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Registration Nos. 333-17217
811-07953
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 7, 1997.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
Pre-Effective Amendment No. 2 /x/
Post-Effective Amendment No. / /
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 / /
Amendment No. 2 /x/
(Check appropriate box or boxes)
EQ ADVISORS TRUST
(formerly 787 Trust)
(Exact name of registrant as specified in charter)
1290 Avenue of the Americas
New York, New York 10104
(Address of principal executive offices)
Registrant's Telephone Number, including area code: (212) 554-1234
Peter D. Noris, Executive Vice President and
Chief Investment Officer
The Equitable Life Assurance Society of the United States
1290 Avenue of the Americas
New York, New York 10104
(Name and address of agent for service)
Please send copies of all communications to:
Jane A. Kanter Mary P. Breen
Katten Muchin & Zavis Vice President & Associate General Counsel
1025 Thomas Jefferson Street, N.W. The Equitable Life Assurance
Society of the United States Society of the United States
East Lobby, Suite 700 1290 Avenue of the Americas
Washington, D.C. 20007 New York, New York 10104
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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EQ ADVISORS 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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EQ ADVISORS TRUST:
CROSS REFERENCE SHEET
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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 Strategy
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 Financial Statements
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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PROSPECTUS DATED MAY 1, 1997
EQ ADVISORS TRUST
1290 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10104
EQ Advisors Trust ("Trust") is a 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 twelve Portfolios currently offered by
the Trust.
* T. Rowe Price International Stock Portfolio
* T. Rowe Price Equity Income Portfolio
* EQ/Putnam Growth & Income Value Portfolio
* EQ/Putnam International Equity Portfolio
* EQ/Putnam Investors Growth Portfolio
* EQ/Putnam Balanced Portfolio
* MFS Research Portfolio
* MFS Emerging Growth Companies Portfolio
* Morgan Stanley Emerging Markets Equity Portfolio
* Warburg Pincus Small Company Value Portfolio
* Merrill Lynch World Strategy Portfolio
* Merrill Lynch Basic Value Equity 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
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future reference. Additional information contained in a Statement of
Additional Information also dated May 1, 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.
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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 twelve Portfolios. Each Portfolio is a separate series of the
Trust with its own objective and policies. All of the Portfolios, except for
the Morgan Stanley Emerging Markets Equity Portfolio and Merrill Lynch
World Strategy Portfolio, are diversified for 1940 Act purposes. 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., Massachusetts Financial Services Company, Morgan Stanley
Asset Management Inc., Warburg, Pincus Counsellors, Inc., and Merrill Lynch
Asset Management, L.P. 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
EQ/Putnam Growth & Putnam Investment Management,
Income Value Portfolio Inc.
EQ/Putnam International Putnam Investment Management,
Equity Portfolio Inc.
EQ/Putnam Investors Putnam Investment Management,
Growth Portfolio Inc.
EQ/Putnam Balanced Putnam Investment Management,
Portfolio Inc.
MFS Research Portfolio Massachusetts Financial Services
Company
MFS Emerging Growth Companies Massachusetts Financial Services
Portfolio Company
Morgan Stanley Emerging Markets Morgan Stanley Asset Management
Equity Portfolio Inc.
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Warburg Pincus Small Company Warburg, Pincus Counsellors, Inc.
Value Portfolio
Merrill Lynch Merrill Lynch Asset Management,
World Strategy Portfolio L.P.
Merrill Lynch Basic Value Merrill Lynch Asset Management,
Equity Portfolio L.P.
The Trust offers two classes of shares on behalf of each Portfolio: Class IA
shares and Class IB shares. EQ Financial Consultants, Inc. ("EQ Financial"),
the Trust's Manager, serves as one of the distributors for the Class IA shares
of the Trust offered by this Prospectus. Equitable Distributors, Inc. ("EDI")
also serves as one of the distributors for the Class IA shares of the Trust.
(EQ Financial and EDI are collectively referred to as the "Distributors"). 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. Inquiries regarding Class
IB shares should be addressed to Equitable, at 1290 Avenue of the Americas,
New York, NY 10104.
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-United States 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
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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.
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 United States 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
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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, United States Government securities, convertible
securities, borrowings, derivatives, investment grade fixed-income securities,
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).
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 United States 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
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program. The Portfolio may invest up to 25% of its total assets in foreign
securities. These include non-dollar denominated securities traded outside the
United States and dollar-denominated securities traded in the United States
(such as American Depositary Receipts ("ADRs"). 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").
Certain investment strategies and instruments which may be employed by the
Portfolio (such as the purchase and sale of options, futures contracts,
convertible securities, borrowings, foreign securities, repurchase agreements,
derivatives, United States government securities, securities loans, foreign
currency transactions, illiquid securities and investment grade and lower
quality fixed-income securities) are discussed under the caption "Investment
Strategies" below and in the Statement of Additional Information.
