; or
(7) Effect short sales of securities unless at all times when a short
position is open the Portfolio owns an equal amount of such
securities or owns securities which, without payment of any further
consideration, are covertible into or exchangeable for securities of
the same issue as, and at least equal in amount to, the securities
sold short.
In addition to the restrictions described above, some foreign countries limit,
or prohibit, all direct foreign investment in the securities of companies
domiciled therein. However, the governments of some countries have authorized
the organization of investment funds to permit indirect foreign investment in
such securities. For tax purposes these funds may be known as passive foreign
investment companies. The Portfolios are subject to certain percentage
limitations under the 1940 Act relating to the purchase of securities of
investment companies, and the T. Rowe Price International Stock Portfolio may
have to subject investments in passive foreign investment companies to the
limitation that no more than 10% of the value of the Portfolio's total assets
may be invested in such securities.
DESCRIPTION OF CERTAIN SECURITIES IN WHICH THE
PORTFOLIOS MAY INVEST
OPTIONS
Writing Call Options. Each Portfolio (except for the MFS Research Portfolio)
may write (sell) covered call options on its portfolio securities in an
attempt to enhance investment performance. A call option is a contract which
gives the purchaser of the option (in return for a premium paid) the right to
buy, and the writer of the option (in return for a premium received) the
obligation to sell, the underlying security at the exercise price at any time
prior to the expiration of the option, regardless of the market price of the
security during the option period. A covered call option is, for example, a
call option written on a security that is owned by the writer (or on a
security convertible into such a security without additional consideration)
throughout the option period.
A Portfolio will write covered call options both to reduce the risks
associated with certain of its investments and to increase total investment
return through the receipt of premiums. In return for the premium income, the
Portfolio will give up the opportunity to profit from an increase in the
market price of the underlying security above the exercise price so long as
its obligations under the contract continue, except insofar as the premium
represents a profit. Moreover, in writing the call option, the Portfolio will
retain the risk of loss should the price of the security decline. The premium
is intended to offset that loss in whole or in part. Unlike the situation
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in which the Portfolio owns securities not subject to a call option, the
Portfolio, in writing call options, must assume that the call may be exercised
at any time prior to the expiration of its obligation as a writer, and that in
such circumstances the net proceeds realized from the sale of the underlying
securities pursuant to the call may be substantially below the prevailing
market price.
A Portfolio may terminate its obligation under an option it has written by
buying an identical option. Such a transaction is called a "closing purchase
transaction." The Portfolio will realize a gain or loss from a closing
purchase transaction if the amount paid to purchase a call option is less or
more than the amount received from the sale of the corresponding call option.
Also, because increases in the market price of a call option will generally
reflect increases in the market price of the underlying security, any loss
resulting from the exercise or closing out of a call option is likely to be
offset in whole or part by unrealized appreciation of the underlying security
owned by the Portfolio. When an underlying security is sold from the
Portfolio's securities portfolio, the Portfolio will effect a closing purchase
transaction so as to close out any existing covered call option on that
underlying security.
Writing Put Options. The writer of a put option becomes obligated to purchase
the underlying security at a specified price during the option period if the
buyer elects to exercise the option before its expiration date. A Portfolio
which writes a put option will be required to "cover" it, for example, by
depositing and maintaining in a segregated account with its custodian cash,
United States Government securities or other liquid high-grade debt
obligations having a value equal to or greater than the exercise price of the
option.
The Portfolios may write put options either to earn additional income in the
form of option premiums (anticipating that the price of the underlying
security will remain stable or rise during the option period and the option
will therefore not be exercised) or to acquire the underlying security at a
net cost below the current value (e.g., the option is exercised because of a
decline in the price of the underlying security, but the amount paid by the
Portfolio, offset by the option premium, is less than the current price). The
risk of either strategy is that the price of the underlying security may
decline by an amount greater than the premium received. The premium which a
Portfolio receives from writing a put option will reflect, among other things,
the current market price of the underlying security, the relationship of the
exercise price to that market price, the historical price volatility of the
underlying security, the option period, supply and demand and interest rates.
A Portfolio may effect a closing purchase transaction to realize a profit on
an outstanding put option or to prevent an outstanding put option from being
exercised.
Purchasing Put and Call Options. Each Portfolio (except for the MFS Research
Portfolio) may purchase put options and call options. The Portfolios may
purchase put options on securities to protect their holdings against a
substantial decline in market value. The purchase of put options on securities
will enable a Portfolio to preserve, at least partially, unrealized gains in
an appreciated security in its portfolio without actually selling the
security. In addition, the
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Portfolio will continue to receive interest or dividend income on the
security. The Portfolios may also purchase call options on securities to
protect against substantial increases in prices of securities that Portfolios
intend to purchase pending their ability to invest in an orderly manner in
those securities. The Portfolios may sell put or call options they have
previously purchased, which could result in a net gain or loss depending on
whether the amount received on the sale is more or less than the premium and
other transaction cost paid on the put or call option which was bought.
Securities Index Options. Each Portfolio (except for the MFS Research
Portfolio) may write covered put and call options and purchase call and put
options on securities indexes for the purpose of hedging against the risk of
unfavorable price movements adversely affecting the value of a Portfolio's
securities or securities it intends to purchase. Each Portfolio writes only
"covered" options. A call option on a securities index is considered covered,
for example, if, so long as the Portfolio is obligated as the writer of the
call, it holds securities the price changes of which are, in the opinion of a
Portfolio's Adviser, expected to replicate substantially the movement of the
index or indexes upon which the options written by the Portfolio are based. A
put on a securities index written by a Portfolio will be considered covered
if, so long as it is obligated as the writer of the put, the Portfolio
segregates with its custodian cash, United States Government securities or
other liquid high-grade debt obligations having a value equal to or greater
than the exercise price of the option. Unlike a stock option, which gives the
holder the right to purchase or sell a specified stock at a specified price,
an option on a securities index gives the holder the right to receive a cash
"exercise settlement amount" equal to (i) the difference between the exercise
price of the option and the value of the underlying stock index on the
exercise date, multiplied by (ii) a fixed "index multiplier."
A securities index fluctuates with changes in the market value of the
securities so included. For example, some securities index options are based
on a broad market index such as the S&P 500 or the NYSE Composite Index, or a
narrower market index such as the S&P 100. Indexes may also be based on an
industry or market segment such as the AMEX Oil and Gas Index or the Computer
and Business Equipment Index.
Over-the-Counter Options. Each Portfolio (except for the MFS Research
Portfolio) may enter into contracts (or amend existing contracts) with primary
dealer(s) with whom they write over-the-counter options. The contracts will
provide that each Portfolio has the absolute right to repurchase an option it
writes at any time at a repurchase price which represents the fair market
value, as determined in good faith through negotiation between the parties,
but which in no event will exceed a price determined pursuant to a formula
contained in the contract. Although the specific details of the formula may
vary between contracts with different primary dealers, the formula will
generally be based on a multiple of the premium received by each Portfolio for
writing the option, plus the amount, if any, of the option's intrinsic value
(i.e., the amount the option is "in-the-money"). The formula will also include
a factor to account for the difference between the price of the security and
the strike price of the option if the option is written "out- of-the-money."
Although the specific details of the formula may vary with different primary
dealers, each contract will provide a formula to determine the maximum price
at which each
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Portfolio can repurchase the option at any time. The Portfolios have
established standards of creditworthiness for these primary dealers, although
the Portfolios may still be subject to the risk that firms participating in
such transactions will fail to meet their obligations. In instances in which a
Portfolio has entered into agreements with respect to the over-the-counter
options it has written, and such agreements would enable the Portfolio to have
an absolute right to repurchase at a pre-established formula price the
over-the-counter option written by it, the Portfolio would treat as illiquid
only securities equal in amount to the formula price described above less the
amount by which the option is "in-the-money," i.e., the amount by which the
price of the option exceeds the exercise price.
For information concerning the risks associated with utilizing options,
futures contracts, and forward foreign currency exchange contracts, please see
"Risks of Transactions in Options, Futures Contracts and Forward Currency
Contracts" on page 18.
FUTURES
Futures Transactions. Each Portfolio (except for the MFS Research Portfolio)
may trade in certain futures contracts. A futures contract is a bilateral
agreement to buy or sell a security (or deliver a cash settlement price, in
the case of a contract relating to an index or otherwise not calling for
physical delivery at the end of trading in the contracts) for a set price in
the future. Futures contracts are designated by boards of trade which have
been designated "contracts markets" by the Commodities Futures Trading
Commission ("CFTC").
No purchase price is paid or received when the contract is entered into.
Instead, a Portfolio upon entering into a futures contract (and to maintain
the Portfolio's open positions in futures contracts) would be required to
deposit with its custodian in a segregated account in the name of the futures
broker an amount of cash, U.S. government securities, suitable money market
instruments, or liquid, high-grade debt securities, known as "initial margin."
The margin required for a particular futures contract is set by the exchange
on which the contract is traded, and may be significantly modified from time
to time by the exchange during the term of the contract. Futures contracts are
customarily purchased and sold on margin that may range upward from less than
5% of the value of the contract being traded. By using futures contracts as a
risk management technique, given the greater liquidity in the futures market
than in the cash market, it may be possible to accomplish certain results more
quickly and with lower transaction costs.
If the price of an open futures contract changes (by increase in the case of a
sale or by decrease in the case of a purchase) so that the loss on the futures
contract reaches a point at which the margin on deposit does not satisfy
margin requirements, the broker will require an increase in the margin.
However, if the value of a position increases because of favorable price
changes in the futures contract so that the margin deposit exceeds the
required margin, the broker will pay the excess to the Portfolio. These
subsequent payments called "variation margin," to and from the futures broker,
are made on a daily basis as the price of the underlying assets fluctuate
making the long and short positions in the futures contract more or less
valuable, a process
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known as "marking to the market." The Portfolios expect to earn interest
income on their initial and variation margin deposits.
A Portfolio will incur brokerage fees when it purchases and sells futures
contracts. Positions taken in the futures markets are not normally held until
delivery or cash settlement is required, but are instead liquidated through
offsetting transactions which may result in a gain or a loss. While futures
positions taken by a Portfolio will usually be liquidated in this manner, the
Portfolio may instead make or take delivery of underlying securities whenever
it appears economically advantageous to the Portfolio to do so. A clearing
organization associated with the exchange on which futures are traded assumes
responsibility for closing out transactions and guarantees that as between the
clearing members of an exchange, the sale and purchase obligations will be
performed with regard to all positions that remain open at the termination of
the contract.
Securities Index Futures Contracts. Purchases or sales of securities index
futures contracts may be used by a Portfolio's Adviser (other than the MFS
Research Portfolio's Adviser) in an attempt to protect the Portfolio's current
or intended investments from broad fluctuations in securities prices. A
securities index futures contract does not require the physical delivery of
securities, but merely provides for profits and losses resulting from changes
in the market value of the contract to be credited or debited at the close of
each trading day to the respective accounts of the parties to the contract. On
the contract's expiration date a final cash settlement occurs and the futures
positions are simply closed out. Changes in the market value of a particular
index futures contract reflect changes in the specified index of securities on
which the future is based.
By establishing an appropriate "short" position in index futures, a Portfolio
may also seek to protect the value of its portfolio against an overall decline
in the market for such securities. Alternatively, in anticipation of a
generally rising market, a Portfolio can seek to avoid losing the benefit of
apparently low current prices by establishing a "long" position in securities
index futures and later liquidating that position as particular securities are
in fact acquired. To the extent that these hedging strategies are successful,
the Portfolio will be affected to a lesser degree by adverse overall market
price movements than would otherwise be the case.
Options on Futures Contracts. Each Portfolio (except for the MFS Research
Protfolio) may purchase and write exchange-traded call and put options on
futures contracts of the type which the particular Portfolio is authorized to
enter into. These options are traded on exchanges that are licensed and
regulated by the CFTC for the purpose of options trading. A call option on a
futures contract gives the purchaser the right, in return for the premium
paid, to purchase a futures contract (assume a "long" position) at a specified
exercise price at any time before the option expires. A put option gives the
purchaser the right, in return for the premium paid, to sell a futures
contract (assume a "short" position), for a specified exercise price, at any
time before the option expires.
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The Portfolios will write only options on futures contracts which are
"covered." A Portfolio will be considered "covered" with respect to a put
option it has written if, so long as it is obligated as a writer of the put,
the Portfolio segregates with its custodian cash, United States Government
securities or liquid high-grade debt obligations at all times equal to or
greater than the aggregate exercise price of the puts it has written (less any
related margin deposited with the futures broker). A Portfolio will be
considered "covered" with respect to a call option it has written on a debt
security future if, so long as it is obligated as a writer of the call, the
Portfolio owns a security deliverable under the futures contract. A Portfolio
will be considered "covered" with respect to a call option it has written on a
securities index future if the Portfolio owns, so long as the Portfolio is
obligated as the writer of the call, a portfolio of securities the price
changes of which are, in the opinion of its Adviser, expected to replicate
substantially the movement of the index upon which the futures contract is
based.
Upon the exercise of a call option, the writer of the option is obligated to
sell the futures contract (to deliver a "long" position to the option holder)
at the option exercise price, which will presumably be lower than the current
market price of the contract in the futures market. Upon exercise of a put,
the writer of the option is obligated to purchase the futures contract
(deliver a "short" position to the option holder) at the option exercise price
which will presumably be higher than the current market price of the contract
in the futures market. When the holder of an option exercises it and assumes a
long futures position, in the case of a call, or a short futures position, in
the case of a put, its gain will be credited to its futures margin account,
while the loss suffered by the writer of the option will be debited to its
account and must be immediately paid by the writer. However, as with the
trading of futures, most participants in the options markets do not seek to
realize their gains or losses by exercise of their option rights. Instead, the
holder of an option will usually realize a gain or loss by buying or selling
an offsetting option at a market price that will reflect an increase or a
decrease from the premium originally paid.
If a Portfolio writes options on futures contracts, the Portfolio will receive
a premium but will assume a risk of adverse movement in the price of the
underlying futures contract comparable to that involved in holding a futures
position. If the option is not exercised, the Portfolio will realize a gain in
the amount of the premium, which may partially offset unfavorable changes in
the value of securities held in or to be acquired for the Portfolio. If the
option is exercised, the Portfolio will incur a loss in the option
transaction, which will be reduced by the amount of the premium it has
received, but which will offset any favorable changes in the value of its
portfolio securities or, in the case of a put, lower prices of securities it
intends to acquire.
Options on futures contracts can be used by a Portfolio to hedge substantially
the same risks as might be addressed by the direct purchase or sale of the
underlying futures contracts. If the Portfolio purchases an option on a
futures contract, it may obtain benefits similar to those that would result if
it held the futures position itself. Purchases of options on futures contracts
may present less risk in hedging than the purchase and sale of the underlying
futures contracts since the potential loss is limited to the amount of the
premium plus related transaction costs.
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The purchase of put options on futures contracts is a means of hedging a
portfolio of securities against a general decline in market prices. The
purchase of a call option on a futures contract represents a means of hedging
against a market advance when a Portfolio is not fully invested.
The writing of a call option on a futures contract constitutes a partial hedge
against declining prices of the underlying securities. If the futures price at
expiration is below the exercise price, the Portfolio will retain the full
amount of the option premium, which provides a partial hedge against any
decline that may have occurred in the value of the Portfolio's holdings of
securities. The writing of a put option on a futures contract is analogous to
the purchase of a futures contract in that it hedges against an increase in
the price of securities the Portfolio intends to acquire. However, the hedge
is limited to the amount of premium received for writing the put.
Limitations on Purchase and Sale of Futures Contracts and Options on Futures
Contracts. The Portfolios will not engage in transactions in futures contracts
and related options for speculation. In addition, the Portfolios will not
purchase or sell futures contracts or related options unless either (1) the
futures contracts or options thereon are purchased for "bona fide hedging"
purposes (as that term is defined under the CFTC regulations) or (2) if
purchased for other purposes, the sum of the amounts of initial margin
deposits on a Portfolio's existing futures and premiums required to establish
non-hedging positions would not exceed 5% of the liquidation value of the
Portfolio's total assets. In instances involving the purchase of futures
contracts or the writing of put options thereon by a Portfolio, an amount of
cash and cash equivalents, equal to the cost of such futures contracts or
options written (less any related margin deposits), will be deposited in a
segregated account with its custodian, thereby insuring that the use of such
futures contracts and options is unleveraged. In instances involving the sale
of futures contracts or the writing of call options thereon by a Portfolio,
the securities underlying such futures contracts or options will at all times
be maintained by the Portfolio or, in the case of index futures and related
options, the Portfolio will own securities the price changes of which are, in
the opinion of its Adviser expected to replicate substantially the movement of
the index upon which the futures contract or option is based.
For information concerning the risks associated with utilizing options,
futures contracts, and forward foreign currency exchange contracts, please see
"Risks of Transactions in Options, Futures Contracts and Forward Currency
Contracts" on page 18.
FOREIGN CURRENCY TRANSACTIONS
Forward Foreign Currency Transactions. A forward foreign currency exchange
contract involves an obligation to purchase or sell a specific currency at a
future date, which may be any fixed number of days from the date of the
contract agreed upon by the parties, at a price set at the time of the
contract. These contracts are principally traded in the interbank market
conducted directly between currency traders (usually large, commercial banks)
and their customers. A forward contract generally has no margin deposit
requirement, and no commissions are charged at any stage for trades.
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A Portfolio may enter into forward contracts for a variety of purposes in
connection with the management of the foreign securities portion of its
portfolio. The Portfolio's use of such contracts will include, but not be
limited to, the following situations.
First, when the Portfolio enters into a contract for the purchase or sale of a
security denominated in a foreign currency, it may desire to "lock in" the
U.S. dollar price of the security. By entering into a forward contract for the
purchase or sale, for a fixed amount of dollars, of the amount of foreign
currency involved in the underlying security transactions, the Portfolio will
be able to protect itself against a possible loss resulting from an adverse
change in the relationship between the U.S. dollar and the subject foreign
currency during the period between the date the security is purchased or sold
and the date on which payment is made or received.
Second, when a Portfolio's Adviser believes that one currency may experience a
substantial movement against another currency, including the U.S. dollar, it
may enter into a forward contract to sell or buy the amount of the former
foreign currency, approximating the value of some or all of the Portfolio's
portfolio securities denominated in such foreign currency. Alternatively,
where appropriate, the Portfolio may hedge all or part of its foreign currency
exposure through the use of a basket of currencies or a proxy currency where
such currency or currencies act as an effective proxy for other currencies. In
such a case, the Portfolio may enter into a forward contract where the amount
of the foreign currency to be sold exceeds the value of the securities
denominated in such currency. The use of this basket hedging technique may be
more efficient and economical than entering into separate forward contracts
for each currency held in the Portfolio.
The precise matching of the forward contract amounts and the value of the
securities involved will not generally be possible since the future value of
such securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the forward
contract is entered into and the date it matures. The projection of short-term
currency market movement is extremely difficult, and the successful execution
of a short-term hedging strategy is highly uncertain. Under normal
circumstances, consideration of the prospect for currency parities will be
incorporated into the diversification strategies. However, the Adviser to the
Portfolio believes that it is important to have the flexibility to enter into
such forward contracts when it determines that the best interests of the
Portfolio will be served.
A Portfolio may enter into forward contracts for any other purpose consistent
with the Portfolio's investment objective and program. However, the Portfolio
will not enter into a forward contract, or maintain exposure to any such
contract(s), if the amount of foreign currency required to be delivered
thereunder would exceed the Portfolio's holdings of liquid, high-grade debt
securities and currency available for cover of the forward contract(s). In
determining the amount to be delivered under a contract, the Portfolio may net
offsetting positions.
At the maturity of a forward contract, a Portfolio may sell the portfolio
security and make delivery of the foreign currency, or it may retain the
security and either extend the maturity of the forward contract (by "rolling"
that contract forward) or may initiate a new forward contract.
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If a Portfolio retains the portfolio security and engages in an offsetting
transaction, the Portfolio will incur a gain or a loss (as described below) to
the extent that there has been movement in forward contract prices. If the
Portfolio engages in an offsetting transaction, it may subsequently enter into
a new forward contract to sell the foreign currency.
Should forward prices decline during the period between the Portfolio's
entering into a forward contract for the sale of a foreign currency and the
date it enters into an offsetting contract for the purchase of the foreign
currency, the Portfolio will realize a gain to the extent the price of the
currency it has agreed to sell exceeds the price of the currency it has agreed
to purchase. Should forward prices increase, the Portfolio will suffer a loss
to the extent of the price of the currency it has agreed to purchase exceeds
the price of the currency it has agreed to sell.
Although the Portfolio values its assets daily in terms of U.S. dollars, it
does not intend to convert its holdings of foreign currencies into U.S.
dollars on a daily basis. The Portfolio will do so from time to time, and
investors should be aware of the costs of currency conversion. Although
foreign exchange dealers do not charge a fee for conversion, they do realize a
profit based on the difference ("spread") between the prices at which they are
buying and selling various currencies. Thus, a dealer may offer to sell a
foreign currency to a Portfolio at one rate, while offering a lesser rate of
exchange should the Portfolio desire to resell that currency to the dealer.
Foreign Currency Options, Foreign Currency Futures Contracts and Options on
Futures. Each Portfolio (except for the MFS Research Portfolio) may purchase
or sell exchange-traded or over-the-counter foreign currency options, foreign
currency futures contracts and related options on foreign currency futures
contracts as a hedge against possible variations in foreign exchange rates.
The Portfolios will write options on foreign currency or on foreign currency
futures contracts only if they are "covered." A put on a foreign currency or
on a foreign currency futures contract written by a Portfolio will be
considered "covered" if, so long as the Portfolio is obligated as the writer
of the put, it segregates with the Portfolio's custodian cash, United States
Government securities or other liquid high-grade debt securities equal at all
times to the aggregate exercise price of the put. A call on a foreign currency
or on a foreign currency future contract written by the Portfolio will be
considered "covered" only if the Portfolio owns short term debt securities
with a value equal to the face amount of the option contract and denominated
in the currency upon which the call is written. Option transactions may be
effected to hedge the currency risk on non-U.S. dollar-denominated securities
owned by a Portfolio, sold by a Portfolio but not yet delivered or anticipated
to be purchased by a Portfolio. As an illustration, a Portfolio may use such
techniques to hedge the stated value in U.S. dollars of an investment in a
Japanese yen-denominated security. In these circumstances, a Portfolio may
purchase a foreign currency put option enabling it to sell a specified amount
of yen for dollars at a specified price by a future date. To the extent the
hedge is successful, a loss in the value of the dollar relative to the yen
will tend to be offset by an increase in the value of the put option.
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Certain differences exist between foreign currency hedging instruments.
Foreign currency options provide the holder the right to buy or to sell a
currency at a fixed price on or before a future date. Listed options are
third-party contracts (performance is guaranteed by an exchange or clearing
corporation) which are issued by a clearing corporation, traded on an exchange
and have standardized prices and expiration dates. Over-the-counter options
are two-party contracts and have negotiated prices and expiration dates. See
"Over-the-Counter Options," above. A futures contract on a foreign currency is
an agreement between two parties to buy and sell a specified amount of the
currency for a set price on a future date. Futures contracts and listed
options on futures contracts are traded on boards of trade or futures
exchanges. Options traded in the over-the-counter market may not be as
actively traded as those on an exchange, so it may be more difficult to value
such options. In addition, it may be difficult to enter into closing
transactions with respect to options traded over-the-counter.
A Portfolio will not speculate in foreign currency options, futures or related
options. Accordingly, a Portfolio will not hedge a currency substantially in
excess of the market value of the securities denominated in that currency
which it owns or the expected acquisition price of securities which it
anticipates purchasing.
For information concerning the risks associated with utilizing options,
futures contracts, and forward foreign currency exchange contracts, please see
"Risks of Transactions in Options, Futures Contracts and Forward Currency
Contracts" on page 18.
COMBINED TRANSACTIONS
If and to the extent authorized to do so, a Portfolio may enter into multiple
transactions, including multiple options transactions, multiple futures
transactions, multiple currency transactions (including forward currency
contracts), multiple interest rate transactions and any combination of
futures, options, currency and interest rate transactions, instead of a single
hedging and other strategic transaction, as part of a single or combined
strategy when, in the judgment of the Portfolio's Adviser, it is in the best
interests of the Portfolio to do so. A combined transaction will usually
contain elements of risk that are present in each of its component
transactions. Although combined transactions will normally be entered into by
a Portfolio based on an Adviser's judgment that the combined strategies will
reduce risk or otherwise more effectively achieve the desired portfolio
management goal, it is possible that the combination will instead increase the
risks or hinder achievement of the Portfolio's management objective.
In order to achieve desired asset mix parameters, the Portfolios, for example,
may use futures contracts and related options transactions to establish a
position in an asset class as a temporary substitute for purchasing individual
securities, which may be subsequently purchased in orderly fashion. Similarly,
these transactions may enable the Portfolios to reduce a position in an asset
class as a temporary substitute for selling individual securities, in order to
effect an orderly sale program. In the case of each Portfolio, futures
contracts and related options on the S&P 500
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may be purchased in order to reduce brokerage costs, maintain liquidity to meet
shareholder redemptions or minimize tracking error.
FEDERAL TAX TREATMENT OF OPTIONS, FUTURES CONTRACTS AND FORWARD FOREIGN EXCHANGE
CONTRACTS
Each Portfolio (except for the MFS Research Portfolio) may enter into certain
option, futures, and forward foreign exchange contracts, including options and
futures on currencies, which will be treated as Section 1256 contracts or
straddles.
Transactions which are considered Section 1256 contracts will be considered to
have been closed at the end of the Portfolio's fiscal year and any gains or
losses will be recognized for tax purposes at that time. Such gains or losses
from the normal closing or settlement of such transactions will be
characterized as 60% long-term capital gain or loss and 40% short-term capital
gain or loss regardless of the holding period of the instrument. A Portfolio
will be required to distribute net gains on such transactions to shareholders
even though it may not have closed the transaction and received cash to pay
such distributions.
Options, futures and forward foreign exchange contracts, including options and
futures on currencies, which offset a foreign dollar denominated bond or
currency position may be considered straddles for tax purposes, in which case
a loss on any position in a straddle will be subject to deferral to the extent
of unrealized gain in an offsetting position. The holding period of the
securities or currencies comprising the straddle will be deemed not to begin
until the straddle is terminated. For securities offsetting a purchased put,
this adjustment of the holding period may increase the gain from sales of
securities held less than three months. The holding period of the security
offsetting an "in-the-money qualified covered call" option on an equity
security will not include the period of time the option is outstanding.
Losses on written covered calls and purchased puts on securities, excluding
certain "qualified covered call" options on equity securities, may be
long-term capital loss, if the security covering the option was held for more
than twelve months prior to the writing of the option.
In order for a Portfolio to continue to qualify for federal income tax
treatment as a regulated investment company, at least 90% of its gross income
for a taxable year must be derived from qualifying income; i.e., dividends,
interest, income derived from loans of securities, and gains from the sale of
securities or currencies. Pending tax regulations could limit the extent that
net gain realized from option, futures or foreign forward exchange contracts
on currencies is qualifying income for purposes of the 90% requirement. In
addition, gains realized on futures or foreign forward exchange contracts on
securities or securities indexes and, in some cases, currencies, held for less
than three months, must be limited to less than 30% of the Portfolio's annual
gross income. In order to avoid realizing excessive gains on securities or
currencies held less than three months, the Portfolio may be required to defer
the closing out of option, futures or foreign forward exchange contracts
beyond the time when it would otherwise be advantageous to do so. It is
anticipated that unrealized gains on Section 1256 option, futures and foreign
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forward exchange contracts, which have been open for less than three months as
of the end of the Portfolio's fiscal year and which are recognized for tax
purposes, will not be considered gains on securities or currencies held less
than three months for purposes of the 30% test.
RISKS OF TRANSACTIONS IN OPTIONS, FUTURES CONTRACTS AND FORWARD CURRENCY
CONTRACTS
Options. A closing purchase transaction for exchange-traded options may be
made only on a national securities exchange (exchange). There is no assurance
that a liquid secondary market on an exchange will exist for any particular
option, or at any particular time, and for some options, such as
over-the-counter options, no secondary market on an exchange may exist. If a
Portfolio is unable to effect a closing purchase transaction, the Portfolio
will not sell the underlying security until the option expires or the
Portfolio delivers the underlying security upon exercise.
Options traded in the over-the-counter market may not be as actively traded as
those on an exchange. Accordingly, it may be more difficult to value such
options. In addition, it may be difficult to enter into closing transactions
with respect to options traded over-the-counter. The Portfolios will engage in
such transactions only with firms of sufficient credit so as to minimize these
risks. Such options and the securities used as "cover" for such options may be
considered illiquid securities.
The effectiveness of hedging through the purchase of securities index options
will depend upon the extent to which price movements in the portion of the
securities portfolio being hedged correlate with price movements in the
selected securities index. Perfect correlation is not possible because the
securities held or to be acquired by a Portfolio will not exactly match the
composition of the securities indexes on which options are written. In the
purchase of securities index options the principal risk is that the premium
and transaction costs paid by a Portfolio in purchasing an option will be lost
if the changes (increase in the case of a call, decrease in the case of a put)
in the level of the index do not exceed the cost of the option.
Futures. The prices of futures contracts are volatile and are influenced,
among other things, by actual and anticipated changes in the market and
interest rates, which in turn are affected by fiscal and monetary policies and
national and international political and economic events.
Most United States futures exchanges limit the amount of fluctuation permitted
in futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of a
trading session. Once the daily limit has been reached in a particular type of
futures contract, no trades may be made on that day at a price beyond that
limit. The daily limit governs only price movement during a particular trading
day and therefore does not limit potential losses, because the limit may
prevent the liquidation of unfavorable positions. Futures contract prices have
occasionally moved to the daily limit for several consecutive trading days
with little or no trading, thereby preventing prompt liquidation of futures
positions and subjecting some futures traders to substantial losses.
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Because of the low margin deposits required, futures trading involves an
extremely high degree of leverage. As a result, a relatively small price
movement in a futures contract may result in immediate and substantial loss,
as well as gain, to the investor. For example, if at the time of purchase, 10%
of the value of the futures contract is deposited as margin, a subsequent 10%
decrease in the value of the futures contract would result in a total loss of
the margin deposit, before any deduction for the transaction costs, if the
account were then closed out. A 15% decrease would result in a loss equal to
150% of the original margin deposit, if the contract were closed out. Thus, a
purchase or sale of a futures contract may result in losses in excess of the
amount invested in the futures contract.
A decision of whether, when, and how to hedge involves skill and judgment, and
even a well- conceived hedge may be unsuccessful to some degree because of
unexpected market behavior, market trends or interest rate trends. There are
several risks in connection with the use by a Portfolio of futures contracts
as a hedging device. One risk arises because of the imperfect correlation
between movements in the prices of the futures contracts and movements in the
prices of the underlying instruments which are the subject of the hedge. A
Portfolio's Adviser will, however, attempt to reduce this risk by entering
into futures contracts whose movements, in its judgment, will have a
significant correlation with movements in the prices of the Portfolio's
underlying instruments sought to be hedged.
Successful use of futures contracts by a Portfolio for hedging purposes is
also subject to a Portfolio's ability to correctly predict movements in the
direction of the market. It is possible that, when a Portfolio has sold
futures to hedge its portfolio against a decline in the market, the index,
indices, or instruments underlying futures might advance and the value of the
underlying instruments held in the Portfolio's portfolio might decline. If
this were to occur, the Portfolio would lose money on the futures and also
would experience a decline in value in its underlying instruments.
Positions in futures contracts may be closed out only on an exchange or a
board of trade which provides the market for such futures. Although the
Portfolios (except for the MFS Research Portfolio) intend to purchase or sell
futures only on exchanges or boards of trade where there appears to be an
active market, there is no guarantee that such will exist for any particular
contract or at any particular time. If there is not a liquid market at a
particular time, it may not be possible to close a futures position at such
time, and, in the event of adverse price movements, a Portfolio would continue
to be required to make daily cash payments of variation margin. However, in
the event futures positions are used to hedge portfolio securities, the
securities will not be sold until the futures positions can be liquidated. In
such circumstances, an increase in the price of securities, if any, may
partially or completely offset losses on the futures contracts.
Foreign Options and Futures. Participation in foreign futures and foreign
options transactions involves the execution and clearing of trades on or
subject to the rules of a foreign board of trade. Neither the National Futures
Association nor any domestic exchange regulates activities of any foreign
boards of trade, including the execution, delivery and clearing of
transactions,
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or has the power to compel enforcement of the rules of a foreign board of
trade or any applicable foreign law. This is true even if the exchange is
formally linked to a domestic market so that a position taken on the market
may be liquidated by a transaction on another market. Moreover, such laws or
regulations will vary depending on the foreign country in which the foreign
futures or foreign options transaction occurs. For these reasons, when a
Portfolio trades foreign futures or foreign options contracts, it may not be
afforded certain of the protective measures provided by the Commodity Exchange
Act, the CFTC's regulations and the rules of the National Futures Association
and any domestic exchange, including the right to use reparations proceedings
before the CFTC and arbitration proceedings provided by the National Futures
Association or any domestic futures exchange. In particular, funds received
from a Portfolio for foreign futures or foreign options transactions may not
be provided the same protections as funds received in respect of transactions
on United States futures exchanges. In addition, the price of any foreign
futures or foreign options contract and, therefore, the potential profit and
loss thereon, may be affected by any variance in the foreign exchange rate
between the time the Portfolio's order is placed and the time it is
liquidated, offset or exercised.
Foreign Currency Contracts. Hedging against a decline in the value of a
currency does not eliminate fluctuations in the prices of portfolio securities
or prevent losses if the prices of such securities decline. These hedging
transactions also preclude the opportunity for gain if the value of the hedged
currency should rise. Whether a currency hedge benefits a Portfolio will
depend on the ability of a Portfolio's Adviser to predict future currency
exchange rates.
The writing of an option on foreign currency will constitute only a partial
hedge, up to the amount of the premium received, and a Portfolio could be
required to purchase or sell foreign currencies at disadvantageous exchange
rates, thereby incurring losses. The purchase of an option on foreign currency
may constitute an effective hedge against fluctuations in exchange rates
although, in the event of rate movements adverse to a Portfolio's position, it
may forfeit the entire amount of the premium plus related transaction costs.
HYBRID INSTRUMENTS
Hybrid instruments (a type of potentially high-risk derivative) combine the
elements of futures contracts or options with those of debt, preferred equity
or a depository instrument (hereinafter "Hybrid Instruments"). Generally, a
Hybrid Instrument will be a debt security, preferred stock, depository share,
trust certificate, certificate of deposit or other evidence of indebtedness on
which a portion of or all interest payments, and/or the principal or stated
amount payable at maturity, redemption or retirement, is determined by
reference to prices, changes in prices, or differences between prices, of
securities, currencies, intangibles, goods, articles or commodities
(collectively "Underlying Assets") or by another objective index, economic
factor or other measure, such as interest rates, currency exchange rates,
commodity indices, and securities indices (collectively "Benchmarks"). Thus,
Hybrid Instruments may take a variety of forms, including, but not limited to,
debt instruments with interest or principal payments or redemption terms
determined by reference to the value of a currency or commodity or securities
index at a future point in time, preferred stock with dividend rates
determined by reference to the value
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of a currency, or convertible securities with the conversion terms related to
a particular commodity.
Hybrid Instruments can be an efficient means of creating exposure to a
particular market, or segment of a market, with the objective of enhancing
total return. For example, a Portfolio may wish to take advantage of expected
declines in interest rates in several European countries, but avoid the
transactions costs associated with buying and currency-hedging the foreign
bond positions. One solution would be to purchase a U.S. dollar-denominated
Hybrid Instrument whose redemption price is linked to the average three year
interest rate in a designated group of countries. The redemption price formula
would provide for payoffs of greater than par if the average interest rate was
lower than a specified level, and payoffs of less than par if rates were above
the specified level. Furthermore, a Portfolio could limit the downside risk of
the security by establishing a minimum redemption price so that the principal
paid at maturity could not be below a predetermined minimum level if interest
rates were to rise significantly. The purpose of this arrangement, known as a
structured security with an embedded put option, would be to give the
Portfolio the desired European bond exposure while avoiding currency risk,
limiting downside market risk, and lowering transactions costs. Of course,
there is no guarantee that the strategy will be successful and a Portfolio
could lose money if, for example, interest rates do not move as anticipated or
credit problems develop with the issuer of the Hybrid Instrument.
The risks of investing in Hybrid Instruments reflect a combination of the
risks of investing in securities, options, futures and currencies. The risks
of a particular Hybrid Instrument will, of course, depend upon the terms of
the instrument, but may include, without limitation, the possibility of
significant changes in the Benchmarks or the prices of Underlying Assets to
which the instrument is linked. Such risks generally depend upon factors which
are unrelated to the operations or credit quality of the issuer of the Hybrid
Instrument and which may not be readily foreseen by the purchaser, such as
economic and political events, the supply and demand for the Underlying Assets
and interest rate movements. In recent years, various Benchmarks and prices
for Underlying Assets have been highly volatile, and such volatility may be
expected in the future.
Hybrid Instruments are potentially more volatile and carry greater market
risks than traditional debt instruments. Depending on the structure of the
particular Hybrid Instrument, changes in a Benchmark may be magnified by the
terms of the Hybrid Instrument and have an even more dramatic and substantial
effect upon the value of the Hybrid Instrument. Also, the prices of the Hybrid
Instrument and the Benchmark or Underlying Asset may not move in the same
direction or at the same time.
Hybrid Instruments may bear interest or pay preferred dividends at below
market (or even relatively nominal) rates. Alternatively, Hybrid Instruments
may bear interest at above market rates but bear an increased risk of
principal loss (or gain). The latter scenario may result if "leverage" is used
to structure the Hybrid Instrument. Leverage risk occurs when the Hybrid
Instrument is structured so that a given change in a Benchmark or Underlying
Asset is multiplied
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to produce a greater value change in the Hybrid Instrument, thereby magnifying
the risk of loss as well as the potential for gain.
Hybrid Instruments may also carry liquidity risk since the instruments are
often "customized" to meet the portfolio needs of a particular investor, and
therefore, the number of investors that are willing and able to buy such
instruments in the secondary market may be smaller than that for more
traditional debt securities. In addition, because the purchase and sale of
Hybrid Instruments could take place in an over-the-counter market without the
guarantee of a central clearing organization or in a transaction between the
portfolio and the issuer of the Hybrid Instrument, the creditworthiness of the
counter party or issuer of the Hybrid Instrument would be an additional risk
factor which the Portfolio would have to consider and monitor. Hybrid
Instruments also may not be subject to regulation of the CFTC, which generally
regulates the trading of commodity futures by U.S. persons, the Securities and
Exchange Commission ("SEC"), which regulates the offer and sale of securities
by and to U.S. persons, or any other governmental regulatory authority. The
various risks discussed above, particularly the market risk of such
instruments, may in turn cause significant fluctuations in the net asset value
of the Portfolio.
REPURCHASE AGREEMENTS
Each of the Portfolios may enter into repurchase agreements. Under a
repurchase agreement, underlying debt instruments are acquired for a
relatively short period (usually not more than one week and never more than a
year) subject to an obligation of the seller to repurchase and the Portfolio
to resell the instrument at a fixed price and time, thereby determining the
yield during the Portfolio's holding period. This results in a fixed rate of
return insulated from market fluctuation during that holding period.
Repurchase agreements may have the characteristics of loans by a Portfolio.
During the term of the repurchase agreement, a Portfolio retains the security
subject to the repurchase agreement as collateral securing the seller's
repurchase obligation, continually monitors on a daily basis the market value
of the security subject to the agreement and requires the seller to deposit
with the Portfolio collateral equal to any amount by which the market value of
the security subject to the repurchase agreements falls below the resale
amount provided under the repurchase agreement. A Portfolio will enter into
repurchase agreements (with respect to United States Government obligations,
certificates of deposit, or bankers' acceptances) with registered
brokers-dealers, United States Government securities dealers or domestic banks
whose creditworthiness is determined to be satisfactory by the Portfolio's
Adviser, pursuant to guidelines adopted by the Board of Trustees. Generally, a
Portfolio does not invest in repurchase agreements maturing in more than seven
days. The staff of the SEC currently takes the position that repurchase
agreements maturing in more than seven days are illiquid securities. No
Portfolio will enter into a repurchase agreement maturing in more than seven
days if as a result more that 15% of the Portfolio's (except for the MFS
Research Portfolio) and 10% of the MFS Research Portfolio's net assets would
be invested in "illiquid securities."
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If a seller under a repurchase agreement were to default on the agreement and
be unable to repurchase the security subject to the repurchase agreement, the
Portfolio would look to the collateral underlying the seller's repurchase
agreement, including the security subject to the repurchase agreement, for
satisfaction of the seller's obligation to the Portfolio. In the event a
repurchase agreement is considered a loan and the seller defaults, the
Portfolio might incur a loss if the value of the collateral declines and may
incur disposition costs in liquidating the collateral. In addition, if
bankruptcy proceedings are commenced with respect to the seller, realization
of the collateral may be delayed or limited and a loss may be incurred.
FORWARD COMMITMENTS AND WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
The Portfolios may enter into forward commitments for the purchase or sale of
securities and may purchase or sell securities on a "when-issued" or "delayed
delivery" basis. Forward commitments and when-issued or delayed delivery
transactions arise when securities are purchased by a Portfolio with payment
and delivery taking place in the future in order to secure what is considered
to be an advantageous price or yield to the Portfolio at the time of entering
into the transaction. However, the price of or yield on a comparable security
available when delivery takes place may vary from the price of or yield on the
security at the time that the forward commitment or when-issued or delayed
delivery transaction was entered into. Agreements for such purchases might be
entered into, for example, when a Portfolio anticipates a decline in interest
rates and is able to obtain a more advantageous price or yield by committing
currently to purchase securities to be issued later. When a Portfolio
purchases securities on a forward commitment, when-issued or delayed delivery
basis it does not pay for the securities until they are received, and the
Portfolio is required to create a segregated account with the Trust's
custodian and to maintain on that account cash, United States Government
securities or other liquid high-grade debt obligations in an amount equal to
or greater than, on a daily basis, the amount of the Portfolio's forward
commitments, when-issued or delayed delivery commitments.
A Portfolio will only enter into forward commitments and make commitments to
purchase securities on a when-issued or delayed delivery basis with the
intention of actually acquiring the securities. However, the Portfolio may
sell these securities before the settlement date if it is deemed advisable as
a matter of investment strategy. Forward commitments and when-issued and
delayed delivery transactions are generally expected to settle within three
months from the date the transactions are entered into, although the Portfolio
may close out its position prior to the settlement date by entering into a
matching sale transaction.
Although none of the Portfolios intends to make such purchases for speculative
purposes and each Portfolio intends to adhere to the policies of the SEC,
purchases of securities on such a basis may involve more risk than other types
of purchases. For example, by committing to purchase securities in the future,
a Portfolio subjects itself to a risk of loss on such commitments as well as
on its portfolio securities. Also, a Portfolio may have to sell assets which
have been set aside in order to meet redemptions. In addition, if a Portfolio
determines it is advisable as a matter of investment strategy to sell the
forward commitment or when-issued or delayed delivery securities before
delivery, that Portfolio may incur a gain or loss because of market
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fluctuations since the time the commitment to purchase such securities was
made. Any such gain or loss would be treated as a capital gain or loss and
would be treated for tax purposes as such. When the time comes to pay for the
securities to be purchased under a forward commitment or on a when-issued or
delayed delivery basis, a Portfolio will meet its obligations from the then
available cash flow or the sale of securities, or, although it would not
normally expect to do so, from the sale of the forward commitment or
when-issued or delayed delivery securities themselves (which may have a value
greater or less than a Portfolio's payment obligation).
SECURITIES LOANS
Securities loans are made to broker-dealers or institutional investors or
other persons, pursuant to agreements requiring that the loans be continuously
secured by collateral at least equal at all times to the value of the loaned
securities marked to market on a daily basis. The collateral received will
consist of cash, U.S. government securities, letters of credit or such other
collateral as may be permitted under a Portfolio's investment program. While
the securities are being loaned, a Portfolio will continue to receive the
equivalent of the interest or dividends paid by the issuer on the securities,
as well as interest on the investment of the collateral or a fee from the
borrower. A Portfolio has a right to call each loan and obtain the securities
on five business days' notice or, in connection with securities trading on
foreign markets, within such longer period for purchases and sales of such
securities in such foreign markets. A Portfolio will not have the right to
vote securities while they are being loaned, but its Manager or Adviser will
call a loan in anticipation of any important vote. The risks in lending
portfolio securities, as with other extensions of secured credit, consist of
possible delay in receiving additional collateral or in the recovery of the
securities or possible loss of rights in the collateral should the borrower
fail financially. Loans will only be made to firms deemed by a Portfolio's
Adviser to be of good standing and will not be made unless, in the judgment of
the Adviser, the consideration to be earned from such loans would justify the
risk.
ZERO-COUPON AND PAY-IN-KIND SECURITIES
The Putnam Growth and Income Portfolio may invest in zero-coupon and
pay-in-kind securities. These securities are debt securities that do not make
regular cash interest payments. Zero- coupon securities are sold at a deep
discount to their face value. Pay-in-kind securities pay interest through the
issuance of additional securities. Because such securities do not pay current
cash income, the price of these securities can be volatile when interest rates
fluctuate. In order to continue to qualify as a "regulated investment company"
under the Internal Revenue Code of 1986, as amended ("Code") and avoid a 4%
non-deductible excise tax (as described in greater detail in "Certain Tax
Considerations"), the Putnam Growth and Income Portfolio may be required to
distribute a portion of such discount and income and may be required to
dispose of other portfolio securities, which may occur in periods of adverse
market prices, in order to generate cash to meet these distribution
requirements.
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INVESTMENT GRADE AND LOWER QUALITY FIXED INCOME SECURITIES
Each Portfolio (except for the T. Rowe Price International Stock Portfolio)
may invest a portion of its total assets in investment grade securities rated
Baa by Moody's Investors Service Inc. ("Moody's") or BBB by Standard & Poor's
Ratings Service, a division of McGraw-Hill Companies, Inc. ("S&P") and
comparable unrated securities. Such investment grade securities while normally
exhibiting adequate protection parameters have speculative characteristics and
changes in economic conditions or other circumstances are more likely to lead
to a weakened capacity to make principal and interest payments than in the
case of higher grade fixed income securities. Fixed income investments that
are rated in the lower categories by NRSROs (i.e., Ba or lower by Moody's or
BB or lower by S&P) or are unrated securities of comparative quality are known
as "junk bonds" and are considered as predominantly speculative by those rating
agencies. It is the policy of each Portfolio's Adviser to not rely exclusively
on ratings issued by credit rating agencies but to supplement such ratings with
the Adviser's own independent and ongoing review of credit quality. Junk bonds
may be issued as a consequence of corporate restructuring, such as leveraged
buyouts, mergers, acquisitions, debt recapitalizations, or similar events or
by smaller or highly leveraged companies. When economic conditions appear to
be deteriorating, junk bonds may decline in market value due to investors'
heightened concern over credit quality, regardless of prevailing interest rates.
Although the growth of the high yield securities market in the 1980s had
paralleled a long economic expansion, many issuers have been affected by adverse
economic and market conditions. It should be recognized that an economic
downturn or increase in interest rates is likely to have a negative effect on
(i) the high yield bond market, (ii) the value of high yield securities and
(iii) the ability of the securities' issuers to service their principal and
interest payment obligations, to meet their projected business goals or to
obtain additional financing. The market for junk bonds, especially during
periods of deteriorating economic conditions, may be less liquid than the market
for investment grade bonds. In periods of reduced market liquidity, junk bond
prices may become more volatile and may experience sudden and substantial
price declines. Also, there may be significant disparities in the prices
quoted for junk bonds by various dealers. Under such conditions, a Portfolio
may find it difficult to value its junk bonds accurately. Under such
conditions, a Portfolio may have to use subjective rather than objective
criteria to value its junk bond investments accurately and rely more heavily
on the judgment of the Trust's Board of Trustees. Prices for junk bonds also
may be affected by legislative and regulatory developments. For example,
federal rules require that savings and loans gradually reduce their holdings
of high-yield securities. Also, from time to time, Congress has considered
legislation to restrict or eliminate the corporate tax deduction for interest
payments or to regulate corporate restructuring such as takeovers, mergers or
leveraged buyouts. Such legislation, if enacted, could depress the prices of
outstanding junk bonds.
FOREIGN SECURITIES
Each Portfolio may invest in foreign securities. Foreign securities involve
currency risks. The value of a foreign security denominated in foreign
currency changes with variations in the exchange rates. Fluctuations in
exchange rates may also affect the earning power and asset
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value of the foreign entity issuing a security, even one denominated in U.S.
dollars. Dividend and interest payments will be repatriated based on the
exchange rate at the time of disbursement, and restrictions on capital flows
may be imposed.
Foreign securities may be subject to foreign government taxes which reduce
their attractiveness. Other risks of investing in such securities include
political or economic instability in the country involved, the difficulty of
predicting international trade patterns and the possibility of imposition of
exchange controls. The prices of such securities may be more volatile than
those of domestic securities. In addition, there may be less publicly
available information about a foreign issuer than about a domestic issuer.
Foreign issuers generally are not subject to uniform accounting, auditing and
financial reporting standards comparable to those applicable to domestic
issuers. There is generally less regulation of stock exchanges, brokers, banks
and listed companies abroad than in the United States, and settlements may be
slower and may be subject to failure. With respect to certain foreign
countries, there is a possibility of expropriation of assets or
nationalization, imposition of withholding taxes on dividend or interest
payments, difficulty in obtaining and enforcing judgments against foreign
entities or diplomatic developments which could affect investment in these
countries. Losses and other expenses may be incurred in converting between
various currencies in connection with purchases and sales of foreign
securities.
For many foreign securities, there are U.S. dollar-denominated American
Depositary Receipts (ADRs) or other similar instruments which are traded in
the United States on exchanges or over-the-counter. ADRs are issued by
domestic banks or trust companies. ADRs do not lessen the foreign exchange
risk inherent in investing in the securities of foreign issuers. However, by
investing in ADRs rather than directly in stock of foreign issuers, the
Portfolios will avoid currency risks which might occur during the settlement
period for either purchases or sales. A Portfolio may purchase foreign
securities directly, as well as through ADRs.
MANAGEMENT OF THE TRUST
As of _________, 1997, the Trustees and officers of the Trust owned Contracts
entitling them to provide voting instructions in the aggregate with respect to
less than one percent of the Trust's shares of beneficial interest.
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THE TRUSTEES
PRINCIPAL OCCUPATION DURING LAST FIVE
NAME, ADDRESS AND AGE YEARS
Peter D. Noris* (40) Executive Vice President and Chief
Equitable Investment Officer of Equitable since May
787 Seventh Avenue 1995; prior thereto, Vice President of
New York, New York 10019 Salomon Brothers Inc., from 1992 to 1995.
Principal of Equity Division, Morgan
Stanley & Co. Inc., from 1984 to 1992.
Director of Equitable Real Estate
Investment Management, Inc. since
September 1995 and of Alliance Capital
Management Co. since July 1995. Trustee
of the Hudson River Trust (investment
company) since July 1995. Executive Vice
President of EQ Financial Consultants, Inc.
since November 1996.
* Mr. Noris is an "interested person" (as defined in the 1940 Act) of
the Trust. Mr. Noris is deemed an "interested person" of the Trust
by virtue of his position as an officer of Equitable.
COMMITTEES OF THE BOARD
The Trust has a standing audit committee consisting of all of the Trust's
disinterested Trustees. The audit committee's function is to recommend to the
Board of Trustees a firm of independent auditors to conduct the annual audit
of the Trust's financial statements; review with such firm the outline, scope
and results of this annual audit; and review the performance and fees charged
by the independent auditors for professional services. In addition, the
committee meets with the independent auditors and representatives of
management to review accounting activities and areas of financial reporting
and control.
The Trust has a valuation committee consisting of __________________________.
This committee determines the value of any of the Trust's securities and
assets for which market quotations are not readily available or for which
valuation cannot otherwise be provided.
The Trust has a compensation committee consisting of
__________________________. The compensation committee's function is to review
the Trustees' compensation arrangements.
The Trust has a conflicts committee consisting of ________________________.
The conflicts committee's function is to take any action necessary to resolve
conflicts among shareholders.
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<TABLE>
<CAPTION>
TRUSTEE COMPENSATION TABLE
TRUSTEE AGGREGATE Pension or Estimated Total
COMPENSATION Retirement Annual Compensation
FROM THE TRUST Benefits Benefits Upon from Fund
Accrued As Retirement Complex
Part of Trust
Expenses
<S> <C> <C> <C> <C>
Peter D. Noris $-0- $-0- $-0- $-0-
</TABLE>
COMPENSATION OF THE TRUSTEES
Each Trustee, other than those who are "interested persons" of the Trust (as
defined in the 1940 Act), receives from the Trust an annual fee of $______
plus an additional fee of $_____ per Board meeting and $______ per committee
meeting attended in person or by telephone. Trustees receive $_______ for each
day spent performing special services requested by the Chairman or the
President of the Trust, and reimbursement for expenses in connection with the
performance of regular and special services.
A deferred compensation plan for the benefit of the Trustees has been adopted
by the Trust. Under the deferred compensation plan, each Trustee may defer
payment of all or part of the fees payable for such Trustee's services. Each
Trustee may defer payment of such fees until his retirement as a Trustee or
until the earlier attainment of a specified age. Fees deferred under the
deferred compensation plan, together with accrued interest thereon, will be
disbursed to a participating Trustee in monthly installments over a five to
twenty year period elected by such Trustee.
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THE TRUST'S OFFICERS
No officer of the Trust receives any compensation paid by the Trust. Each
officer of the Trust is an employee of EQ Financial Consultants, Inc. ("EQ
Financial"), Equitable Distributors, Inc. ("EDI") or Equitable. The Trust's
principal officers are:
NAME, AGE AND POSITION PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
WITH TRUST
Peter D. Noris (40) (see above)
President
Harvey Blitz (50) Senior Vice President of Equitable since
Chief Financial Officer and September 1987. Deputy Chief Financial Officer
Controller of Equitable since September 1992. Senior
Vice President of The Equitable Companies
Incorporated since July 1992. Director of The
Equitable of Colorado, Inc. since September
1992. Director and Chairman of Frontier Trust
Company since April 1993 and September 1995,
respectively. Director of EDI from February
1995 to May 1996. Director and Senior Vice
President of EquiSource since October 1992
and June 1993, respectively. Director and
Executive Vice President of EQ Financial
since September 1992 and November 1996,
respectively.
INVESTMENT MANAGEMENT AND OTHER SERVICES
THE MANAGER
The Manager, EQ Financial Consultants, Inc. ("EQ Financial"), is an investment
adviser registered with the SEC under the 1940 Act and a broker-dealer
registered with the SEC under the Securities Exchange Act of 1934, as amended
("1934 Act"). The Manager has served as an investment manager to each
Portfolio of the Trust since its inception. The Manager currently furnishes
specialized investment advice to individuals, pension and profit sharing
plans, trusts, charitable organizations, corporations and other business
entities. The Manager is a wholly-owned subsidiary of Equitable Holding
Corporation, a wholly-owned subsidiary of Equitable.
Equitable, which is a New York life insurance company and one of the largest
life insurance companies in the United States, is a wholly-owned subsidiary of
The Equitable Companies Incorporated ("The Equitable Companies"), a
publicly-owned holding company. The principal offices of The Equitable
Companies and Equitable are located at 787 Seventh Avenue, New York, New York
10019.
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AXA, a French insurance holding company, currently owns approximately 63.9% of
the outstanding voting shares of common stock of The Equitable Companies.
Under its investment arrangements with Equitable and The Equitable Companies,
AXA is able to exercise significant influence over the operations and capital
structure of The Equitable Companies, Equitable and their subsidiaries. AXA is
the principal holding company for most of the companies in one of the largest
insurance groups in Europe. The majority of AXA's stock is owned by a group of
five French mutual insurance companies, the AXA Group, which is the third
largest insurance group in France and one of the largest insurance groups in
Europe. Principally engaged in property and casualty insurance and life
insurance in Europe and elsewhere in the world, the AXA Group is also involved
in real estate operations and certain other financial services, including
mutual fund management, lease financing services and brokerage services.
The Trust and Manager have entered into an investment management agreement
("Management Agreement"). The Management Agreement obligates the Manager to:
(i) provide investment management and certain administrative services to the
Trust; (ii) select the Adviser for each Portfolio; (iii) monitor the Adviser's
investment programs and results; (iv) review brokerage matters; (v) oversee
compliance by the Trust with various federal and state statutes; and (vi)
carry out the directives of the Board of Trustees. The Management Agreement
requires the Manager to provide the Trust with office space, office equipment,
and personnel necessary to operate and administer the Trust's business, and
also to supervise the provision of services by third parties.
The continuance of the Management Agreement, with respect to each Portfolio,
after the first two years must be specifically approved at least annually (i)
by the Trust's Board of Trustees or by vote of a majority of the outstanding
voting securities (as defined in the 1940 Act) of such Portfolio and (ii) by
the affirmative vote of a majority of the Trustees who are not parties to the
Management Agreement or "interested persons" (as defined in the 1940 Act) of
any such party by votes cast in person at a meeting called for such purpose.
The Management Agreement with respect to each Portfolio may be terminated (i)
at any time, without the payment of any penalty, by the Trust upon the vote of
a majority of the Trustees or by vote of the majority of the outstanding
voting securities (as defined in the 1940 Act) of such Portfolio upon sixty
(60) days' written notice to the Manager or (ii) by the Manager at any time
without penalty upon sixty (60) days' written notice to the Trust. The
Management Agreement will also terminate automatically in the event of its
assignment (as defined in the 1940 Act).
THE ADVISERS
On behalf of the T. Rowe Price Equity Income Portfolio, T. Rowe Price
International Stock Portfolio, and MFS Research Portfolio, the Manager has
entered into investment advisory agreements ("Advisory Agreements") with T.
Rowe Price, Price-Fleming and MFS, respectively. The Manager has also entered
into Advisory Agreements on behalf of Putnam Growth and Income Portfolio and
Putnam International Growth Portfolio with Putnam Management. The Advisory
Agreements obligate T. Rowe Price, Price-Fleming, MFS and Putnam Management
to: (i) furnish continuously an investment program for their respective
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Portfolios; (ii) place all orders for the purchase and sale of investments for
their respective Portfolios with brokers or dealers selected by the Manger or
an Adviser; and (iii) perform certain limited related administrative functions
in connection therewith.
The continuance of the Advisory Agreements with respect to each Portfolio
after the first two years must be specifically approved at least annually (i)
by the Trust's Board of Trustees or by vote of a majority of the outstanding
voting securities (as defined in the 1940 Act) of such Portfolio and (ii) by
the affirmative vote of a majority of the Trustees who are not parties to the
agreement or "interested persons" (as defined in the 1940 Act) of any such
party by votes cast in person at a meeting called for such purpose. The
Advisory Agreements with respect to each Portfolio may be terminated (i) by
the Trust, without the payment of any penalty, by the vote of a majority of
the Trustees of the Trust or by the vote of a majority of the outstanding
voting securities (as defined in the 1940 Act) of such Portfolio, upon sixty
(60) days' written notice to the Manager and Adviser, (ii) by the Manager at
any time, without the payment of any penalty, on sixty (60) days' written
notice to the other parties, or (iii) by an Adviser at any time, without the
payment of any penalty, on sixty (60) days' written notice to the other
parties. An Advisory Agreement will also terminate automatically in the event
of its assignment (as defined in the 1940 Act).
THE ADMINISTRATOR
Pursuant to an administrative agreement ("Administrative Services Agreement"),
___________________ ("Administrator") assists the Manager in the performance
of its administrative services to the Trust and provides the Trust with other
necessary administrative services. In addition, the Administrator makes
available the office space, equipment, personnel and facilities required to
provide such administrative services to the Trust.
The Administrator was organized as a ________________. Its principal place of
business is at ___________________, ___________________. Under the
Administrative Services Agreement, the Administrator is entitled to a fee from
the Trust, which is calculated daily and paid monthly, at an annual rate of
____% of the average daily net assets [of each Portfolio] of the Trust. The
Administrative Services Agreement shall remain in effect until ___________,
199_ and shall thereafter continue in effect for successive periods of one
year, unless terminated by any party upon not less than ninety (90) days'
prior written notice to the other party.
THE DISTRIBUTORS
The Trust has distribution agreements with EQ Financial and EDI (each also
referred to as a "Distributor," and together "Distributors"), each an indirect
wholly-owned subsidiary of Equitable. The address for EDI is 787 Seventh
Avenue, New York, New York 10019, and that for EQ Financial is 1755 Broadway,
Third Floor, New York, New York 10019. EQ Financial is the distributor for the
Trust's Class IA shares and also serves as the Manager of the Trust.
EDI is the distributor for the Trust's Class IB shares.
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The Trust's distribution agreements with respect to the Class IA shares and
Class IB shares, each dated ______, 199__ ("Distribution Agreements"), will
remain in effect until ______, 199__, and from year to year thereafter only if
each Distribution Agreement's continuance is approved annually by (i) a
majority of the Trustees who are not parties to such agreement or "interested
persons" (as defined in the 1940 Act) of the Trust or a Portfolio and, if
applicable, who have no direct or indirect financial interest in the operation
of the Distribution Plan or any such related agreement ("Independent
Trustees") and (ii) either by vote of a majority of the Trustees or a majority
of the outstanding voting securities (as defined in the 1940 Act) of the
Trust.
The Distributor or its affiliates for the Class IA shares will pay for
printing and distributing prospectuses or reports prepared for its use in
connection with the offering of the Class IA shares to prospective investors
and preparing, printing and mailing any other literature or advertising in
connection with the offering of the Class IA shares to prospective investors.
The Trust, pursuant to the Distribution Plan, will pay for services rendered
and expenses borne in connection with the offering of the Class IB shares.
Such expenses include the printing and mailing of prospectuses, statements of
additional information and reports to prospective purchasers, as well as the
preparation, printing and mailing of advertisements and sales literature in
connection with the offering of the Class IB shares to prospective investors.
The Distributor for each Class of shares will pay all fees and expenses in
connection with its qualification and registration as a broker or dealer under
federal and state laws.
In the capacity of agent, each Distributor currently offers shares of each
Portfolio on a continuous basis to the separate accounts of insurance
companies offering the Contracts in all states in which the Portfolio or the
Trust may from time to time be registered or where permitted by applicable
law. Each Distribution Agreement provides that the Distributor shall accept
orders for shares at net asset value without sales commission or load being
charged. The Distributors have made no firm commitment to acquire shares of
any Portfolio.
A description of the Distribution Plan with respect to the Class IB shares and
related services and fees thereunder is provided in the Prospectus for the
Class IB shares of the Portfolios. On _______, 199__, the Board of Trustees of
the Trust unanimously approved the Distribution Plan. In connection with its
consideration of the Distribution Plan, the Board of Trustees was furnished
with drafts of the Distribution Plan and the related materials, including
information related to the advantages and disadvantages of Rule 12b-1 plans
currently being used in the mutual fund industry. Legal counsel for the
Trustees who are not "interested persons" of the Trust (as defined in the 1940
Act) provided additional information, summarized the provisions of the
proposed Distribution Plan and discussed the legal and regulatory
considerations in adopting such Distribution Plan.
The Board considered various factors in connection with its decision as to
whether to approve the Distribution Plan, including: (i) the nature and causes
of the circumstances which make implementation of the Distribution Plan
necessary and appropriate; (ii) the way in which the Distribution Plan would
address those circumstances, including the nature and potential amount of
expenditures; (iii) the nature of the anticipated benefits; (iv) the possible
benefits of the
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Distribution Plan to any other person relative to those of the Trust; (v) the
effect of the Distribution Plan on existing owners of variable annuity
contracts and variable life insurance policies; (vi) the merits of possible
alternative plans or pricing structures; (vii) competitive conditions in the
variable products industry; and (viii) the relationship of the Distribution
Plan to other distribution efforts of the Trust.
Based upon its review of the foregoing factors and the materials presented to
it, and in light of its fiduciary duties under the 1940 Act, the Board of
Trustees determined, in the exercise of its business judgment, that the
Distribution Plan is reasonably likely to benefit the Trust and the shareholders
of its Portfolios.
The Distribution Plan and any Rule 12b-1 related agreement that is entered
into by the Trust or the Distributor of the Class IB shares in connection with
the Distribution Plan will continue in effect for a period of more than one
year only so long as continuance is specifically approved at least annually by
a vote of a majority of the Trust's Board of Trustees, and of a majority of
the Independent Trustees, cast in person at a meeting called for the purpose
of voting on the Distribution Plan, or any Rule 12b-1 related agreement, as
applicable. In addition, the Distribution Plan and any Rule 12b-1 related
agreement may be terminated as to Class IB shares of a Portfolio at any time,
without penalty, by vote of a majority of the outstanding Class IB shares of
the Portfolio or by vote of a majority of the Independent Trustees. The
Distribution Plan also provides that it may not be amended to increase
materially the amount (up to .50% of average daily net assets annually) that
may be spent for distribution of Class IB shares of a Portfolio without the
approval of Class IB shareholders of that Portfolio.
BROKERAGE ALLOCATION
BROKERAGE COMMISSIONS
The Portfolios are charged for securities brokers' commissions, transfer taxes
and similar fees relating to securities transactions. The Manager and each of
the Advisers, as appropriate, seeks to obtain the best price and execution on
all orders placed for the Portfolios, considering all the circumstances except
to the extent it may be permitted to pay higher commissions as described
below.
It is expected that securities will ordinarily be purchased in the primary
markets, whether over-the-counter or listed, and that listed securities may be
purchased in the over-the-counter market if that market is deemed the primary
market.
Transactions on stock exchanges involve the payment of brokerage commissions.
In transactions on stock exchanges in the United States, these commissions are
negotiated, whereas on many foreign stock exchanges these commissions are
fixed. However, brokerage commission rates in certain countries in which the
Portfolios may invest may be discounted for certain large domestic and foreign
investors such as the Portfolios. A number of foreign banks and brokers
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<PAGE>
will be used for execution of each Portfolio's portfolio transactions. In the
case of securities traded in the foreign and domestic over-the-counter
markets, there is generally no stated commission, but the price usually
includes an undisclosed commission or mark-up. In underwritten offerings, the
price generally includes a disclosed fixed commission or discount.
The Manager and Advisers may, as appropriate, in the allocation of brokerage
business, take into consideration research and other brokerage services
provided by brokers and dealers to Equitable, the Manager or Advisers. The
research services include economic, market, industry and company research
material. Based upon an assessment of the value of research and other
brokerage services provided, proposed allocations of brokerage for commission
transactions are periodically prepared internally. In addition, the Manager
and Advisers may allocate brokerage business to brokers and dealers that have
made or are expected to make significant efforts in facilitating the
distribution of the Trust's shares.
Commissions charged by brokers that provide research services may be somewhat
higher than commissions charged by brokers that do not provide research
services. As permitted by Section 28(e) of the 1934 Act and by policies
adopted by the Trustees, the Manager and Advisers may cause the Trust to pay a
broker-dealer that provides brokerage and research services to the Manager and
Advisers an amount of commission for effecting a securities transaction for
the Trust in excess of the commission another broker-dealer would have charged
for effecting that transaction.
The Manager and Advisers do not engage brokers and dealers whose commissions
are believed to be unreasonable in relation to brokerage and research services
provided. The overall reasonableness of commissions paid will be evaluated by
rating brokers on such general factors as execution capabilities, quality of
research (that is, quantity and quality of information provided, diversity of
sources utilized, nature and frequency of communication, professional
experience, analytical ability and professional stature of the broker) and
financial standing, as well as the net results of specific transactions,
taking into account such factors as price, promptness, size of order and
difficulty of execution. The research services obtained will, in general, be
used by the Manager and Advisers for the benefit of all accounts for which the
responsible party makes investment decisions. The receipt of research services
from brokers will tend to reduce the Manager's and Advisers' expenses in
managing the Portfolios.
BROKERAGE TRANSACTIONS WITH AFFILIATES
To the extent permitted by law, the Trust may engage in brokerage transactions
with brokers that are affiliates of the Manager and Advisers, with brokers who
are affiliates of such brokers, or with unaffiliated brokers who trade or
clear through affiliates of the Manager and Advisers. The 1940 Act generally
prohibits the Trust from engaging in principal securities transactions with
brokers that are affiliates of the Manager and Advisers or affiliates of such
brokers, unless pursuant to an exemptive order from the SEC. The Trust may
apply for such exemptive relief. The Trust has adopted procedures, prescribed
by the 1940 Act, which are reasonably designed to provide that any commissions
or other remuneration it pays to brokers that are affiliates of
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the Manager and Advisers or brokers that are affiliates of such brokers do not
exceed the usual and customary broker's commission. In addition, the Trust
will adhere to the requirements under the 1934 Act governing floor trading.
Also, because of securities law limitations, the Trust will limit purchases of
securities in a public offering, if such securities are underwritten by
brokers that are affiliates of the Manager and Advisers or their affiliates.
PURCHASE AND PRICING OF SECURITIES
The Trust will offer and sell its shares at each Portfolio's net asset value
per share, which will be determined in the manner set forth below.
The net asset value of the shares of each Portfolio of the Trust will be
determined once daily, immediately after the declaration of dividends, if any,
at the close of business on each business day. The net asset value per share
of each Portfolio will be computed by dividing the sum of the investments held
by that Portfolio, plus any cash or other assets, minus all liabilities, by
the total number of outstanding shares of that Portfolio at such time. All
expenses borne by the Trust and each of its Classes, will be accrued daily.
The net asset value per share of each Portfolio will be determined and
computed as follows, in accordance with generally accepted accounting
principles, and consistent with the 1940 Act:
o The assets belonging to each Portfolio will include (i) all
consideration received by the Trust for the issue or sale of
shares of that particular Portfolio, together with all
assets in which such consideration is invested or
reinvested, (ii) all income, earnings, profits, and proceeds
thereof, including any proceeds derived from the sale,
exchange or liquidation of such assets, (iii) any funds or
payments derived from any reinvestment of such proceeds in
whatever form the same may be, and (iv) "General Items", if
any, allocated to that Portfolio. "General Items" include
any assets, income, earnings, profits, and proceeds thereof,
funds, or payments which are not readily identifiable as
belonging to any particular Portfolio. General Items will be
allocated as the Trust's Board of Trustees considers fair
and equitable.
o The liabilities belonging to each Portfolio will include (i)
the liabilities of the Trust in respect of that Portfolio,
(ii) all expenses, costs, changes and reserves attributable
to that Portfolio, and (iii) any general liabilities,
expenses, costs, charges or reserves of the Trust which are
not readily identifiable as belonging to any particular
Portfolio which have been allocated as the Trust's Board of
Trustees considers fair and equitable.
The value of each Portfolio will be determined at the close of business on
each "business day," i.e., each day in which the degree of trading in the
Portfolio might materially affect the net asset value of such Portfolio.
Normally, this would be each day that the New York Stock Exchange
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is open and would include some federal holidays. For stocks and options, the
close of trading is 4:00 p.m. and 4:15 p.m. Eastern Time, respectively; for
bonds it is the close of business in New York City, and for foreign securities
it is the close of business in the applicable foreign country, with exchange
rates determined at 2:00 p.m. Eastern Time.
Values are determined according to accepted accounting practices and all laws
and regulations that apply. The assets of each Portfolio are valued as
follows:
o Stocks listed on national securities exchanges and certain
over-the-counter issues traded on the NASDAQ national market
system are valued at the last sale price, or, if there is no
sale, at the latest available bid price. Other unlisted
stocks are valued at their last sale price or, if there is
no reported sale during the day, at a bid price estimated by
a broker.
o Foreign securities not traded directly, or in ADRs or
similar form in the United States, are valued at
representative quoted prices in the currency of the country
of origin. Foreign currency is converted into U.S. dollar
equivalent at current exchange rates.
o U.S. Treasury securities and other obligations issued or
guaranteed by the U.S. Government, its agencies or
instrumentalities, are valued at representative quoted
prices.
o Long-term corporate bonds are valued at prices obtained from
a bond pricing service of a major dealer in bonds when such
prices are available; however, when such prices are not
available, such bonds are valued at a bid price estimated by
a broker.
o Short-term debt securities in the Portfolios which mature in
60 days or less are valued at amortized cost, which
approximates market value. Short-term debt securities in
such Portfolios which mature in more than 60 days are valued
at representative quoted prices.
o Convertible preferred stocks listed on national securities
exchanges are valued as of their last sale price or, if
there is no sale, at the latest available bid price.
o Convertible bonds, and unlisted convertible preferred
stocks, are valued at bid prices obtained from one or more
of the major dealers in such bonds or stocks. Where there is
a discrepancy between dealers, values may be adjusted based
on recent premium spreads to the underlying common stocks.
o Mortgage backed and asset backed securities are valued at
prices obtained from a bond pricing service where available,
or at a bid price obtained from one or more of the major
dealers in such securities. If a quoted price is
unavailable, an
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equivalent yield or yield spread quotes will be obtained
from a broker and converted to a price.
o Purchased options, including options on futures, are valued
at their last bid price. Written options are valued at their
last asked price.
o Futures contracts are valued as of their last sale price or,
if there is no sale, at the latest available bid price.
o Other securities and assets for which market quotations are
not readily available or for which valuation cannot be
provided are valued in good faith by the valuation committee
of the Board of Trustees using its best judgment.
The market value of a put or call option will usually reflect, among other
factors, the market price of the underlying security.
When the Trust writes a call option, an amount equal to the premium received
by the Trust is included in the Trust's financial statements as an asset and
an equivalent liability. The amount of the liability is subsequently
marked-to-market to reflect the current market value of the option written.
When an option expires on its stipulated expiration date or the Trust enters
into a closing purchase or sale transaction, the Trust realizes a gain (or
loss) without regard to any unrealized gain or loss on the underlying
security, and the liability related to such option is extinguished. When an
option is exercised, the Trust realizes a gain or loss from the sale of the
underlying security, and the proceeds of sale are increased by the premium
originally received, or reduced by the price paid for the option.
The Manager and Advisers may, from time to time, under the general supervision
of the Board of Trustees or its valuation committee, utilize the services of
one or more pricing services available in valuing the assets of the Trust. The
Manager and Advisers will continuously monitor the performance of these
services.
REDEMPTION OF SHARES
The Trust may suspend redemption privileges or postpone the date of payment on
shares of the Portfolios for more than seven days during any period (i) when
the New York Stock Exchange is closed or trading on the New York Stock
Exchange is restricted as determined by the SEC, (ii) when an emergency
exists, as defined by the SEC, which makes it not reasonably practicable for a
Portfolio to dispose of securities owned by it or fairly to determine the
value of its assets, or (iii) as the SEC may otherwise permit.
The value of the shares on redemption may be more or less than the
shareholder's cost, depending upon the market value of the portfolio
securities at the time of redemption.
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CERTAIN TAX CONSIDERATIONS
Each Portfolio is treated for Federal income tax purposes as a separate
taxpayer. The Trust intends that each Portfolio shall qualify each year and
elect to be treated as a regulated investment company under Subchapter M of
the Code. Such qualification does not involve supervision of management or
investment practices or policies by any governmental agency or bureau.
As a regulated investment company, each Portfolio will not be subject to
federal income or excise tax on any of its net investment income or net
realized capital gains which are timely distributed to shareholders under the
Code. A number of technical rules are prescribed for computing net investment
income and net capital gains. For example, dividends are generally treated as
received on the ex-dividend date. Also, certain foreign currency losses and
capital losses arising after October 31 of a given year may be treated as if
they arise on the first day of the next taxable year.
A Portfolio investing in foreign securities or currencies may be subject to
foreign taxes which could reduce the investment performance of such Portfolio.
However, if foreign securities comprise more than 50% of the year-end value of
a Portfolio, the Portfolio may elect to pass through such foreign taxes as a
deemed dividend to shareholders. In such a case the shareholder and not the
Portfolio would be entitled to claim a federal tax deduction or credit for
foreign taxes, as appropriate.
To qualify for treatment as a regulated investment company, a Portfolio must,
among other things, derive in each taxable year at least 90% of its gross
income from dividends, interest, payments with respect to securities loans,
gains from the sale or other disposition of stock or securities or foreign
currencies, or other income derived with respect to its business of investing.
A Portfolio must also derive less than 30% of its gross income in each taxable
year from gains from the sale or other disposition of stock or securities held
for less than three months. Other investments subject to this three-month
limit are options, futures or forward contracts (other than those relating to
foreign currency), or in certain circumstances, foreign currencies and related
options, futures and forward contracts the gains on which are not directly
related to the Portfolio's business of investing in stock or securities. See
"Federal Tax Treatment of Options, Futures Contracts and Forward Foreign
Exchange Contracts." This 30% rule may be inapplicable in the context of
certain abnormal redemptions of Portfolio shares. For purposes of these tests,
gross income is determined without regard to losses from the sale or other
dispositions of stock or securities.
In addition, the Secretary of the Treasury has regulatory authority to exclude
from qualifying income described above foreign currency gains which are not
"directly related" to a regulated investment company's "principal business or
investing" in stock, securities or related options or futures. The Secretary
of the Treasury has not to date exercised this authority.
38
<PAGE>
Generally, in order to avoid a 4% nondeductible excise tax, each Portfolio
must distribute to its shareholders during the calendar year the following
amounts:
o 98% of the Portfolio's ordinary income for the calendar year;
o 98% of the Portfolio's capital gain net income (all capital
gains, both long-term and short-term, minus all such capital
losses), all computed as if the Portfolio were on a taxable
year ending October 31 of the year in question and beginning
the previous November 1; and
o any undistributed ordinary income or capital gain net income
for the prior year.
The excise tax is inapplicable to any regulated investment company whose sole
shareholders are either tax-exempt pension trusts or separate accounts of life
insurance companies funding variable contracts. Although each Portfolio
believes that it is not subject to the excise tax, the Portfolios intend to
make the distributions required to avoid the imposition of such a tax.
Because the Trust is used to fund non-qualified Contracts each Portfolio must
meet the diversification requirements imposed by the Code or these Contracts
will fail to qualify as life insurance and annuities. In general, for a
Portfolio to meet the investment diversification requirements of Subchapter L
of the Code, Treasury regulations require that no more than 55% of the total
value of the assets of the Portfolio may be represented by any one investment,
no more than 70% by two investments, no more than 80% by three investments and
no more than 90% by four investments. Generally, for purposes of the
regulations, all securities of the same issuer are treated as a single
investment. In the context of United States Government securities (including
any security that is issued, guaranteed or insured by the United States or an
instrumentality of the United States) each U.S. Government agency or
instrumentality is treated as a separate issuer. Compliance with the
regulations is tested on the first day of each calendar year quarter. There is
a thirty (30) day period after the end of each calendar year quarter in which
to cure any non-compliance.
PORTFOLIO PERFORMANCE
COMPUTATION OF TOTAL RETURN
Each Portfolio may provide average annual total return information calculated
according to a formula prescribed by the SEC. According to that formula,
average annual total return figures represent the average annual compounded
rate of return for the stated period. Average annual total return quotations
reflect the percentage change between the beginning value of a static account
in the Portfolio and the ending value of that account measured by the then
current net asset value of that Portfolio assuming that all dividends and
capital gains distributions during the stated period were invested in shares
of the Portfolio when paid. Total return is calculated by finding the average
annual compounded rates of return of a hypothetical investment that would
39
<PAGE>
equate the initial amount invested to the ending redeemable value of such
investment, according to the following formula:
1/n
T=(ERV/P) -1
where "T" equals average annual total return; where "ERV", the ending
redeemable value, is the value at the end of the applicable period of a
hypothetical $1,000 investment made at the beginning of the applicable period;
where "P" equals a hypothetical initial investment of $1,000; and where "n"
equals the number of years.
Each Portfolio's total return will vary from time to time depending upon
market conditions, the composition of each Portfolio's investment portfolio
and operating expenses of the Trust allocated to each Portfolio. Total return
should also be considered relative to changes in the value of a Portfolio's
shares and to the relative risks associated with the investment objectives and
policies of the Portfolios. These total return figures do not reflect
insurance company expenses and fees applicable to the Contracts. At any time
in the future, total return may be higher or lower than in the past and there
can be no assurance that any historical results will continue.
NON-STANDARD PERFORMANCE
In addition to the performance information described above, each Portfolio may
provide total return information with respect to the Portfolios for designated
periods, such as for the most recent six months or most recent twelve months.
This total return information is computed as described under "Computation of
Total Return" above except that no annualization is made.
OTHER SERVICES
INDEPENDENT ACCOUNTANT
Price Waterhouse LLP, 1177 Avenue of the Americas, New York, New York 10036,
serves as the Trust's independent accountant.
CUSTODIAN
______________________________________ has been designated the Custodian of the
Trust's portfolio securities and other assets.
TRANSFER AGENT
Equitable serves as the transfer agent and dividend disbursing agent for the
Trust. Equitable receives no compensation for providing such services for the
Trust.
40
<PAGE>
APPENDIX
DESCRIPTION OF COMMERCIAL PAPER RATINGS
A-1 AND PRIME-1 COMMERCIAL PAPER RATINGS
The rating A-1 (including A-1+) is the highest commercial paper rating
assigned by S&P. Commercial paper rated A-1 by S&P has the following
characteristics:
o liquidity ratios are adequate to meet cash requirements;
o long-term senior debt is rated "A" or better;
o the issuer has access to at least two additional channels of
borrowing;
o basic earnings and cash flow have an upward trend with allowance
made for unusual circumstances;
o typically, the issuer's industry is well established and the issuer
has a strong position within the industry; and
o the reliability and quality of management are unquestioned.
Relative strength or weakness of the above factors determines whether the
issuer's commercial paper is rated A-1, A-2 or A-3. Issues rated A-1 that are
determined by S&P to have overwhelming safety characteristics are designated
A-1+.
The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Among the factors considered by Moody's in assigning ratings are the
following:
o evaluation of the management of the issuer;
o economic evaluation of the issuer's industry or industries and an
appraisal of speculative-type risks which may be inherent in
certain areas;
o evaluation of the issuer's products in relation to competition and
customer acceptance;
o liquidity;
o amount and quality of long-term debt;
o trend of earnings over a period of ten years;
o financial strength of parent company and the relationships which
exist with the issuer; and
o recognition by the management of obligations which may be
present or may arise as a result of public interest
questions and preparations to meet such obligations.
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DESCRIPTION OF BOND RATINGS
Bonds are considered to be "investment grade" if they are in one of the top
four ratings.
S&P's ratings are as follows:
o Bonds rated AAA have the highest rating assigned by S&P. Capacity
to pay interest and repay principal is extremely strong.
o Bonds rated AA have a very strong capacity to pay interest
and repay principal although they are somewhat more
susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in higher
rated categories.
o Bonds rated A have a strong capacity to pay interest and
repay principal although they are somewhat more susceptible
to the adverse effects of changes in circumstances and
economic conditions than bonds in higher rated categories.
o Bonds rated BBB are regarded as having an adequate capacity
to pay interest and repay principal. Whereas they normally
exhibit adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead
to a weakened capacity to pay interest and repay principal
for bonds in this category than in higher rated categories.
o Debt rated BB, B, CCC, CC or C is regarded, on balance, as
predominantly speculative with respect to the issuer's
capacity to pay interest and repay principal in accordance
with the terms of the obligation. While such debt will
likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major risk
exposures to adverse debt conditions.
o The rating C1 is reserved for income bonds on which no interest is
being paid.
o Debt rated D is in default and payment of interest and/or repayment
of principal is in arrears.
The ratings from AA to CCC may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within the major rating categories.
Moody's ratings are as follows:
o Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk
and are generally referred to as "gilt-edged." Interest
payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various
protective elements are likely to
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<PAGE>
change, such changes as can be visualized are most unlikely
to impair the fundamentally strong position of such issues.
o Bonds which are rated Aa are judged to be of high quality by
all standards. Together with the Aaa group they comprise
what are generally known as high grade bonds. They are rated
lower than the best bonds because margins of protection may
not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may
be other elements present which make the long term risks
appear somewhat larger than in Aaa securities.
o Bonds which are rated A possess many favorably investment
attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and
interest are considered adequate but elements may be present
which suggest a susceptibility to impairment some time in
the future.
o Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor
poorly secured. Interest payments and principal security
appear adequate for the present but certain protective
elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have
speculative characteristics as well.
o Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured.
Often the protection of interest and principal payments may
be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
o Bonds which are rated B generally lack characteristics of
the desirable investment. Assurance of interest and
principal payments or of maintenance of other terms of the
contract over any long period of time may be small.
o Bonds which are rated Caa are of poor standing. Such issues
may be in default or there may be present elements of danger
with respect to principal or interest.
o Bonds which are rated Ca represent obligations which are
speculative to a high degree. Such issues are often in
default or have other marked shortcomings.
o Bonds which are rated C are the lowest class of bonds and
issues so rated can be regarded as having extremely poor
prospects of ever attaining any real investment standing.
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<PAGE>
Moody's applies modifiers to each rating classification from Aa through B to
indicate relative ranking within its rating categories. The modifier "1"
indicates that a security ranks in the higher end of its rating category; the
modifier "2" indicates a mid-range ranking' and the modifier "3" indicates
that the issue ranks in the lower end of its rating category.