EQ/PUTNAM GROWTH & INCOME VALUE PORTFOLIO
The investment objective of the EQ/Putnam Growth & Income Value 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.
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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.
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,
foreign securities, securities loans, convertible securities, borrowings,
repurchase agreements, illiquid securities, forward commitments, zero-coupon
bonds, derivatives, United States Government securities, foreign currency
transactions, passive foreign investment companies, payment-in-kind bonds, and
investment grade and lower quality fixed-income securities) are discussed
under the caption "Investment Strategies" below and in the Statement of
Additional Information.
EQ/PUTNAM INTERNATIONAL EQUITY PORTFOLIO
The investment objective of the EQ/Putnam International Equity Portfolio is
capital appreciation. The Portfolio is designed for investors seeking capital
appreciation primarily through a diversified portfolio of equity securities of
companies organized under the laws of a country other than the United States.
Such equity securities normally will include common stocks, preferred stocks,
securities convertible into common or preferred stocks, and
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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 the
United States. The Portfolio will consider an issuer to be located outside the
United States if the issuer is organized under the laws of a country outside
the United States. 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.
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, borrowings, derivatives,
repurchase agreements, futures contracts, foreign securities, forward
commitments, foreign currency transactions, securities loans, and illiquid
securities) are discussed under the caption "Investment Strategies" below and
in the Statement of Additional Information.
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EQ/PUTNAM INVESTORS GROWTH PORTFOLIO
The investment objective of the EQ/Putnam Investors Growth Portfolio is
long-term growth of capital and any increased income that results from this
growth. The Adviser intends to invest primarily in common stocks in view of
the Adviser's belief that equity ownership affords the best opportunity for
capital growth over the long term. The Portfolio may also purchase convertible
bonds, convertible preferred stocks, preferred stocks and debt securities if
the Adviser believes that they will help to achieve the Portfolio's objective.
In addition, the Portfolio may hold a portion of its assets in cash or money
market instruments.
In analyzing potential investments, the Adviser considers three main factors:
(i) the general outlook of the economy; (ii) a study of various industries to
determine those with the best possibilities for long-term growth; and (iii) a
detailed study of what appear to be the most promising individual companies.
In evaluating individual companies, the Adviser gives more weight to growth
potential characteristics than to dividend income. In particular, the Adviser
believes that evaluating a company's probable future earnings, dividends,
financial strength, working assets and competitive position may be more
profitable in the long run than seeking current dividend income.
Although the Portfolio's investments are not limited to any particular type of
company, the Adviser currently expects that the Portfolio will invest a
substantial portion of its assets in common stocks of companies with equity
market capitalizations of more than $1 billion. The Portfolio may also invest
in small to medium-sized companies having a proprietary product or profitable
market niche and the potential to grow very rapidly. The Adviser believes that
such small to medium-sized companies may present greater opportunities for
capital appreciation because of their high potential earnings growth, but also
may involve greater risk.
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, preferred stocks, United States government and agency obligations,
cash or money market instruments, 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.
The Portfolio may also engage in a variety of investment management practices
such as buying and selling options and futures contracts and entering into
foreign currency exchange contracts.
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Certain investment strategies and instruments which may be employed by the
Portfolio (such as the purchase and sale of options, borrowings, futures
contracts, foreign securities, foreign currency transactions, securities
loans, illiquid securities, derivatives, repurchase agreements and forward
commitments) are discussed under the caption "Investment Strategies" below and
in the Statement of Additional Information.
EQ/PUTNAM BALANCED PORTFOLIO
The investment objective of the EQ/Putnam Balanced Portfolio is to provide a
balanced investment composed of a well-diversified portfolio of stocks and
bonds that will produce both capital growth and current income. In seeking its
objective, the Portfolio may invest in almost any type of security or
negotiable instrument, including cash or money market instruments. While the
proportion invested in each type of security is not fixed, ordinarily the
Adviser will invest no more than 75% of the Portfolio's assets in common
stocks and conversion rights with respect to convertible securities. The
Adviser may, however, invest more than 75% of the Portfolio's assets in such
securities if it determines that unusual market or economic conditions make it
appropriate to do so.
The Portfolio may also invest in debt securities, including lower-rated debt
securities (commonly referred to as "junk bonds"). The Portfolio will not
necessarily dispose of a security when its rating is reduced below its rating
at the time of purchase. However, the Adviser will consider such reduction in
its determination of whether the Portfolio should continue to hold the
security.
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, preferred stocks, United States government and agency obligations,
cash or money market instruments, 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.
Certain investment strategies and instruments which may be employed by the
Portfolio (such as the purchase and sale of options, futures contracts,
foreign securities, securities loans, illiquid securities, zero-coupon bonds,
investment grade and lower quality fixed-income securities, payment-in-kind
bonds, derivatives, foreign currency transactions, repurchase agreements,
forward commitments and investment grade and lower quality fixed-income
securities) are
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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.