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PART C: OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
To be filed by amendment.
(b) Exhibits:
1(a). Agreement and Declaration of Trust of the 787 Trust.
1(b). Certificate of Trust.
2. By-Laws of the 787 Trust.
3. Not applicable.
4. None other than Exhibit 1.
5(a). Form of Investment Management Agreement between the 787 Trust
and EQ Financial Consultants, Inc.
5(b). Form of Investment Advisory Agreement between EQ Financial
Consultants, Inc. and T. Rowe Price Associates, Inc.
5(c). Form of Investment Advisory Agreement between EQ Financial
Consultants, Inc. and Rowe Price-Fleming International, Inc.
5(d). Form of Investment Advisory Agreement between, EQ Financial
Consultants, Inc. and Putnam Investment Management, Inc.
5(e). Form of Investment Advisory Agreement between, EQ Financial
Consultants, Inc. and Massachusetts Financial Services
Company.
6(a). Form of Distribution Agreement between the 787 Trust and EQ
Financial Consultants, Inc. with respect to the Class IA
shares (to be provided by amendment).
6(b). Form of Distribution Agreement between the 787 Trust and
Equitable Distributors, Inc. with respect to the Class IB
shares (to be provided by amendment).
7. Form of Deferred Compensation Plan (to be provided by
amendment).
8. Custodian Agreement (to be provided by amendment).
9(a). Administrative Services Agreement (to be provided by
amendment).
9(b). Form of Expense Limitation Agreement between the Trust, on
behalf of T. Rowe Price International Stock Portfolio, and
EQ Financial Consultants, Inc.
9(c). Form of Expense Limitation Agreement between the Trust, on
behalf of T. Rowe Price Equity Income Portfolio, and EQ
Financial Consultants, Inc.
9(d). Form of Expense Limitation Agreement between the Trust, on
behalf of Putnam Growth and Income Portfolio, and EQ
Financial Consultants, Inc.
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9(e). Form of Expense Limitation Agreement between the Trust, on
behalf of Putnam International Growth Portfolio, and EQ
Financial Consultants, Inc.
9(f). Form of Expense Limitation Agreement between the Trust, on
behalf of MFS Research Portfolio, and EQ Financial
Consultants, Inc.
9(g). Form of Participation Agreement (to be provided by amendment).
10. Opinion and Consent of Katten Muchin & Zavis regarding the
legality of the securities being registered.
11. Consent of the Independent Public Accountants (to be
provided by amendment).
12. Not applicable.
13. Form of Stock Subscription Agreement between the 787 Trust
and The Equitable Life Assurance Society of the United
States.
14. Not Applicable.
15. Form of Distribution Plan Pursuant to Rule 12b-1 for the
Trust's Class IB Shares.
16. Not Applicable.
17. Financial Data Schedule (to be provided by amendment).
18. Form of Plan Pursuant to Rule 18f-3 under the 1940 Act.
19. Not Applicable.
Item 25. Persons Controlled by or under Common Control with Registrant
Upon commencement of the Trust's operations, The Equitable Life
Assurance Society of the United States ("Equitable Life") will be the sole
initial shareholder of the Trust and will control the Trust by virtue of its
ownership of 100% of the Trust's outstanding shares. All Trust shareholders
are required to solicit instructions from their respective contract owners as
to certain matters. The Trust may in the future offer its shares to insurance
companies unaffiliated with Equitable Life.
On July 22, 1992, Equitable Life converted from a New York mutual
life insurance company to a publicly-owned New York stock life insurance
company. At that time Equitable Life became a wholly-owned subsidiary of The
Equitable Companies Incorporated ("Holding Company"). The Holding Company
continues to own 100% of Equitable Life's common stock as well as
approximately 80.2% of the common stock of Donaldson, Lufkin & Jenrette, Inc.,
a registered broker-dealer.
The largest stockholder of the Holding Company is AXA, a French
insurance holding company. AXA currently owns approximately 60% of the
outstanding shares of common stock of the Holding Company plus convertible
preferred stock. AXA, a public company with shares traded on the Paris Bourse
(the French stock exchange), is the principal holding company for most of the
companies in one of the largest insurance groups in Europe. The majority of
AXA's stock is owned by a group of five French mutual insurance companies.
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ITEM 26. NUMBER OF HOLDERS OF SECURITIES
NUMBER OF RECORD HOLDERS
TITLE OF CLASS AS OF NOVEMBER __, 1996
- ------------------------------ -------------------------
Class IA Shares of beneficial interest None
Class IB Shares of beneficial interest None
ITEM 27. INDEMNIFICATION
Declaration of Trust and By-Laws.
Article VII, Section 2 of the Trust's Declaration of Trust states, in
relevant part, that a "Trustee, when acting in such capacity, shall not be
personally liable to any Person, other than the Trust or a Shareholder to the
extent provided in this Article VII, for any act, omission or obligation of
the Trust, of such Trustee or of any other Trustee. The Trustees shall not be
responsible or liable in any event for any neglect or wrongdoing of any
officer, agent, employee, Manager, or Principal Underwriter of the Trust. The
Trust shall indemnify each Person who is serving or has served at the Trust's
request as a director, officer, trustee, employee, or agent of another
organization in which the Trust has any interest as a shareholder, creditor,
or otherwise to the extent and in the manner provided in the By-Laws." Article
VII, Section 4 of the Trust's Declaration of Trust further states, in relevant
part, that the "Trustees shall be entitled and empowered to the fullest extent
permitted by law to purchase with Trust assets insurance for liability and for
all expenses reasonably incurred or paid or expected to be paid by a Trustee,
officer, employee, or agent of the Trust in connection with any claim, action,
suit, or proceeding in which he or she may become involved by virtue of his or
her capacity or former capacity as a Trustee of the Trust."
Article VI, Section 2 of the Trust's By-Laws states, in relevant
part, that "[s]ubject to the exceptions and limitations contained in Section 3
of this Article VI, every [Trustee, officer, employee or other agent of the
Trust] shall be indemnified by the Trust to the fullest extent permitted by
law against all liabilities and against all expenses reasonably incurred or
paid by him or her in connection with any proceeding in which he or she
becomes involved as a party or otherwise by virtue of his or her being or
having been an agent." Article VI, Section 3 of the Trust's By-Laws further
states, in relevant part, that "[n]o indemnification shall be provided
hereunder to [a Trustee, officer, employee or other agent of the Trust]: (a)
who shall have been adjudicated, by the court or other body before which the
proceeding was brought, to be liable to the Trust or its Shareholders by
reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his or her office
(collectively, "disabling conduct"); or (b) with respect to any proceeding
disposed of (whether by settlement, pursuant to a consent decree or otherwise)
without an adjudication by the court or other body before which the proceeding
was brought that such [Trustee, officer, employee or other agent of the Trust]
was liable to the Trust or its Shareholders by reason of disabling conduct,
unless there has been a determination that such [Trustee, officer, employee or
other agent of the Trust] did not engage in disabling conduct: (i) by the
court or other body before which the proceeding was brought; (ii) by at least
a majority of those Trustees who are neither Interested Persons of the Trust
nor are parties to the proceeding based upon a review of readily available
facts (as opposed to a full trial-type inquiry); or (iii) by written opinion
of independent legal counsel based upon a review of readily available facts
(as opposed to a full trial-type inquiry); provided, however, that
indemnification shall be provided hereunder to [a Trustee, officer, employee
or other agent of the Trust] with respect to any proceeding in the event of
(1) a final decision on the merits by the court or other body before which the
proceeding was brought that the [Trustee, officer, employee or other agent of
the Trust] was not liable by reason of disabling conduct, or (2) the dismissal
of the proceeding by the court or other body before which it was brought for
insufficiency of evidence of any disabling conduct with which such [Trustee,
officer, employee or other agent of the Trust] has been charged." Article VI,
Section 4 of the Trust's By-Laws also states that the "rights of
indemnification herein provided (i) may be insured
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against by policies maintained by the Trust on behalf of any [Trustee,
officer, employee or other agent of the Trust], (ii) shall be severable, (iii)
shall not be exclusive of or affect any other rights to which any [Trustee,
officer, employee or other agent of the Trust] may now or hereafter be
entitled and (iv) shall inure to the benefit of [such party's] heirs,
executors and administrators."
UNDERTAKING
Insofar as indemnification for liability arising under the Securities
Act of 1933 (the "Act") may be permitted to trustees, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a trustee, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such trustee, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF THE MANAGER AND ADVISERS
The description of EQ Financial Consultants, Inc. under the caption of
"Management of the Trust" in the Prospectus and under the caption "Investment
Management and Other Services" in the Statement of Additional Information
constituting Parts A and B, respectively, of this Registration Statement are
incorporated by reference herein.
The information as to the directors and officers of EQ Financial Consultants,
Inc. is set forth in EQ Financial Consultants, Inc.'s Form ADV filed with the
Securities and Exchange Commission on July 1, 1996 (File No. 801-14065) and
amended through the date hereof, is incorporated by reference.
The information as to the directors and officers of T. Rowe Price Associates,
Inc., is set forth in T. Rowe Price Associates, Inc.'s Form ADV filed with the
Securities and Exchange Commission on March 29, 1996 (File No. 801-00856) and
amended through the date hereof, is incorporated by reference.
The information as to the directors and officers of Rowe Price-Fleming
International, Inc. is set forth in Rowe Price-Fleming International, Inc.'s
Form ADV filed with the Securities and Exchange Commission on March 29, 1996
(File No. 801-14713) and amended through the date hereof, is incorporated by
reference.
The information as to the directors and officers of Putnam Investment
Management, Inc. is set froth in Putnam Investment Management, Inc.'s Form ADV
filed with the Securities and Exchange Commission on April 2, 1996 (File No.
801-07974) and amended through the date hereof, is incorporated by reference.
The information as to the directors and officers of Massachusetts Financial
Services Company is set froth in Massachusetts Financial Services Company's
Form ADV filed with the Securities and Exchange Commission on May 23, 1996
(File No. 801-17352) and amended through the date hereof, is incorporated by
reference.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) EQ Financial Consultants, Inc. is the principal underwriter of
the Trust's Class IA shares, and Equitable Distributors, Inc. is the principal
underwriter of the Trust's Class IB shares. EQ Financial Consultants Inc. also
serves as the principal underwriter for the following entities: the Class IA
shares
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of The Hudson River Trust; Separate Accounts A and No. 301 of Equitable; and
Separate Accounts I and FP of Equitable Variable Life Insurance Company.
Equitable Distributors, Inc. serves as the principal underwriter for the Class
IB shares of The Hudson River Trust and Separate Account Nos. 45 and 49 of
Equitable.
(b) Set forth below is certain information regarding the directors
and officers of EQ Financial Consultants, Inc., the principal underwriter of
the Trust's Class IA shares, and of Equitable Distributors, Inc., the
principal underwriter of the Trust's Class IB shares. The business address of
the persons whose names are preceded by a single asterisk is 787 Seventh
Avenue, New York, New York 10019. The business address of the persons whose
names are preceded by a double asterisk is 1755 Broadway, 3rd Floor, New York,
New York 10019. Ms. Krumsiek's business address is 1345 Avenue of the
Americas, 39th Floor, New York, New York 10105. Mr. Kornweiss's business
address is 4251 Crums Mill Road, Harrisburg, PA 17112. Mr. Radbill's business
address is 135 West Fiftieth Street, 4th Floor, New York, New York 10020. The
business address of Mr. Brakovich, Mr. Shepherdson and Mr. Meserve is 660
Newport Center Drive, Suite 350, Newport Beach, CA 92660.
<TABLE>
<CAPTION>
==========================================================================================================================
NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND OFFICES
BUSINESS ADDRESS WITH EQ FINANCIAL WITH REGISTRANT
CONSULTANTS, INC.
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
DIRECTORS
* Derry E. Bishop Director
* Harvey Blitz Director
Barbara J. Krumsiek Director
* Michael S. Martin Director
** Michael F. McNelis Director
* Richard V. Silver Director
* Mark R. Wutt Director
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
==========================================================================================================================
NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND OFFICES
BUSINESS ADDRESS WITH EQ FINANCIAL WITH REGISTRANT
CONSULTANTS, INC.
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OFFICERS
* Michael S. Martin Chairman of the Board and
Chief Executive Officer
** Michael F. McNelis President and Chief Operating
Officer
* Derry E. Bishop Executive Vice President
* Harvey Blitz Executive Vice President
* Gordon G. Dinsmore Executive Vice President
* Donald D. Higgins Executive Vice President
** Martin J. Telles Executive Vice President and
Chief Marketing Officer
* Fred A. Folco Executive Vice President
* Thomas J. Duddy, Jr. Executive Vice President
* William J. Green Executive Vice President
* A. Frank Beaz Executive Vice President
* Peter D. Noris Executive Vice President
* Dennis D. Witte Executive Vice President
** Robert McKenna Senior Vice President and
Chief Financial Officer
** Theresa A. Nurge-Alws Senior Vice President
* Naomi Friedland-Wechsler General Counsel
** Ronald Boswell First Vice President
** Donna M. Dazzo First Vice President
** Nancy Yurman First Vice President
** Michael Brzozowski Vice President and
Compliance Director
** Amy Franceschini Vice President
** Linda Funigiello Vice President
** James Furlong Vice President
Peter R. Kornweiss Vice President
** Frank Lupo Vice President
** Rosemary Magee Vice President
** T.S. Narayanan Vice President
** James R. Anderson Vice President
** Raymond T.Barry Vice President
** Laura A. Pellegrini Vice President
* Janet E. Hannon Secretary
* Linda J. Galasso Assistant Secretary
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
==========================================================================================================================
POSITIONS AND
NAME AND PRINCIPAL POSITIONS AND OFFICES WITH OFFICES WITH
BUSINESS ADDRESS EQUITABLE DISTRIBUTORS, INC. REGISTRANT
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
DIRECTORS
* James M. Benson Director
Greg Brakovich Director
* Jerome S. Golden Director
* William T. McCaffrey Director
James A. Shepherdson, Director
III
- --------------------------------------------------------------------------------------------------------------------------
OFFICERS
* Jerome S. Golden Chairman of the Board
* Greg Brakovich Co-President and Co-Chief Executive
Officer and Managing Director
* James A. Shepherdson, Co-President and Co-Chief Executive
III Officer and Managing Director
* Dennis D. Witte Senior Vice President
Philip D. Meserve Managing Director
* Thomas D. Bullen Chief Financial Officer
** Michael Brzozowski Chief Compliance Officer
* Naomi Friedland- Chief Legal Officer
Wechsler
* Ronald R. Quist Treasurer
* Janet Hannon Secretary
* Linda J. Galasso Assistant Secretary
</TABLE>
(c) Inapplicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
Books or other documents required to be maintained by Section 31(a)
of the Investment Company Act of 1940, and the Rules promulgated thereunder,
are maintained as follows:
(a) With respect to Rules 31a-1(a); 31a-1(b)(1); (2)(a) and (b); (3);
(6); (8); (12); and 31a-1(d), the required books and records are
maintained at the offices of Registrant's Custodian:
[To be provided]
(b) With respect to Rules 31a-1(a); 31a-1(b)(1), (4); (2)(C) and (D);
(4); (5); (6); (8); (9); (10); (11) and 31a-1(f), the required books
and records are currently maintained at the offices of the
Registrant's Administrator:
[To be provided]
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<PAGE>
(c) With respect to Rules 31a-1(b)(5), (6), (9) and (10) and 31a-1(f),
the required books and records are maintained at the principal
offices of the Registrant's Manager or Advisers:
EQ Financial Consultants, Inc. T. Rowe Price Associates, Inc.
755 Broadway, 3rd Floor 100 East Pratt St.
New York, New York 10019 Baltimore, MD 21202
Rowe Price-Fleming International, Inc. Putnam Investment Management, Inc.
100 East Pratt Street One Post Office Square
Baltimore, MD 21202 Boston, MA 02109
Massachusetts Financial Services Company
500 Boylston Street
Boston, MA 02116
ITEM 31. MANAGEMENT SERVICES: None.
ITEM 32. UNDERTAKINGS
(a) Inapplicable.
(b) The Registrant hereby undertakes to file a post-effective
amendment, including financial statements which need not be
audited, within four to six months from the later of the
commencement of operations of the Trust or the effective
date of this Registration Statement.
(c) Inapplicable.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, as amended, the Registrant has duly caused this
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York, and the State of New York
on the 26th day of November, 1996.
THE 787 TRUST
By: /s/ Peter D. Noris
----------------------
Peter D. Noris
President
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Peter D. Noris President and Trustee November 26, 1996
- --------------------------
Peter D. Noris
/s/ Harvey Blitz Chief Financial Officer November 26, 1996
- -------------------------- Controller
Harvey Blitz
C-9
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EXHIBIT LIST
EXHIBIT
NUMBER DESCRIPTION
1(a). Agreement and Declaration of Trust of the 787 Trust.
1(b). Certificate of Trust.
2. By-Laws of the 787 Trust.
5(a). Form of Investment Management Agreement between the 787 Trust and
EQ Financial Consultants, Inc.
5(b). Form of Investment Advisory Agreement between EQ Financial
Consultants, Inc. and T. Rowe Price Associates, Inc.
5(c). Form of Investment Advisory Agreement between EQ Financial
Consultants, Inc. and Rowe Price-Fleming International, Inc.
5(d). Form of Investment Advisory Agreement between, EQ Financial
Consultants, Inc. and Putnam Investment Management, Inc.
5(e). Form of Investment Advisory Agreement between, EQ Financial
Consultants, Inc. and Massachusetts Financial Services Company.
9(b). Form of Expense Limitation Agreement between the Trust, on behalf of
T. Rowe Price International Stock Portfolio, and EQ Financial
Consultants, Inc.
9(c). Form of Expense Limitation Agreement between the Trust, on behalf of
T. Rowe Price Equity Income Portfolio, and EQ Financial Consultants,
Inc.
9(d). Form of Expense Limitation Agreement between the Trust, on behalf of
Putnam Growth and Income Portfolio, and EQ Financial Consultants,
Inc.
9(e). Form of Expense Limitation Agreement between the Trust, on behalf of
Putnam International Growth Portfolio, and EQ Financial Consultants,
Inc.
9(f). Form of Expense Limitation Agreement between the Trust, on behalf of
MFS Research Portfolio, and EQ Financial Consultants, Inc.
10. Opinion and Consent of Katten Muchin & Zavis regarding the legality
of the securities being registered.
13. Form of Stock Subscription Agreement between the 787 Trust and The
Equitable Life Assurance Society of the United States.
15. Form of Distribution Plan Pursuant to Rule 12b-1 for the Trust's
Class IB Shares.
18. Form of Plan Pursuant to Rule 18f-3 under the 1940 Act.
<PAGE>
EXHIBIT 1(A)
AGREEMENT AND DECLARATION OF TRUST
of
787 Trust
a Delaware Business Trust
Principal Place of Business:
787 Seventh Avenue
New York, NY 10019
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TABLE OF CONTENTS
AGREEMENT AND DECLARATION OF TRUST
Page
ARTICLE I Name and Definitions............................1
1. Name ....................................................1
2. Definitions..............................................1
(a) By-Laws.........................................1
(b) Certificate of Trust............................1
(c) Class...........................................2
(d) Commission .....................................2
(e) Declaration of Trust............................2
(f) Delaware Act....................................2
(g) Interested Person ..............................2
(h) Manager.........................................2
(i) 1940 Act........................................2
(j) Person .........................................2
(k) Principal Underwriter...........................2
(l) Series..........................................2
(m) Shareholder.....................................2
(n) Shares..........................................2
(o) Trust...........................................2
(p) Trust Property..................................2
(q) Trustees........................................3
ARTICLE II Purpose of Trust................................3
ARTICLE III Shares..........................................3
1. Division of Beneficial Interest..........................3
2. Ownership of Shares......................................4
3. Transfer of Shares.......................................4
4. Investments in the Trust.................................5
5. Status of Shares and Limitation of
Personal Liability .............................5
6. Establishment and Designation of Series or Class.........5
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(a) Assets Held with Respect to a
Particular Series...............................5
(b) Liabilities Held with Respect to a
Particular Series...............................6
(c) Dividends, Distributions, Redemptions,
and Repurchases.................................6
(d) Equality .......................................7
(e) Fractions.......................................7
(f) Exchange Privilege..............................7
(g) Combination of Series...........................7
(h) Elimination of Series...........................7
7. Indemnification of Shareholders..........................7
ARTICLE IV Trustees.................................................8
1. Number, Election, and Tenure.............................8
2. Effect of Death, Resignation, etc.
of a Trustee....................................8
3. Powers...................................................8
4. Payment of Expenses by the Trust........................12
5. Payment of Expenses by Shareholders.....................12
6. Ownership of Assets of the Trust........................12
7. Service Contracts.......................................13
8. Trustees and Officers as Shareholders...................14
ARTICLE V Shareholders' Voting Powers and Meetings................15
1. Voting Powers, Meetings, Notice and Record Dates........15
2. Quorum and Required Vote................................15
3. Record Dates............................................15
4. Additional Provisions...................................15
ARTICLE VI Net Asset Value, Distributions and
Redemptions....................................16
1. Determination of Net Asset Value,
Net Income and Distributions...................16
2. Redemptions and Repurchases.............................16
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ARTICLE VII Compensation and Limitation of
Liability of Trustees............................18
1. Compensation .............................................18
2. Indemnification and Limitation of Liability ..............18
3. Trustee's Good Faith Act, Expert Advice,
No Bond or Surety ...............................19
4. Insurance ................................................19
ARTICLE VIII Miscellaneous....................................19
1. Liability of Third Persons Dealing with Trustees..........19
2. Termination of the Trust or Any Series or Class...........19
3. Reorganization............................................20
4. Amendments................................................21
5. Filing of Copies, References, Headings....................21
6. Applicable Law............................................21
7. Provisions in Conflict with Law or Regulations............22
8. Business Trust Only ......................................22
iii
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AGREEMENT AND DECLARATION OF TRUST
OF
787 Trust
THIS AGREEMENT AND DECLARATION OF TRUST is made and entered into as
of the date set forth below by the Trustees named hereunder for the purpose of
forming a Delaware business trust in accordance with the provisions
hereinafter set forth.
NOW, THEREFORE, the Trustees hereby direct that the Certificate of
Trust be filed with the Office of the Secretary of State of the State of
Delaware and do hereby declare that the Trustees will hold IN TRUST all cash,
securities, and other assets which the Trust now possesses or may hereafter
acquire from time to time in any manner and manage and dispose of the same
upon the following terms and conditions for the benefit of the holders of
Shares of this Trust.
ARTICLE I
Name and Definitions
Section 1. Name. This Trust shall be known as the 787 Trust and the
Trustees shall conduct the business of the Trust under that name or any other
name as they may from time to time determine.
Section 2. Definitions. Whenever used herein, unless otherwise
required by the context or specifically provided:
(a) "By-Laws" shall mean the By-Laws of the Trust as amended from
time to time, which By-Laws are expressly herein incorporated by reference as
part of the "governing instrument" within the meaning of the Delaware Act;
(b) "Certificate of Trust" means the certificate of trust, as amended
or restated from time to time, filed by the Trustees in the Office of the
Secretary of State of the State of Delaware in accordance with the Delaware
Act;
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(c) "Class" means a class of Shares of a Series of the Trust
established in accordance with the provisions of Article III hereof;
(d) "Commission" shall have the meaning given such term in the 1940
Act;
(e) "Declaration of Trust" means this Agreement and Declaration of
Trust, as amended or restated from time to time;
(f) "Delaware Act" means the Delaware Business Trust Act 12 Del.
C.ss.ss. 3801 et seq., as amended from time to time;
(g) "Interested Person" shall have the meaning given it in Section
2(a)(19) of the 1940 Act;
(h) "Manager" means a party furnishing services to the Trust pursuant
to any contract described in Article IV, Section 7(a) hereof;
(i) "1940 Act" means the Investment Company Act of 1940 and the rules
and regulations thereunder, all as amended from time to time;
(j) "Person" means and includes individuals, corporations,
partnerships, trusts, associations, joint ventures, estates, and other
entities, whether or not legal entities, and governments and agencies and
political subdivisions thereof, whether domestic or foreign;
(k) "Principal Underwriter" shall have the meaning given such term in
the 1940 Act;
(l) "Series" means each Series of Shares established and designated
under or in accordance with the provisions of Article III hereof;
(m) "Shareholder" means a record owner of outstanding Shares;
(n) "Shares" means the shares of beneficial interest into which the
beneficial interest in the Trust shall be divided from time to time and
includes fractions of Shares as well as whole Shares;
(o) "Trust" means the Delaware Business Trust established under the
Delaware Act by this Declaration of Trust and the filing of the Certificate of
Trust in the Office of the Secretary of State of the State of Delaware;
(p) "Trust Property" means any and all property, real or personal,
tangible or intangible, which is from time to time owned or held by or for the
account of the Trust; and
(q) "Trustees" means the "Person" or "Persons" who have signed this
Declaration of
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Trust and all other Persons who may from time to time be duly elected or
appointed to serve as Trustees in accordance with the provisions hereof, in
each case so long as such Person shall continue in office in accordance with
the terms of this Declaration of Trust, and reference herein to a Trustee or
the Trustees shall refer to such Person or Persons in his or her or their
capacity as Trustees hereunder.
ARTICLE II
Purpose of Trust
The purpose of the Trust is to conduct, operate and carry on the
business of a management investment company registered under the 1940 Act
through one or more Series investing primarily in securities, and to carry on
such other business as the Trustees may from time to time determine pursuant
to their authority under this Declaration of Trust.
ARTICLE III
Shares
Section 1. Division of Beneficial Interest. The beneficial interest
in the Trust shall be divided into one or more Series. The Trustees may divide
each Series into two or more Classes. Subject to the further provisions of
this Article III and any applicable requirements of the 1940 Act, the Trustees
shall have full power and authority, in their sole discretion, and without
obtaining any authorization or vote of the Shareholders of any Series or Class
thereof, (i) to divide the beneficial interest in each Series or Class thereof
into Shares, with or without par value as the Trustees shall determine, (ii)
to issue Shares without limitation as to number (including fractional Shares)
to such Persons and for such amount and type of consideration, subject to any
restriction set forth in the By-Laws, including cash or securities, at such
time or times and on such terms as the Trustees may deem appropriate, (iii) to
establish and designate and to change in any manner any Series or Class
thereof and to fix such preferences, voting powers, rights, duties and
privileges and business purpose of each Series or Class thereof as the
Trustees may from time to time determine, which preferences, voting powers,
rights, duties and privileges may be senior or subordinate to (or in the case
of business purpose, different from) any existing Series or Class thereof and
may be limited to specified property or obligations of the Trust or profits
and losses associated with specified property or obligations of the Trust,
(iv) to divide or combine the Shares of any Series or Class thereof into a
greater or lesser number without thereby materially changing the proportionate
beneficial interest of the Shares of such Series or Class thereof in the
assets held with respect to that Series, (v) to classify or reclassify any
issued Shares of any Series or Class thereof into shares of one or more Series
or Classes thereof; (vi) to change the name of any Series or Class thereof;
(vii) to abolish any one or more Series or Classes thereof; and (viii) to take
such other action with respect to the Shares as the
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Trustees may deem desirable.
Subject to the distinctions permitted among Classes of the same
Series as established by the Trustees, consistent with the requirements of the
1940 Act, each Share of a Series of the Trust shall represent an equal
beneficial interest in the net assets of such Series, and each holder of
Shares of a Series shall be entitled to receive such holder's pro rata share
of distributions of income and capital gains, if any, made with respect to
such Series. Upon redemption of the Shares of any Series, the applicable
Shareholder shall be paid solely out of the funds and property of such Series
of the Trust.
All references to Shares in this Declaration of Trust shall be deemed
to be Shares of any or all Series or Classes thereof, as the context may
require. All provisions herein relating to the Trust shall apply equally to
each Series of the Trust and each Class thereof, except as the context
otherwise requires.
All Shares issued hereunder, including, without limitation, Shares
issued in connection with a dividend in Shares or a split or reverse split of
Shares, shall be fully paid and non-assessable. Except as otherwise provided
by the Trustees, Shareholders shall have no preemptive or other right to
subscribe to any additional Shares or other securities issued by the Trust.
Section 2. Ownership of Shares. The Ownership of Shares shall be
recorded on the books of the Trust or those of a transfer or similar agent for
the Trust, which books shall be maintained separately for the Shares of each
Series or Class of the Trust. No certificates certifying the ownership of
Shares shall be issued except as the Trustees may otherwise determine from
time to time. The Trustees may make such rules as they consider appropriate
for the issuance of Share certificates, the transfer of Shares of each Series
or Class of the Trust and similar matters. The record books of the Trust as
kept by the Trust or any transfer or similar agent, as the case may be, shall
be conclusive as to the identity of the Shareholders of each Series or Class
of the Trust and as to the number of Shares of each Series or Class of the
Trust held from time to time by each Shareholder.
Section 3. Transfer of Shares. Except as otherwise provided by the
Trustees, Shares shall be transferable on the books of the Trust only by the
record holder thereof or by his or her duly authorized agent upon delivery to
the Trustees or the Trust's transfer agent of a duly executed instrument of
transfer, together with a Share certificate if one is outstanding, and such
evidence of the genuineness of each such execution and authorization and of
such other matters as may be required by the Trustees. Upon such delivery, and
subject to any further requirements specified by the Trustees or contained in
the By-Laws, the transfer shall be recorded on the books of the Trust. Until a
transfer is so recorded, the Shareholder of record of Shares shall be deemed
to be the holder of such Shares for all purposes hereunder and neither the
Trustees nor the Trust, nor any transfer agent or registrar or any officer,
employee, or agent of the Trust, shall be affected by any notice of a proposed
transfer.
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Section 4. Investments in the Trust. Investments may be accepted by
the Trust from Persons, at such times, on such terms, and for such
consideration as the Trustees from time to time may authorize.
Section 5. Status of Shares and Limitation of Personal Liability.
Shares shall be deemed to be personal property giving only the rights provided
in this instrument. Every Shareholder by virtue of having become a Shareholder
shall be held to have expressly assented and agreed to the terms hereof. The
death, incapacity, dissolution, termination, or bankruptcy of a Shareholder
during the existence of the Trust shall not operate to terminate the Trust,
nor entitle the representative of any such Shareholder to an accounting or to
take any action in court or elsewhere against the Trust or the Trustees, but
entitles such representative only to the rights of such Shareholder under this
Trust. Ownership of Shares shall not entitle the Shareholder to any title in
or to the whole or any part of the Trust Property or right to call for a
participation or division of the same or for an accounting, nor shall the
ownership of Shares constitute the Shareholders as partners. No Shareholder
shall be personally liable for the debts, liabilities, obligations and
expenses incurred by, contracted for, or otherwise existing with respect to,
the Trust or any Series. Neither the Trust nor the Trustees, nor any officer,
employee, or agent of the Trust shall have any power to bind personally any
Shareholders, nor, except as specifically provided herein, to call upon any
Shareholder for the payment of any sum of money or assessment whatsoever other
than such as the Shareholder may at any time personally agree to pay.
Section 6. Establishment and Designation of Series or Class. The
establishment and designation of any Series or Class of Shares of the Trust
shall be effective upon the adoption by a majority of the then Trustees of a
resolution that sets forth such establishment and designation and the relative
rights and preferences of such Series or Class of the Trust, whether directly
in such resolution or by reference to another document including, without
limitation, any registration statement of Trust, or as otherwise provided in
such resolution.
Shares of each Series or Class of the Trust established pursuant to
this Article III, unless otherwise provided in the resolution establishing
such Series or Class, shall have the following relative rights and
preferences:
(a) Assets Held with Respect to a Particular Series. All
consideration received by the Trust for the issue or sale of Shares of a
particular Series, together with all assets in which such consideration is
invested or reinvested, all income, earnings, profits, and proceeds thereof
from whatever source derived (including, without limitation, any proceeds
derived from the sale, exchange or liquidation of such assets and any funds or
payments derived from any reinvestment of such proceeds in whatever form the
same may be) shall irrevocably be held separately with respect to that Series
for all purposes, subject only to the rights of creditors of such Series from
the assets of the Trust and every other Series, and shall be so recorded upon
the books of account of the Trust. Such consideration, assets, income,
earnings, profits and proceeds thereof, from whatever source derived,
(including, without limitation, any proceeds derived from the
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sale, exchange or liquidation of such assets, and any funds or payments
derived from any reinvestment of such proceeds), in whatever form the same may
be, are herein referred to as "assets held with respect to" that Series. In
the event that there are any assets, income, earnings, profits and proceeds
thereof, funds or payments which are not readily identifiable as assets held
with respect to any particular Series (collectively "General Assets"), the
Trustees shall allocate such General Assets to, between or among any one or
more of the Series in such manner and on such basis as the Trustees, in their
sole discretion, deem fair and equitable, and any General Assets so allocated
to a particular Series shall be held with respect to that Series. Each such
allocation by the Trustees shall be conclusive and binding upon the
Shareholders of all Series for all purposes. Separate and distinct records
shall be maintained for each Series and the assets held with respect to each
Series shall be held and accounted for separately from the assets held with
respect to all other Series and the General Assets of the Trust not allocated
to such Series.
(b) Liabilities Held with Respect to a Particular Series. The assets
of the Trust held with respect to each particular Series shall be charged
against the liabilities of the Trust held with respect to that Series and all
expenses, costs, charges, and reserves attributable to that Series, except
that liabilities and expenses allocated solely to a particular Class shall be
borne by that Class. Any general liabilities of the Trust which are not
readily identifiable as being held with respect to any particular Series or
Class shall be allocated and charged by the Trustees to and among any one or
more of the Series or Classes in such manner and on such basis as the Trustees
in their sole discretion deem fair and equitable. All liabilities, expenses,
costs, charges, and reserves so charged to a Series or Class are herein
referred to as "liabilities held with respect to" that Series or Class. Each
allocation of liabilities, expenses, costs, charges, and reserves by the
Trustees shall be conclusive and binding upon the shareholders of all Series
or Classes for all purposes. Without limiting the foregoing, but subject to
the right of the Trustees to allocate general liabilities, expenses, costs,
charges or reserves as herein provided, the debts, liabilities, obligations
and expenses incurred, contracted for or otherwise existing with respect to a
particular Series shall be enforceable against the assets held with respect to
such Series only and not against the assets of the Trust generally or against
the assets held with respect to any other Series. Notice of this contractual
limitation on liabilities among Series may, in the Trustees' discretion, be
set forth in the certificate of trust of the Trust (whether originally or by
amendment) as filed or to be filed in the Office of the Secretary of State of
the State of Delaware pursuant to the Delaware Act, and upon the giving of
such notice in the certificate of trust, the statutory provisions of Section
3804 of the Delaware Act relating to limitations on liabilities among Series
(and the statutory effect under Section 3804 of setting forth such notice in
the certificate of trust) shall become applicable to the Trust and each
Series. Any person extending credit to, contracting with or having any claim
against any Series may look only to the assets of that Series to satisfy or
enforce any debt, with respect to that Series. No Shareholder or former
Shareholder of any Series shall have a claim on or any right to any assets
allocated or belonging to any other Series.
(c) Dividends, Distributions, Redemptions, and Repurchases.
Notwithstanding any
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other provisions of this Declaration of Trust, including, without limitation,
Article VI, no dividend or distribution, including, without limitation, any
distribution paid upon termination of the Trust or of any Series or Class with
respect to, nor any redemption or repurchase of, the Shares of any Series or
Class, shall be effected by the Trust other than from the assets held with
respect to such Series, nor shall any Shareholder or any particular Series or
Class otherwise have any right or claim against the assets held with respect
to any other Series except to the extent that such Shareholder has such a
right or claim hereunder as a Shareholder of such other Series. The Trustees
shall have full discretion, to the extent not inconsistent with the 1940 Act,
to determine which items shall be treated as income and which items as
capital, and each such determination and allocation shall be conclusive and
binding upon the Shareholders.
(d) Equality. All the Shares of each particular Series shall
represent an equal proportionate interest in the assets held with respect to
that Series (subject to the liabilities held with respect to that Series or
Class thereof and such rights and preferences as may have been established and
designated with respect to any Class within such Series), and each Share of
any particular Series shall be equal to each other Share of that Series. With
respect to any Class of a Series, each such Class shall represent interests in
the assets of that Series and have identical voting, dividend, liquidation and
other rights and the same terms and conditions, except that expenses allocated
to a Class may be borne solely by such Class as determined by the Trustees and
a Class may have exclusive voting rights with respect to matters affecting
only that Class.
(e) Fractions. Any fractional Share of a Series or Class thereof,
shall carry proportionately all the rights and obligations of a whole Share of
that Series or Class, including rights with respect to voting, receipt of
dividends and distributions, redemption of Shares and termination of the
Trust.
(f) Exchange Privilege. The Trustees shall have the authority to
provide that the holders of Shares of any Series or Class shall have the right
to exchange said Shares for Shares of one or more other Series of Shares or
Class of Shares of the Trust or of other investment companies registered under
the 1940 Act in accordance with such requirements and procedures as may be
established by the Trustees.
(g) Combination of Series. The Trustees shall have the authority,
without the approval of the Shareholders of any Series or Class unless
otherwise required by applicable law, to combine the assets and liabilities
held with respect to any two or more Series or Classes into assets and
liabilities held with respect to a single Series or Class.
Section 7. Indemnification of Shareholders. If any Shareholder or
former Shareholder shall be exposed to liability by reason of a claim or
demand relating to such Person being or having been a Shareholder, and not
because of such Person's acts or omissions, the Shareholder or former
Shareholder (or such Person's heirs, executors, administrators, or other legal
representatives or in the case of a corporation or other entity, its corporate
or other general successor) shall be entitled to be held harmless from and
indemnified out of the assets of the
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Trust against all loss and expense arising from such claim or demand, but only
out of the assets held with respect to the particular Series of Shares of
which such Person is or was a Shareholder and from or in relation to which
such liability arose.
ARTICLE IV
Trustees
Section 1. Number, Election and Tenure. The number of Trustees shall
initially be one, who shall be Peter D. Noris. Hereafter, the number of
Trustees shall at all times be at least one and no more than ten as
determined, from time to time, by the Trustees pursuant to Section 3 of this
Article IV. Each Trustee shall serve during the lifetime of the Trust until he
or she dies, resigns, has reached the mandatory retirement age as set by the
Trustees, is declared bankrupt or incompetent by a court of appropriate
jurisdiction, or is removed, or, if sooner, until the next meeting of
Shareholders called for the purpose of electing Trustees and until the
election and qualification of his or her successor. In the event that less
than the majority of the Trustees holding office have been elected by the
Shareholders, the Trustees then in office shall call a Shareholders' meeting
for the election of Trustees. Any Trustee may resign at any time by written
instrument signed by him or her and delivered to any officer of the Trust or
to a meeting of the Trustees. Such resignation shall be effective upon receipt
unless specified to be effective at some other time. Except to the extent
expressly provided in a written agreement with the Trust, no Trustee resigning
and no Trustee removed shall have any right to any compensation for any period
following his or her resignation or removal, or any right to damages on
account of such removal. The Shareholders may elect Trustees at any meeting of
Shareholders called by the Trustees for that purpose. Any Trustee may be
removed at any meeting of Shareholders by a vote of two-thirds of the
outstanding Shares of the Trust.
Section 2. Effect of Death, Resignation, etc. of a Trustee. The
death, declination to serve, resignation, retirement, removal or incapacity of
one or more Trustees, or all of them, shall not operate to annul the Trust or
to revoke any existing agency created pursuant to the terms of this
Declaration of Trust. Whenever there shall be fewer than the designated number
of Trustees, until additional Trustees are elected or appointed as provided
herein to bring the total number of Trustees equal to the designated number,
the Trustees in office, regardless of their number, shall have all the powers
granted to the Trustees and shall discharge all the duties imposed upon the
Trustees by this Declaration of Trust. As conclusive evidence of such vacancy,
a written instrument certifying the existence of such vacancy may be executed
by an officer of the Trust or by a majority of the Trustees. In the event of
the death, declination, resignation, retirement, removal, or incapacity of all
the then Trustees within a short period of time and without the opportunity
for at least one Trustee being able to appoint additional Trustees to replace
those no longer serving, the Trust's Manager(s) are empowered to appoint new
Trustees subject to the provisions of Section 16(a) of the 1940 Act.
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Section 3. Powers. Subject to the provisions of this Declaration of
Trust, the business of the Trust shall be managed by the Trustees, and the
Trustees shall have all powers necessary or convenient to carry out that
responsibility including the power to engage in securities transactions of all
kinds on behalf of the Trust. Without limiting the foregoing, the Trustees
may: adopt By-Laws not inconsistent with this Declaration of Trust providing
for the management of the affairs of the Trust and may amend and repeal such
By-Laws to the extent that such By-laws do not reserve that right to the
Shareholders; enlarge or reduce the number of Trustees; remove any Trustee
with or without cause at any time by written instrument signed by a least
two-thirds of the number of Trustees prior to such removal, specifying the
date when such removal shall become effective, and fill vacancies caused by
enlargement of their number or by the death, resignation, retirement or
removal of a Trustee; elect and remove, with or without cause, such officers
and appoint and terminate such agents as they consider appropriate; appoint
from their own number and establish and terminate one or more committees,
consisting of two or more Trustees, that may exercise the powers and authority
of the Board of Trustees to the extent that the Trustees so determine; employ
one or more custodians of the assets of the Trust and may authorize such
custodians to employ subcustodians and to deposit all or any part of such
assets in a system or systems for the central handling of securities or with a
Federal Reserve Bank; employ an administrator for the Trust and may authorize
such administrator to employ subadministrators; employ a Manager to the Trust
and may authorize such Manager to employ subadvisers; retain a transfer agent
or a shareholder servicing agent, or both; provide for the issuance and
distribution of Shares by the Trust directly or through one or more Principal
Underwriters or otherwise; redeem, repurchase and transfer Shares pursuant to
applicable law; set record dates for the determination of Shareholders with
respect to various matters; declare and pay dividends and distributions to
Shareholders of each Series from the assets of such Series; and in general
delegate such authority as they consider desirable to any officer of the
Trust, to any committee of the Trustees and to any agent or employee of the
Trust or to any such custodian, transfer or shareholder servicing agent, or
Principal Underwriter. Any determination as to what is in the interests of the
Trust made by the Trustees in good faith shall be conclusive. In construing
the provisions of this Declaration of Trust, the presumption shall be in favor
of a grant of power to the Trustees. Unless otherwise specified herein or in
the By-Laws or required by law, any action by the Trustees shall be deemed
effective if approved or taken by a majority of the Trustees present at a
meeting of Trustees at which a quorum of Trustees is present, within or
without the State of Delaware.
Without limiting the foregoing, the Trustees shall have the power and
authority to cause the Trust (or to act on behalf of the Trust):
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(a) To invest and reinvest cash, to hold cash uninvested, and to
subscribe for, invest in, reinvest in, purchase or otherwise acquire, own,
hold, pledge, sell, assign, transfer, exchange, distribute, write options on,
lend or otherwise deal in or dispose of contracts for the future acquisition
or delivery of fixed income or other securities, and securities of every
nature and kind, including, without limitation, all types of bonds,
debentures, stocks, negotiable or non-negotiable instruments, obligations,
evidences of indebtedness, certificates of deposit or indebtedness, commercial
papers, repurchase agreements, bankers' acceptances, and other securities of
any kind, issued, created, guaranteed, or sponsored by any and all Persons,
including without limitation, states, territories, and possessions of the
United States and the District of Columbia and any political subdivision,
agency, or instrumentality thereof, and foreign government or any political
subdivision of the United States Government or any foreign government, or any
international instrumentality, or by any bank or savings institution, or by
any corporation or organization organized under the laws of the United States
or of any state, territory, or possession thereof, or by any corporation or
organization organized under any foreign law, or in "when issued" contracts
for any such securities, to change the investments of the assets of the Trust;
and to exercise any and all rights, powers, and privileges of ownership or
interest in respect of any and all such investments of every kind and
description, including, without limitation, the right to consent and otherwise
act with respect thereto, with power to designate one or more Persons, to
exercise any of said rights, powers, and privileges in respect of any of said
instruments;
(b) To sell, exchange, lend, pledge, mortgage, hypothecate, lease, or
write options (including, options on futures contracts) with respect to or
otherwise deal in any property rights relating to any or all of the assets of
the Trust or any Series;
(c) To vote or give assent, or exercise any rights of ownership, with
respect to stock or other securities or property; and to execute and deliver
proxies or powers of attorney to such Person or Persons as the Trustees shall
deem proper, granting to such Person or Persons such power and discretion with
relation to securities or property as the Trustees shall deem proper;
(d) To exercise powers and right of subscription or otherwise which
in any manner arise out of ownership or securities;
(e) To hold any security or property in a form not indicating any
trust, whether in bearer, unregistered or other negotiable form, or in its own
name or in the name of a custodian or subcustodian or a nominee or nominees or
otherwise;
(f) To consent to or participate in any plan for the reorganization,
consolidation or merger of any corporation or issuer of any security which is
held in the Trust; to consent to any contract, lease, mortgage, purchase or
sale of property by such corporation or issuer; and to pay calls or
subscriptions with respect to any security held in the Trust;
(g) To join with other security holders in acting through a
committee, depositary,
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voting trustee or otherwise, and in that connection to deposit any security
with, or transfer any security to, any such committee, depositary or trustee,
and to delegate to them such power and authority with relation to any security
(whether or not so deposited or transferred) as the Trustees shall deem
proper, and to agree to pay, and to pay, such portion of the expenses and
compensation of such committee, depositary or trustee as the Trustees shall
deem proper;
(h) To compromise, arbitrate or otherwise adjust claims in favor of
or against the Trust or any matter in controversy, including, but not limited
to, claims for taxes;
(i) To enter into joint ventures, general or limited partnerships and
any other combinations or associations;
(j) To borrow funds or other property in the name of the Trust
exclusively for Trust purposes and in connection therewith issue notes or
other evidence of indebtedness; and to mortgage and pledge the Trust Property
or any part thereof to secure any or all of such indebtedness;
(k) To endorse or guarantee the payment of any notes or other
obligations of any Person; to make contracts of guaranty or suretyship, or
otherwise assume liability for payment thereof; and to mortgage and pledge the
Trust Property or any part thereof to secure any of or all of such
obligations;
(l) To purchase any pay for entirely out of Trust Property such
insurance as the Trustees may deem necessary or appropriate for the conduct of
the business, including, without limitation, insurance policies insuring the
assets of the Trust or payment of distributions and principal on its portfolio
investments, and insurance polices insuring the Shareholders, Trustees,
officers, employees, agents, investment advisers, principal underwriters, or
independent contractors of the Trust, individually against all claims and
liabilities of every nature arising by reason of holding, being or having held
any such office or position, or by reason of any action alleged to have been
taken or omitted by any such Person as Trustee, officer, employee, agent,
investment adviser, principal underwriter, or independent contractor,
including any action taken or independent contractor, including any action
taken or omitted that may be determined to constitute negligence, whether or
not the Trust would have the power to indemnify such Person against liability;
(m) To adopt, establish and carry out pension, profit-sharing, share
bonus, share purchase, savings, thrift and other retirement, incentive and
benefit plans and trusts, including the purchasing of life insurance and
annuity contracts as a means of providing such retirement and other benefits,
for any or all of the Trustees, officers, employees and agents of the Trust;
(n) To operate as and carry out the business of an investment
company, and exercise all the powers necessary or appropriate to the conduct
of such operations;
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(o) To enter into contracts of any kind and description;
(p) To employ as custodian of any assets of the Trust one or more
banks, trust companies or companies that are members of a national securities
exchange or such other entities as the Commission may permit as custodians of
the Trust, subject to any conditions set forth in this Declaration of Trust or
in the By-Laws;
(q) To employ auditors, counsel or other agents of the Trust, subject
to any conditions set forth in this Declaration of Trust or in the By-Laws;
(r) To interpret the investment policies, practices, or limitations
of any Series or Class; and
(s) To establish separate and distinct Series with separately defined
investment objectives and policies and distinct investment purposes, and with
separate Shares representing beneficial interests in such Series, and to
establish separate Classes, all in accordance with the provisions of Article
III;
(t) To the full extent permitted by Section 3804 of the Delaware Act,
to allocate assets, liabilities and expenses of the Trust to a particular
Series and liabilities and expenses to a particular Class or to apportion the
same between or among two or more Series or Classes, provided that any
liabilities or expenses incurred by a particular Series or Class shall be
payable solely out of the assets belonging to that Series or Class as provided
for in Article III;
(u) Subject to the 1940 Act, to engage in any other lawful act or
activity in which a business trust organized under the Delaware Act may
engage.
The Trust shall not be limited to investing in obligations maturing
before the possible termination of the Trust or one or more of its Series. The
Trust shall not in any way be bound or limited by any present or future law or
custom in regard to investment by fiduciaries. The Trust shall not be required
to obtain any court order to deal with any assets of the Trust or take any
other action hereunder.
Section 4. Payment of Expenses by the Trust. The Trustees are
authorized to pay or cause to be paid out of the principal or income of the
Trust, or partly out of the principal and partly out of income, as they deem
fair, all expenses, fees, charges, taxes and liabilities incurred or arising
in connection with the Trust, or in connection with the management thereof,
including, but not limited to, the Trustees' compensation and such expenses
and charges for the services of the Trust's officers, employees, investment
adviser or Manager, Principal Underwriter, auditors, counsel, custodian,
transfer agent, shareholder servicing agent, and such other agents or
independent contractors and such other expenses and charges as the Trustees
may deem necessary or proper to incur, which expenses, fees, charges, taxes
and liabilities shall be allocated in accordance with Article III, Section 6
hereof.
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Section 5. Payment of Expenses by Shareholders. The Trustees shall
have the power, as frequently as they may determine, to cause each
Shareholder, or each Shareholder of any particular Series, to pay directly, in
advance or arrears, expenses of the Trust as described in Section 4 of this
Article IV ("Expenses"), in an amount fixed from time to time by the Trustees,
by setting off such Expenses due from such Shareholder from declared but
unpaid dividends owed such Shareholder and/or by reducing the number of Shares
in the account of such Shareholder by that number of full and/or fractional
Shares which represents the outstanding amount of such Expenses due from such
Shareholder, provided that the direct payment of such Expenses by Shareholders
is permitted under applicable law.
Section 6. Ownership of Assets of the Trust. Title to all of the
assets of the Trust shall at all times be considered as vested in the Trust,
except that the Trustees shall have power to cause legal title to any Trust
Property to be held by or in the name of one or more of the Trustees, or in
the name of the Trust, or in the name of any other Person as nominee, on such
terms as the Trustees may determine. The right, title and interest of the
Trustees in the Trust Property shall vest automatically in each Person who may
hereafter become a Trustee. Upon the resignation, removal or death of a
Trustee, he or she shall automatically cease to have any right, title or
interest in any of the Trust Property, and the right, title and interest of
such Trustee in the Trust Property shall vest automatically in the remaining
Trustees. Such vesting and cessation of title shall be effective whether or
not conveyancing documents have been executed and delivered.
Section 7. Service Contracts.
(a) Subject to such requirements and restrictions as may be set forth
under federal and/or state law and in the By-Laws, including, without
limitation, the requirements of Section 15 of the 1940 Act, the Trustees may,
at any time and from time to time, contract for exclusive or nonexclusive
advisory, management and/or administrative services for the Trust or for any
Series (or Class thereof) with any corporation, trust, association, or other
organization; and any such contract may contain such other terms as the
Trustees may determine, including, without limitation, authority for the
Manager(s) or administrator to delegate certain or all of its duties under
such contracts to qualified investment advisers and administrators and to
determine from time to time without prior consultation with the Trustees what
investments shall be purchased, held sold or exchanged and what portion, if
any, of the assets of the Trust shall be held uninvested and to make changes
in the Trust's investments, or such other activities as may specifically be
delegated to such party.
(b) The Trustees may also, at any time and from time to time,
contract with any corporation, trust, association, or other organization,
appointing it exclusive or nonexclusive distributor or Principal Underwriter
for the Shares of one or more of the Series (or Classes) or other securities
to be issued by the Trust. Every such contract shall comply with such
requirements and restrictions as may be set forth under federal and/or state
law and in the ByLaws, including, without limitation, the requirements of
Section 15 of the 1940 Act; and any
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such contract may contain such other terms as the Trustees may determine.
(c) The Trustees are also empowered, at any time and from time to
time, to contract with any corporations, trusts, associations or other
organizations, appointing it or them the custodian, transfer agent and/or
shareholder servicing agent for the Trust or one or more of its Series. Every
such contract shall comply with such requirements and restrictions as may be
set forth under federal and/or state law and in the By-Laws or stipulated by
resolution of the Trustees.
(d) Subject to applicable law, the Trustees are further empowered, at
any time and from time to time, to contract with any entity to provide such
other services to the Trust or one or more of the Series, as the Trustees
determine to be in the best interests of the Trust and the applicable Series.
(e) The fact that:
(i) any of the Shareholders, Trustees, or officers of
the Trust is a shareholder, director, officer,
partner, trustee, employee, Manager, adviser,
Principal Underwriter, distributor, or affiliate or
agent of or for any corporation, trust,
association, or other organization, or for any
parent or affiliate of any organization with which
an advisory, management, or administration
contract, or Principal Underwriter's or
distributor's contract, or transfer agent,
shareholder servicing agent or other type of
service contract may have been or may hereafter be
made, or that any such organization, or any parent
or affiliate thereof, is a Shareholder or has an
interest in the Trust; or that
(ii) any corporation, trust, association or other
organization with which an advisory, management, or
administration contract or Principal Underwriter's
or distributor's contract, or transfer agent or
shareholder servicing agent contract may have been
or may hereafter be made also has an advisory,
management, or administration contract, or
Principal Underwriter's or distributor's or other
service contract with one or more other
corporations, trusts, associations, or other
organizations, or has other business or interests,
shall not affect the validity of any such contract or disqualify any
Shareholder, Trustee or officer of the Trust from voting upon or executing the
same, or create any liability or accountability to the Trust or its
Shareholders, provided approval of each such contract is made pursuant to the
requirements of the 1940 Act.
Section 8. Trustees and Officers as Shareholders. Any Trustee,
officer or agent of the Trust may acquire, own and dispose of Shares to the
same extent as if he were not a Trustee,
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officer or agent; and the Trustees may issue and sell and cause to be issued
and sold Shares to, and redeem such Shares from, any such Person or any firm
or company in which such Person is interested, subject only to the general
limitations contained herein or in the By-Laws relating to the sale and
redemption of such Shares.
ARTICLE V
Shareholders' Voting Powers and Meetings
Section 1. Voting Powers, Meetings, Notice, and Record Dates. The
Shareholders shall have power to vote only: (i) for the election or removal of
Trustees as provided in Article IV, Section 1 hereof, and (ii) with respect to
such additional matters relating to the Trust as may be required by applicable
law, this Declaration of Trust, the By-Laws or any registration of the Trust
with the Commission (or any successor agency), or as the Trustees may consider
necessary or desirable. Each whole Share shall be entitled to one vote as any
matter on which it is entitled to vote and each fractional Share shall be
entitled to a proportionate fractional vote. Notwithstanding any other
provision of this Declaration of Trust, on any matters submitted to a vote of
the Shareholders, all Shares of the Trust then entitled to vote shall be voted
in aggregate, except: (i) when required by the 1940 Act, Shares shall be voted
by individual Series; (ii) when the matter involves the termination of a
Series or any other action that the Trustees have determined will affect only
the interests of one or more Series, then only Shareholders of such Series
shall be entitled to vote thereon; and (iii) when the matter involves any
action that the Trustees have determined will affect only the interests of one
or more Classes, then only the Shareholders of such Class or Classes shall be
entitled to vote thereon. There shall be no cumulative voting in the election
of Trustees. Shares may be voted in person or by proxy. A proxy may be given
in writing. The By-Laws may provide that proxies may also, or may instead, be
given by an electronic or telecommunications device or in any other manner.
Notwithstanding anything else contained herein or in the By-Laws, in the event
a proposal by anyone other than the officers or Trustees of the Trust is
submitted to a vote of the Shareholders of one or more Series or Classes
thereof or of the Trust, or in the event of any proxy contest or proxy
solicitation or proposal in opposition to any proposal by the officers or
Trustees of the Trust, Shares may be voted only by written proxy or in person
at a meeting. Until Shares are issued, the Trustees may exercise all rights of
Shareholders and may take any action required by law, this Declaration of
Trust or the By-Laws to be taken by the Shareholders. Meetings of the
Shareholders shall be called and notice thereof and record dates therefor
shall be given and set as provided in the By-Laws.
Section 2. Quorum and Required Vote. Except when a larger quorum is
required by applicable law, by the By-Laws or by this Declaration of Trust,
thirty-three and one-third percent (33-1/3%) of the Shares entitled to vote
shall constitute a quorum at a Shareholders' meeting. When any one or more
Series (or Classes) is to vote as a single Class separate from any other
Shares, thirty-three and one-third percent (33-1/3%) of the Shares of each
such Series
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(or Class) entitled to vote shall constitute a quorum at a Shareholders'
meting of that Series (or Class). Except when a larger vote is required by any
provision of this Declaration of Trust or the By-Laws or by applicable law,
when a quorum is present at any meeting, a majority of the Shares voted shall
decide any questions and a plurality of the Shares voted shall elect a
Trustee, provided that where any provision of law or of this Declaration of
Trust requires that the holders of any Series shall vote as a Series (or that
holders of a Class shall vote as a Class), then a majority of the Shares of
that Series (or Class) voted on the matter (or a plurality with respect to the
election of a Trustee) shall decide that matter insofar as that Series (or
Class) is concerned.
Section 3. Record Dates. For the purpose of determining the
Shareholders of any Series (or Class) who are entitled to receive payment of
any dividend or of any other distribution, the Trustees may from time to time
fix a date, which shall be before the date for the payment of such dividend or
such other payment, as the record date for determining the Shareholders of
such Series (or Class) having the right to receive such dividend or
distribution. Without fixing a record date, the Trustees may for distribution
purposes close the register or transfer books for one or more Series (or
Classes) at any time prior to the payment of a distribution. Nothing in this
Section shall be construed as precluding the Trustees from setting different
record dates for different Series (or Classes).
Section 4. Additional Provisions. The By-Laws may include further
provisions for Shareholders' votes and meetings and related matters.
ARTICLE VI
Net Asset Value, Distributions and Redemptions
Section 1. Determination of Net Asset Value, Net Income, and
Distributions. Subject to applicable law and Article III, Section 6 hereof,
the Trustees, in their absolute discretion, may prescribe and shall set forth
in the By-Laws or in a duly adopted vote of the Trustees such bases and time
for determining the per Share or net asset value of the Shares of any Series
or Class or net income attributable to the Shares of any Series or Class, or
the declaration and payment of dividends and distributions on the Shares of
any Series or Class, as they may deem necessary or desirable.
Section 2. Redemptions and Repurchases.
(a) The Trust shall purchase such Shares as are offered by any
Shareholder for redemption, upon the presentation of a proper instrument of
transfer together with a request directed to the Trust, or a Person designated
by the Trust, that the Trust purchase such Shares or in accordance with such
other procedures for redemption as the Trustees may from time to time
authorize; and the Trust will pay therefor the net asset value thereof as
determined by the
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Trustees (or on their behalf), in accordance with any applicable provisions of
the By-Laws and applicable law. Unless extraordinary circumstances exist,
payment for said Shares shall be made by the Trust to the Shareholder in
accordance with the 1940 Act and any rules and regulations thereunder or as
otherwise required by the Commission. The obligation set forth in this Section
2 is subject to the provision that, in the event that any time the New York
Stock Exchange (the "Exchange") is closed for other than weekends or holidays,
or if permitted by the rules and regulations or an order of the Commission
during periods when trading on the Exchange is restricted or during any
emergency which makes it impracticable for the Trust to dispose of the
investments of the applicable Series or to determine fairly the value of the
net assets held with respect to such Series or during any other period
permitted by order of the Commission for the protection of investors, such
obligation may be suspended or postponed by the Trustees. In the case of a
suspension of the right of redemption as provided herein, a Shareholder may
either withdraw the request for redemption or receive payment based on the net
asset value per share next determined after the termination of such
suspension.
(b) The redemption price may in any case or cases be paid wholly or
partly in kind if the Trustees determine that such payment is advisable in the
interest of the remaining Shareholders of the Series or Class thereof for
which the Shares are being redeemed. Subject to the foregoing, the fair value,
selection and quantity of securities or other property so paid or delivered as
all or part of the redemption price may be determined by or under authority of
the Trustees. In no case shall the Trust be liable for any delay of any
Manager or other Person in transferring securities selected for delivery as
all or part of any payment-in-kind.
(c) If the Trustees shall, at any time and in good faith, determine
that direct or indirect ownership of Shares of any Series or Class thereof has
or may become concentrated in any Person to an extent that would disqualify
any Series as a regulated investment company under the Internal Revenue Code
of 1986, as amended (or any successor statute thereto), then the Trustees
shall have the power (but not the obligation) by such means as they deem
equitable (i) to call for the redemption by any such Person of a number, or
principal amount, of Shares sufficient to maintain or bring the direct or
indirect ownership of Shares into conformity with the requirements for such
qualification, (ii) to refuse to transfer or issue Shares of any Series or
Class thereof to such Person whose acquisition of the Shares in question would
result in such disqualification, or (iii) to take such other actions as they
deem necessary and appropriate to avoid such disqualification. Any such
redemption shall be effected at the redemption price and in the manner
provided in this Article VI.
(d) The holders of Shares shall upon demand disclose to the Trustees
in writing such information with respect to direct and indirect ownership of
Shares as the Trustees deem necessary to comply with the provisions of the
Internal Revenue Code of 1986, as amended (or any successor statute thereto),
or to comply with the requirements of any other taxing authority.
ARTICLE VII
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Compensation and Limitation of Liability of Trustees
Section 1. Compensation. The Trustees in such capacity shall be
entitled to reasonable compensation from the Trust and they may fix the amount
of such compensation. However, the Trust will not compensate those Trustees
who are Interested Persons of the Trust, its Manager, subadvisers, distributor
or Principal Underwriter. Nothing herein shall in any way prevent the
employment of any Trustee for advisory, management, legal, accounting,
investment banking or other services and payment for such services by the
Trust.
Section 2. Indemnification and Limitation of Liability. A Trustee,
when acting in such capacity, shall not be personally liable to any Person,
other than the Trust or a Shareholder to the extent provided in this Article
VII, for any act, omission or obligation of the Trust, of such Trustee or of
any other Trustee. The Trustees shall not be responsible or liable in any
event for any neglect or wrongdoing of any officer, agent, employee, Manager,
or Principal Underwriter of the Trust. The Trust shall indemnify each Person
who is serving or has served at the Trust's request as a director, officer,
trustee, employee, or agent of another organization in which the Trust has any
interest as a shareholder, creditor, or otherwise to the extent and in the
manner provided in the By-Laws.
All persons extending credit to, contracting with or having any claim
against the Trust of the Trustees shall look only to the assets of the
appropriate Series of the Trust for payment under such credit, contract, or
claim; and neither the Trustees nor the Shareholders, nor any of the Trust's
officers, employees, or agents, whether past, present, or future, shall be
personally liable therefor.
Every note, bond, contract, instrument, certificate or undertaking
and every other act or thing whatsoever executed or done by or on behalf of
the Trust or the Trustees by any of them in connection with the Trust shall
conclusively be deemed to have been executed or done only in or with respect
to his or their capacity as Trustee or Trustees, and such Trustee or Trustees
shall not be personally liable thereon. At the Trustees' discretion, any note,
bond, contract, instrument, certificate or undertaking made or issued by the
Trustees or by any officer or officers may give notice that the Certificate of
Trust is on file in the Office of the Secretary of State of the State of
Delaware and that a limitation on liability of Series exists and such note,
bond, contract, instrument, certificate or undertaking may, if the Trustees so
determine, recite that the same was executed or made on behalf of the Trust by
a Trustee or Trustees in such capacity and not individually and that the
obligations of such instrument are not binding upon any of them or the
Shareholders individually but are binding only on the assets and property of
the Trust or a Series thereof, and may contain such further recital as such
Person or Persons may deem appropriate. The omission of any such notice or
recital shall in no way operate to bind any Trustees, officer, or Shareholders
individually.
Section 3. Trustee's Good Faith Action, Expert Advice, No Bond or
Surety. The
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exercise by the Trustees of their powers and discretions hereunder shall be
binding upon everyone interested. A Trustee shall be liable to the Trust and
to any Shareholder solely for his or her own willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct
of the office of Trustee, and shall not be liable for errors of judgment or
mistakes of fact or law. The Trustees may take advice of counsel or other
experts with respect to the meaning and operation of this Declaration of
Trust, and shall be under no liability for any act or omission in accordance
with such advice nor for failing to follow such advice. The Trustees shall not
be required to give any bond as such, nor any surety if a bond is required.
Section 4. Insurance. The Trustees shall be entitled and empowered to
the fullest extent permitted by law to purchase with Trust assets insurance
for liability and for all expenses reasonably incurred or paid or expected to
be paid by a Trustee, officer, employee, or agent of the Trust in connection
with any claim, action, suit, or proceeding in which he or she may become
involved by virtue of his or her capacity or former capacity as a Trustee of
the Trust.
ARTICLE VIII
Miscellaneous
Section 1. Liability of Third Persons Dealing with Trustees. No
Person dealing with the Trustees shall be bound to make any inquiry concerning
the validity of any transaction made or to be made by the Trustees or to see
to the application of any payments made or property transferred to the Trust
or upon its order.
Section 2. Termination of the Trust or Any Series or Class.
(a) Unless terminated as provided herein, the Trust shall continue
without limitation of time. The Trust may be terminated at any time by vote of
a majority of the Shares of each Series entitled to vote, voting separately by
Series, or by the Trustees by written notice to the Shareholders. Any Series
of Shares or Class thereof may be terminated at any time by vote of a majority
of the Shares of such Series or Class entitled to vote or by the Trustees by
written notice to the Shareholders of such Series or Class.
(b) Upon the requisite Shareholder vote or action by the Trustees to
terminate the Trust or any one or more Series of Shares or any Class thereof,
after paying or otherwise providing for all charges, taxes, expenses, and
liabilities, whether due or accrued or anticipated, of the Trust or of the
particular Series or any Class thereof as may be determined by the Trustees,
the Trust shall in accordance with such procedures as the Trustees may
consider appropriate reduce the remaining assets of the Trust or of the
affected Series or Class to distributable form in cash or Shares (if any
Series remain) or other securities, or any combination thereof, and distribute
the proceeds to the Shareholders of the Series or Classes
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involved, ratably according to the number of Shares of such Series or Class
held by the Shareholders of such Series or Class on the date of distribution.
Thereupon, the Trust or any affected Series or Class shall terminate and the
Trustees and the Trust shall be discharged of any and all further liabilities
and duties relating thereto or arising therefrom, and the right, title, and
interest of all parties with respect to the Trust or such Series or Class
shall be canceled and discharged.
(c) Upon termination of the Trust, following completion of winding up
of its business, the Trustees shall cause a certificate of cancellation of the
Trust's Certificate of Trust to be filed in accordance with the Delaware Act,
which Certificate of Cancellation may be signed by any one Trustee.
Section 3. Reorganization.
(a) Notwithstanding anything else herein, the Trustees may, without
Shareholder approval unless such approval is required by applicable law, (i)
cause the Trust to merge or consolidate with or into one or more trusts (or
series thereof to the extent permitted by law), partnerships, associations,
corporations or other business entities (including trusts, partnerships,
associations, corporations or other business entities created by the Trustees
to accomplish such merger or consolidation) so long as the surviving or
resulting entity is an investment company as defined in the 1940 Act, or is a
series thereof, that will succeed to or assume the Trust's registration under
the 1940 Act and that is formed, organized, or existing under the laws of the
United States or of a state, commonwealth, possession or colony of the United
States, unless otherwise permitted under the 1940 Act, (ii) cause any one or
more Series (or Classes) of the Trust to merge or consolidate with or into any
one or more other Series (or Classes) of the Trust, one or more trusts (or
series or classes thereof to the extent permitted by law), partnerships,
associations, corporations, (iii) cause the Shares to be exchanged under or
pursuant to any state or federal statute to the extent permitted by law or
(iv) cause the Trust to reorganize as a corporation, limited liability company
or limited liability partnership under the laws of Delaware or any other state
or jurisdiction. Any agreement of merger or consolidation or exchange or
certificate or merger may be signed by a majority of the Trustees and
facsimile signatures conveyed by electronic or telecommunication means shall
be valid.
(b) Pursuant to and in accordance with the provisions of Section
3815(f) of the Delaware Act, and notwithstanding anything to the contrary
contained in this Declaration of Trust, an agreement of merger or
consolidation approved by the Trustees in accordance with this Section 3 may
(i) effect any amendment to the governing instrument of the Trust or (ii)
effect the adoption of a new governing instrument of the Trust if the Trust is
the surviving or resulting trust in the merger or consolidation.
(c) The Trustees may create one or more business trusts to which all
or any part of the assets, liabilities, profits, or losses of the Trust or any
Series or Class thereof may be transferred and may provide for the conversion
of Shares in the Trust or any Series or Class
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thereof into beneficial interests in any such newly created trust or trusts or
any series of classes thereof.
Section 4. Amendments. Except as specifically provided in this
Section 4, the Trustees may, without Shareholder vote, restate, amend, or
otherwise supplement this Declaration of Trust. Shareholders shall have the
right to vote on (i) any amendment that would affect their right to vote
granted in Article V, Section 1 hereof, (ii) any amendment to this Section 4
of Article VIII; (iii) any amendment that may require their vote under
applicable law or by the Trust's registration statement, as filed with the
Commission, and (iv) any amendment submitted to them for their vote by the
Trustees. Any amendment required or permitted to be submitted to the
Shareholders that, as the Trustees determine, shall affect the Shareholders of
one or more Series shall be authorized by a vote of the Shareholders of each
Series affected and no vote of Shareholders of a Series not affected shall be
required. Notwithstanding anything else herein, no amendment hereof shall
limit the rights to insurance provided by Article VII, Section 4 hereof with
respect to any acts or omissions of Persons covered thereby prior to such
amendment nor shall any such amendment limit the rights to indemnification
referenced in Article VII, Section 2 hereof as provided in the By-Laws with
respect to any actions or omissions of Persons covered thereby prior to such
amendment. The Trustees may, without Shareholder vote, restate, amend, or
otherwise supplement the Certificate of Trust as they deem necessary or
desirable.
Section 5. Filing of Copies, References, Headings. The original or a
copy of this instrument and of each restatement and/or amendment hereto shall
be kept at the office of the Trust where it may be inspected by any
Shareholder. Anyone dealing with the Trust may rely on a certificate by an
officer of the Trust as to whether or not any such restatements and/or
amendments have been made and as to any matters in connection with the Trust
hereunder; and, with the same effect as if it were the original, may rely on a
copy certified by an officer of the Trust to be a copy of this instrument or
of any such restatements and/or amendments. In this instrument and in any such
restatements and/or amendments, references to this instrument, and all
expressions such as "herein," "hereof," and "hereunder," shall be deemed to
refer to this instrument as amended or affected by any such restatements
and/or amendments. Headings are placed herein for convenience of reference
only and shall not be taken as a part hereof or control or affect the meaning,
construction or effect of this instrument. Whenever the singular number is
used herein, the same shall include the plural; and the neuter, masculine and
feminine genders shall include each other, as applicable. This instrument may
be executed in any number of counterparts each of which shall be deemed an
original.
Section 6. Applicable Law.
(a) The Trust is created under, and this Declaration of Trust is to
be governed by, and construed and enforced in accordance with, the laws of the
State of Delaware. The Trust shall be of the type commonly called a business
trust, and without limiting the provisions hereof, the Trust specifically
reserves the right to exercise any of the powers or privileges afforded to
business trusts or actions that may be engaged in by business trusts under the
Delaware Act, and
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the absence of a specific reference herein to any such power, privilege, or
action shall not imply that the Trust may not exercise such power or privilege
or take such actions.
(b) Notwithstanding the first sentence of Section 6(a) of this
Article VIII, there shall not be applicable to the Trust, the Trustees, or
this Declaration of Trust either the provisions of Section 3540 of Title 12 of
the Delaware Code or any provisions of the laws (statutory or common) of the
State of Delaware (other than the Delaware Act) pertaining to trusts that
relate to or regulate: (i) the filing with any court or governmental body or
agency of trustee accounts or schedules of trustee fees and charges; (ii)
affirmative requirements to post bonds for trustees, officers, agents, or
employees of a trust; (iii) the necessity for obtaining a court or other
governmental approval concerning the acquisition, holding, or disposition of
real or personal property; (iv) fees or other sums applicable to trustees,
officers, agents or employees of a trust; (v) the allocation of receipts and
expenditures to income or principal; (vi) restrictions or limitations on the
permissible nature, amount, or concentration of trust investments or
requirements relating to the titling, storage, or other manner of holding of
trust assets; or (vii) the establishment of fiduciary or other standards or
responsibilities or limitations on the acts or powers or liabilities or
authorities and powers of trustees that are inconsistent with the limitations
or liabilities or authorities and powers of the Trustees set forth or
referenced in this Declaration of Trust.
Section 7. Provisions in Conflict with Law or Regulations.
(a) The provisions of this Declaration of Trust are severable, and if
the Trustees shall determine, with the advice of counsel, that any such
provision is in conflict with the 1940 Act, the regulated investment company
provisions of the Internal Revenue Code of 1986, as amended (or any successor
statute thereto), and the regulations thereunder, the Delaware Act or with
other applicable laws and regulations, the conflicting provision shall be
deemed never to have constituted a part of this Declaration of Trust;
provided, however, that such determination shall not affect any of the
remaining provisions of this Declaration of Trust or render invalid or
improper any action taken or omitted prior to such determination.
(b) If any provision of this Declaration of Trust shall be held
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall attach only to such provision in such jurisdiction and
shall not in any manner affect such provision in any other jurisdiction or any
other provision of this Declaration of Trust in any jurisdiction.
Section 8. Business Trust Only. It is the intention of the Trustees
to create a business trust pursuant to the Delaware Act. It is not the
intention of the Trustees to create a general partnership, limited
partnership, joint stock association, corporation, bailment, or any form of
legal relationship other than a business trust pursuant to the Delaware Act.
Nothing in this Declaration of Trust shall be construed to make the
Shareholders, either by themselves or with the Trustees, partners, or members
of a joint stock association.
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IN WITNESS WHEREOF, the Trustee named below does hereby make and
enter into this Declaration of Trust as of the 31st day of October 1996.
/s/ Peter D. Noris
--------------------------------------
Peter D. Noris
Trustee
THE PRINCIPAL PLACE OF BUSINESS OF THE TRUST IS:
787 Seventh Avenue
New York, NY 10019
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EXHIBIT 1(B)
CERTIFICATE OF TRUST
OF
787 TRUST
This Certificate of Trust is being executed as of the 31st day of
October 1996 for the purpose of organizing a business trust pursuant to the
Delaware Business Trust Act, 12 Del. C.
ss.ss. 3801 et seq. (the "Act").
The undersigned hereby certify as follows:
1. Name. The name of the business trust is the 787 Trust (the
"Trust").
2. Registered Investment Company. The Trust is or will become a
registered investment company under the Investment Company Act of 1940, as
amended.
3. Registered Office and Registered Agent. The registered office of
the Trust in the State of Delaware is located at 1209 Orange Street,
Wilmington, Delaware 19801. The name of the registered agent of the Trust for
service of process at such location is The Corporation Trust Company. The
business address of the sole trustee, Peter D. Noris, is 787 Seventh Avenue,
New York, New York 10019.
4. Notice of Limitation of Liabilities of Series. Notice is hereby
given that the Trust is or may hereafter be constituted a series trust. The
debts, liabilities, obligations, and expenses incurred, contracted for or
otherwise existing with respect to any particular series of the Trust shall be
enforceable against the assets of such series only, and not against the assets
of the Trust generally.
5. The trustees of the Trust, as set forth in its governing
instrument, reserve the right to amend, alter, change, or repeal any
provisions contained in this Certificate of Trust, in the manner now or
hereafter prescribed by statute.
6. This Certificate of Trust shall become effective immediately upon
filing with the Office of the Secretary of State of the State of Delaware.
IN WITNESS WHEREOF, the undersigned, being the sole trustee of the
Trust, has duly executed this Certificate of Trust as of the day and year
first above written.
/s/ Peter D. Noris
------------------------
Peter D. Noris
Trustee
<PAGE>
EXHIBIT 2
BY-LAWS
787 Trust
a Delaware Business Trust
<PAGE>
TABLE OF CONTENTS
BY-LAWS
Page
Article I Offices........................................... 1
1. Principal Office...................................1
2. Delaware Office....................................1
3. Other Offices......................................1
Article II Meetings of Shareholders...........................2
1. Place of Meetings..................................2
2. Call of Meetings...................................2
3. Notice of Meetings ................................2
4. Manner of Giving Notice; Affidavit of Notice.......2
5. Adjourned Meetings; Notice.........................3
6. Voting.............................................3
7. Waiver of Notice by Consent of
Absent Shareholders..............................3
8. Shareholder Action by Written
Consent Without a Meeting........................4
9. Record Date for Shareholder Notice,
Voting and Giving Consents.......................4
10. Proxies............................................5
11. Inspectors of Election.............................6
12. Eligible Shareholders..............................6
Article III Trustees...........................................7
1. Powers.............................................7
2. Number of Trustees.................................7
3. Vacancies..........................................7
4. Place of Meetings and Meetings by
Telephone........................................7
5. Regular Meetings...................................7
6. Special Meetings...................................7
7. Quorum.............................................8
8. Waiver of Notice...................................8
9. Adjournment........................................8
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Page
10. Notice of Adjournment.............................8
11. Action Without a Meeting..........................8
12. Fees and Compensation of Trustees.................9
13. Delegation of Power to Other Trustees.............9
Article IV Committees........................................9
1. Committees of Trustees............................9
2. Meetings and Action of Committees................10
Article V Officers.........................................10
1. Officers.........................................10
2. Election of Officers.............................10
3. Subordinate Officers.............................10
4. Removal and Resignation of
Officers.......................................10
5. Vacancies in Offices.............................11
6. Chairman.........................................11
7. President........................................11
8. Vice Presidents..................................11
9. Secretary........................................11
10. Treasurer........................................12
Article VI Indemnification of Trustees, Officers
Employees and Other Agents....................12
1. Agents, Proceedings, and Expenses................12
2. Indemnification..................................13
3. Limitations and Settlements......................13
4. Insurance; Rights Not Exclusive..................13
5. Advance of Expenses..............................14
6. Fiduciaries of Employee Benefit Plan.............14
Article VII Inspection of Records and Reports................14
1. Inspection by Shareholders.......................14
2. Inspection by Trustees...........................14
3. Financial Statements.............................14
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Page
Article VIII General Matters..................................15
1. Checks, Drafts, Evidence of
Indebtedness...................................15
2. Contracts and Instruments; How
Executed.......................................15
3. Fiscal Year......................................15
4. Seal.............................................15
Article IX Amendments.......................................15
1. Amendment........................................15
iii
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BY-LAWS
OF
787 Trust
A Delaware Business Trust
INTRODUCTION
A. Agreement and Declaration of Trust. These By-Laws shall be subject
to the Agreement and Declaration of Trust, as from time to time in effect (the
"Declaration of Trust"), of the 787 Trust, a Delaware business trust (the
"Trust"). In the event of any inconsistency between the terms hereof and the
terms of the Declaration of Trust, the terms of the Declaration of Trust shall
control.
B. Definitions. Capitalized terms used herein and not herein defined
are used as defined in the Declaration of Trust.
Article I
Offices
Section 1. Principal Office. The Trustees shall fix and, from time to
time, may change the location of the principal executive office of the Trust
at any place within or outside the State of Delaware.
Section 2. Delaware Office. The Trustees shall establish a registered
office in the State of Delaware and shall appoint as the Trust's registered
agent for service of process in the State of Delaware an individual who is a
resident of the State of Delaware or a Delaware corporation or a corporation
authorized to transact business in the State of Delaware; in each case the
business office of such registered agent for service of process shall be
identical with the registered Delaware office of the Trust.
Section 3. Other Offices. The Trustees may at any time establish
branch or subordinate offices at any place or places within or outside the
State of Delaware where the Trust intends to do business.
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Article II
Meetings of Shareholders
Section 1. Place of Meetings. Meetings of Shareholders shall be held
at any place designated by the Trustees. In the absence of any such
designation, Shareholders' meetings shall be held at the principal executive
office of the Trust.
Section 2. Call of Meetings. There shall be no annual Shareholders'
meetings. Special meetings of the Shareholders may be called at any time by
the Trustees or by the President for the purpose of taking action upon any
matter requiring the vote or authority of the Shareholders as herein provided
or provided in the Declaration of Trust or upon any other matter as to which
such vote or authority is deemed by the Trustees or the President to be
necessary or desirable. Meetings of the Shareholders may be called for any
purpose deemed necessary or desirable upon the written request of the
Shareholders holding at least ten percent (10%) of the outstanding Shares of
the Trust entitled to vote. To the extent required by the Investment Company
Act of 1940, as amended ("1940 Act"), meetings of the Shareholders for the
purpose of voting on the removal of any Trustee shall be called promptly by
the Trustees upon the written request of Shareholders holding at least ten
percent (10%) of the outstanding Shares of the Trust entitled to vote.
Section 3. Notice of Meetings of Shareholders. All notices of
meetings of Shareholders shall be sent or otherwise given to Shareholders in
accordance with Section 4 of this Article II not less than ten (10) nor more
than ninety (90) days before the date of the meeting. The notice shall specify
(i) the place, date and hour of the meeting, and (ii) the general nature of
the business to be transacted. The notice of any meeting at which Trustees are
to be elected also shall include the name of any nominee or nominees whom at
the time of the notice are intended to be presented for election.
If any action is proposed to be taken at any meeting of Shareholders
for approval of (i) a contract or transaction in which a Trustee has a direct
or indirect financial interest, (ii) an amendment of the Agreement and
Declaration of Trust of the Trust, (iii) a reorganization of the Trust, or
(iv) a voluntary dissolution of the Trust, the notice shall also state the
general nature of that proposed action.
Section 4. Manner of Giving Notice; Affidavit of Notice. Notice of
any meeting of Shareholders shall be (i) given either by hand delivery,
first-class mail, telegraphic or other written communication, charges prepaid,
and (ii) addressed to the Shareholder at the address of that Shareholder
appearing on the books of the Trust or its transfer agent or given by the
Shareholder to the Trust for the purpose of notice. If no such address appears
on the Trust's books or is not given to the Trust, notice shall be deemed to
have been given if sent to that Shareholder by first-class mail or telegraphic
or other written communication to the Trust's principal executive office, or
if published at least once in a newspaper of general circulation in
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the county where that office is located. Notice shall be deemed to have been
given at the time when delivered personally or deposited in the mail or sent
by telegram or other means of written communication or, where notice is given
by publication, on the date of publication.
If any notice addressed to a Shareholder at the address of that
Shareholder appearing on the books of the Trust is returned to the Trust by
the United States Postal Service marked to indicate that the Postal Service is
unable to deliver the notice to the Shareholder at that address, all future
notices or reports shall be deemed to have been duly given without further
mailing if such future notices or reports shall be kept available to the
Shareholder, upon written demand of the Shareholder, at the principal
executive office of the Trust for a period of one year from the date of the
giving of the notice.
An affidavit of the mailing or other means of giving any notice of
any meeting of Shareholders shall be filed and maintained in the minute book
of the Trust.
Section 5. Adjourned Meeting; Notice. Any meeting of Shareholders,
whether or not a quorum is present, may be adjourned from time to time by the
vote of the majority of the Shares represented at that meeting, either in
person or by proxy.
When any meeting of Shareholders is adjourned to another time or
place, notice need not be given of the adjourned meeting at which the
adjournment is taken, unless a new record date of the adjourned meeting is
fixed or unless the adjournment is for more than sixty (60) days from the date
set for the original meeting, in which case the Trustees shall set a new
record date. Notice of any such adjourned meeting shall be given to each
Shareholder of record entitled to vote at the adjourned meeting in accordance
with the provisions of Sections 3 and 4 of this Article II. At any adjourned
meeting, the Trust may transact any business which might have been transacted
at the original meeting.
Section 6. Voting. The Shareholders entitled to vote at any meeting
of Shareholders shall be determined in accordance with the provisions of the
Declaration of Trust of the Trust, as in effect at such time. The
Shareholders' vote may be by voice vote or by ballot, provided, however, that
any election for Trustees must be by ballot if demanded by any Shareholder
before the voting has begun. On any matter other than election of Trustees,
any Shareholder may vote part of the Shares in favor of the proposal and
refrain from voting the remaining Shares or vote them against the proposal,
but if the Shareholder fails to specify the number of Shares which the
Shareholder is voting affirmatively, it will be conclusively presumed that the
Shareholder's approving vote is with respect to the total Shares that such
Shareholder is entitled to vote on such proposal.
Section 7. Waiver of Notice; Consent of Absent Shareholders. The
transaction of business and any actions taken at a meeting of Shareholders,
however called and noticed and wherever held, shall be as valid as though
taken at a meeting duly held after regular call and notice provided a quorum
is present either in person or by proxy at the meeting of Shareholders
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and if either before or after the meeting, each Shareholder entitled to vote
who was not present in person or by proxy at the meeting of the Shareholders
signs a written waiver of notice or a consent to a holding of the meeting or
an approval of the minutes. The waiver of notice or consent need not specify
either the business to be transacted or the purpose of any meeting of
Shareholders.
Attendance by a Shareholder at a meeting of Shareholders shall also
constitute a waiver of notice of that meeting, except if the Shareholder
objects at the beginning of the meeting to the transaction of any business
because the meeting is not lawfully called or convened and except that
attendance at a meeting of Shareholders is not a waiver of any right to object
to the consideration of matters not included in the notice of the meeting of
Shareholders if that objection is expressly made at the beginning of the
meeting.
Section 8. Shareholder Action by Written Consent Without a Meeting.
Except as provided in the Declaration of Trust, any action that may be taken
at any meeting of Shareholders may be taken without a meeting and without
prior notice if a consent in writing setting forth the action to be taken is
signed by the holders of outstanding Shares having not less than the minimum
number of votes that would be necessary to authorize or take that action at a
meeting at which all Shares entitled to vote on that action were present and
voted provided, however, that the Shareholders receive any necessary
Information Statement or other necessary documentation in conformity with the
requirements of the Securities Exchange Act of 1934 or the rules or
regulations thereunder. All such consents shall be filed with the Secretary of
the Trust and shall be maintained in the Trust's records. Any Shareholder
giving a written consent or the Shareholder's proxy holders or a transferee of
the Shares or a personal representative of the Shareholder or their respective
proxy holders may revoke the Shareholder's written consent by a writing
received by the Secretary of the Trust before written consents of the number
of Shares required to authorize the proposed action have been filed with the
Secretary.
If the consents of all Shareholders entitled to vote have not been
solicited in writing and if the unanimous written consent of all such
Shareholders shall not have been received, the Secretary shall give prompt
notice of the action approved by the Shareholders without a meeting. This
notice shall be given in the manner specified in Section 4 of this Article II.
Section 9. Record Date for Shareholder Notice, Voting and Giving
Consents.
(a) For purposes of determining the Shareholders entitled to vote or
act at any meeting or adjournment thereof, the Trustees may fix in advance a
record date which shall not be more than ninety (90) days nor less than ten
(10) days before the date of any such meeting. Without fixing a record date
for a meeting, the Trustees may for voting and notice purposes close the
register or transfer books for one or more Series (or Classes) for all or any
part of the period between the earliest date on which a record date for such
meeting could be set in accordance herewith and the date of such meeting.
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<PAGE>
If the Trustees do not so fix a record date or close the register or
transfer books of the affected Series or Classes, the record date for
determining Shareholders entitled to notice of or to vote at a meeting of
Shareholders shall be the close of business on the business day next preceding
the day on which notice is given or if notice is waived, at the close of
business on the business day next preceding the day on which the meeting is
held.
(b) The record date for determining Shareholders entitled to give
consent to action in writing without a meeting, (a) when no prior action of
the Trustees has been taken, shall be the day on which the first written
consent is given, or (b) when prior action of the Trustees has been taken,
shall be (i) such date as determined for that purpose by the Trustees, which
record date shall not precede the date upon which the resolution fixing it is
adopted by the Trustees and shall not be more than twenty (20) days after the
date of such resolution, or (ii) if no record date is fixed by the Trustees,
the record date shall be the close of business on the day on which the
Trustees adopt the resolution relating to that action. Nothing in this Section
shall be construed as precluding the Trustees from setting different record
dates for different Series or Classes. Only Shareholders of record on the
record date as herein determined shall have any right to vote or to act at any
meeting or give consent to any action relating to such record date,
notwithstanding any transfer of Shares on the books of the Trust after such
record date.
Section 10. Proxies. Subject to the provisions of the Declaration of
Trust, every Person entitled to vote for Trustees or on any other matter shall
have the right to do so either in person or by proxy, provided that either (i)
an instrument authorizing such a proxy to act is executed by the Shareholder
in writing and dated not more than eleven (11) months before the meeting,
unless the instrument specifically provides for a longer period or (ii) the
Trustees adopt an electronic, telephonic, computerized or other alternative to
the execution of a written instrument authorizing the proxy to act, and such
authorization is received not more than eleven (11) months before the meeting.
A proxy shall be deemed executed by a Shareholder if the Shareholder's name is
placed on the proxy (whether by manual signature, typewriting, telegraphic
transmission or otherwise) by the Shareholder or the Shareholder's
attorney-in-fact. A valid proxy which does not state that it is irrevocable
shall continue in full force and effect unless (i) revoked by the Person
executing it before the vote pursuant to that proxy is taken, (a) by a writing
delivered to the Trust stating that the proxy is revoked, or (b) by a
subsequent proxy executed by such Person, or (c) attendance at the meeting and
voting in person by the Person executing that proxy, or (d) revocation by such
Person using any electronic, telephonic, computerized or other alternative
means authorized by the Trustees for authorizing the proxy to act; or (ii)
written notice of the death or incapacity of the maker of that proxy is
received by the Trust before the vote pursuant to that proxy is counted. A
proxy with respect to Shares held in the name of two or more Persons shall be
valid if executed by any one of them unless at or prior to exercise of the
proxy the Trust receives a specific written notice to the contrary from any
one of the two or more Persons. A proxy purporting to be executed by or on
behalf of a Shareholder shall be deemed valid unless challenged at or prior to
its exercise and the burden of proving invalidity shall rest on the
challenger.
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Section 11. Inspectors of Election. Before any meeting of
Shareholders, the Trustees may appoint any persons other than nominees for
office to act as inspectors of election at the meeting or its adjournment. If
no inspectors of election are so appointed, the Chairman of the meeting may
appoint inspectors of election at the meeting. The number of inspectors shall
be two (2). If any person appointed as inspector fails to appear or fails or
refuses to act, the Chairman of the meeting may appoint a person to fill the
vacancy.
These inspectors shall:
(a) Determine the number of Shares outstanding and the voting
power of each, the Shares represented at the meeting, the
existence of a quorum and the authenticity, validity and
effect of proxies;
(b) Receive votes, ballots or consents;
(c) Hear and determine all challenges and questions in any way
arising in connection with the right to vote;
(d) Count and tabulate all votes or consents;
(e) Determine when the polls shall close;
(f) Determine the result; and
(g) Do any other acts that may be proper to conduct the election
or vote with fairness to all Shareholders.
Section 12. Eligible Shareholders. Only eligible shareholders may
purchase shares. Eligible Shareholders are: (a) separate accounts of The
Equitable Life Assurance Society of the United States or of other insurance
companies; (b) The Equitable Life Assurance Company of the United States; (c)
any corporation related in a manner specified in Section 267(b) of the
Internal Revenue Code, as amended, (the "Code") to The Equitable Life
Assurance Society of the United States; and (d) any trustee of a qualified
pension or retirement plan or such other entity or entities as are permitted
by the Code or the rules and regulations thereunder to be eligible
shareholders. Shares may be transferred to eligible shareholders. Shares may
not be transferred to someone other than an eligible shareholder, and when the
Trust is requested to make such a transfer, it may elect to purchase such
Shares at their net asset value next determined following receipt of the
request for transfer.
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ARTICLE III
Trustees
Section 1. Powers. Subject to the applicable provisions of the 1940
Act, the Declaration of Trust and these By-Laws relating to action required to
be approved by the Shareholders, the business and affairs of the Trust shall
be managed and all powers shall be exercised by or under the direction of the
Trustees.
Section 2. Number of Trustees. The exact number of Trustees within
the limits specified in the Declaration of Trust shall be fixed from time to
time by a resolution of the Trustees.
Section 3. Vacancies. Vacancies in the authorized number of Trustees
may be filled as provided in the Declaration of Trust.
Section 4. Place of Meetings and Meetings by Telephone. All meetings
of the Trustees may be held at any place that has been selected from time to
time by the Trustees. In the absence of such a selection, regular meetings
shall be held at the principal executive office of the Trust. Subject to any
applicable requirements of the 1940 Act, any meeting, regular or special, may
be held by conference telephone or similar communication equipment, so long as
all Trustees participating in the meeting can hear one another and all such
Trustees shall be deemed to be present in person at the meeting.
Section 5. Regular Meetings. Regular meetings of the Trustees shall
be held without call at such time as shall from time to time be fixed by the
Trustees. Such regular meetings may be held without notice.
Section 6. Special Meetings. Special meetings of the Trustees for any
purpose or purposes may be called at any time by the President or any Vice
President or the Secretary or any two (2) Trustees.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each Trustee or sent by first-class mail, by
telegram or telecopy (or similar electronic means) or by nationally recognized
overnight courier, charges prepaid, addressed to each Trustee at that
Trustee's address as it is shown on the records of the Trust. If the notice is
mailed, it shall be deposited in the United States mail at least seven (7)
calendar days before the time of the holding of the meeting. If the notice is
delivered personally or by telephone or by telegram, telecopy (or similar
electronic means), or overnight courier, it shall be given at least
forty-eight (48) hours before the time of the holding of the meeting. Any oral
notice given personally or by telephone must be communicated only to the
Trustee. The notice need not specify the purpose of the meeting or the place
of the meeting, if the meeting is to be held at the principal executive office
of the Trust. Notice of a meeting need not be given to any Trustee
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if a written waiver of notice, executed by such Trustee before or after the
meeting, is filed with the records of the meeting, or to any Trustee who
attends the meeting without protesting, prior thereto or at its commencement,
the lack of notice to such Trustee.
Section 7. Quorum. One third (1/3) of the authorized number of
Trustees shall constitute a quorum for the transaction of business, except to
adjourn as provided in Section 9 of this Article III. Every act or decision
done or made by a majority of the Trustees present at a meeting duly held at
which a quorum is present shall be regarded as the act of the Trustees,
subject to the provisions of the Declaration of Trust. A meeting at which a
quorum is initially present may continue to transact business notwithstanding
the withdrawal of Trustees if any action taken is approved by at least a
majority of the required quorum for that meeting.
Section 8. Waiver of Notice. Notice of any meeting need not be given
to any Trustee who either before or after the meeting signs a written waiver
of notice, a consent to holding the meeting, or an approval of the minutes.
The waiver of notice or consent need not specify the purpose of the meeting.
All such waivers, consents, and approvals shall be filed with the records of
the Trust or made a part of the minutes of the meeting. Notice of a meeting
shall also be deemed given to any Trustee who attends the meeting without
protesting, prior to or at its commencement, the lack of notice to that
Trustee.
Section 9. Adjournment. A majority of the Trustees present, whether
or not constituting a quorum, may adjourn any meeting to another time and
place.
Section 10. Notice of Adjournment. Notice of the time and place of
holding an adjourned meeting need not be given unless the meeting is adjourned
for more than forty-eight (48) hours, in which case notice of the time and
place shall be given before the time of the adjourned meeting in the manner
specified in Section 6 of this Article III to the Trustees who were present at
the time of the adjournment.
Section 11. Action Without a Meeting. Unless the 1940 Act requires
that a particular action be taken only at a meeting at which the Trustees are
present in person, any action to be taken by the Trustees at a meeting may be
taken without such meeting by the written consent of a majority of the
Trustees then in office. Any such written consent may be executed and given by
telecopy or similar electronic means. Such written consents shall be filed
with the minutes of the proceedings of the Trustees. If any action is so taken
by the Trustees by the written consent of less than all of the Trustees,
prompt notice of the taking of such action shall be furnished to each Trustee
who did not execute such written consent, provided that the effectiveness of
such action shall not be impaired by any delay or failure to furnish such
notice.
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Section 12. Fees and Compensation of Trustees. Trustees and members
of committees may receive such compensation, if any, for their services and
such reimbursement of expenses as may be fixed or determined by resolution of
the Trustees. This Section 12 of Article III shall not be construed to
preclude any Trustee from serving the Trust in any other capacity as an
officer, agent, employee, or otherwise and receiving compensation for those
services.
Section 13. Delegation of Power to Other Trustees. Any Trustee may,
by power of attorney, delegate his or her power for a period not exceeding one
(1) month at any one time to any other Trustee. Except where applicable law
may require a Trustee to be present in person, a Trustee represented by
another Trustee, pursuant to such power of attorney, shall be deemed to be
present for purpose of establishing a quorum and satisfying the required
majority vote.
ARTICLE IV
Committees
Section 1. Committees of Trustees. The Trustees may by resolution
designate one or more committees, each consisting of two (2) or more Trustees,
to serve at the pleasure of the Trustees. The Trustees may designate one or
more Trustees as alternate members of any committee who may replace any absent
member at any meeting of the committee. Any committee to the extent provided
for by resolution of the Trustees, shall have the authority of the Trustees,
except with respect to:
(a) the approval of any action which under applicable law
requires approval by a majority of the entire authorized
number of Trustees or certain Trustees;
(b) the filling of vacancies of Trustees;
(c) the fixing of compensation of the Trustees for services
generally or as a member of any committee;
(d) the amendment or termination of the Declaration of Trust or
any Series or Class or the amendment of the By-Laws or the
adoption of new By-Laws;
(e) the amendment or repeal of any resolution of the Trustees
which by its express terms is not so amendable or
repealable;
(f) a distribution to the Shareholders of the Trust, except at
a rate or in a periodic amount or within a designated range
determined by the Trustees; or
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(g) the appointment of any other committees of the Trustees or
the members of such new committees.
Section 2. Meetings and Action of Committees. Meetings and action of
committees shall be governed by, held and taken in accordance with the
provisions of Article III of these ByLaws, with such changes in the context
thereof as are necessary to substitute the committee and its members for the
Trustees generally, except that the time of regular meetings of committees may
be determined either by resolution of the Trustees or by resolution of the
committee. Special meetings of committees may also be called by resolution of
the Trustees. Alternate members shall be given notice of meetings of
committees and shall have the right to attend all meetings of committees. The
Trustees may adopt rules for the governance of any committee not inconsistent
with the provisions of these By-Laws.
ARTICLE V
Officers
Section 1. Officers. The officers of the Trust shall be a President,
a Secretary, and a Treasurer. The Trust may also have, at the discretion of
the Trustees, a Chairman of the Board (Chairman), one or more Vice Presidents,
one or more Assistant Secretaries, one or more Assistant Treasurers, and such
other officers as may be appointed in accordance with the provisions of
Section 3 of this Article V. Any number of offices may be held by the same
person. The Chairman, if there be one, shall be a Trustee and may be, but need
not be, a Shareholder; and any other officer may be, but need not be, a
Trustee or Shareholder.
Section 2. Election of Officers. The officers of the Trust, except
such officers as may be appointed in accordance with the provisions of Section
3 or Section 5 of this Article V, shall be chosen by the Trustees, and each
shall serve at the pleasure of the Trustees, subject to the rights, if any, of
an officer under any contract of employment.
Section 3. Subordinate Officers. The Trustees may appoint and may
empower the President to appoint such other officers as the business of the
Trust may require, each of whom shall hold office for such period, have such
authority and perform such duties as are provided in these By-Laws or as the
Trustees may from time to time determine.
Section 4. Removal and Resignation of Officers. Subject to the
rights, if any, of an officer under any contract of employment, any officer
may be removed, either with or without cause, by the Trustees at any regular
or special meeting of the Trustees or by the principal executive officer or by
such other officer upon whom such power of removal may be conferred by the
Trustees.
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Any officer may resign at any time by giving written notice to the
Trust. Any resignation shall take effect at the date of the receipt of that
notice or at any later time specified in that notice; and unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the Trust under any contract to which the officer is a
party.
Section 5. Vacancies in Offices. A vacancy in any office because of
death, resignation, removal, disqualification or other cause shall be filled
in the manner prescribed in these By-Laws for regular appointment to that
office. The President may make temporary appointments to a vacant office
pending action by the Trustees.
Section 6. Chairman. The Chairman, if such an officer is elected,
shall if present, preside at meetings of the Trustees, shall be the chief
executive officer of the Trust and shall, subject to the control of the
Trustees, have general supervision, direction and control of the business and
the officers of the Trust and exercise and perform such other powers and
duties as may be from time to time assigned to him by the Trustees or
prescribed by the Declaration of Trust or these By-Laws.
Section 7. President. Subject to such supervisory powers, if any, as
may be given by the Trustees to the Chairman, if there be such an officer, the
President shall be the chief operating officer of the Trust and shall, subject
to the control of the Trustees and the Chairman, have general supervision,
direction and control of the business and the officers of the Trust. He or she
shall preside at all meetings of the Shareholders and, in the absence of the
Chairman or if there be none, at all meetings of the Trustees. He or she shall
have the general powers and duties of a president of a corporation and shall
have such other powers and duties as may be prescribed by the Trustees, the
Declaration of Trust or these By-Laws.
Section 8. Vice Presidents. In the absence or disability of the
President, any Vice President, unless there is an Executive Vice President,
shall perform all the duties of the President and when so acting shall have
all powers of and be subject to all the restrictions upon the President. The
Executive Vice President or Vice Presidents, whichever the case may be, shall
have such other powers and shall perform such other duties as from time to
time may be prescribed for them respectively by the Trustees or the President
or the Chairman or by these By-Laws.
Section 9. Secretary. The Secretary shall keep or cause to be kept at
the principal executive office of the Trust, or such other place as the
Trustees may direct, a book of minutes of all meetings and actions of
Trustees, committees of Trustees and Shareholders with the time and place of
holding, whether regular or special, and if special, how authorized, the
notice given, the names of those present at Trustees' meetings or committee
meetings, the number of Shares present or represented at meetings of
Shareholders and the proceedings of the meetings.
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The Secretary shall keep or cause to be kept at the principal
executive office of the Trust or at the office of the Trust's transfer agent
or registrar, a share register or a duplicate share register showing the names
of all Shareholders and their addresses, the number and classes of Shares held
by each, the number and date of certificates issued for the same and the
number and date of cancellation of every certificate surrendered for
cancellation.
The Secretary shall give or cause to be given notice of all meetings
of the Shareholders and of the Trustees (or committees thereof) required to be
given by these By-Laws or by applicable law and shall have such other powers
and perform such other duties as may be prescribed by the Trustees or by these
By-Laws.
Section 10. Treasurer. The Treasurer shall be the chief financial
officer and chief accounting officer of the Trust and shall keep and maintain
or cause to be kept and maintained adequate and correct books and records of
accounts of the properties and business transactions of the Trust and each
Series or Class thereof, including accounts of the assets, liabilities,
receipts, disbursements, gains, losses, capital and retained earnings of all
Series or Classes thereof. The books of account shall at all reasonable times
be open to inspection by any Trustee.
The Treasurer shall deposit all monies and other valuables in the
name and to the credit of the Trust with such depositaries as may be
designated by the Board of Trustees. He or she shall disburse the funds of the
Trust as may be ordered by the Trustees, shall render to the President and
Trustees, whenever they request it, an account of all of his or her
transactions as chief financial officer and of the financial condition of the
Trust and shall have other powers and perform such other duties as may be
prescribed by the Trustees or these By-Laws.
ARTICLE VI
Indemnification of Trustees, Officers,
Employees and Other Agents
Section 1. Agents, Proceedings, Expenses. For the purpose of this
Article, "agent" means any Person who is or was a Trustee, officer, employee
or other agent of the Trust or is or was serving at the request of the Trust
as a trustee, director, officer, employee or agent of another organization in
which the Trust has any interest as a shareholder, creditor or otherwise;
"proceeding" means any threatened, pending or completed claim, action, suit or
proceeding, whether civil, criminal, administrative or investigative
(including appeals); and "expenses" includes, without limitation, attorneys'
fees, costs, judgments, amounts paid in settlement, fines, penalties and all
other liabilities whatsoever.
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Section 2. Indemnification. Subject to the exceptions and limitations
contained in Section 3 of this Article VI, every agent shall be indemnified by
the Trust to the fullest extent permitted by law against all liabilities and
against all expenses reasonably incurred or paid by him or her in connection
with any proceeding in which he or she becomes involved as a party or
otherwise by virtue of his or her being or having been an agent.
Section 3. Limitations, Settlements. No indemnification shall be
provided hereunder to an agent:
(a) who shall have been adjudicated, by the court or other body
before which the proceeding was brought, to be liable to the
Trust or its Shareholders by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his or her office
(collectively, "disabling conduct"); or
(b) with respect to any proceeding disposed of (whether by
settlement, pursuant to a consent decree or otherwise)
without an adjudication by the court or other body before
which the proceeding was brought that such agent was liable
to the Trust or its Shareholders by reason of disabling
conduct, unless there has been a determination that such
agent did not engage in disabling conduct:
(i) by the court or other body before which
the proceeding was brought;
(ii) by at least a majority of those Trustees who are
neither Interested Persons of the Trust nor are
parties to the proceeding based upon a review of
readily available facts (as opposed to a full
trial-type inquiry); or
(iii) by written opinion of independent legal counsel
based upon a review of readily available facts (as
opposed to a full trial-type inquiry);
provided, however, that indemnification shall be provided hereunder to an
agent with respect to any proceeding in the event of (1) a final decision on
the merits by the court or other body before which the proceeding was brought
that the agent was not liable by reason of disabling conduct, or (2) the
dismissal of the proceeding by the court or other body before which it was
brought for insufficiency of evidence of any disabling conduct with which such
agent has been charged.
Section 4. Insurance, Rights Not Exclusive. The rights of
indemnification herein provided (i) may be insured against by policies
maintained by the Trust on behalf of any agent, (ii) shall be severable, (iii)
shall not be exclusive of or affect any other rights to which any agent may
now or hereafter be entitled and (iv) shall inure to the benefit of the
agent's heirs, executors and administrators.
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Section 5. Advance of Expenses. Expenses incurred by an agent in
connection with the preparation and presentation of a defense to any
proceeding may be paid by the Trust from time to time prior to final
disposition thereof upon receipt of an undertaking by, or on behalf of, such
agent that such amount will be paid over by him or her to the Trust if it is
ultimately determined that he or she is not entitled to indemnification under
this Article VI; provided, however, that (a) such agent shall have provided
appropriate security for such undertaking, (b) the Trust is insured against
losses arising out of any such advance payments, or (c) either a majority of
the Trustees who are neither Interested Persons of the Trust nor parties to
the proceeding, or independent legal counsel in a written opinion, shall have
determined, based upon a review of the readily available facts (as opposed to
a trial-type inquiry or full investigation), that there is reason to believe
that such agent will be found entitled to indemnification under this Article
VI.
Section 6. Fiduciaries of Employee Benefit Plan. This Article does
not apply to any proceeding against any trustee, investment manager or other
fiduciary of an employee benefit plan in that person's capacity as such, even
though that person may also be an agent of this Trust as defined in Section 1
of this Article. Nothing contained in this Article shall limit any right to
indemnification to which such a trustee, investment manager, or other
fiduciary may be entitled by contract or otherwise, which shall be enforceable
to the extent permitted by applicable law other than this Article VI.
ARTICLE VII
Inspection of Records and Reports
Section 1. Inspection by Shareholders. The Trustees shall from time
to time determine whether and to what extent, and at what times and places,
and under what conditions and regulations the accounts and books of the Trust
or any of them shall be open to the inspection of the Shareholders; and no
Shareholder shall have any right to inspect any account or book or document of
the Trust except as conferred by law or otherwise by the Trustees or by
resolution of the Shareholders.
Section 2. Inspection by Trustees. Every Trustee shall have the
absolute right at any reasonable time to inspect all books, records, and
documents of every kind and the physical properties of the Trust. This
inspection by a Trustee may be made in person or by an agent or attorney and
the right of inspection includes the right to copy and make extracts of
documents.
Section 3. Financial Statements. A copy of any financial statements
and any income statement of the Trust for each semi-annual period of each
fiscal year and accompanying balance sheet of the Trust as of the end of each
such period that has been prepared by the Trust shall be kept on file in the
principal executive office of the Trust for at least twelve (12) months and
each such statement shall be exhibited at all reasonable times to any
Shareholder demanding an examination of any such statement or a copy shall be
mailed to any such Shareholder.
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The semi-annual income statements and balance sheets referred to in
this section shall be accompanied by the report, if any, of any independent
accountants engaged by the Trust or the certificate of an authorized officer
of the Trust that the financial statements were prepared without audit from
the books and records of the Trust.
ARTICLE VIII
General Matters
Section 1. Checks, Drafts, Evidence of Indebtedness. All checks,
drafts, or other orders for payment of money, notes or other evidences of
indebtedness issued in the name of or payable to the Trust shall be signed or
endorsed in such manner and by such person or persons as shall be designated
from time to time in accordance with the resolution of the Board of Trustees.
Section 2. Contracts and Instruments; How Executed. The Trustees,
except as otherwise provided in these By-Laws, may authorize any officer or
officers, agent or agents, to enter into any contract or execute any
instrument in the name of and on behalf of the Trust and this authority may be
general or confined to specific instances; and unless so authorized or
ratified by the Trustees or within the agency power of an officer, no officer,
agent, or employee shall have any power or authority to bind the Trust by any
contract or engagement or to pledge its credit or to render it liable for any
purpose or for any amount.
Section 3. Fiscal Year. The fiscal year of the Trust shall be fixed
and refixed or changed from time to time by the Trustees. The fiscal year of
the Trust shall be the taxable year of each Series of the Trust.
Section 4. Seal. The seal of the Trust shall consist of a flat-faced
dye with the name of the Trust cut or engraved thereon. However, unless
otherwise required by the Trustees, the seal shall not be necessary to be
placed on, and its absence shall not impair the validity of, any document,
instrument or other paper executed and delivered by or on behalf of the Trust.
ARTICLE IX
Amendments
Section 1. Amendment. Except as otherwise provided by applicable law
or by the Declaration of Trust, these By-Laws may be restated, amended,
supplemented or repealed by a majority vote of the Trustees, provided that no
restatement, amendment, supplement or repeal hereof shall limit the rights to
indemnification or insurance provided in Article VI hereof with respect to any
acts or omissions of agents (as defined in Article VI) of the Trust prior to
such amendment.
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EXHIBIT 5(A)
FORM OF
INVESTMENT MANAGEMENT AGREEMENT
AGREEMENT, dated as of _________ __, 1997, between the 787 Trust, a
Delaware business trust (the "Trust"), and EQ Financial Consultants, Inc., a
Delaware corporation ("EQ Financial" or the "Manager").
WHEREAS, the Trust is registered as an investment company under the
Investment Company Act of 1940, as amended (the "Investment Company Act");
WHEREAS, EQ Financial is registered as an investment adviser under
the Investment Advisers Act of 1940, as amended (the "Advisers Act");
WHEREAS, the Trust's shareholders are and will be separate accounts
maintained by insurance companies for variable life insurance policies and
variable annuity contracts (the "Policies") under which income, gains, and
losses, whether or not realized, from assets allocated to such accounts are,
in accordance with the Policies, credited to or charged against such accounts
without regard to other income, gains, or losses of such insurance companies;
WHEREAS, the Trust is and will continue to be a series fund having
two or more investment portfolios, each with its own investment objectives,
investment policies and restrictions;
WHEREAS, the Investment Company Act prohibits any person from acting
as an investment adviser to a registered investment company except pursuant to
a written contract (the "Agreement"); and
WHEREAS, the Board of Trustees of the Trust wishes to appoint EQ
Financial as the investment manager of the Trust;
NOW, THEREFORE, the Trust and EQ Financial agree as follows:
1. APPOINTMENT OF MANAGER
The Trust hereby appoints EQ Financial as the investment manager for
each of the portfolios of the Trust specified in Appendix A to this Agreement,
as such Appendix A may be amended by the Manager and the Trust from time to
time (the "Portfolios"), subject to the supervision of the Trustees of the
Trust and in the manner and under the terms and conditions set forth in this
Agreement. The Manager accepts such appointment and agrees to render the
services and to assume the obligations set forth in this Agreement commencing
on its effective date. The Manager will be an independent contractor and will
have no authority to act for or represent the Trust in any way or otherwise be
deemed an agent unless expressly authorized in this Agreement or another
writing by the Trust and Manager.
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2. DUTIES OF THE MANAGER
A. Subject to the general supervision of the Trustees of the Trust
and under the terms and conditions set forth in this Agreement, the Trust
acknowledges and agrees that it is contemplated that the Manager will, at its
own expense, select and contract with investment advisers ("Advisers") to
manage the investment operations and composition of each and every Portfolio
of the Trust, including the purchase, retention, and disposition of the
investments, securities and cash contained in each Portfolio, in accordance
with each Portfolio's investment objectives, policies and restrictions as
stated in the Trust's Agreement and Declaration of Trust, By-Laws, and such
Portfolio's Prospectus and Statement of Additional Information ("SAI"), as is
from time to time in effect; provided, that any contract with an Adviser (an
"Advisory Agreement") shall be in compliance with and approved as required by
the Investment Company Act or in accordance with exemptive relief granted by
the Securities and Exchange Commission ("SEC") under the Investment Company
Act.
B. Subject always to the direction and control of the Trustees of the
Trust, the Manager will have (i) overall supervisory responsibility for the
general management and investment of each Portfolio's assets, and (ii) full
investment discretion to make all determinations with respect to the
investment of a Portfolio's assets not then managed by an Adviser. In
connection with its responsibilities set forth under (i) above, the Trust
acknowledges and agrees that the Manager will select a person to act as
Adviser to render investment advice to each of the Portfolios. In addition,
the Manager will monitor compliance of each Adviser with the investment
objectives, policies and restrictions of any Portfolio or Portfolios under the
management of such Adviser, and review and report to the Trustees of the Trust
on the performance of such Adviser. The Manager will furnish, or cause the
appropriate Adviser(s) to furnish, to the Trust such statistical information,
with respect to the investments that a Portfolio may hold or contemplate
purchasing, as the Trust may reasonably request. On the Manager's own
initiative, the Manager will apprise, or cause the appropriate Adviser(s) to
apprise, the Trust of important developments materially affecting each
Portfolio and will furnish the Trust, from time to time, with such information
as may be appropriate for this purpose. Further, the Manager agrees to
furnish, or cause the appropriate Adviser(s) to furnish, to the Trustees of
the Trust such periodic and special reports as the Trustees of the Trust may
reasonably request. In addition, the Manager agrees to cause the appropriate
Adviser(s) to furnish to third-party data reporting services all currently
available standardized performance information and other customary data.
C. The Manager will also furnish to the Trust, at its own expense and
without renumeration from or other cost to the Trust, the following:
(i) Office Space. The Manager will provide office space in
the offices of the Manager or in such other place as may be agreed
upon by the parties hereto from time to time, and all necessary
office facilities and equipment;
(ii) Personnel. The Manager will provide necessary executive
and other personnel, including personnel for the performance of
clerical and other office functions, exclusive of those functions:
(a) related to and to be performed under the Trust's contract or
contracts for administration, custodial, accounting, bookkeeping,
transfer, and
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dividend disbursing agency or similar services by the entity selected
to perform such services; and (b) related to the investment advisory
services to be provided by any Adviser pursuant to an Advisory
Agreement; and
(iii) Preparation of Prospectus and Other Documents. The
Manager will provide other information and services, other than
services of outside counsel or independent accountants or investment
advisory services to be provided by any Adviser under an Advisory
Agreement, required in connection with the preparation of all
registration statements and Prospectuses, Prospectus supplements,
SAIs, all annual, semiannual, and periodic reports to shareholders of
the Trust, regulatory authorities, or others, and all notices and proxy
solicitation materials, furnished to shareholders of the Trust or
regulatory authorities, and all tax returns.
D. Limitations on Liability. The Manager will exercise its best
judgment in rendering its services to the Trust, and the Trust agrees, as an
inducement to the Manager's undertaking to do so, that the Manager will not be
liable for any error of judgment or mistake of law or for any loss suffered by
the Trust in connection with the matters to which this Agreement relates, but
will be liable only for willful misconduct, bad faith, gross negligence,
reckless disregard of its duties or its failure to exercise due care in
rendering its services to the Trust specified in this Agreement. Any person,
even though an officer, director, employee or agent of the Manager, who may be
or become an officer, Trustee, employee or agent of the Trust, shall be
deemed, when rendering services to the Trust or when acting on any business of
the Trust, to be rendering such services to or to be acting solely for the
Trust and not as an officer, director, employee or agent, or one under the
control or direction of the Manager, even though paid by it.
E. Section 11 of the Securities Exchange Act of 1934, as amended. The
Trust hereby agrees that any entity or person associated with the Manager that
is a member of a national securities exchange is authorized to effect any
transaction on such exchange for the account of a Portfolio to the extent and
as permitted by Section 11(a)(1)(H) of the Securities Exchange Act of 1934, as
amended.
3. ALLOCATION OF EXPENSES
A. Expenses Paid by the Manager:
(i) Salaries, Expenses and Fees of Certain Persons. The
Manager (or its affiliates) shall pay all salaries, expenses, and
fees of the Trustees and officers of the Trust who are affiliated
with the Manager or its affiliates; and
(ii) Assumption of Trust Expenses. The payment or assumption
by the Manager of any expense of the Trust that the Manager is not
required by this Agreement to pay or assume shall not obligate the
Manager to pay or assume the same or any similar expense of the Trust
on any subsequent occasion.
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B. Expenses Paid by the Trust: The Trust will pay all expenses of its
organization, operations, and business not specifically assumed or agreed to
be paid by the Manager, as provided in this Agreement, or by an Adviser, as
provided in an Advisory Agreement. Without limiting the generality of the
foregoing, the Trust shall pay or arrange for the payment of the following:
(i) Preparing, Printing and Mailing of Certain Documents.
The costs of preparing, setting in type, printing and mailing of
Prospectuses, Prospectus supplements, SAIs, annual, semiannual and
periodic reports, and notices and proxy solicitation materials
required to be furnished to shareholders of the Trust or regulatory
authorities, and all tax returns;
(ii) Officers and Trustees. Compensation of the officers and
Trustees of the Trust who are not affiliated with the Manager or its
affiliates;
(iii) Registration Fees and Expenses. All legal and other
fees and expenses in connection with the affairs of the Trust,
including those incurred with respect to registering its shares with
regulatory authorities and all fees and expenses incurred in
connection with the preparation, setting in type, printing, and
filing with necessary regulatory authorities of any registration
statement and Prospectus, and any amendments or supplements that may
be made from time to time, including registration, filing and other
fees in connection with requirements of regulatory authorities;
(iv) Custodian and Accounting Services. All expenses of the
transfer, receipt, safekeeping, servicing and accounting for the
Trust's cash, securities, and other property, including all charges
of depositories, custodians, and other agents, if any;
(v) Independent Legal and Accounting Fees and Expenses. The
charges for the services and expenses of the independent accountants
and legal counsel retained by the Trust;
(vi) Transfer Agent. The charges and expenses of maintaining
shareholder accounts, including all charges of transfer, bookkeeping,
and dividend disbursing agents appointed by the Trust;
(vii) Brokerage Commissions. All brokers' commissions and
issue and transfer taxes chargeable to the Trust in connection with
securities transactions to which the Trust is a party;
(viii) Taxes. All taxes and corporate fees payable by or
with respect to the Trust to federal, state, or other governmental
agencies;
(ix) Trade Association Fees. Any membership fees, dues or
expenses incurred in connection with the Trust's membership in any
trade association or similar organizations;
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(x) Bonding and Insurance. All insurance premiums for
fidelity and other coverage;
(xi) Shareholder and Board Meetings. All expenses incidental
to holding shareholders and Trustees meetings, including the printing
of notices and proxy materials and proxy solicitation fees and
expenses;
(xii) Pricing. All expenses of pricing of the net asset
value per share of each Portfolio, including the cost of any
equipment or services to obtain price quotations; and
(xiii) Nonrecurring and Extraordinary Expenses. Such
extraordinary expenses, such as indemnification payments or damages
awarded in litigation or settlements made.
4. COMPENSATION OF MANAGER
For its services performed hereunder, the Trust will pay the Manager
with respect to each Portfolio the compensation specified in Appendix B to
this Agreement. Such compensation shall be paid to the Manager by the Trust on
the first day of each month; however, the Trust will calculate this charge on
the daily average value of the Trust's assets and accrue it on a daily basis.
5. NON-EXCLUSIVITY
The services of the Manager to the Trust are not to be deemed to be
exclusive, and the Manager shall be free to render investment management,
advisory or other services to others (including other investment companies)
and to engage in other activities so long as the services provided hereunder
by the Manager are not impaired. It is understood and agreed that the
directors, officers and employees of the Manager are not prohibited from
engaging in any other business activity or from rendering services to any
other person, or from serving as partners, officers, directors, trustees, or
employees of any other firm or corporation, including other investment
companies.
6. SUPPLEMENTAL ARRANGEMENTS
The Manager may enter into arrangements with its parent or other
persons affiliated or unaffiliated with the Manager for the provision of
certain personnel and facilities to the Manager to enable the Manager to
fulfill its duties and obligations under this Agreement.
7. REGULATION
The Manager shall submit to all regulatory and administrative bodies
having jurisdiction over the services provided pursuant to this Agreement any
information, reports, or other material which any such body by reason of this
Agreement may request or require pursuant to applicable laws and regulations.
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8. RECORDS
The records relating to the services provided under this Agreement
shall be the property of the Trust and shall be under its control; however,
the Trust shall furnish to the Manager such records and permit it to retain
such records (either in original or in duplicate form) as it shall reasonably
require in order to carry out its duties. In the event of the termination of
this Agreement, such records shall promptly be returned to the Trust by the
Manager free from any claim or retention of rights therein. The Manager shall
keep confidential any information obtained in connection with its duties
hereunder and disclose such information only if the Trust has authorized such
disclosure or if such disclosure is expressly required or requested by
applicable federal or state regulatory authorities.
9. DURATION OF AGREEMENT
This Agreement shall become effective on the later of the date of its
execution by all parties and the date of the meeting of the shareholders of
the Trust, which may for these purposes be the sole initial shareholder of the
Trust, at which meeting this Agreement is approved by the vote of a majority
of the outstanding voting securities (as defined in the Investment Company
Act) of the Portfolios. The Agreement will continue in effect for a period
more than one year from the date of its execution only so long as such
continuance is specifically approved at least annually either by the Trustees
of the Trust or by the vote of a majority of the outstanding voting securities
of the Trust, provided that in either event such continuance shall also be
approved by the vote of a majority of the Trustees of the Trust who are not
"interested persons" ("Independent Trustees") of any party to this Agreement,
cast in person at a meeting called for the purpose of voting on such approval.
The required shareholder approval of the Agreement or of any continuance of
the Agreement shall be effective with respect to any Portfolio if a majority
of the "outstanding voting securities" of the series (as defined in Rule
18f-2(h) under the Investment Company Act) of shares of that Portfolio votes
to approve the Agreement or its continuance, notwithstanding that the
Agreement or its continuance may not have been approved by a majority of the
outstanding voting securities of (a) any other Portfolio affected by the
Agreement or (b) all the Portfolios of the Trust.
If the shareholders of any Portfolio fail to approve the Agreement or
any continuance of the Agreement, the Manager will continue to act as
investment manager with respect to such Portfolio pending the required
approval of the Agreement or its continuance or of a new contract with the
Manager or a different investment manager or other definitive action;
provided, that the compensation received by the Manager in respect of such
Portfolio during such period will be no more than its actual costs incurred in
furnishing investment advisory and management services to such Portfolio or
the amount it would have received under the Agreement in respect of such
Portfolio, whichever is less.
6
<PAGE>
10. TERMINATION OF AGREEMENT
This Agreement may be terminated at any time, without the payment of
any penalty, by the Trustees, including a majority of the Independent Trustees
of the Trust, by the vote of a majority of the outstanding voting securities
of the Trust, or with respect to any Portfolio by the vote of a majority of
the outstanding voting securities of such Portfolio, on sixty (60) days'
written notice to the Manager, or by the Manager on sixty (60) days' written
notice to the Trust. This Agreement will automatically terminate, without
payment of any penalty, in the event if its assignment.
11. PROVISION OF CERTAIN INFORMATION BY MANAGER
The Manager will promptly notify the Trust in writing of the
occurrence of any of the following events:
A. the Manager fails to be registered as an investment adviser under
the Advisers Act or under the laws of any jurisdiction in which the Manager is
required to be registered as an investment adviser in order to perform its
obligations under this Agreement;
B. the Manager is served or otherwise receives notice of any action,
suit, proceeding, inquiry or investigation, at law or in equity, before or by
any court, public board or body, involving the affairs of the Trust; and/or
C. the chief executive officer or controlling stockholder of the
Manager or the portfolio manager of any Portfolio changes or there is
otherwise an actual change in control or management of the Manager.
12. AMENDMENTS TO THE AGREEMENT
Except to the extent permitted by the Investment Company Act or the
rules or regulations thereunder or pursuant to any exemptive relief granted by
the SEC, this Agreement may be amended by the parties only if such amendment,
if material, is specifically approved by the vote of a majority of the
outstanding voting securities of each of the Portfolios affected by the
amendment (unless such approval is not required by Section 15 of the
Investment Company Act as interpreted by the SEC or its staff) and by the vote
of a majority of the Independent Trustees of the Trust cast in person at a
meeting called for the purpose of voting on such approval. The required
shareholder approval shall be effective with respect to any Portfolio if a
majority of the outstanding voting securities of the series of shares of that
Portfolio vote to approve the amendment, notwithstanding that the amendment
may not have been approved by a majority of the outstanding voting securities
of (a) any other Portfolio affected by the amendment or (b) all the Portfolios
of the Trust.
7
<PAGE>
13. ENTIRE AGREEMENT
This Agreement contains the entire understanding and agreement of the
parties.
14. HEADINGS
The headings in the sections of this Agreement are inserted for
convenience of reference only and shall not constitute a part hereof.
15. NOTICES
All notices required to be given pursuant to this Agreement shall be
delivered or mailed to the last known business address of the Trust or Manager
in person or by registered mail or a private mail or delivery service
providing the sender with notice of receipt. Notice shall be deemed given on
the date delivered or mailed in accordance with this section.
16. FORCE MAJEURE
The Manager shall not be liable for delays or errors occurring by
reason of circumstances beyond its control, including but not limited to acts
of civil or military authority, national emergencies, work stoppages, fire,
flood, catastrophe, acts of God, insurrection, war, riot, or failure of
communication or power supply. In the event of equipment breakdowns beyond its
control, the Manager shall take reasonable steps to minimize service
interruptions but shall have no liability with respect thereto.
17. SEVERABILITY
Should any portion of this Agreement for any reason be held to be
void in law or in equity, the Agreement shall be construed, insofar as is
possible, as if such portion had never been contained herein.
18. INTERPRETATION
Nothing herein contained shall be deemed to require the Trust to take
any action contrary to its Agreement and Declaration of Trust or By-Laws, or
any applicable statutory or regulatory requirements to which it is subject or
by which it is bound, or to relieve or deprive the Trustees of their
responsibility for and control of the conduct of the affairs of the Trust.
8
<PAGE>
19. GOVERNING LAW
The provisions of this Agreement shall be construed and interpreted
in accordance with the laws of the State of Delaware, or any of the applicable
provisions of the Investment Company Act. To the extent that the laws of the
State of Delaware, or any of the provisions in this Agreement, conflict with
applicable provisions of the Investment Company Act, the latter shall control.
Any question of interpretation of any term or provision of this Agreement
having a counterpart in or otherwise derived from a term or provision of the
Investment Company Act shall be resolved by reference to such term or
provision of the Investment Company Act and to interpretations thereof, if
any, by the United States courts or, in the absence of any controlling
decision of any such court, by rules, regulations or orders of the SEC validly
issued pursuant to the Investment Company Act. Specifically, the terms "vote
of a majority of the outstanding voting securities," "interested persons,"
"assignment," and "affiliated persons," as used herein shall have the meanings
assigned to them by Section 2(a) of the Investment Company Act. In addition,
where the effect of a requirement of the Investment Company Act reflected in
any provision of this Agreement is relaxed by a rule, regulation or order of
the SEC, whether of special or of general application, such provision shall be
deemed to incorporate the effect of such rule, regulation or order.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed under seal by their duly authorized officers as of the date first
mentioned above.
787 TRUST
By:_____________________
[name]
EQ FINANCIAL CONSULTANTS, INC.
By:_______________________
[name]
9
<PAGE>
APPENDIX A
Portfolio
- ---------
T. Rowe Price International Stock Portfolio
T. Rowe Price Equity Income Portfolio
Putnam Growth and Income Portfolio
Putnam International Growth Portfolio
MFS Research Portfolio
10
date: , 1997
------------------
<PAGE>
APPENDIX B
The Trust shall pay the Manager, at the end of each calendar month,
compensation computed daily at an annual rate equal to the following:
<TABLE>
<CAPTION>
Portfolio Management Fee
- --------- --------------
<S> <C>
T. Rowe Price International Stock Portfolio 1.15% of the Portfolio's average daily net
assets up to and including $20 million;
1.00% of the Portfolio's average daily net
assets over $20 million and up to and
including $50 million; and .90% of the
Portfolio's average daily net assets in excess
of $50 million.
T. Rowe Price Equity Income Portfolio .80% of the Portfolio's average daily net
assets.
Putnam Growth and Income Portfolio .90% of the Portfolio's average daily net
assets up to and including $150 million;
.85% of the Portfolio's average daily net
assets over $150 million and up to and
including $300 million; and .75% of the
Portfolio's average daily net assets in excess
of $300 million.
Putnam International Growth Portfolio 1.05% of the Portfolio's average daily net
assets up to and including $150 million;
.95% of the Portfolio's average daily net
assets over $150 million and up to and
including $300 million; and .85% of the
Portfolio's average daily net assets in excess
of $300 million.
MFS Research Portfolio .80% of the Portfolio's average daily net
assets up to and including $150 million;
.775% of the Portfolio's average daily net
assets over $150 million and up to and
including $300 million; and .75% of the
Portfolio's average daily net assets in excess
of $300 million.
</TABLE>
date: _________, 1997
11
<PAGE>
EXHIBIT 5(B)
FORM OF
INVESTMENT ADVISORY AGREEMENT
AGREEMENT, dated as of _________________ __, 1997, by and between EQ
Financial Consultants, Inc., a Delaware corporation ("EQ Financial" or the
"Manager"), and T. Rowe Price Associates, Inc., a Maryland corporation (the
"Adviser").
WHEREAS, 787 Trust (the "Trust") is registered as an investment
company under the Investment Company Act of 1940, as amended (the "Investment
Company Act");
WHEREAS, the Trust's shareholders are and will be separate accounts
maintained by insurance companies for variable life insurance policies and
variable annuity contracts (the "Policies") under which income, gains, and
losses, whether or not realized, from assets allocated to such accounts are,
in accordance with the Policies, credited to or charged against such accounts
without regard to other income, gains, or losses of such insurance companies;
WHEREAS, the Trust is and will continue to be a series fund having
two or more investment portfolios, each with its own investment objectives,
policies and restrictions;
WHEREAS, EQ Financial is registered as an investment adviser under
the Investment Advisers Act of 1940, as amended ("Advisers Act") and is the
investment manager to the Trust;
WHEREAS, the Adviser is registered as an investment adviser under the
Advisers Act;
WHEREAS, the Investment Company Act prohibits any person from acting
as an investment adviser to a registered investment company except pursuant to
a written contract (the "Agreement"); and
WHEREAS, the Board of Trustees of the Trust and EQ Financial desire
to retain the Adviser to render investment advisory services to the portfolio
specified in Appendix A hereto ("Portfolio") in the manner and on the terms
hereinafter set forth;
NOW, THEREFORE, EQ Financial and Adviser agree as follows:
1. APPOINTMENT OF ADVISER
The Manager hereby appoints the Adviser to act as investment adviser
for the Portfolio and to manage the investment and reinvestment of the assets
of the Portfolio, subject to the supervision of the Trustees of the Trust and
the terms and conditions of this Agreement. The Adviser will be an independent
contractor and will have no authority to act for or represent the Trust or
Manager in any way or otherwise be deemed an agent of the Trust or Manager
except as expressly authorized in this Agreement or another writing by the
Trust, Manager and the Adviser.
<PAGE>
2. SERVICES TO BE RENDERED BY THE ADVISER TO THE TRUST
A. The Adviser will manage the investment and reinvestment of the
assets of the Portfolio and determine the composition of the assets of the
Portfolio, subject always to the direction and control of the Trustees of the
Trust and the Manager and in accordance with the provisions of the Trust's
registration statement, as amended from time to time. In fulfilling its
obligations to manage the investment and reinvestment of the assets of the
Portfolio, the Adviser will:
(i) obtain and evaluate pertinent economic, statistical,
financial, and other information affecting the economy generally and
individual companies or industries, the securities of which are
included in the Portfolio or are under consideration for inclusion in
the Portfolio;
(ii) formulate and implement a continuous investment program
for the Portfolio (a) consistent with the investment objectives,
policies and restrictions of the Portfolio as stated in the Trust's
Agreement and Declaration of Trust, By-Laws, and such Portfolio's
currently effective Prospectus and Statement of Additional
Information ("SAI") as amended from time to time, and (b) in
compliance with the requirements applicable to both regulated
investment companies and segregated asset accounts under Subchapters
M and L of the Internal Revenue Code of 1986, as amended;
(iii) take whatever steps are necessary to implement the
investment program for the Portfolio by the purchase and sale of
securities and other investments authorized under the Trust's
Agreement and Declaration of Trust, By-Laws, and such Portfolio's
currently effective Prospectus and SAI, including the placing of
orders for such purchases and sales;
(iv) regularly report to the Trustees of the Trust and the
Manager with respect to the implementation of the investment program
and, in addition, provide such statistical information and special
reports concerning the Portfolio and/or important developments
materially affecting the investments held, or contemplated to be
purchased, by the Portfolio, as may reasonably be requested by the
Manager or the Trustees of the Trust, including attendance at Board
of Trustees Meetings, as reasonably requested, to present such
information and reports to the Board;
(v) provide determinations of the fair value of certain
portfolio securities when market quotations are not readily available
for the purpose of calculating the Portfolio's net asset value in
accordance with procedures and methods established by the Trustees of
the Trust;
(vi) provide any and all information, records and supporting
documentation about accounts the Adviser manages that have investment
objectives, policies, and strategies substantially similar to those
employed by the Adviser in managing the Portfolio which may be
reasonably necessary, under applicable laws, to allow the Portfolio
or its agent to present information concerning the Adviser's prior
performance
2
<PAGE>
in the Prospectus and the SAI of the Portfolio and any permissible
reports and materials prepared by the Portfolio or its agent; and
(vii) establish appropriate interfaces with the Trust's
administrator and Manager in order to provide such administrator and
Manager with all necessary information requested by the administrator
and Manager.
B. The Adviser, at its expense, will furnish: (i) all necessary
investment and management facilities and investment personnel, including
salaries, expenses and fees of any personnel required for it to faithfully
perform its duties under this Agreement; and (ii) administrative facilities,
including bookkeeping, clerical personnel and equipment necessary for the
efficient conduct of the investment affairs of the Portfolio (excluding that
necessary for the determination of net asset value and shareholder accounting
services).
C. The Adviser will select brokers and dealers to effect all
portfolio transactions subject to the conditions set forth herein. The Adviser
will place all necessary orders with brokers, dealers, or issuers, and will
negotiate brokerage commissions if applicable. The Adviser is directed at all
times to seek to execute brokerage transactions for the Portfolio in
accordance with such policies or practices as may be established by the Board
of Trustees and described in the Trust's currently effective Prospectus and
SAI, as amended from time to time. In placing orders for the purchase or sale
of investments for the Portfolio, in the name of the Portfolio or its
nominees, the Adviser shall use its best efforts to obtain for the Portfolio
the most favorable price and best execution available, considering all of the
circumstances, and shall maintain records adequate to demonstrate compliance
with this requirement.
Subject to the appropriate policies and procedures approved by the
Board of Trustees, the Adviser may, to the extent authorized by Section 28(e)
of the Securities and Exchange Act of 1934, cause the Portfolio to pay a
broker or dealer that provides brokerage or research services to the Manager,
the Adviser, and the Portfolio an amount of commission for effecting a
portfolio transaction in excess of the amount of commission another broker or
dealer would have charged for effecting that transaction if the Adviser
determines, in good faith, that such amount of commission is reasonable in
relationship to the value of such brokerage or research services provided
viewed in terms of that particular transaction or the Adviser's overall
responsibilities to the Portfolio or its other advisory clients. To the extent
authorized by said Section 28(e) and the Trust's Board of Trustees, the
Adviser shall not be deemed to have acted unlawfully or to have breached any
duty created by this Agreement or otherwise solely by reason of such action.
In addition, subject to seeking the most favorable price and best execution
available, the Adviser may also consider sales of shares of the Trust as a
factor in the selection of brokers and dealers.
D. On occasions when the Adviser deems the purchase or sale of a
security to be in the best interest of the Portfolio as well as other clients
of the Adviser, the Adviser to the extent permitted by applicable laws and
regulations, may, but shall be under no obligation to, aggregate the
securities to be purchased or sold to attempt to obtain a more favorable price
or lower brokerage commissions and efficient execution. In such event,
allocation of the securities so purchased or sold, as well as the expenses
incurred in the transaction, will be made by the
3
<PAGE>
Adviser in the manner the Adviser considers to be the most equitable and
consistent with its fiduciary obligations to the Portfolio and to its other
clients.
E. The Adviser will maintain all accounts, books and records with
respect to the Portfolio as are required of an investment adviser of a
registered investment company pursuant to the Investment Company Act and
Advisers Act and the rules thereunder.
3. COMPENSATION OF ADVISER
The Manager will pay the Adviser, with respect to the Portfolio, the
compensation specified in Appendix A to this Agreement. Payments shall be made
to the Adviser on the first day of each month; however, this advisory fee will
be calculated on the daily average value of the Portfolio's assets and accrued
on a daily basis.
4. LIABILITY OF ADVISER
Neither the Adviser nor any of its directors, officers, or employees
shall be liable to the Manager for any loss suffered by the Manager resulting
from its acts or omissions as Adviser to the Portfolio, except for losses to
the Manager or the Trust resulting from willful misconduct, bad faith, or
gross negligence in the performance of, or from reckless disregard of, the
duties of the Adviser or any of its directors, officers or employees. The
Adviser, its directors, officers or employees shall not be liable to the
Manager or the Trust for any loss suffered as a consequence of any action or
inaction of other service providers to the Trust in failing to observe the
instructions of the Adviser, provided such action or inaction of such other
service providers to the Trust is not a result of the willful misconduct, bad
faith or gross negligence in the performance of, or from reckless disregard
of, the duties of the Adviser under this Agreement.
5. NON-EXCLUSIVITY
The services of the Adviser to the Portfolio and the Trust are not to
be deemed to be exclusive, and the Adviser shall be free to render investment
advisory or other services to others (including other investment companies)
and to engage in other activities so long as the services provided hereunder by
the Adviser are not impaired. It is understood and agreed that the directors,
officers, and employees of the Adviser are not prohibited from engaging in any
other business activity or from rendering services to any other person, or from
serving as partners, officers, directors, trustees, or employees of any other
firm or corporation, including other investment companies.
6. SUPPLEMENTAL ARRANGEMENTS
The Adviser may enter into arrangements with other persons affiliated
with the Adviser for the provision of certain personnel and facilities to the
Adviser to better enable it to fulfill its duties and obligations under this
Agreement.
4
<PAGE>
7. REGULATION
The Adviser shall submit to all regulatory and administrative bodies
having jurisdiction over the services provided pursuant to this Agreement any
information, reports, or other material which any such body by reason of this
Agreement may request or require pursuant to applicable laws and regulations.
8. RECORDS
The records relating to the services provided under this Agreement
shall be the property of the Trust and shall be under its control; however,
the Trust shall furnish to the Adviser such records and permit it to retain
such records (either in original or in duplicate form) as it shall reasonably
require in order to carry out its duties. In the event of the termination of
this Agreement, such records shall promptly be returned to the Trust by the
Adviser free from any claim or retention of rights therein. The Adviser shall
keep confidential any information obtained in connection with its duties
hereunder and disclose such information only if the Trust has authorized such
disclosure or if such disclosure is expressly required or requested by
applicable federal or state regulatory authorities.
9. DURATION OF AGREEMENT
This Agreement shall become effective with respect to the Portfolio
on the later of the date of its execution or the date of the meeting of the
shareholders of the Portfolio, which for this purpose may be the sole initial
shareholder of the Portfolio, at which meeting the Agreement is approved by
the vote of a majority of the outstanding voting securities (as defined in the
Investment Company Act) of the Portfolio. This Agreement will continue in
effect for a period more than two years from the date of its execution only so
long as such continuance is specifically approved at least annually either by
the Board of Trustees or by a majority of the outstanding voting securities of
the Portfolio, provided that in either event such continuance shall also be
approved by the vote of a majority of the Trustees who are not "interested
persons" (as defined in the Investment Company Act) ("Independent Trustees")
of any party to this Agreement cast in person at a meeting called for the
purpose of voting on such approval. The required shareholder approval of the
Agreement or of any continuance of the Agreement shall be effective with
respect to the Portfolio if a majority of the outstanding voting securities of
the series (as defined in Rule 18f-2(h) under the Investment Company Act) of
shares of the Portfolio votes to approve the Agreement or its continuance,
notwithstanding that the Agreement or its continuance may not have been
approved by a majority of the outstanding voting securities of (a) any other
portfolio affected by the Agreement or (b) all the portfolios of the Trust.
If the shareholders of the Portfolio fail to approve the Agreement or
any continuance of the Agreement, the Adviser will continue to act as
investment adviser with respect to the Portfolio pending the required approval
of the Agreement or its continuance or of any contract with the Adviser or a
different adviser or subadviser or other definitive action; provided, that the
compensation received by the Adviser in respect of the Portfolio during the
period will be in compliance with Rule 15a-4 under the Investment Company Act.
5
<PAGE>
10. TERMINATION OF AGREEMENT
This Agreement may be terminated at any time, without the payment of
any penalty, by the Board of Trustees, including a majority of the Independent
Trustees, by the vote of a majority of the outstanding voting securities of
the Portfolio, on sixty (60) days' written notice to the Manager and the
Adviser, or by the Manager or Adviser on sixty (60) days' written notice to
the Trust and the other party. This Agreement will automatically terminate,
without the payment of any penalty, in the event of its assignment (as defined
in the Investment Company Act) or in the event the Investment Management
Agreement between the Manager and the Trust is assigned or terminates for any
other reason. This Agreement will also terminate upon written notice to the
other party that the other party is in material breach of this Agreement,
unless the other party in material breach of this Agreement cures such breach
to the reasonable satisfaction of the party alleging the breach within thirty
(30) days after written notice.
11. PROVISION OF CERTAIN INFORMATION BY ADVISER
The Adviser will promptly notify the Manager in writing of the
occurrence of any of the following events:
A. the Adviser fails to be registered as an investment adviser under
the Advisers Act or under the laws of any jurisdiction in which the Adviser is
required to be registered as an investment adviser in order to perform its
obligations under this Agreement;
B. the Adviser is served or otherwise receives notice of any action,
suit, proceeding, inquiry, or investigation, at law or in equity, before or by
any court, public board, or body, involving the affairs of the Trust; and/or
C. the chief executive officer or controlling stockholder of the
Adviser or the portfolio manager of the Portfolio changes or there is
otherwise an actual change in control or management of the Adviser.
12. USE OF ADVISER'S NAME
The Manager will not use the Adviser's name (or that of any
affiliate) in Trust literature without prior review and approval by the
Adviser, which may not be unreasonably withheld or delayed.
13. AMENDMENTS TO THE AGREEMENT
Except to the extent permitted by the Investment Company Act or the
rules or regulations thereunder or pursuant to any exemptive relief granted by
the Securities and Exchange Commission ("SEC"), this Agreement may be amended
by the parties only if such amendment, if material, is specifically approved
by the vote of a majority of the outstanding voting securities
6
<PAGE>
of the Portfolio (unless such approval is not required by Section 15 of the
Investment Company Act as interpreted by the SEC or its staff) and by the vote
of a majority of the Independent Trustees cast in person at a meeting called
for the purpose of voting on such approval. The required shareholder approval
shall be effective with respect to the Portfolio if a majority of the
outstanding voting securities of the Portfolio vote to approve the amendment,
notwithstanding that the amendment may not have been approved by a majority of
the outstanding voting securities of any other portfolio affected by the
amendment or all the portfolios of the Trust.
14. ENTIRE AGREEMENT
This Agreement contains the entire understanding and agreement of the
parties with respect to the Portfolio listed in Appendix A.
15. HEADINGS
The headings in the sections of this Agreement are inserted for
convenience of reference only and shall not constitute a part hereof.
16. NOTICES
All notices required to be given pursuant to this Agreement shall be
delivered or mailed to the last known business address of each applicable
party in person or by registered mail or a private mail or delivery service
providing the sender with notice of receipt. The specific person to whom
notice shall be provided for each party will be specified in writing to the
other party. Notice shall be deemed given on the date delivered or mailed in
accordance with this paragraph.
17. SEVERABILITY
Should any portion of this Agreement for any reason be held to be
void in law or in equity, the Agreement shall be construed, insofar as is
possible, as if such portion had never been contained herein.
18. GOVERNING LAW
The provisions of this Agreement shall be construed and interpreted
in accordance with the laws of the State of Delaware, or any of the applicable
provisions of the Investment Company Act. To the extent that the laws of the
State of Delaware, or any of the provisions in this Agreement, conflict with
applicable provisions of the Investment Company Act, the latter shall control.
7
<PAGE>
Any question of interpretation of any term or provision of this
Agreement having a counterpart in or otherwise derived from a term or
provision of the Investment Company Act shall be resolved by reference to such
term or provision of the Investment Company Act and to interpretations
thereof, if any, by the United States courts or, in the absence of any
controlling decision of any such court, by rules, regulations or orders of the
SEC validly issued pursuant to the Investment Company Act. Specifically, the
terms "vote of a majority of the outstanding voting securities," "interested
persons," "assignment," and "affiliated persons," as used herein shall have
the meanings assigned to them by Section 2(a) of the Investment Company Act.
In addition, where the effect of a requirement of the Investment Company Act
reflected in any provision of this Agreement is relaxed by a rule, regulation
or order of the SEC, whether of special or of general application, such
provision shall be deemed to incorporate the effect of such rule, regulation
or order.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed under seal by their duly authorized officers as of the date first
mentioned above.
EQ FINANCIAL CONSULTANTS, INC.
By:_________________________________
[Name, Title]
T. ROWE PRICE ASSOCIATES, INC.
By:___________________________________
[Name, Title]
8
<PAGE>
APPENDIX A
The Manager shall pay the Adviser, at the end of each calendar month,
compensation computed daily at an annual rate equal to the following:
<TABLE>
<CAPTION>
Portfolio Advisory Fee
- --------- ------------
<S> <C>
T. Rowe Price Equity Income Portfolio .40% of the Portfolio's average daily net
assets.
</TABLE>
date: ____________ __, 1997
9
<PAGE>
EXHIBIT 5(C)
FORM OF
INVESTMENT ADVISORY AGREEMENT
AGREEMENT, dated as of _____________ __, 1997, by and between EQ
Financial Consultants, Inc., a Delaware corporation ("EQ Financial" or the
"Manager"), and Rowe Price-Fleming International, Inc., a Maryland corporation
(the "Adviser").
WHEREAS, 787 Trust (the "Trust") is registered as an investment
company under the Investment Company Act of 1940, as amended (the "Investment
Company Act");
WHEREAS, the Trust's shareholders are and will be separate accounts
maintained by insurance companies for variable life insurance policies and
variable annuity contracts (the "Policies") under which income, gains, and
losses, whether or not realized, from assets allocated to such accounts are,
in accordance with the Policies, credited to or charged against such accounts
without regard to other income, gains, or losses of such insurance companies;
WHEREAS, the Trust is and will continue to be a series fund having
two or more investment portfolios, each with its own investment objectives,
policies and restrictions;
WHEREAS, EQ Financial is registered as an investment adviser under
the Investment Advisers Act of 1940, as amended ("Advisers Act") and is the
investment manager to the Trust;
WHEREAS, the Adviser is registered as an investment adviser under the
Advisers Act;
WHEREAS, the Investment Company Act prohibits any person from acting
as an investment adviser to a registered investment company except pursuant to
a written contract (the "Agreement"); and
WHEREAS, the Board of Trustees of the Trust and EQ Financial desire
to retain the Adviser to render investment advisory services to the portfolio
specified in Appendix A hereto ("Portfolio") in the manner and on the terms
hereinafter set forth;
NOW, THEREFORE, EQ Financial and Adviser agree as follows:
1. APPOINTMENT OF ADVISER
The Manager hereby appoints the Adviser to act as investment adviser
for the Portfolio and to manage the investment and reinvestment of the assets
of the Portfolio, subject to the supervision of the Trustees of the Trust and
the terms and conditions of this Agreement. The Adviser will be an independent
contractor and will have no authority to act for or represent the Trust or
Manager in any way or otherwise be deemed an agent of the Trust or Manager
except as expressly authorized in this Agreement or another writing by the
Trust, Manager and the Adviser.
<PAGE>
2. SERVICES TO BE RENDERED BY THE ADVISER TO THE TRUST
A. The Adviser will manage the investment and reinvestment of the
assets of the Portfolio and determine the composition of the assets of the
Portfolio, subject always to the direction and control of the Trustees of the
Trust and the Manager and in accordance with the provisions of the Trust's
registration statement, as amended from time to time. In fulfilling its
obligations to manage the investment and reinvestment of the assets of the
Portfolio, the Adviser will:
(i) obtain and evaluate pertinent economic, statistical,
financial, and other information affecting the economy generally and
individual companies or industries, the securities of which are
included in the Portfolio or are under consideration for inclusion in
the Portfolio;
(ii) formulate and implement a continuous investment program
for the Portfolio (a) consistent with the investment objectives,
policies and restrictions of the Portfolio as stated in the Trust's
Agreement and Declaration of Trust, By-Laws, and such Portfolio's
currently effective Prospectus and Statement of Additional
Information ("SAI") as amended from time to time, and (b) in
compliance with the requirements applicable to both regulated
investment companies and segregated asset accounts under Subchapters
M and L of the Internal Revenue Code of 1986, as amended;
(iii) take whatever steps are necessary to implement the
investment program for the Portfolio by the purchase and sale of
securities and other investments authorized under the Trust's
Agreement and Declaration of Trust, By-Laws, and such Portfolio's
currently effective Prospectus and SAI, including the placing of
orders for such purchases and sales;
(iv) regularly report to the Trustees of the Trust and the
Manager with respect to the implementation of the investment program
and, in addition, provide such statistical information and special
reports concerning the Portfolio and/or important developments
materially affecting the investments held, or contemplated to be
purchased, by the Portfolio, as may reasonably be requested by the
Manager or the Trustees of the Trust, including attendance at Board
of Trustees Meetings, as reasonably requested, to present such
information and reports to the Board;
(v) provide determinations of the fair value of certain
portfolio securities when market quotations are not readily available
for the purpose of calculating the Portfolio's net asset value in
accordance with procedures and methods established by the Trustees of
the Trust;
(vi) provide any and all information, records and supporting
documentation about accounts the Adviser manages that have investment
objectives, policies, and strategies substantially similar to those
employed by the Adviser in managing the Portfolio which may be
reasonably necessary, under applicable laws, to allow the Portfolio
or its agent to present information concerning the Adviser's prior
performance
2
<PAGE>
in the Prospectus and the SAI of the Portfolio and any permissible
reports and materials prepared by the Portfolio or its agent; and
(vii) establish appropriate interfaces with the Trust's
administrator and Manager in order to provide such administrator and
Manager with all necessary information requested by the administrator
and Manager.
B. The Adviser, at its expense, will furnish: (i) all necessary
investment and management facilities and investment personnel, including
salaries, expenses and fees of any personnel required for it to faithfully
perform its duties under this Agreement; and (ii) administrative facilities,
including bookkeeping, clerical personnel and equipment necessary for the
efficient conduct of the investment affairs of the Portfolio (excluding that
necessary for the determination of net asset value and shareholder accounting
services).
C. The Adviser will select brokers and dealers to effect all
portfolio transactions subject to the conditions set forth herein. The Adviser
will place all necessary orders with brokers, dealers, or issuers, and will
negotiate brokerage commissions if applicable. The Adviser is directed at all
times to seek to execute brokerage transactions for the Portfolio in
accordance with such policies or practices as may be established by the Board
of Trustees and described in the Trust's currently effective Prospectus and
SAI, as amended from time to time. In placing orders for the purchase or sale
of investments for the Portfolio, in the name of the Portfolio or its
nominees, the Adviser shall use its best efforts to obtain for the Portfolio
the most favorable price and best execution available, considering all of the
circumstances, and shall maintain records adequate to demonstrate compliance
with this requirement.
Subject to the appropriate policies and procedures approved by the
Board of Trustees, the Adviser may, to the extent authorized by Section 28(e)
of the Securities and Exchange Act of 1934, cause the Portfolio to pay a
broker or dealer that provides brokerage or research services to the Manager,
the Adviser, and the Portfolio an amount of commission for effecting a
portfolio transaction in excess of the amount of commission another broker or
dealer would have charged for effecting that transaction if the Adviser
determines, in good faith, that such amount of commission is reasonable in
relationship to the value of such brokerage or research services provided
viewed in terms of that particular transaction or the Adviser's overall
responsibilities to the Portfolio or its other advisory clients. To the extent
authorized by said Section 28(e) and the Trust's Board of Trustees, the
Adviser shall not be deemed to have acted unlawfully or to have breached any
duty created by this Agreement or otherwise solely by reason of such action.
In addition, subject to seeking the most favorable price and best execution
available, the Adviser may also consider sales of shares of the Trust as a
factor in the selection of brokers and dealers.
D. On occasions when the Adviser deems the purchase or sale of a
security to be in the best interest of the Portfolio as well as other clients
of the Adviser, the Adviser to the extent permitted by applicable laws and
regulations, may, but shall be under no obligation to, aggregate the
securities to be purchased or sold to attempt to obtain a more favorable price
or lower brokerage commissions and efficient execution. In such event,
allocation of the securities so purchased or sold, as well as the expenses
incurred in the transaction, will be made by the
3
<PAGE>
Adviser in the manner the Adviser considers to be the most equitable and
consistent with its fiduciary obligations to the Portfolio and to its other
clients.
E. The Adviser will maintain all accounts, books and records with
respect to the Portfolio as are required of an investment adviser of a
registered investment company pursuant to the Investment Company Act and
Advisers Act and the rules thereunder.
3. COMPENSATION OF ADVISER
The Manager will pay the Adviser, with respect to the Portfolio, the
compensation specified in Appendix A to this Agreement. Payments shall be made
to the Adviser on the first day of each month; however, this advisory fee will
be calculated on the daily average value of the Portfolio's assets and accrued
on a daily basis.
4. LIABILITY OF ADVISER
Neither the Adviser nor any of its directors, officers, or employees
shall be liable to the Manager for any loss suffered by the Manager resulting
from its acts or omissions as Adviser to the Portfolio, except for losses to
the Manager or the Trust resulting from willful misconduct, bad faith, or
gross negligence in the performance of, or from reckless disregard of, the
duties of the Adviser or any of its directors, officers or employees. The
Adviser, its directors, officers or employees shall not be liable to the
Manager or the Trust for any loss suffered as a consequence of any action or
inaction of other service providers to the Trust in failing to observe the
instructions of the Adviser, provided such action or inaction of such other
service providers to the Trust is not a result of the willful misconduct, bad
faith or gross negligence in the performance of, or from reckless disregard
of, the duties of the Adviser under this Agreement.
5. NON-EXCLUSIVITY
The services of the Adviser to the Portfolio and the Trust are not to
be deemed to be exclusive, and the Adviser shall be free to render investment
advisory or other services to others (including other investment companies)
and to engage in other activities so long as the services provided hereunder
by the Adviser are not impaired. It is understood and agreed that the
directors, officers, and employees of the Adviser are not prohibited from
engaging in any other business activity or from rendering services to any
other person, or from serving as partners, officers, directors, trustees, or
employees of any other firm or corporation, including other investment
companies.
6. SUPPLEMENTAL ARRANGEMENTS
The Adviser may enter into arrangements with other persons affiliated
with the Adviser for the provision of certain personnel and facilities to the
Adviser to better enable it to fulfill its duties and obligations under this
Agreement.
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7. REGULATION
The Adviser shall submit to all regulatory and administrative bodies
having jurisdiction over the services provided pursuant to this Agreement any
information, reports, or other material which any such body by reason of this
Agreement may request or require pursuant to applicable laws and regulations.
8. RECORDS
The records relating to the services provided under this Agreement
shall be the property of the Trust and shall be under its control; however,
the Trust shall furnish to the Adviser such records and permit it to retain
such records (either in original or in duplicate form) as it shall reasonably
require in order to carry out its duties. In the event of the termination of
this Agreement, such records shall promptly be returned to the Trust by the
Adviser free from any claim or retention of rights therein. The Adviser shall
keep confidential any information obtained in connection with its duties
hereunder and disclose such information only if the Trust has authorized such
disclosure or if such disclosure is expressly required or requested by
applicable federal or state regulatory authorities.
9. DURATION OF AGREEMENT
This Agreement shall become effective with respect to the Portfolio
on the later of the date of its execution or the date of the meeting of the
shareholders of the Portfolio, which for this purpose may be the sole initial
shareholder of the Portfolio, at which meeting the Agreement is approved by
the vote of a majority of the outstanding voting securities (as defined in the
Investment Company Act) of the Portfolio. This Agreement will continue in
effect for a period more than two years from the date of its execution only so
long as such continuance is specifically approved at least annually either by
the Board of Trustees or by a majority of the outstanding voting securities of
the Portfolio, provided that in either event such continuance shall also be
approved by the vote of a majority of the Trustees who are not "interested
persons" (as defined in the Investment Company Act) ("Independent Trustees")
of any party to this Agreement cast in person at a meeting called for the
purpose of voting on such approval. The required shareholder approval of the
Agreement or of any continuance of the Agreement shall be effective with
respect to the Portfolio if a majority of the outstanding voting securities of
the series (as defined in Rule 18f-2(h) under the Investment Company Act) of
shares of the Portfolio votes to approve the Agreement or its continuance,
notwithstanding that the Agreement or its continuance may not have been
approved by a majority of the outstanding voting securities of (a) any other
portfolio affected by the Agreement or (b) all the portfolios of the Trust.
If the shareholders of the Portfolio fail to approve the Agreement or
any continuance of the Agreement, the Adviser will continue to act as
investment adviser with respect to the Portfolio pending the required approval
of the Agreement or its continuance or of any contract with the Adviser or a
different adviser or subadviser or other definitive action; provided, that the
compensation received by the Adviser in respect of the Portfolio during the
period will be in compliance with Rule 15a-4 under the Investment Company Act.
5
<PAGE>
10. TERMINATION OF AGREEMENT
This Agreement may be terminated at any time, without the payment of
any penalty, by the Board of Trustees, including a majority of the Independent
Trustees, by the vote of a majority of the outstanding voting securities of
the Portfolio, on sixty (60) days' written notice to the Manager and the
Adviser, or by the Manager or Adviser on sixty (60) days' written notice to
the Trust and the other party. This Agreement will automatically terminate,
without the payment of any penalty, in the event of its assignment (as defined
in the Investment Company Act) or in the event the Investment Management
Agreement between the Manager and the Trust is assigned or terminates for any
other reason. This Agreement will also terminate upon written notice to the
other party that the other party is in material breach of this Agreement,
unless the other party in material breach of this Agreement cures such breach
to the reasonable satisfaction of the party alleging the breach within thirty
(30) days after written notice.
11. PROVISION OF CERTAIN INFORMATION BY ADVISER
The Adviser will promptly notify the Manager in writing of the
occurrence of any of the following events:
A. the Adviser fails to be registered as an investment adviser under
the Advisers Act or under the laws of any jurisdiction in which the Adviser is
required to be registered as an investment adviser in order to perform its
obligations under this Agreement;
B. the Adviser is served or otherwise receives notice of any action,
suit, proceeding, inquiry, or investigation, at law or in equity, before or by
any court, public board, or body, involving the affairs of the Trust; and/or
C. the chief executive officer or controlling stockholder of the
Adviser or the portfolio manager of the Portfolio changes or there is
otherwise an actual change in control or management of the Adviser.
12. USE OF ADVISER'S NAME
The Manager will not use the Adviser's name (or that of any
affiliate) in Trust literature without prior review and approval by the
Adviser, which may not be unreasonably withheld or delayed.
13. AMENDMENTS TO THE AGREEMENT
Except to the extent permitted by the Investment Company Act or the
rules or regulations thereunder or pursuant to any exemptive relief granted by
the Securities and Exchange Commission ("SEC"), this Agreement may be amended
by the parties only if such amendment, if material, is specifically approved
by the vote of a majority of the outstanding voting securities
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<PAGE>
of the Portfolio (unless such approval is not required by Section 15 of the
Investment Company Act as interpreted by the SEC or its staff) and by the vote
of a majority of the Independent Trustees cast in person at a meeting called
for the purpose of voting on such approval. The required shareholder approval
shall be effective with respect to the Portfolio if a majority of the
outstanding voting securities of the Portfolio vote to approve the amendment,
notwithstanding that the amendment may not have been approved by a majority of
the outstanding voting securities of any other portfolio affected by the
amendment or all the portfolios of the Trust.
14. ENTIRE AGREEMENT
This Agreement contains the entire understanding and agreement of the
parties with respect to the Portfolio listed in Appendix A.
15. HEADINGS
The headings in the sections of this Agreement are inserted for
convenience of reference only and shall not constitute a part hereof.
16. NOTICES
All notices required to be given pursuant to this Agreement shall be
delivered or mailed to the last known business address of each applicable
party in person or by registered mail or a private mail or delivery service
providing the sender with notice of receipt. The specific person to whom
notice shall be provided for each party will be specified in writing to the
other party. Notice shall be deemed given on the date delivered or mailed in
accordance with this paragraph.
17. SEVERABILITY
Should any portion of this Agreement for any reason be held to be
void in law or in equity, the Agreement shall be construed, insofar as is
possible, as if such portion had never been contained herein.
18. GOVERNING LAW
The provisions of this Agreement shall be construed and interpreted
in accordance with the laws of the State of Delaware, or any of the applicable
provisions of the Investment Company Act. To the extent that the laws of the
State of Delaware, or any of the provisions in this Agreement, conflict with
applicable provisions of the Investment Company Act, the latter shall control.
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<PAGE>
Any question of interpretation of any term or provision of this
Agreement having a counterpart in or otherwise derived from a term or
provision of the Investment Company Act shall be resolved by reference to such
term or provision of the Investment Company Act and to interpretations
thereof, if any, by the United States courts or, in the absence of any
controlling decision of any such court, by rules, regulations or orders of the
SEC validly issued pursuant to the Investment Company Act. Specifically, the
terms "vote of a majority of the outstanding voting securities," "interested
persons," "assignment," and "affiliated persons," as used herein shall have
the meanings assigned to them by Section 2(a) of the Investment Company Act.
In addition, where the effect of a requirement of the Investment Company Act
reflected in any provision of this Agreement is relaxed by a rule, regulation
or order of the SEC, whether of special or of general application, such
provision shall be deemed to incorporate the effect of such rule, regulation
or order.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed under seal by their duly authorized officers as of the date first
mentioned above.
EQ FINANCIAL CONSULTANTS, INC.
By:_________________________________
[Name, Title]
ROWE PRICE-FLEMING INTERNATIONAL, INC.
By:___________________________________
[Name, Title]
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<PAGE>
APPENDIX A
The Manager shall pay the Adviser, at the end of each calendar month,
compensation computed at an annual rate equal to the following:
<TABLE>
<CAPTION>
Portfolio Advisory Fee
- --------- ------------
<S> <C>
T. Rowe Price International Stock Portfolio .75% of the Portfolio's average daily net
assets up to and including $20 million;
.60% of the Portfolio's average daily net
assets over $20 million and up to and
including $50 million; and .50% of the
Portfolio's average daily net assets in excess
of $50 million.
</TABLE>
date: _____________ __, 1997
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<PAGE>
EXHIBIT 5(D)
FORM OF
INVESTMENT ADVISORY AGREEMENT
AGREEMENT, dated as of _____________ __, 1997 by and between EQ
Financial Consultants, Inc., a Delaware corporation ("EQ Financial" or the
"Manager"), and Putnam Investment Management, Inc., a Massachusetts
corporation (the "Adviser").
WHEREAS, 787 Trust (the "Trust") is registered as an investment
company under the Investment Company Act of 1940, as amended (the "Investment
Company Act");
WHEREAS, the Trust's shareholders are and will be separate accounts
maintained by insurance companies for variable life insurance policies and
variable annuity contracts (the "Policies") under which income, gains, and
losses, whether or not realized, from assets allocated to such accounts are,
in accordance with the Policies, credited to or charged against such accounts
without regard to other income, gains, or losses of such insurance companies;
WHEREAS, the Trust is and will continue to be a series fund having
two or more investment portfolios, each with its own investment objectives,
policies and restrictions;
WHEREAS, EQ Financial is registered as an investment adviser under
the Investment Advisers Act of 1940, as amended ("Advisers Act") and is the
investment manager to the Trust;
WHEREAS, the Adviser is registered as an investment adviser under the
Advisers Act;
WHEREAS, the Investment Company Act prohibits any person from acting
as an investment adviser to a registered investment company except pursuant to
a written contract (the "Agreement"); and
WHEREAS, the Board of Trustees of the Trust and EQ Financial desire
to retain the Adviser to render investment advisory services to the portfolio
specified in Appendix A hereto ("Portfolio") in the manner and on the terms
hereinafter set forth;
NOW, THEREFORE, EQ Financial and Adviser agree as follows:
1. APPOINTMENT OF ADVISER
The Manager hereby appoints the Adviser to act as investment adviser
for the Portfolio and to manage the investment and reinvestment of the assets
of the Portfolio, subject to the supervision of the Trustees of the Trust and
the terms and conditions of this Agreement. The Adviser will be an independent
contractor and will have no authority to act for or represent the Trust or
Manager in any way or otherwise be deemed an agent of the Trust or Manager
except as expressly authorized in this Agreement or another writing by the
Trust, Manager and the Adviser.
<PAGE>
2. SERVICES TO BE RENDERED BY THE ADVISER TO THE TRUST
A. The Adviser will manage the investment and reinvestment of the
assets of the Portfolio and determine the composition of the assets of the
Portfolio, subject always to the direction and control of the Trustees of the
Trust and the Manager and in accordance with the provisions of the Trust's
registration statement, as amended from time to time. In fulfilling its
obligations to manage the investment and reinvestment of the assets of the
Portfolio, the Adviser will:
(i) obtain and evaluate pertinent economic, statistical,
financial, and other information affecting the economy generally and
individual companies or industries, the securities of which are
included in the Portfolio or are under consideration for inclusion in
the Portfolio;
(ii) formulate and implement a continuous investment program
for the Portfolio (a) consistent with the investment objectives,
policies and restrictions of the Portfolio as stated in the Trust's
Agreement and Declaration of Trust, By-Laws, and such Portfolio's
currently effective Prospectus and Statement of Additional
Information ("SAI") as amended from time to time, and (b) in
compliance with the requirements applicable to both regulated
investment companies and segregated asset accounts under Subchapters
M and L of the Internal Revenue Code of 1986, as amended;
(iii) take whatever steps are necessary to implement the
investment program for the Portfolio by the purchase and sale of
securities and other investments authorized under the Trust's
Agreement and Declaration of Trust, By-Laws, and such Portfolio's
currently effective Prospectus and SAI, including the placing of
orders for such purchases and sales;
(iv) regularly report to the Trustees of the Trust and the
Manager with respect to the implementation of the investment program
and, in addition, provide such statistical information and special
reports concerning the Portfolio and/or important developments
materially affecting the investments held, or contemplated to be
purchased, by the Portfolio, as may reasonably be requested by the
Manager or the Trustees of the Trust, including attendance at Board
of Trustees Meetings, as reasonably requested, to present such
information and reports to the Board;
(v) provide determinations of the fair value of certain
portfolio securities when market quotations are not readily available
for the purpose of calculating the Portfolio's net asset value in
accordance with procedures and methods established by the Trustees of
the Trust;
(vi) provide any and all information, records and supporting
documentation about accounts the Adviser manages that have investment
objectives, policies, and strategies substantially similar to those
employed by the Adviser in managing the Portfolio which may be
reasonably necessary, under applicable laws, to allow the Portfolio
or its agent to present information concerning the Adviser's prior
performance
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<PAGE>
in the Prospectus and the SAI of the Portfolio and any permissible
reports and materials prepared by the Portfolio or its agent; and
(vii) establish appropriate interfaces with the Trust's
administrator and Manager in order to provide such administrator and
Manager with all necessary information requested by the administrator
and Manager.
B. The Adviser, at its expense, will furnish: (i) all necessary
investment and management facilities and investment personnel, including
salaries, expenses and fees of any personnel required for it to faithfully
perform its duties under this Agreement; and (ii) administrative facilities,
including bookkeeping, clerical personnel and equipment necessary for the
efficient conduct of the investment affairs of the Portfolio (excluding that
necessary for the determination of net asset value and shareholder accounting
services).
C. The Adviser will select brokers and dealers to effect all
portfolio transactions subject to the conditions set forth herein. The Adviser
will place all necessary orders with brokers, dealers, or issuers, and will
negotiate brokerage commissions if applicable. The Adviser is directed at all
times to seek to execute brokerage transactions for the Portfolio in
accordance with such policies or practices as may be established by the Board
of Trustees and described in the Trust's currently effective Prospectus and
SAI, as amended from time to time. In placing orders for the purchase or sale
of investments for the Portfolio, in the name of the Portfolio or its
nominees, the Adviser shall use its best efforts to obtain for the Portfolio
the most favorable price and best execution available, considering all of the
circumstances, and shall maintain records adequate to demonstrate compliance
with this requirement.
Subject to the appropriate policies and procedures approved by the
Board of Trustees, the Adviser may, to the extent authorized by Section 28(e)
of the Securities and Exchange Act of 1934, cause the Portfolio to pay a
broker or dealer that provides brokerage or research services to the Manager,
the Adviser, and the Portfolio an amount of commission for effecting a
portfolio transaction in excess of the amount of commission another broker or
dealer would have charged for effecting that transaction if the Adviser
determines, in good faith, that such amount of commission is reasonable in
relationship to the value of such brokerage or research services provided
viewed in terms of that particular transaction or the Adviser's overall
responsibilities to the Portfolio or its other advisory clients. To the extent
authorized by said Section 28(e) and the Trust's Board of Trustees, the
Adviser shall not be deemed to have acted unlawfully or to have breached any
duty created by this Agreement or otherwise solely by reason of such action.
In addition, subject to seeking the most favorable price and best execution
available, the Adviser may also consider sales of shares of the Trust as a
factor in the selection of brokers and dealers.
D. On occasions when the Adviser deems the purchase or sale of a
security to be in the best interest of the Portfolio as well as other clients
of the Adviser, the Adviser to the extent permitted by applicable laws and
regulations, may, but shall be under no obligation to, aggregate the
securities to be purchased or sold to attempt to obtain a more favorable price
or lower brokerage commissions and efficient execution. In such event,
allocation of the securities so purchased or sold, as well as the expenses
incurred in the transaction, will be made by the
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<PAGE>
Adviser in the manner the Adviser considers to be the most equitable and
consistent with its fiduciary obligations to the Portfolio and to its other
clients.
E. The Adviser will maintain all accounts, books and records with
respect to the Portfolio as are required of an investment adviser of a
registered investment company pursuant to the Investment Company Act and
Advisers Act and the rules thereunder.
3. COMPENSATION OF ADVISER
The Manager will pay the Adviser, with respect to the Portfolio, the
compensation specified in Appendix A to this Agreement. Payments shall be made
to the Adviser on the first day of each month; however, this advisory fee will
be calculated on the daily average value of the Portfolio's assets and accrued
on a daily basis.
4. LIABILITY OF ADVISER
Neither the Adviser nor any of its directors, officers, or employees
shall be liable to the Manager for any loss suffered by the Manager resulting
from its acts or omissions as Adviser to the Portfolio, except for losses to
the Manager or the Trust resulting from willful misconduct, bad faith, or
gross negligence in the performance of, or from reckless disregard of, the
duties of the Adviser or any of its directors, officers or employees. The
Adviser, its directors, officers or employees shall not be liable to the
Manager or the Trust for any loss suffered as a consequence of any action or
inaction of other service providers to the Trust in failing to observe the
instructions of the Adviser, provided such action or inaction of such other
service providers to the Trust is not a result of the willful misconduct, bad
faith or gross negligence in the performance of, or from reckless disregard
of, the duties of the Adviser under this Agreement.
5. NON-EXCLUSIVITY
The services of the Adviser to the Portfolio and the Trust are not to
be deemed to be exclusive, and the Adviser shall be free to render investment
advisory or other services to others (including other investment companies)
and to engage in other activities so long as the services provided hereunder
by the Adviser are not impaired. It is understood and agreed that the
directors, officers, and employees of the Adviser are not prohibited from
engaging in any other business activity or from rendering services to any
other person, or from serving as partners, officers, directors, trustees, or
employees of any other firm or corporation, including other investment
companies.
6. SUPPLEMENTAL ARRANGEMENTS
The Adviser may enter into arrangements with other persons affiliated
with the Adviser for the provision of certain personnel and facilities to the
Adviser to better enable it to fulfill its duties and obligations under this
Agreement.
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<PAGE>
7. REGULATION
The Adviser shall submit to all regulatory and administrative bodies
having jurisdiction over the services provided pursuant to this Agreement any
information, reports, or other material which any such body by reason of this
Agreement may request or require pursuant to applicable laws and regulations.
8. RECORDS
The records relating to the services provided under this Agreement
shall be the property of the Trust and shall be under its control; however,
the Trust shall furnish to the Adviser such records and permit it to retain
such records (either in original or in duplicate form) as it shall reasonably
require in order to carry out its duties. In the event of the termination of
this Agreement, such records shall promptly be returned to the Trust by the
Adviser free from any claim or retention of rights therein. The Adviser shall
keep confidential any information obtained in connection with its duties
hereunder and disclose such information only if the Trust has authorized such
disclosure or if such disclosure is expressly required or requested by
applicable federal or state regulatory authorities.
9. DURATION OF AGREEMENT
This Agreement shall become effective with respect to the Portfolio
on the later of the date of its execution or the date of the meeting of the
shareholders of the Portfolio, which for this purpose may be the sole initial
shareholder of the Portfolio, at which meeting the Agreement is approved by
the vote of a majority of the outstanding voting securities (as defined in the
Investment Company Act) of the Portfolio. This Agreement will continue in
effect for a period more than two years from the date of its execution only so
long as such continuance is specifically approved at least annually either by
the Board of Trustees or by a majority of the outstanding voting securities of
the Portfolio, provided that in either event such continuance shall also be
approved by the vote of a majority of the Trustees who are not "interested
persons" (as defined in the Investment Company Act) ("Independent Trustees")
of any party to this Agreement cast in person at a meeting called for the
purpose of voting on such approval. The required shareholder approval of the
Agreement or of any continuance of the Agreement shall be effective with
respect to the Portfolio if a majority of the outstanding voting securities of
the series (as defined in Rule 18f-2(h) under the Investment Company Act) of
shares of the Portfolio votes to approve the Agreement or its continuance,
notwithstanding that the Agreement or its continuance may not have been
approved by a majority of the outstanding voting securities of (a) any other
portfolio affected by the Agreement or (b) all the portfolios of the Trust.
If the shareholders of the Portfolio fail to approve the Agreement or
any continuance of the Agreement, the Adviser will continue to act as
investment adviser with respect to the Portfolio pending the required approval
of the Agreement or its continuance or of any contract with the Adviser or a
different adviser or subadviser or other definitive action; provided, that the
compensation received by the Adviser in respect of the Portfolio during the
period will be in compliance with Rule 15a-4 under the Investment Company Act.
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<PAGE>
10. TERMINATION OF AGREEMENT
This Agreement may be terminated at any time, without the payment of
any penalty, by the Board of Trustees, including a majority of the Independent
Trustees, by the vote of a majority of the outstanding voting securities of
the Portfolio, on sixty (60) days' written notice to the Manager and the
Adviser, or by the Manager or Adviser on sixty (60) days' written notice to
the Trust and the other party. This Agreement will automatically terminate,
without the payment of any penalty, in the event of its assignment (as defined
in the Investment Company Act) or in the event the Investment Management
Agreement between the Manager and the Trust is assigned or terminates for any
other reason. This Agreement will also terminate upon written notice to the
other party that the other party is in material breach of this Agreement,
unless the other party in material breach of this Agreement cures such breach
to the reasonable satisfaction of the party alleging the breach within thirty
(30) days after written notice.
11. PROVISION OF CERTAIN INFORMATION BY ADVISER
The Adviser will promptly notify the Manager in writing of the
occurrence of any of the following events:
A. the Adviser fails to be registered as an investment adviser under
the Advisers Act or under the laws of any jurisdiction in which the Adviser is
required to be registered as an investment adviser in order to perform its
obligations under this Agreement;
B. the Adviser is served or otherwise receives notice of any action,
suit, proceeding, inquiry, or investigation, at law or in equity, before or by
any court, public board, or body, involving the affairs of the Trust; and/or
C. the chief executive officer or controlling stockholder of the
Adviser or the portfolio manager of the Portfolio changes or there is
otherwise an actual change in control or management of the Adviser.
12. USE OF ADVISER'S NAME
The Manager will not use the Adviser's name (or that of any
affiliate) in Trust literature without prior review and approval by the
Adviser, which may not be unreasonably withheld or delayed.
13. AMENDMENTS TO THE AGREEMENT
Except to the extent permitted by the Investment Company Act or the
rules or regulations thereunder or pursuant to any exemptive relief granted by
the Securities and Exchange Commission ("SEC"), this Agreement may be amended
by the parties only if such amendment, if material, is specifically approved
by the vote of a majority of the outstanding voting securities
6
<PAGE>
of the Portfolio (unless such approval is not required by Section 15 of the
Investment Company Act as interpreted by the SEC or its staff) and by the vote
of a majority of the Independent Trustees cast in person at a meeting called
for the purpose of voting on such approval. The required shareholder approval
shall be effective with respect to the Portfolio if a majority of the
outstanding voting securities of the Portfolio vote to approve the amendment,
notwithstanding that the amendment may not have been approved by a majority of
the outstanding voting securities of any other portfolio affected by the
amendment or all the portfolios of the Trust.
14. ENTIRE AGREEMENT
This Agreement contains the entire understanding and agreement of the
parties with respect to the Portfolio listed in Appendix A.
15. HEADINGS
The headings in the sections of this Agreement are inserted for
convenience of reference only and shall not constitute a part hereof.
16. NOTICES
All notices required to be given pursuant to this Agreement shall be
delivered or mailed to the last known business address of each applicable
party in person or by registered mail or a private mail or delivery service
providing the sender with notice of receipt. The specific person to whom
notice shall be provided for each party will be specified in writing to the
other party. Notice shall be deemed given on the date delivered or mailed in
accordance with this paragraph.
17. SEVERABILITY
Should any portion of this Agreement for any reason be held to be
void in law or in equity, the Agreement shall be construed, insofar as is
possible, as if such portion had never been contained herein.
18. GOVERNING LAW
The provisions of this Agreement shall be construed and interpreted
in accordance with the laws of the State of Delaware, or any of the applicable
provisions of the Investment Company Act. To the extent that the laws of the
State of Delaware, or any of the provisions in this Agreement, conflict with
applicable provisions of the Investment Company Act, the latter shall control.
7
<PAGE>
Any question of interpretation of any term or provision of this
Agreement having a counterpart in or otherwise derived from a term or
provision of the Investment Company Act shall be resolved by reference to such
term or provision of the Investment Company Act and to interpretations
thereof, if any, by the United States courts or, in the absence of any
controlling decision of any such court, by rules, regulations or orders of the
SEC validly issued pursuant to the Investment Company Act. Specifically, the
terms "vote of a majority of the outstanding voting securities," "interested
persons," "assignment," and "affiliated persons," as used herein shall have
the meanings assigned to them by Section 2(a) of the Investment Company Act.
In addition, where the effect of a requirement of the Investment Company Act
reflected in any provision of this Agreement is relaxed by a rule, regulation
or order of the SEC, whether of special or of general application, such
provision shall be deemed to incorporate the effect of such rule, regulation
or order.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed under seal by their duly authorized officers as of the date first
mentioned above.
EQ FINANCIAL CONSULTANTS, INC.
By:_________________________________
[Name, Title]
PUTNAM INVESTMENT MANAGEMENT, INC.
By:___________________________________
[Name, Title]
8
<PAGE>
APPENDIX A
The Manager shall pay the Adviser, at the end of each calendar month,
compensation computed daily at an annual rate equal to the following:
<TABLE>
<CAPTION>
Portfolio Advisory Fee
- --------- ------------
<S> <C>
Putnam Growth and Income Portfolio .50% of the Portfolio's average daily net
assets up to and including $150 million;
.45% of the Portfolio's average daily net
assets over $150 million and up to and
including $300 million; and .35% of the
Portfolio's average daily net assets in excess
of $300 million.
Putnam International Growth Portfolio .65% of the Portfolio's average daily net
assets up to and including $150 million;
.55% of the Portfolio's average daily net
assets over $150 million and up to and
including $300 million; and .45% of the
Portfolio's average daily net assets in excess
of $300 million.
</TABLE>
date: ________________ __, 1997
9
<PAGE>
EXHIBIT 5(E)
FORM OF
INVESTMENT ADVISORY AGREEMENT
AGREEMENT, dated as of ________________ __, 1997, by and between EQ
Financial Consultants, Inc., a Delaware corporation ("EQ Financial" or the
"Manager"), and Massachusetts Financial Services Company, a Delaware
corporation (the "Adviser").
WHEREAS, 787 Trust (the "Trust") is registered as an investment
company under the Investment Company Act of 1940, as amended (the "Investment
Company Act");
WHEREAS, the Trust's shareholders are and will be separate accounts
maintained by insurance companies for variable life insurance policies and
variable annuity contracts (the "Policies") under which income, gains, and
losses, whether or not realized, from assets allocated to such accounts are,
in accordance with the Policies, credited to or charged against such accounts
without regard to other income, gains, or losses of such insurance companies;
WHEREAS, the Trust is and will continue to be a series fund having
two or more investment portfolios, each with its own investment objectives,
policies and restrictions;
WHEREAS, EQ Financial is registered as an investment adviser under
the Investment Advisers Act of 1940, as amended ("Advisers Act") and is the
investment manager to the Trust;
WHEREAS, the Adviser is registered as an investment adviser under the
Advisers Act;
WHEREAS, the Investment Company Act prohibits any person from acting
as an investment adviser to a registered investment company except pursuant to
a written contract (the "Agreement"); and
WHEREAS, the Board of Trustees of the Trust and EQ Financial desire
to retain the Adviser to render investment advisory services to the portfolio
specified in Appendix A hereto ("Portfolio") in the manner and on the terms
hereinafter set forth;
NOW, THEREFORE, EQ Financial and Adviser agree as follows:
1. APPOINTMENT OF ADVISER
The Manager hereby appoints the Adviser to act as investment adviser
for the Portfolio and to manage the investment and reinvestment of the assets
of the Portfolio, subject to the supervision of the Trustees of the Trust and
the terms and conditions of this Agreement. The Adviser will be an independent
contractor and will have no authority to act for or represent the Trust or
Manager in any way or otherwise be deemed an agent of the Trust or Manager
except as expressly authorized in this Agreement or another writing by the
Trust, Manager and the Adviser.
<PAGE>
2. SERVICES TO BE RENDERED BY THE ADVISER TO THE TRUST
A. The Adviser will manage the investment and reinvestment of the
assets of the Portfolio and determine the composition of the assets of the
Portfolio, subject always to the direction and control of the Trustees of the
Trust and the Manager and in accordance with the provisions of the Trust's
registration statement, as amended from time to time. In fulfilling its
obligations to manage the investment and reinvestment of the assets of the
Portfolio, the Adviser will:
(i) obtain and evaluate pertinent economic, statistical,
financial, and other information affecting the economy generally and
individual companies or industries, the securities of which are
included in the Portfolio or are under consideration for inclusion in
the Portfolio;
(ii) formulate and implement a continuous investment program
for the Portfolio (a) consistent with the investment objectives,
policies and restrictions of the Portfolio as stated in the Trust's
Agreement and Declaration of Trust, By-Laws, and such Portfolio's
currently effective Prospectus and Statement of Additional
Information ("SAI") as amended from time to time, and (b) in
compliance with the requirements applicable to both regulated
investment companies and segregated asset accounts under Subchapters
M and L of the Internal Revenue Code of 1986, as amended;
(iii) take whatever steps are necessary to implement the
investment program for the Portfolio by the purchase and sale of
securities and other investments authorized under the Trust's
Agreement and Declaration of Trust, By-Laws, and such Portfolio's
currently effective Prospectus and SAI, including the placing of
orders for such purchases and sales;
(iv) regularly report to the Trustees of the Trust and the
Manager with respect to the implementation of the investment program
and, in addition, provide such statistical information and special
reports concerning the Portfolio and/or important developments
materially affecting the investments held, or contemplated to be
purchased, by the Portfolio, as may reasonably be requested by the
Manager or the Trustees of the Trust, including attendance at Board
of Trustees Meetings, as reasonably requested, to present such
information and reports to the Board;
(v) provide determinations of the fair value of certain
portfolio securities when market quotations are not readily available
for the purpose of calculating the Portfolio's net asset value in
accordance with procedures and methods established by the Trustees of
the Trust;
(vi) provide any and all information, records and supporting
documentation about accounts the Adviser manages that have investment
objectives, policies, and strategies substantially similar to those
employed by the Adviser in managing the Portfolio which may be
reasonably necessary, under applicable laws, to allow the Portfolio
or its agent to present information concerning the Adviser's prior
performance
2
<PAGE>
in the Prospectus and the SAI of the Portfolio and any permissible
reports and materials prepared by the Portfolio or its agent; and
(vii) establish appropriate interfaces with the Trust's
administrator and Manager in order to provide such administrator and
Manager with all necessary information requested by the administrator
and Manager.
B. The Adviser, at its expense, will furnish: (i) all necessary
investment and management facilities and investment personnel, including
salaries, expenses and fees of any personnel required for it to faithfully
perform its duties under this Agreement; and (ii) administrative facilities,
including bookkeeping, clerical personnel and equipment necessary for the
efficient conduct of the investment affairs of the Portfolio (excluding that
necessary for the determination of net asset value and shareholder accounting
services).
C. The Adviser will select brokers and dealers to effect all
portfolio transactions subject to the conditions set forth herein. The Adviser
will place all necessary orders with brokers, dealers, or issuers, and will
negotiate brokerage commissions if applicable. The Adviser is directed at all
times to seek to execute brokerage transactions for the Portfolio in
accordance with such policies or practices as may be established by the Board
of Trustees and described in the Trust's currently effective Prospectus and
SAI, as amended from time to time. In placing orders for the purchase or sale
of investments for the Portfolio, in the name of the Portfolio or its
nominees, the Adviser shall use its best efforts to obtain for the Portfolio
the most favorable price and best execution available, considering all of the
circumstances, and shall maintain records adequate to demonstrate compliance
with this requirement.
Subject to the appropriate policies and procedures approved by the
Board of Trustees, the Adviser may, to the extent authorized by Section 28(e)
of the Securities and Exchange Act of 1934, cause the Portfolio to pay a
broker or dealer that provides brokerage or research services to the Manager,
the Adviser, and the Portfolio an amount of commission for effecting a
portfolio transaction in excess of the amount of commission another broker or
dealer would have charged for effecting that transaction if the Adviser
determines, in good faith, that such amount of commission is reasonable in
relationship to the value of such brokerage or research services provided
viewed in terms of that particular transaction or the Adviser's overall
responsibilities to the Portfolio or its other advisory clients. To the extent
authorized by said Section 28(e) and the Trust's Board of Trustees, the
Adviser shall not be deemed to have acted unlawfully or to have breached any
duty created by this Agreement or otherwise solely by reason of such action.
In addition, subject to seeking the most favorable price and best execution
available, the Adviser may also consider sales of shares of the Trust as a
factor in the selection of brokers and dealers.
D. On occasions when the Adviser deems the purchase or sale of a
security to be in the best interest of the Portfolio as well as other clients
of the Adviser, the Adviser to the extent permitted by applicable laws and
regulations, may, but shall be under no obligation to, aggregate the
securities to be purchased or sold to attempt to obtain a more favorable price
or lower brokerage commissions and efficient execution. In such event,
allocation of the securities so purchased or sold, as well as the expenses
incurred in the transaction, will be made by the
3
<PAGE>
Adviser in the manner the Adviser considers to be the most equitable and
consistent with its fiduciary obligations to the Portfolio and to its other
clients.
E. The Adviser will maintain all accounts, books and records with
respect to the Portfolio as are required of an investment adviser of a
registered investment company pursuant to the Investment Company Act and
Advisers Act and the rules thereunder.
3. COMPENSATION OF ADVISER
The Manager will pay the Adviser, with respect to the Portfolio, the
compensation specified in Appendix A to this Agreement. Payments shall be made
to the Adviser on the first day of each month; however, this advisory fee will
be calculated on the daily average value of the Portfolio's assets and accrued
on a daily basis.
4. LIABILITY OF ADVISER
Neither the Adviser nor any of its directors, officers, or employees
shall be liable to the Manager for any loss suffered by the Manager resulting
from its acts or omissions as Adviser to the Portfolio, except for losses to
the Manager or the Trust resulting from willful misconduct, bad faith, or
gross negligence in the performance of, or from reckless disregard of, the
duties of the Adviser or any of its directors, officers or employees. The
Adviser, its directors, officers or employees shall not be liable to the
Manager or the Trust for any loss suffered as a consequence of any action or
inaction of other service providers to the Trust in failing to observe the
instructions of the Adviser, provided such action or inaction of such other
service providers to the Trust is not a result of the willful misconduct, bad
faith or gross negligence in the performance of, or from reckless disregard
of, the duties of the Adviser under this Agreement.
5. NON-EXCLUSIVITY
The services of the Adviser to the Portfolio and the Trust are not to
be deemed to be exclusive, and the Adviser shall be free to render investment
advisory or other services to others (including other investment companies)
and to engage in other activities so long as the services provided hereunder
by the Adviser are not impaired. It is understood and agreed that the
directors, officers, and employees of the Adviser are not prohibited from
engaging in any other business activity or from rendering services to any
other person, or from serving as partners, officers, directors, trustees, or
employees of any other firm or corporation, including other investment
companies.
6. SUPPLEMENTAL ARRANGEMENTS
The Adviser may enter into arrangements with other persons affiliated
with the Adviser for the provision of certain personnel and facilities to the
Adviser to better enable it to fulfill its duties and obligations under this
Agreement.
4
<PAGE>
7. REGULATION
The Adviser shall submit to all regulatory and administrative bodies
having jurisdiction over the services provided pursuant to this Agreement any
information, reports, or other material which any such body by reason of this
Agreement may request or require pursuant to applicable laws and regulations.
8. RECORDS
The records relating to the services provided under this Agreement
shall be the property of the Trust and shall be under its control; however,
the Trust shall furnish to the Adviser such records and permit it to retain
such records (either in original or in duplicate form) as it shall reasonably
require in order to carry out its duties. In the event of the termination of
this Agreement, such records shall promptly be returned to the Trust by the
Adviser free from any claim or retention of rights therein. The Adviser shall
keep confidential any information obtained in connection with its duties
hereunder and disclose such information only if the Trust has authorized such
disclosure or if such disclosure is expressly required or requested by
applicable federal or state regulatory authorities.
9. DURATION OF AGREEMENT
This Agreement shall become effective with respect to the Portfolio
on the later of the date of its execution or the date of the meeting of the
shareholders of the Portfolio, which for this purpose may be the sole initial
shareholder of the Portfolio, at which meeting the Agreement is approved by
the vote of a majority of the outstanding voting securities (as defined in the
Investment Company Act) of the Portfolio. This Agreement will continue in
effect for a period more than two years from the date of its execution only so
long as such continuance is specifically approved at least annually either by
the Board of Trustees or by a majority of the outstanding voting securities of
the Portfolio, provided that in either event such continuance shall also be
approved by the vote of a majority of the Trustees who are not "interested
persons" (as defined in the Investment Company Act) ("Independent Trustees")
of any party to this Agreement cast in person at a meeting called for the
purpose of voting on such approval. The required shareholder approval of the
Agreement or of any continuance of the Agreement shall be effective with
respect to the Portfolio if a majority of the outstanding voting securities of
the series (as defined in Rule 18f-2(h) under the Investment Company Act) of
shares of the Portfolio votes to approve the Agreement or its continuance,
notwithstanding that the Agreement or its continuance may not have been
approved by a majority of the outstanding voting securities of (a) any other
portfolio affected by the Agreement or (b) all the portfolios of the Trust.
If the shareholders of the Portfolio fail to approve the Agreement or
any continuance of the Agreement, the Adviser will continue to act as
investment adviser with respect to the Portfolio pending the required approval
of the Agreement or its continuance or of any contract with the Adviser or a
different adviser or subadviser or other definitive action; provided, that the
compensation received by the Adviser in respect of the Portfolio during the
period will be in compliance with Rule 15a-4 under the Investment Company Act.
5
<PAGE>
10. TERMINATION OF AGREEMENT
This Agreement may be terminated at any time, without the payment of
any penalty, by the Board of Trustees, including a majority of the Independent
Trustees, by the vote of a majority of the outstanding voting securities of
the Portfolio, on sixty (60) days' written notice to the Manager and the
Adviser, or by the Manager or Adviser on sixty (60) days' written notice to
the Trust and the other party. This Agreement will automatically terminate,
without the payment of any penalty, in the event of its assignment (as defined
in the Investment Company Act) or in the event the Investment Management
Agreement between the Manager and the Trust is assigned or terminates for any
other reason. This Agreement will also terminate upon written notice to the
other party that the other party is in material breach of this Agreement,
unless the other party in material breach of this Agreement cures such breach
to the reasonable satisfaction of the party alleging the breach within thirty
(30) days after written notice.
11. PROVISION OF CERTAIN INFORMATION BY ADVISER
The Adviser will promptly notify the Manager in writing of the
occurrence of any of the following events:
A. the Adviser fails to be registered as an investment adviser under
the Advisers Act or under the laws of any jurisdiction in which the Adviser is
required to be registered as an investment adviser in order to perform its
obligations under this Agreement;
B. the Adviser is served or otherwise receives notice of any action,
suit, proceeding, inquiry, or investigation, at law or in equity, before or by
any court, public board, or body, involving the affairs of the Trust; and/or
C. the chief executive officer or controlling stockholder of the
Adviser or the portfolio manager of the Portfolio changes or there is
otherwise an actual change in control or management of the Adviser.
12. USE OF ADVISER'S NAME
The Manager will not use the Adviser's name (or that of any
affiliate) in Trust literature without prior review and approval by the
Adviser, which may not be unreasonably withheld or delayed.
13. AMENDMENTS TO THE AGREEMENT
Except to the extent permitted by the Investment Company Act or the
rules or regulations thereunder or pursuant to any exemptive relief granted by
the Securities and Exchange Commission ("SEC"), this Agreement may be amended
by the parties only if such amendment, if material, is specifically approved
by the vote of a majority of the outstanding voting securities
6
<PAGE>
of the Portfolio (unless such approval is not required by Section 15 of the
Investment Company Act as interpreted by the SEC or its staff) and by the vote
of a majority of the Independent Trustees cast in person at a meeting called
for the purpose of voting on such approval. The required shareholder approval
shall be effective with respect to the Portfolio if a majority of the
outstanding voting securities of the Portfolio vote to approve the amendment,
notwithstanding that the amendment may not have been approved by a majority of
the outstanding voting securities of any other portfolio affected by the
amendment or all the portfolios of the Trust.
14. ENTIRE AGREEMENT
This Agreement contains the entire understanding and agreement of the
parties with respect to the Portfolio listed in Appendix A.
15. HEADINGS
The headings in the sections of this Agreement are inserted for
convenience of reference only and shall not constitute a part hereof.
16. NOTICES
All notices required to be given pursuant to this Agreement shall be
delivered or mailed to the last known business address of each applicable
party in person or by registered mail or a private mail or delivery service
providing the sender with notice of receipt. The specific person to whom
notice shall be provided for each party will be specified in writing to the
other party. Notice shall be deemed given on the date delivered or mailed in
accordance with this paragraph.
17. SEVERABILITY
Should any portion of this Agreement for any reason be held to be
void in law or in equity, the Agreement shall be construed, insofar as is
possible, as if such portion had never been contained herein.
18. GOVERNING LAW
The provisions of this Agreement shall be construed and interpreted
in accordance with the laws of the State of Delaware, or any of the applicable
provisions of the Investment Company Act. To the extent that the laws of the
State of Delaware, or any of the provisions in this Agreement, conflict with
applicable provisions of the Investment Company Act, the latter shall control.
7
<PAGE>
Any question of interpretation of any term or provision of this
Agreement having a counterpart in or otherwise derived from a term or
provision of the Investment Company Act shall be resolved by reference to such
term or provision of the Investment Company Act and to interpretations
thereof, if any, by the United States courts or, in the absence of any
controlling decision of any such court, by rules, regulations or orders of the
SEC validly issued pursuant to the Investment Company Act. Specifically, the
terms "vote of a majority of the outstanding voting securities," "interested
persons," "assignment," and "affiliated persons," as used herein shall have
the meanings assigned to them by Section 2(a) of the Investment Company Act.
In addition, where the effect of a requirement of the Investment Company Act
reflected in any provision of this Agreement is relaxed by a rule, regulation
or order of the SEC, whether of special or of general application, such
provision shall be deemed to incorporate the effect of such rule, regulation
or order.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed under seal by their duly authorized officers as of the date first
mentioned above.
EQ FINANCIAL CONSULTANTS, INC.
By:______________________________________
[Name, Title]
MASSACHUSETTS FINANCIAL SERVICES COMPANY
By:______________________________________
[Name, Title]
8
<PAGE>
APPENDIX A
The Manager shall pay the Adviser, at the end of each calendar month,
compensation computed daily at an annual rate equal to the following:
<TABLE>
<CAPTION>
Portfolio Advisory Fee
- --------- ------------
<S> <C>
MFS Research Portfolio .40% of the Portfolio's average daily net
assets up to and including $150 million;
.375% of the Portfolio's average daily net
assets over $150 million and up to and
including $300 million; and .35% of the
Portfolio's average daily net assets in excess
of $300 million.
</TABLE>
date: ______________ __, 1997
9
<PAGE>
EXHIBIT 9(B)
FORM OF EXPENSE LIMITATION AGREEMENT
EXPENSE LIMITATION AGREEMENT, effective as of ________ __, 1997,
between EQ Financial Services, Inc., a Delaware corporation (the "Adviser"),
and the 787 Trust, a Delaware business trust (the "Trust"), on behalf of the
T. Rowe Price International Stock Portfolio (the "Portfolio").
WHEREAS, the Trust is registered under the Investment Company Act of
1940, as amended (the "Investment Company Act"), as an open-end diversified
management company of the series type, and the Portfolio is one of the series
of the Trust; and
WHEREAS, the Trust and the Adviser have entered into an Investment
Advisory Agreement (the "Advisory Agreement"), pursuant to which the Adviser
will render investment advisory services to the Portfolio for compensation
based on the value of the average daily net assets of the Portfolio; and
WHEREAS, the Trust and the Adviser have determined that it is
appropriate and in the best interests of the Portfolio and its shareholders to
maintain the expenses of the Portfolio at a level below the level to which the
Portfolio would normally be subject during its start-up period.
NOW THEREFORE, the parties hereto agree as follows:
1. Expense Limitation
1.1 Applicable Expense Limit. To the extent that the aggregate
expenses of every character incurred by the Portfolio in any fiscal year,
including but not limited to investment advisory fees of the Adviser (but
excluding interest, taxes, brokerage commissions, and other expenditures which
are capitalized in accordance with generally accepted accounting principles,
and other extraordinary expenses not incurred in the ordinary course of the
Portfolio's business) ("Portfolio Operating Expenses"), exceed the Operating
Expense Limit, as defined in Section 1.2 below, such excess amount (the
"Excess Amount") shall be the liability of the Adviser.
1.2 Operating Expense Limit. The Operating Expense Limit in any year
shall be 0.[xx]% of the average daily net assets of the Portfolio, or such
other rate as may be agreed to in writing by the parties.
1.3 Method of Computation. To determine the Adviser's liability with
respect to the Excess Amount, each month the Portfolio Operating Expenses for
the Portfolio shall be annualized as of the last day of the month. If the
annualized Portfolio Operating Expenses for any month exceed the Operating
Expense Limit, the Adviser shall first waive or reduce its investment
management fee for such month by an amount sufficient to reduce the annualized
Portfolio Operating Expenses to an amount no higher than the Operating Expense
Limit. If the
<PAGE>
amount of the waived or reduced investment management fee for any such month
is insufficient to pay the Excess Amount, the Adviser also shall remit to the
Portfolio an amount that, together with the waived or reduced advisory fee, is
sufficient to pay such Excess Amount.
1.4 Year-End Adjustment. If necessary, on or before the last day of
the first month of each fiscal year, an adjustment payment shall be made by
the appropriate party in order that the amount of the advisory fees waived or
reduced and other payments remitted by the Adviser to the Portfolio with
respect to the previous fiscal year shall equal the Excess Amount.
2. Reimbursement of Fee Waivers and Expense Reimbursements.
2.1 Reimbursement. If in any year during which total Portfolio assets
are greater than $___________ million and in which the Advisory Agreement is
still in effect, the estimated aggregate Portfolio Operating Expenses for the
fiscal year are less than the Operating Expense Limit for that year, subject
to quarterly approval by the Trust's Board of Trustees as provided in Section
2.2 below, the Adviser shall be entitled to reimbursement by the Portfolio, in
whole or in part as provided below, of the management fees waived or reduced
and other payments remitted by the Adviser to the Portfolio pursuant to
Section 1 hereof. The total amount of reimbursement to which the Adviser may
be entitled (the "Reimbursement Amount") shall equal, at any time, the sum of
all investment management fees previously waived or reduced by the Adviser and
all other payments remitted by the Adviser to the Portfolio, pursuant to
Section 1 hereof, during any of the previous [two (2)] fiscal years, less any
reimbursement previously paid by the Portfolio to the Adviser, pursuant to
Sections 2.2 or 2.3 hereof, with respect to such waivers, reductions, and
payments. The Reimbursement Amount shall not include any additional charges or
fees whatsoever, including, e.g., interest accruable on the Reimbursement
Amount.
2.2 Board Approval. No reimbursement shall be paid to the Adviser
pursuant to this provision in any semi-annual period, unless the Trust's Board
of Trustees has determined that the payment of such reimbursement is in the
best interests of the Portfolio and its shareholders. The Trust's Board of
Trustees shall determine at least semi-annually in advance whether any
reimbursement may be paid to the Adviser for such period.
2.3 Method of Computation. To determine the Portfolio's payments, if
any, to reimburse the Adviser for the Reimbursement Amount, each month the
Portfolio Operating Expenses shall be annualized as of the last day of the
month. If the annualized Portfolio Operating Expenses for any month are less
than the Operating Expense Limit, the Portfolio shall pay to the Adviser an
amount sufficient to increase the annualized Portfolio Operating Expenses to
an amount no greater than the Operating Expense Limit, provided that such
amount paid to the Adviser will in no event exceed the total Reimbursement
Amount.
2.4 Year-End Adjustment. If necessary, on or before the last day of
the first month of each fiscal year, an adjustment payment shall be made by
the appropriate party in order that the actual Portfolio Operating Expenses
for the prior fiscal year (including any reimbursement payments hereunder with
respect to such fiscal year) do not exceed the Operating Expense Limit.
2
<PAGE>
3. Termination of Agreement.
This Agreement shall continue in effect for a period of one year from
the date of its execution and from year to year thereafter provided such
continuance is specifically approved by a majority of the Trustees of the
Trust who (a) are not "interested persons" of the Trust or any other party of
this Agreement, as defined in the Act, and (b) have no direct or indirect
financial interest in the operation of this Agreement ("Non-Interest
Trustees"). Nevertheless, this Agreement may be terminated by either party
hereto, without payment of any penalty, upon 90 days' prior written notice to
the other party at its principal place of business; provided that, in the case
of termination by the Trust on behalf of the Portfolio, such action shall be
authorized by resolution of a majority of the Non-Interested Trustees of the
Trust or by a vote of a majority of the outstanding voting securities of the
Portfolio.
4. Miscellaneous.
4.1 Captions. The captions in this Agreement are included for
convenience of reference only and in no other way define or delineate any of
the provisions hereof or otherwise affect their construction or effect.
4.2 Interpretation. Nothing herein contained shall be deemed to
require the Portfolio or the Trust to take any action contrary to the Trust's
Agreement and Declaration of Trust or By-Laws, or any applicable statutory or
regulatory requirement to which it is subject or by which it is bound, or to
relieve or deprive the Trust's Board of Trustees of its responsibility for and
control of the conduct of the affairs of the Trust or the Portfolio.
4.3 Definitions. Any question of interpretation of any term or
provision of this Agreement, including but not limited to the investment
advisory fee, the computations of net asset values, and the allocation of
expenses, having a counterpart in or otherwise derived from the terms and
provisions of the Advisory Agreement, shall have the same meaning as and be
resolved by reference to such agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
signed by their respective officers thereunto duly authorized and their
respective corporate or trust seals to be hereunto affixed, as of the day and
year first above written.
ATTEST: 787 TRUST, ON BEHALF OF THE T. ROWE
PRICE INTERNATIONAL STOCK PORTFOLIO
___________________________ By:_________________________________
Secretary Title:______________________________
3
<PAGE>
ATTEST: EQ FINANCIAL SERVICES, INC.
___________________________ By:_________________________________
Secretary Title:______________________________
4
<PAGE>
EXHIBIT 9(C)
FORM OF EXPENSE LIMITATION AGREEMENT
EXPENSE LIMITATION AGREEMENT, effective as of ________ __, 1997,
between EQ Financial Services, Inc., a Delaware corporation (the "Adviser"),
and the 787 Trust, a Delaware business trust (the "Trust"), on behalf of the
T. Rowe Price Equity Income Portfolio (the "Portfolio").
WHEREAS, the Trust is registered under the Investment Company Act of
1940, as amended (the "Investment Company Act"), as an open-end diversified
management company of the series type, and the Portfolio is one of the series
of the Trust; and
WHEREAS, the Trust and the Adviser have entered into an Investment
Advisory Agreement (the "Advisory Agreement"), pursuant to which the Adviser
will render investment advisory services to the Portfolio for compensation
based on the value of the average daily net assets of the Portfolio; and
WHEREAS, the Trust and the Adviser have determined that it is
appropriate and in the best interests of the Portfolio and its shareholders to
maintain the expenses of the Portfolio at a level below the level to which the
Portfolio would normally be subject during its start-up period.
NOW THEREFORE, the parties hereto agree as follows:
1. Expense Limitation
1.1 Applicable Expense Limit. To the extent that the aggregate
expenses of every character incurred by the Portfolio in any fiscal year,
including but not limited to investment advisory fees of the Adviser (but
excluding interest, taxes, brokerage commissions, and other expenditures which
are capitalized in accordance with generally accepted accounting principles,
and other extraordinary expenses not incurred in the ordinary course of the
Portfolio's business) ("Portfolio Operating Expenses"), exceed the Operating
Expense Limit, as defined in Section 1.2 below, such excess amount (the
"Excess Amount") shall be the liability of the Adviser.
1.2 Operating Expense Limit. The Operating Expense Limit in any year
shall be 0.[xx]% of the average daily net assets of the Portfolio, or such
other rate as may be agreed to in writing by the parties.
1.3 Method of Computation. To determine the Adviser's liability with
respect to the Excess Amount, each month the Portfolio Operating Expenses for
the Portfolio shall be annualized as of the last day of the month. If the
annualized Portfolio Operating Expenses for any month exceed the Operating
Expense Limit, the Adviser shall first waive or reduce its investment
management fee for such month by an amount sufficient to reduce the annualized
Portfolio Operating Expenses to an amount no higher than the Operating Expense
Limit. If the
<PAGE>
amount of the waived or reduced investment management fee for any such month
is insufficient to pay the Excess Amount, the Adviser also shall remit to the
Portfolio an amount that, together with the waived or reduced advisory fee, is
sufficient to pay such Excess Amount.
1.4 Year-End Adjustment. If necessary, on or before the last day of
the first month of each fiscal year, an adjustment payment shall be made by
the appropriate party in order that the amount of the advisory fees waived or
reduced and other payments remitted by the Adviser to the Portfolio with
respect to the previous fiscal year shall equal the Excess Amount.
2. Reimbursement of Fee Waivers and Expense Reimbursements.
2.1 Reimbursement. If in any year during which total Portfolio assets
are greater than $___________ million and in which the Advisory Agreement is
still in effect, the estimated aggregate Portfolio Operating Expenses for the
fiscal year are less than the Operating Expense Limit for that year, subject
to quarterly approval by the Trust's Board of Trustees as provided in Section
2.2 below, the Adviser shall be entitled to reimbursement by the Portfolio, in
whole or in part as provided below, of the management fees waived or reduced
and other payments remitted by the Adviser to the Portfolio pursuant to
Section 1 hereof. The total amount of reimbursement to which the Adviser may
be entitled (the "Reimbursement Amount") shall equal, at any time, the sum of
all investment management fees previously waived or reduced by the Adviser and
all other payments remitted by the Adviser to the Portfolio, pursuant to
Section 1 hereof, during any of the previous [two (2)] fiscal years, less any
reimbursement previously paid by the Portfolio to the Adviser, pursuant to
Sections 2.2 or 2.3 hereof, with respect to such waivers, reductions, and
payments. The Reimbursement Amount shall not include any additional charges or
fees whatsoever, including, e.g., interest accruable on the Reimbursement
Amount.
2.2 Board Approval. No reimbursement shall be paid to the Adviser
pursuant to this provision in any semi-annual period, unless the Trust's Board
of Trustees has determined that the payment of such reimbursement is in the
best interests of the Portfolio and its shareholders. The Trust's Board of
Trustees shall determine at least semi-annually in advance whether any
reimbursement may be paid to the Adviser for such period.
2.3 Method of Computation. To determine the Portfolio's payments, if
any, to reimburse the Adviser for the Reimbursement Amount, each month the
Portfolio Operating Expenses shall be annualized as of the last day of the
month. If the annualized Portfolio Operating Expenses for any month are less
than the Operating Expense Limit, the Portfolio shall pay to the Adviser an
amount sufficient to increase the annualized Portfolio Operating Expenses to
an amount no greater than the Operating Expense Limit, provided that such
amount paid to the Adviser will in no event exceed the total Reimbursement
Amount.
2.4 Year-End Adjustment. If necessary, on or before the last day of
the first month of each fiscal year, an adjustment payment shall be made by
the appropriate party in order that the actual Portfolio Operating Expenses
for the prior fiscal year (including any reimbursement payments hereunder with
respect to such fiscal year) do not exceed the Operating Expense Limit.
2
<PAGE>
3. Termination of Agreement.
This Agreement shall continue in effect for a period of one year from
the date of its execution and from year to year thereafter provided such
continuance is specifically approved by a majority of the Trustees of the
Trust who (a) are not "interested persons" of the Trust or any other party of
this Agreement, as defined in the Act, and (b) have no direct or indirect
financial interest in the operation of this Agreement ("Non-Interest
Trustees"). Nevertheless, this Agreement may be terminated by either party
hereto, without payment of any penalty, upon 90 days' prior written notice to
the other party at its principal place of business; provided that, in the case
of termination by the Trust on behalf of the Portfolio, such action shall be
authorized by resolution of a majority of the Non-Interested Trustees of the
Trust or by a vote of a majority of the outstanding voting securities of the
Portfolio.
4. Miscellaneous.
4.1 Captions. The captions in this Agreement are included for
convenience of reference only and in no other way define or delineate any of
the provisions hereof or otherwise affect their construction or effect.
4.2 Interpretation. Nothing herein contained shall be deemed to
require the Portfolio or the Trust to take any action contrary to the Trust's
Agreement and Declaration of Trust or By-Laws, or any applicable statutory or
regulatory requirement to which it is subject or by which it is bound, or to
relieve or deprive the Trust's Board of Trustees of its responsibility for and
control of the conduct of the affairs of the Trust or the Portfolio.
4.3 Definitions. Any question of interpretation of any term or
provision of this Agreement, including but not limited to the investment
advisory fee, the computations of net asset values, and the allocation of
expenses, having a counterpart in or otherwise derived from the terms and
provisions of the Advisory Agreement, shall have the same meaning as and be
resolved by reference to such agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
signed by their respective officers thereunto duly authorized and their
respective corporate or trust seals to be hereunto affixed, as of the day and
year first above written.
ATTEST: 787 TRUST, ON BEHALF OF THE T. ROWE
PRICE EQUITY INCOME PORTFOLIO
____________________________ By:________________________________________
Secretary Title:_____________________________________
3
<PAGE>
ATTEST: EQ FINANCIAL SERVICES, INC.
____________________________ By:________________________________________
Secretary Title:_____________________________________
4
<PAGE>
EXHIBIT 9(D)
FORM OF EXPENSE LIMITATION AGREEMENT
EXPENSE LIMITATION AGREEMENT, effective as of __________ __, 1997,
between EQ Financial Services, Inc., a Delaware corporation (the "Adviser"),
and the 787 Trust, a Delaware business trust (the "Trust"), on behalf of the
Putnam Growth and Income Portfolio (the "Portfolio").
WHEREAS, the Trust is registered under the Investment Company Act of
1940, as amended (the "Investment Company Act"), as an open-end diversified
management company of the series type, and the Portfolio is one of the series
of the Trust; and
WHEREAS, the Trust and the Adviser have entered into an Investment
Advisory Agreement (the "Advisory Agreement"), pursuant to which the Adviser
will render investment advisory services to the Portfolio for compensation
based on the value of the average daily net assets of the Portfolio; and
WHEREAS, the Trust and the Adviser have determined that it is
appropriate and in the best interests of the Portfolio and its shareholders to
maintain the expenses of the Portfolio at a level below the level to which the
Portfolio would normally be subject during its start-up period.
NOW THEREFORE, the parties hereto agree as follows:
1. Expense Limitation
1.1 Applicable Expense Limit. To the extent that the aggregate
expenses of every character incurred by the Portfolio in any fiscal year,
including but not limited to investment advisory fees of the Adviser (but
excluding interest, taxes, brokerage commissions, and other expenditures which
are capitalized in accordance with generally accepted accounting principles,
and other extraordinary expenses not incurred in the ordinary course of the
Portfolio's business) ("Portfolio Operating Expenses"), exceed the Operating
Expense Limit, as defined in Section 1.2 below, such excess amount (the
"Excess Amount") shall be the liability of the Adviser.
1.2 Operating Expense Limit. The Operating Expense Limit in any year
shall be 0.[xx]% of the average daily net assets of the Portfolio, or such
other rate as may be agreed to in writing by the parties.
1.3 Method of Computation. To determine the Adviser's liability with
respect to the Excess Amount, each month the Portfolio Operating Expenses for
the Portfolio shall be annualized as of the last day of the month. If the
annualized Portfolio Operating Expenses for any month exceed the Operating
Expense Limit, the Adviser shall first waive or reduce its investment
management fee for such month by an amount sufficient to reduce the annualized
Portfolio Operating Expenses to an amount no higher than the Operating Expense
Limit. If the
<PAGE>
amount of the waived or reduced investment management fee for any such month
is insufficient to pay the Excess Amount, the Adviser also shall remit to the
Portfolio an amount that, together with the waived or reduced advisory fee, is
sufficient to pay such Excess Amount.
1.4 Year-End Adjustment. If necessary, on or before the last day of
the first month of each fiscal year, an adjustment payment shall be made by
the appropriate party in order that the amount of the advisory fees waived or
reduced and other payments remitted by the Adviser to the Portfolio with
respect to the previous fiscal year shall equal the Excess Amount.
2. Reimbursement of Fee Waivers and Expense Reimbursements.
2.1 Reimbursement. If in any year during which total Portfolio assets
are greater than $___________ million and in which the Advisory Agreement is
still in effect, the estimated aggregate Portfolio Operating Expenses for the
fiscal year are less than the Operating Expense Limit for that year, subject
to quarterly approval by the Trust's Board of Trustees as provided in Section
2.2 below, the Adviser shall be entitled to reimbursement by the Portfolio, in
whole or in part as provided below, of the management fees waived or reduced
and other payments remitted by the Adviser to the Portfolio pursuant to
Section 1 hereof. The total amount of reimbursement to which the Adviser may
be entitled (the "Reimbursement Amount") shall equal, at any time, the sum of
all investment management fees previously waived or reduced by the Adviser and
all other payments remitted by the Adviser to the Portfolio, pursuant to
Section 1 hereof, during any of the previous [two (2)] fiscal years, less any
reimbursement previously paid by the Portfolio to the Adviser, pursuant to
Sections 2.2 or 2.3 hereof, with respect to such waivers, reductions, and
payments. The Reimbursement Amount shall not include any additional charges or
fees whatsoever, including, e.g., interest accruable on the Reimbursement
Amount.
2.2 Board Approval. No reimbursement shall be paid to the Adviser
pursuant to this provision in any semi-annual period, unless the Trust's Board
of Trustees has determined that the payment of such reimbursement is in the
best interests of the Portfolio and its shareholders. The Trust's Board of
Trustees shall determine at least semi-annually in advance whether any
reimbursement may be paid to the Adviser for such period.
2.3 Method of Computation. To determine the Portfolio's payments, if
any, to reimburse the Adviser for the Reimbursement Amount, each month the
Portfolio Operating Expenses shall be annualized as of the last day of the
month. If the annualized Portfolio Operating Expenses for any month are less
than the Operating Expense Limit, the Portfolio shall pay to the Adviser an
amount sufficient to increase the annualized Portfolio Operating Expenses to
an amount no greater than the Operating Expense Limit, provided that such
amount paid to the Adviser will in no event exceed the total Reimbursement
Amount.
2.4 Year-End Adjustment. If necessary, on or before the last day of
the first month of each fiscal year, an adjustment payment shall be made by
the appropriate party in order that the actual Portfolio Operating Expenses
for the prior fiscal year (including any reimbursement payments hereunder with
respect to such fiscal year) do not exceed the Operating Expense Limit.
2
<PAGE>
3. Termination of Agreement.
This Agreement shall continue in effect for a period of one year from
the date of its execution and from year to year thereafter provided such
continuance is specifically approved by a majority of the Trustees of the
Trust who (a) are not "interested persons" of the Trust or any other party of
this Agreement, as defined in the Act, and (b) have no direct or indirect
financial interest in the operation of this Agreement ("Non-Interest
Trustees"). Nevertheless, this Agreement may be terminated by either party
hereto, without payment of any penalty, upon 90 days' prior written notice to
the other party at its principal place of business; provided that, in the case
of termination by the Trust on behalf of the Portfolio, such action shall be
authorized by resolution of a majority of the Non-Interested Trustees of the
Trust or by a vote of a majority of the outstanding voting securities of the
Portfolio.
4. Miscellaneous.
4.1 Captions. The captions in this Agreement are included for
convenience of reference only and in no other way define or delineate any of
the provisions hereof or otherwise affect their construction or effect.
4.2 Interpretation. Nothing herein contained shall be deemed to
require the Portfolio or the Trust to take any action contrary to the Trust's
Agreement and Declaration of Trust or By-Laws, or any applicable statutory or
regulatory requirement to which it is subject or by which it is bound, or to
relieve or deprive the Trust's Board of Trustees of its responsibility for and
control of the conduct of the affairs of the Trust or the Portfolio.
4.3 Definitions. Any question of interpretation of any term or
provision of this Agreement, including but not limited to the investment
advisory fee, the computations of net asset values, and the allocation of
expenses, having a counterpart in or otherwise derived from the terms and
provisions of the Advisory Agreement, shall have the same meaning as and be
resolved by reference to such agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
signed by their respective officers thereunto duly authorized and their
respective corporate or trust seals to be hereunto affixed, as of the day and
year first above written.
ATTEST: 787 TRUST, ON BEHALF OF PUTNAM
GROWTH AND INCOME PORTFOLIO
______________________________ By:________________________________________
Secretary Title:_____________________________________
3
<PAGE>
ATTEST: EQ FINANCIAL SERVICES, INC.
______________________________ By:________________________________________
Secretary Title:_____________________________________
4
<PAGE>
EXHIBIT 9(E)
FORM OF EXPENSE LIMITATION AGREEMENT
EXPENSE LIMITATION AGREEMENT, effective as of __________ __, 1997,
between EQ Financial Services, Inc., a Delaware corporation (the "Adviser"),
and the 787 Trust, a Delaware business trust (the "Trust"), on behalf of the
Putnam International Growth Portfolio (the "Portfolio").
WHEREAS, the Trust is registered under the Investment Company Act of
1940, as amended (the "Investment Company Act"), as an open-end diversified
management company of the series type, and the Portfolio is one of the series
of the Trust; and
WHEREAS, the Trust and the Adviser have entered into an Investment
Advisory Agreement (the "Advisory Agreement"), pursuant to which the Adviser
will render investment advisory services to the Portfolio for compensation
based on the value of the average daily net assets of the Portfolio; and
WHEREAS, the Trust and the Adviser have determined that it is
appropriate and in the best interests of the Portfolio and its shareholders to
maintain the expenses of the Portfolio at a level below the level to which the
Portfolio would normally be subject during its start-up period.
NOW THEREFORE, the parties hereto agree as follows:
1. Expense Limitation
1.1 Applicable Expense Limit. To the extent that the aggregate
expenses of every character incurred by the Portfolio in any fiscal year,
including but not limited to investment advisory fees of the Adviser (but
excluding interest, taxes, brokerage commissions, and other expenditures which
are capitalized in accordance with generally accepted accounting principles,
and other extraordinary expenses not incurred in the ordinary course of the
Portfolio's business) ("Portfolio Operating Expenses"), exceed the Operating
Expense Limit, as defined in Section 1.2 below, such excess amount (the
"Excess Amount") shall be the liability of the Adviser.
1.2 Operating Expense Limit. The Operating Expense Limit in any year
shall be 0.[xx]% of the average daily net assets of the Portfolio, or such
other rate as may be agreed to in writing by the parties.
1.3 Method of Computation. To determine the Adviser's liability with
respect to the Excess Amount, each month the Portfolio Operating Expenses for
the Portfolio shall be annualized as of the last day of the month. If the
annualized Portfolio Operating Expenses for any month exceed the Operating
Expense Limit, the Adviser shall first waive or reduce its investment
management fee for such month by an amount sufficient to reduce the annualized
Portfolio Operating Expenses to an amount no higher than the Operating Expense
Limit. If the
<PAGE>
amount of the waived or reduced investment management fee for any such month
is insufficient to pay the Excess Amount, the Adviser also shall remit to the
Portfolio an amount that, together with the waived or reduced advisory fee, is
sufficient to pay such Excess Amount.
1.4 Year-End Adjustment. If necessary, on or before the last day of
the first month of each fiscal year, an adjustment payment shall be made by
the appropriate party in order that the amount of the advisory fees waived or
reduced and other payments remitted by the Adviser to the Portfolio with
respect to the previous fiscal year shall equal the Excess Amount.
2. Reimbursement of Fee Waivers and Expense Reimbursements.
2.1 Reimbursement. If in any year during which total Portfolio assets
are greater than $___________ million and in which the Advisory Agreement is
still in effect, the estimated aggregate Portfolio Operating Expenses for the
fiscal year are less than the Operating Expense Limit for that year, subject
to quarterly approval by the Trust's Board of Trustees as provided in Section
2.2 below, the Adviser shall be entitled to reimbursement by the Portfolio, in
whole or in part as provided below, of the management fees waived or reduced
and other payments remitted by the Adviser to the Portfolio pursuant to
Section 1 hereof. The total amount of reimbursement to which the Adviser may
be entitled (the "Reimbursement Amount") shall equal, at any time, the sum of
all investment management fees previously waived or reduced by the Adviser and
all other payments remitted by the Adviser to the Portfolio, pursuant to
Section 1 hereof, during any of the previous [two (2)] fiscal years, less any
reimbursement previously paid by the Portfolio to the Adviser, pursuant to
Sections 2.2 or 2.3 hereof, with respect to such waivers, reductions, and
payments. The Reimbursement Amount shall not include any additional charges or
fees whatsoever, including, e.g., interest accruable on the Reimbursement
Amount.
2.2 Board Approval. No reimbursement shall be paid to the Adviser
pursuant to this provision in any semi-annual period, unless the Trust's Board
of Trustees has determined that the payment of such reimbursement is in the
best interests of the Portfolio and its shareholders. The Trust's Board of
Trustees shall determine at least semi-annually in advance whether any
reimbursement may be paid to the Adviser for such period.
2.3 Method of Computation. To determine the Portfolio's payments, if
any, to reimburse the Adviser for the Reimbursement Amount, each month the
Portfolio Operating Expenses shall be annualized as of the last day of the
month. If the annualized Portfolio Operating Expenses for any month are less
than the Operating Expense Limit, the Portfolio shall pay to the Adviser an
amount sufficient to increase the annualized Portfolio Operating Expenses to
an amount no greater than the Operating Expense Limit, provided that such
amount paid to the Adviser will in no event exceed the total Reimbursement
Amount.
2.4 Year-End Adjustment. If necessary, on or before the last day of
the first month of each fiscal year, an adjustment payment shall be made by
the appropriate party in order that the actual Portfolio Operating Expenses
for the prior fiscal year (including any reimbursement payments hereunder with
respect to such fiscal year) do not exceed the Operating Expense Limit.
2
<PAGE>
3. Termination of Agreement.
This Agreement shall continue in effect for a period of one year from
the date of its execution and from year to year thereafter provided such
continuance is specifically approved by a majority of the Trustees of the
Trust who (a) are not "interested persons" of the Trust or any other party of
this Agreement, as defined in the Act, and (b) have no direct or indirect
financial interest in the operation of this Agreement ("Non-Interest
Trustees"). Nevertheless, this Agreement may be terminated by either party
hereto, without payment of any penalty, upon 90 days' prior written notice to
the other party at its principal place of business; provided that, in the case
of termination by the Trust on behalf of the Portfolio, such action shall be
authorized by resolution of a majority of the Non-Interested Trustees of the
Trust or by a vote of a majority of the outstanding voting securities of the
Portfolio.
4. Miscellaneous.
4.1 Captions. The captions in this Agreement are included for
convenience of reference only and in no other way define or delineate any of
the provisions hereof or otherwise affect their construction or effect.
4.2 Interpretation. Nothing herein contained shall be deemed to
require the Portfolio or the Trust to take any action contrary to the Trust's
Agreement and Declaration of Trust or By-Laws, or any applicable statutory or
regulatory requirement to which it is subject or by which it is bound, or to
relieve or deprive the Trust's Board of Trustees of its responsibility for and
control of the conduct of the affairs of the Trust or the Portfolio.
4.3 Definitions. Any question of interpretation of any term or
provision of this Agreement, including but not limited to the investment
advisory fee, the computations of net asset values, and the allocation of
expenses, having a counterpart in or otherwise derived from the terms and
provisions of the Advisory Agreement, shall have the same meaning as and be
resolved by reference to such agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
signed by their respective officers thereunto duly authorized and their
respective corporate or trust seals to be hereunto affixed, as of the day and
year first above written.
ATTEST: 787 TRUST, ON BEHALF OF PUTNAM
INTERNATIONAL GROWTH PORTFOLIO
_________________________________ By:__________________________________
Secretary Title:_______________________________
3
<PAGE>
ATTEST: EQ FINANCIAL SERVICES, INC.
_________________________________ By:__________________________________
Secretary Title:_______________________________
4
<PAGE>
EXHIBIT 9(F)
FORM OF EXPENSE LIMITATION AGREEMENT
EXPENSE LIMITATION AGREEMENT, effective as of __________ __, 1997,
between EQ Financial Services, Inc., a Delaware corporation (the "Adviser"),
and the 787 Trust, a Delaware business trust (the "Trust"), on behalf of the
MFS Research Portfolio (the "Portfolio").
WHEREAS, the Trust is registered under the Investment Company Act of
1940, as amended (the "Investment Company Act"), as an open-end diversified
management company of the series type, and the Portfolio is one of the series
of the Trust; and
WHEREAS, the Trust and the Adviser have entered into an Investment
Advisory Agreement (the "Advisory Agreement"), pursuant to which the Adviser
will render investment advisory services to the Portfolio for compensation
based on the value of the average daily net assets of the Portfolio; and
WHEREAS, the Trust and the Adviser have determined that it is
appropriate and in the best interests of the Portfolio and its shareholders to
maintain the expenses of the Portfolio at a level below the level to which the
Portfolio would normally be subject during its start-up period.
NOW THEREFORE, the parties hereto agree as follows:
1. Expense Limitation
1.1 Applicable Expense Limit. To the extent that the aggregate
expenses of every character incurred by the Portfolio in any fiscal year,
including but not limited to investment advisory fees of the Adviser (but
excluding interest, taxes, brokerage commissions, and other expenditures which
are capitalized in accordance with generally accepted accounting principles,
and other extraordinary expenses not incurred in the ordinary course of the
Portfolio's business) ("Portfolio Operating Expenses"), exceed the Operating
Expense Limit, as defined in Section 1.2 below, such excess amount (the
"Excess Amount") shall be the liability of the Adviser.
1.2 Operating Expense Limit. The Operating Expense Limit in any year
shall be 0.[xx]% of the average daily net assets of the Portfolio, or such
other rate as may be agreed to in writing by the parties.
1.3 Method of Computation. To determine the Adviser's liability with
respect to the Excess Amount, each month the Portfolio Operating Expenses for
the Portfolio shall be annualized as of the last day of the month. If the
annualized Portfolio Operating Expenses for any month exceed the Operating
Expense Limit, the Adviser shall first waive or reduce its investment
management fee for such month by an amount sufficient to reduce the annualized
Portfolio Operating Expenses to an amount no higher than the Operating Expense
Limit. If the amount of the waived or reduced investment management fee for
any such month is insufficient
<PAGE>
to pay the Excess Amount, the Adviser also shall remit to the Portfolio an
amount that, together with the waived or reduced advisory fee, is sufficient
to pay such Excess Amount.
1.4 Year-End Adjustment. If necessary, on or before the last day of
the first month of each fiscal year, an adjustment payment shall be made by
the appropriate party in order that the amount of the advisory fees waived or
reduced and other payments remitted by the Adviser to the Portfolio with
respect to the previous fiscal year shall equal the Excess Amount.
2. Reimbursement of Fee Waivers and Expense Reimbursements.
2.1 Reimbursement. If in any year during which total Portfolio assets
are greater than $___________ million and in which the Advisory Agreement is
still in effect, the estimated aggregate Portfolio Operating Expenses for the
fiscal year are less than the Operating Expense Limit for that year, subject
to quarterly approval by the Trust's Board of Trustees as provided in Section
2.2 below, the Adviser shall be entitled to reimbursement by the Portfolio, in
whole or in part as provided below, of the management fees waived or reduced
and other payments remitted by the Adviser to the Portfolio pursuant to
Section 1 hereof. The total amount of reimbursement to which the Adviser may
be entitled (the "Reimbursement Amount") shall equal, at any time, the sum of
all investment management fees previously waived or reduced by the Adviser and
all other payments remitted by the Adviser to the Portfolio, pursuant to
Section 1 hereof, during any of the previous [two (2)] fiscal years, less any
reimbursement previously paid by the Portfolio to the Adviser, pursuant to
Sections 2.2 or 2.3 hereof, with respect to such waivers, reductions, and
payments. The Reimbursement Amount shall not include any additional charges or
fees whatsoever, including, e.g., interest accruable on the Reimbursement
Amount.
2.2 Board Approval. No reimbursement shall be paid to the Adviser
pursuant to this provision in any semi-annual period, unless the Trust's Board
of Trustees has determined that the payment of such reimbursement is in the
best interests of the Portfolio and its shareholders. The Trust's Board of
Trustees shall determine at least semi-annually in advance whether any
reimbursement may be paid to the Adviser for such period.
2.3 Method of Computation. To determine the Portfolio's payments, if
any, to reimburse the Adviser for the Reimbursement Amount, each month the
Portfolio Operating Expenses shall be annualized as of the last day of the
month. If the annualized Portfolio Operating Expenses for any month are less
than the Operating Expense Limit, the Portfolio shall pay to the Adviser an
amount sufficient to increase the annualized Portfolio Operating Expenses to
an amount no greater than the Operating Expense Limit, provided that such
amount paid to the Adviser will in no event exceed the total Reimbursement
Amount.
2.4 Year-End Adjustment. If necessary, on or before the last day of
the first month of each fiscal year, an adjustment payment shall be made by
the appropriate party in order that the actual Portfolio Operating Expenses
for the prior fiscal year (including any reimbursement payments hereunder with
respect to such fiscal year) do not exceed the Operating Expense Limit.
2
<PAGE>
3. Termination of Agreement.
This Agreement shall continue in effect for a period of one year from
the date of its execution and from year to year thereafter provided such
continuance is specifically approved by a majority of the Trustees of the
Trust who (a) are not "interested persons" of the Trust or any other party of
this Agreement, as defined in the Act, and (b) have no direct or indirect
financial interest in the operation of this Agreement ("Non-Interest
Trustees"). Nevertheless, this Agreement may be terminated by either party
hereto, without payment of any penalty, upon 90 days' prior written notice to
the other party at its principal place of business; provided that, in the case
of termination by the Trust on behalf of the Portfolio, such action shall be
authorized by resolution of a majority of the Non-Interested Trustees of the
Trust or by a vote of a majority of the outstanding voting securities of the
Portfolio.
4. Miscellaneous.
4.1 Captions. The captions in this Agreement are included for
convenience of reference only and in no other way define or delineate any of
the provisions hereof or otherwise affect their construction or effect.
4.2 Interpretation. Nothing herein contained shall be deemed to
require the Portfolio or the Trust to take any action contrary to the Trust's
Agreement and Declaration of Trust or By-Laws, or any applicable statutory or
regulatory requirement to which it is subject or by which it is bound, or to
relieve or deprive the Trust's Board of Trustees of its responsibility for and
control of the conduct of the affairs of the Trust or the Portfolio.
4.3 Definitions. Any question of interpretation of any term or
provision of this Agreement, including but not limited to the investment
advisory fee, the computations of net asset values, and the allocation of
expenses, having a counterpart in or otherwise derived from the terms and
provisions of the Advisory Agreement, shall have the same meaning as and be
resolved by reference to such agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
signed by their respective officers thereunto duly authorized and their
respective corporate or trust seals to be hereunto affixed, as of the day and
year first above written.
ATTEST: 787 TRUST, ON BEHALF OF
MFS RESEARCH PORTFOLIO
__________________________________ By:_______________________________
Secretary Title:____________________________
3
<PAGE>
ATTEST: EQ FINANCIAL SERVICES, INC.
__________________________________ By:_______________________________
Secretary Title:____________________________
4
<PAGE>
EXHIBIT 10
November 26, 1996
Opinion and Consent of Counsel
787 Trust
787 Seventh Avenue
New York, NY 10019
Dear Gentlemen:
This opinion is given in connection with the filing by the 787 Trust,
a Delaware business trust, of its Registration Statement on Form N-1A (the
"Registration Statement") under the Securities Act of 1933 ("1933 Act") and
the Investment Company Act of 1940 ("1940 Act") relating to an indefinite
amount of its authorized shares of beneficial interest, at a par value of $.01
per share. The 787 Trust's authorized shares of beneficial interest, including
each class of shares of beneficial interest for the five separate series of
the 787 Trust (i.e., the T. Rowe Price International Stock Portfolio, the T.
Rowe Price Equity Income Portfolio, the Putnam Growth and Income Portfolio,
the Putnam International Growth Portfolio and the MFS Research Portfolio,
collectively, the "Portfolios") are hereinafter referred to as the "Shares."
We have examined the following: the 787 Trust's Declaration of Trust,
dated October 31, 1996; the 787 Trust's Certificate of Trust, as filed with
the Secretary of State of the State of Delaware on October 31, 1996; its
By-Laws; its Board of Trustees resolutions dated November 26, 1996,
authorizing the establishment and designation of the Shares for each of the
five Portfolios; the form of the Registration Statement under the 1933 Act and
the 1940 Act to be filed on December 2, 1996; pertinent provisions of the laws
of the State of Delaware; and such other corporate records, certificates,
documents and statutes that we have deemed relevant in order to render the
opinion expressed herein.
Based on such examination, we are of the opinion that:
1. The 787 Trust is a Delaware business trust duly organized,
validly existing, and in good standing under the laws of the
State of Delaware; and
<PAGE>
2. The Shares to be offered for sale by the 787 Trust, when
issued in the manner contemplated by the Registration
Statement, will be legally issued, fully-paid and
non-assessable.
This letter expresses our opinion as to the Delaware Business Trust
Act governing matters such as the due organization of the 787 Trust and the
authorization and issuance of the Shares, but does not extend to the
securities or "Blue Sky" laws of the State of Delaware or to federal
securities or other laws.
We consent to the use of this opinion as an exhibit to the
Registration Statement and to the reference to Katten Muchin & Zavis under the
caption "Legal Matters" in the Statement of Additional Information, which is
incorporated by reference into the Prospectus comprising a part of the
Registration Statement.
Very truly yours,
/s/ Katten Muchin & Zavis
KATTEN MUCHIN & ZAVIS
<PAGE>
EXHIBIT 13
FORM OF STOCK SUBSCRIPTION AGREEMENT
THIS AGREEMENT by and between The Equitable Life Assurance Society of the
United States ("Equitable Life") and the 787 Trust, a business trust organized
and existing under and by virtue of the laws of the State of Delaware.
In consideration of the mutual promises set forth herein, the parties
agree as follows:
1. The 787 Trust agrees to sell to Equitable Life and Equitable Life
hereby subscribes to purchase the specified number of Class IA shares of
beneficial interest of the following five series of the 787 Trust: 2,000 Class
IA shares of the T. Rowe Price International Stock Portfolio; 2,000 Class IA
shares of the T. Rowe Price Equity Income Portfolio; 2,000 Class IA shares of
the Putnam Growth and Income Portfolio; 2,000 Class IA shares of the Putnam
International Growth Portfolio; and 2,000 Class IA shares of the MFS Research
Portfolio (together, the "Shares"), each with a par value of $.01 per Share,
at a price of ten dollars ($10.00) per each Share.
2. Equitable Life agrees to pay $100,000 for such Shares at the time
of their issuance, which shall occur upon call of the President of the 787
Trust, at any time on or before the effective date of the 787 Trust's
Registration Statement filed by the 787 Trust on Form N-1A with the Securities
and Exchange Commission ("Registration Statement") on December 3, 1996.
3. Equitable Life acknowledges that the Shares have not been, and
will not be, registered under the federal securities laws and that, therefore,
the 787 Trust is relying on certain exemptions from such registration
requirements, including exemptions dependent on the intent of the undersigned
in acquiring the Shares. Equitable Life also understands that any resale of
the Shares, or any part thereof, may be subject to restrictions under the
federal securities laws, and that Equitable Life may be required to bear the
economic risk of any investment in the Shares for an indefinite period of
time.
4. Equitable Life represents and warrants that it is acquiring the
Shares solely for its own account and solely for investment purposes and not
with a view to the resale or disposition of all or any part thereof, and that
it has no present plan or intention to sell or otherwise dispose of the Shares
or any part thereof.
5. Equitable Life agrees that it will not sell or dispose of the
Shares or any part thereof unless the Registration Statement with respect to
such Shares is then in effect under the Securities Act of 1933, as amended.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
by their duly authorized representatives this ______ day of ________, 1997.
THE EQUITABLE LIFE ASSURANCE SOCIETY
OF THE UNITED STATES
By:__________________________________
Peter D. Noris
Title: Executive Vice President
and Chief Investment Officer
787 TRUST
By:___________________________________
Peter D. Noris
Title: President and Trustee
<PAGE>
EXHIBIT 15
787 TRUST
CLASS IB
DISTRIBUTION PLAN
WHEREAS, The Board of Trustees of the 787 Trust (the "Trust"),
including the independent trustees, have concluded in the exercise of their
reasonable business judgment and in light of their fiduciary duties under the
Investment Company Act of 1940, as amended (the "Act"), and state law that
there is a reasonable likelihood that this Plan (the "Plan") will benefit each
of the Trust's constituent portfolios (each a "Portfolio") and the Class IB
shareholders thereto;
NOW, THEREFORE, in consideration of the foregoing, this Plan is
hereby adopted as follows:
Section 1. The Trust is authorized to pay a fee (the "Distribution
Fee") for services rendered and expenses borne in connection with the
distribution of the Class IB shares of the Trust, at an annual rate with
respect to each Portfolio not to exceed [.50%] of the average daily net assets
attributable to the Portfolio's Class IB shares. Some or all of such
Distribution Fee may be paid to the distributor of the Trust's Class IB shares
(the "Class IB Distributor") pursuant to a distribution agreement. Subject to
such limit and subject to the provisions of Section 9 hereof, the Distribution
Fee shall be approved from time to time by: (a) a majority of this Board of
Trustees of the Trust and (b) a majority of the Trustees who (i) are not
"interested persons" of the Trust, as defined in the Act, and (ii) have no
direct or indirect financial interest in the operation of the Plan or any
agreements related thereto ("Independent Trustees"), and may be paid in
respect of services rendered and expenses borne in the past in connection with
the Portfolios' Class IB shares as to which no Distribution Fee was paid on
account of such limitation. If at any time this Plan shall not be in effect
with respect to the Class IB shares of all Portfolios of the Trust, the
Distribution Fee shall be computed on the basis of the net assets of the Class
IB shares of those Portfolios for which the Plan is in effect. The
Distribution Fee shall be accrued daily and paid monthly or at such other
intervals as the Trustees shall determine.
Section 2. Some or all of the Distribution Fee paid to the Class IB
Distributor may be spent on any activities or expenses primarily intended to
result in the sale of Class IB shares of the Trust, including but not limited
to the following:
(a) compensation to and expenses of employees of the Class IB
Distributor, including overhead and telephone expenses, who engage in
the distribution of the Class IB shares;
(b) printing and mailing of prospectuses, statements of additional
information, and reports for prospective purchasers of variable
annuity or variable life insurance contracts ("Variable Contracts")
investing indirectly in Class IB shares;
<PAGE>
(c) compensation to financial intermediaries and broker-dealers to
pay or reimburse them for their services or expenses in connection
with the distribution of Variable Contracts investing indirectly in
Class IB shares;
(d) expenses relating to the development, preparation, printing, and
mailing of Trust advertisements, sales literature, and other
promotional materials describing and/or relating to the Trust;
(e) expenses of holding seminars and sales meetings designed to
promote the distribution of the Class IB shares;
(f) expenses of obtaining information and providing explanations to
Variable Contract owners regarding Trust investment objectives and
policies and other information about the Trust and its Portfolios,
including the performance of the Portfolios;
(g) expenses of training sales personnel regarding the Trust;
(h) expenses of compensating sales personnel in connection with the
allocation of cash values and premiums of the Variable Contracts to
the Trust; and
(i) expenses of personal services and/or maintenance of Variable
Contract accounts with respect to Class IB shares attributable to
such accounts.
Section 3. This Plan shall not take effect until it has been
approved, together with any related agreements, by votes of the majority (or
whatever greater percentage may, from time to time, be required by Section
12(b) of the Act or the rules and regulations thereunder) of both (a) the
Trustees of the Trust, and (b) the Independent Trustees of the Trust, as
defined herein, cast in person at a meeting called for the purpose of voting
on this Plan or such agreement. Approval of the Plan in this manner, with
respect to any Portfolio, prior to the initial public offering of the shares
of such Portfolio shall be deemed to have been approved by that Portfolio's
outstanding voting securities.
Section 4. This Plan shall continue in effect for a period of more
than one year after it takes effect only for so long as such continuance is
specifically approved at least annually in the manner provided for approval of
this Plan in Section 3 hereof.
Section 5. Any person authorized to direct the disposition of monies
paid or payable by the Class IB shares of the Trust pursuant to this Plan or
any related agreement shall provide to the Trustees of the Trust, and the
Trustees shall review, at least quarterly, a written report of the amounts so
expended and the purposes for which such expenditures were made.
Section 6. This Plan may be terminated at any time with respect to
the Class IB shares of any Portfolio by vote of a majority of the Independent
Trustees, or by vote of a majority of the outstanding voting securities
representing the Class IB shares of that Portfolio.
<PAGE>
Section 7. All agreements with any person relating to implementation
of this Plan with respect to the Class IB shares of any Portfolio shall be in
writing, and any agreement related to this Plan with respect to the Class IB
shares of any Portfolio shall provide:
(a) That such agreement may be terminated at any time, without
payment of any penalty, by vote of a majority of the Independent
Trustees or by vote of a majority of the outstanding voting
securities representing the Class IB shares of such Portfolio, on not
more than 60 days' written notice to any other party to the
agreement; and
(b) That such agreement shall terminate automatically in the event of
its assignment.
Section 8. This Plan may not be amended to materially increase the
amount of Distribution Fees permitted pursuant to Section 1 hereof until it
has been approved by a vote of at least a majority of the outstanding voting
securities representing the Class IB shares of that Portfolio. This Plan shall
be deemed to have been effectively approved with respect to the Class IB
shares of any Portfolio if a majority of the outstanding voting securities
representing the Class IB shares of that Portfolio votes for the approval of
this Plan, notwithstanding that this Plan has not been approved by a majority
of the outstanding voting securities representing the Class IB shares of any
other Portfolio or that this Plan has not been approved by a majority of the
outstanding voting securities representing the Class IB shares of the Trust.
Moreover, all material amendments to this Plan shall be approved in the manner
provided for approval of this Plan in Section 3 hereof.
Section 9. As used in this Plan, the terms "assignment", "interested
person", and "majority of the outstanding voting securities" shall have the
respective meanings specified in the Act and the rules and regulations
thereunder, subject to such exemptions as may be granted by the Securities and
Exchange Commission.
Adopted as of [ ], 1997.
<PAGE>
EXHIBIT 18
787 TRUST
PLAN PURSUANT TO RULE 18f-3 UNDER THE
INVESTMENT COMPANY ACT OF 1940
This Plan (the "Plan") is adopted by the 787 Trust (the "Trust")
pursuant to Rule 18f-3 under the Investment Company Act of 1940, as amended
(the "Act"), and sets forth the general characteristics of, and the general
conditions under which the Trust may offer, multiple classes of shares of its
now existing and hereafter created series. This Plan is intended to allow the
Trust to offer multiple classes of shares to the full extent and in the manner
permitted by Rule 18f-3 under the Act (the "Rule"), subject to the
requirements and conditions imposed by the Rule. This Plan may be revised or
amended from time to time as provided below.
CLASS DESIGNATIONS
Each of the Trust's constituent series (each, a "Portfolio") may from
time to time issue one or more of the following classes of shares: Class IA
shares and Class IB shares. Each of the two classes of shares will represent
interests in the same portfolio of investments of the Portfolio and, except as
described herein, shall have the same rights and obligations as each other
class. Each class shall be subject to such investment minimums and other
conditions of eligibility as are set forth in the Trust's prospectus or
statement of additional information as from time to time in effect (the
"Prospectus").
CLASS CHARACTERISTICS
Class IA shares are offered at a public offering price that is equal
to their net asset value ("NAV") without an initial sales charge or a
contingent deferred sales charge ("CDSC").
Class IB shares are offered at their NAV, without an initial sales
charge or a CDSC, but may be subject to a fee imposed in accordance with Rule
12b-1 under the Act ("Rule 12b-1 fees"), which may include a service fee, as
described in the Prospectus.
The Class IA shares and Class IB shares may subsequently be offered
pursuant to an initial sales charge and/or CDSC (each of which may be subject
to reduction or waiver) as permitted by the Act, and as described in the
Prospectus.
<PAGE>
ALLOCATIONS TO EACH CLASS
EXPENSE ALLOCATIONS
The following expenses shall be allocated, to the extent practicable,
on a class-by-class basis: (i) Rule 12b-1 fees payable by the Trust to the
distributor or principal underwriter of the Trust's Class IB shares (the
"Class IB Distributor"),1 and (ii) transfer agency costs attributable to Class
IA shares and Class IB shares. Subject to the approval of a majority of the
Trust's Board of Trustees, including a majority of the Independent Trustees
(as defined in the Class IB Distribution Plan), the following "Class Expenses"
may, to the extent not required to be borne by the Trust's investment adviser
(the "Adviser") pursuant to the Trust's Investment Advisory Agreement, be
allocated on a class-by-class basis: (a) printing and postage expenses related
to preparing and distributing materials such as shareholder reports,
Prospectuses and proxy statements to current shareholders of a specific class;
(b) SEC registration fees incurred with respect to a specific class; (c) state
blue sky and foreign registration fees and expenses incurred with respect to a
specific class; (d) the expenses of administrative personnel and services
required to support shareholders of a specific class; (e) litigation and other
legal expenses relating to a specific class; (f) Trustees' fees or expenses
incurred as a result of issues relating to a specific class of shares; (g)
accounting and consulting expenses relating to a specific class; (h) any fees
imposed pursuant to a non-Rule 12b-1 shareholder services plan that relate to
a specific class; and (i) any additional expenses, not including advisory or
custodial fees or other expenses relating to the management of the Trust's
assets, if such expenses are actually incurred in a different amount with
respect to a class that are of a different kind or to a different degree than
with respect to one or more other classes.
All expenses not hereafter designated as Class Expenses will be
allocated to each class on the basis of the net asset value of that class in
relation to the net asset value of the Portfolio ("Portfolio Expenses").
However, notwithstanding the above, the Trust may allocate all
expenses other than Class Expenses on the basis of the relative net assets
(settled shares) of each class, as permitted by Rule 18f-3(c)(2) under the
Act.
WAIVERS AND REIMBURSEMENTS
The Adviser or Class IB Distributor may choose to waive or reimburse
Rule 12b-1 fees, transfer agency fees or any Class Expenses on a voluntary
basis. Such waiver or reimbursement may be applicable to some or all of the
classes and may be in different amounts for one or more classes.
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1 As of the date of this Plan, only the Class IB shares have adopted a
Distribution Plan pursuant to Rule 12b-1 under the Act ("Distribution Plan").
<PAGE>
INCOME, GAINS AND LOSSES
Income and realized and unrealized capital gains and losses shall be
allocated to each class on the basis of the net asset value of that class in
relation to the net asset value of the Portfolio.
The Portfolio may allocate income and realized and unrealized capital
gains and losses to each share based on relative net assets (settled shares)
of each class, as permitted by Rule 18f- 3(c)(2) under the Act.
CONVERSION AND EXCHANGE
Neither Class IA shares nor Class IB shares shall convert into the
other. Subsequent classes of shares (each a "Converting Class") may
automatically convert into another class of shares (the "Conversion Class"),
subject to such terms as may be approved by the Trustees.
In the event of any material increase in payments authorized under
the Distribution Plan (or, if presented to shareholders, any material increase
in payments authorized by a non-Rule 12b-1 shareholder services plan)
applicable to any Conversion Class, existing Converting Class shares will not
be permitted to convert into Conversion Class shares unless the Converting
Class shareholders, voting separately as a class, approve the material
increase in such payments. Pending approval of such increase, or if such
increase is not approved, the Trustees shall take such action as is necessary
to ensure that existing Converting Class shares are exchanged or converted
into a new class of shares ("New Conversion Class") identical in all material
respects to the Conversion Class shares as they existed prior to the
implementation of the material increase in payments, no later than the time
such shares were scheduled to convert to the Conversion Class shares.
Converting Class shares sold after the implementation of the fee increase may
convert into Conversion Class shares subject to the higher maximum payment,
provided that the material features of the Conversion Class plan and the
relationship of such plan to the Converting Class shares were disclosed in an
effective registration statement.
EXCHANGE FEATURES
Shares of each class generally will be permitted to be exchanged only
for shares of a class with similar characteristics in another Portfolio; Class
IA shares may be exchanged for Class IA shares of another Portfolio; Class IB
shares may be exchanged for Class IB shares of another Portfolio. All exchange
features applicable to each class will be described in the Prospectus.
DIVIDENDS
Dividends paid by the Trust with respect to its Class IA and Class IB
shares, to the extent any dividends are paid, will be calculated in the same
manner, at the same time and will be in the same amount, except that any Rule
12b-1 fee payments relating to a class of shares will be borne exclusively by
that class and any incremental transfer agency costs or, if applicable, Class
Expenses relating to a class shall be borne exclusively by that class.
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<PAGE>
VOTING RIGHTS
Each share of each Portfolio entitles the shareholder of record to
one vote. Each class of shares of the Portfolio will vote separately as a
class with respect to any Distribution Plan, as defined herein, applicable to
that class and on other matters for which class voting is required under
applicable law. Class IB shareholders will vote separately as a class to
approve any material increase in payments authorized under the Distribution
Plan applicable to Class IB shares.
RESPONSIBILITIES OF THE TRUSTEES
On an ongoing basis, the Trustees will monitor the Trust and each
Portfolio for the existence of any material conflicts among the interests of
the two classes of shares. The Trustees shall further monitor on an ongoing
basis the use of waivers or reimbursement by the Adviser and the Class IB
Distributor of expenses to guard against cross-subsidization between classes.
The Trustees, including a majority of the Independent Trustees, shall take
such action as is reasonably necessary to eliminate any such conflict that may
develop. If a conflict arises, the Adviser and Class IB Distributor and the
distributor of the Class IA shares (together with the Class IB Distributor,
the "Distributors"), at their own cost, will remedy such conflict up to and
including establishing one or more new registered management investment
companies.
REPORTS TO THE TRUSTEES
The Adviser and the Distributors will be responsible for reporting
any potential or existing conflicts among the two classes of shares to the
Trustees. In addition, the Trustees will receive quarterly and annual
statements concerning distributions and shareholder servicing expenditures
complying with paragraph (b)(3)(ii) of Rule 12b-1. In the statements, only
expenditures properly attributable to the direct or indirect sale or servicing
of a particular class of shares shall be used to justify any distribution or
service fee charged to that class. The statements, including the allocations
upon which they are based, will be subject to the review of the Independent
Trustees in the exercise of their fiduciary duties.
AMENDMENTS
The Plan may be amended from time to time in accordance with the
provisions and Requirements of Rule 18f-3 under the Act.
Adopted this [] day of [ ], 1997.
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