The portfolio securities of the Portfolio are selected by a committee of
investment research analysts. This committee includes investment analysts
employed not only by the Adviser but also by MFS International (U.K.) Limited,
a wholly-owned subsidiary of the Adviser. The Portfolio's assets are allocated
among industries by the analysts acting together as a group. Individual
analysts are then responsible for selecting what they view as the securities
best suited to meet the Portfolio's investment objective within their assigned
industry responsibility.
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
dollar-denominated and non-dollar-denominated foreign securities. 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, convertible securities, borrowings,
repurchase agreements, securities loans, illiquid securities and investment
grade and lower quality fixed-income securities) are discussed under the
caption "Investment Strategies" below and in the Statement of Additional
Information.
MFS EMERGING GROWTH COMPANIES PORTFOLIO
The investment objective of the MFS Emerging Growth Companies Portfolio is to
provide long-term growth of capital. Dividend and interest income from
portfolio securities, if any, is incidental to the Portfolio's investment
objective. In pursuing its objective, the Portfolio invests
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primarily (i.e., at least 80% of its assets under normal circumstances) in
common stocks of emerging growth companies that the Adviser believes are early
in their life cycle but which have the potential to become major enterprises.
Such emerging growth companies generally are expected to: (i) show earnings
growth over time that is well above the growth rate of the overall economy and
the rate of inflation; and (ii) have the products, technologies, management
and market and other opportunities that are usually necessary to become more
widely recognized as growth companies.
Emerging growth companies can be of any size and the Portfolio may invest in
larger or more established companies whose rates of earnings growth are
expected to accelerate because of special factors, such as rejuvenated
management, new products, changes in customer demand, or basic changes in the
economic environment. Investing in emerging growth companies involves greater
risk than is customarily associated with investments in more established
companies. Emerging growth companies often have limited product lines, markets
or financial resources and may be more dependent on one-person management. In
addition, there may be less research available on many promising small or
medium-sized emerging growth companies, making it more difficult both to
identify and to analyze such companies. Moreover, the securities of such
companies may have limited marketability and may be subject to more abrupt or
erratic market movements than the securities of larger, more established
companies.
While the Portfolio may invest primarily in common stocks, the Portfolio may,
to a limited extent, seek long-term growth in other types of securities such
as convertible securities and warrants. To the extent that such investments
comply with the Portfolio's investment objective, the Portfolio may invest up
to 25% 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 also invest in debt securities and hold cash and cash
equivalents. In addition, the Portfolio may invest in lower-rated debt
securities (commonly referred to as "junk bonds").
The Portfolio is aggressively managed and, therefore, the value of its shares
is subject to greater fluctuation and investment in its shares generally
involves a higher degree of risk than would be the case with an investment in
a conservative equity or growth fund investing entirely in proven growth
companies.
Certain investment strategies and practices which may be employed by the
Portfolio (such as foreign securities, repurchase agreements, loan
participations, derivatives, United States Government securities, securities
loans, forward commitments, asset-backed securities, borrowings, options,
futures contracts, convertible securities, foreign currency transactions,
illiquid securities and investment grade and lower quality fixed-income
securities) are discussed under the caption "Investment Strategies" below and
in the Statement of Additional Information.
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MORGAN STANLEY EMERGING MARKETS EQUITY PORTFOLIO
The investment objective of the Morgan Stanley Emerging Markets Equity
Portfolio is long-term capital appreciation by investing primarily in equity
securities of emerging market country issuers. In pursuing its investment
objective, the Adviser focuses on issuers in emerging market countries in
which it believes the economies are developing strongly and in which the
markets are becoming more sophisticated.
Under normal circumstances, at least 65% of the Portfolio's total assets will
be invested in emerging market country equity securities, including common
stocks, preferred stocks, convertible securities, rights and warrants to
purchase common stocks, depository receipts and other equity securities of
emerging market country issuers.
For these purposes, an emerging market country security is a security issued
by a company that has one or more of the following characteristics: (i) its
principal securities trading market is in an emerging market country; (ii)
alone or on a consolidated basis, it derives 50% or more of its revenue from
either goods produced, sales made or services performed in emerging markets
countries; or (iii) it is organized under the laws of, and has a principal
office in, an emerging market country. The Adviser will base determinations as
to eligibility on publicly available information and inquiries made to the
companies.
The Portfolio intends to invest primarily in some or all of the following
emerging market countries: Argentina, Botswana, Brazil, Chile, China,
Colombia, Greece, Hong Kong, Hungary, India, Indonesia, Jamaica, Jordan,
Kenya, Malaysia, Mexico, Nigeria, Pakistan, Peru, Philippines, Poland,
Portugal, Russia, South Africa, South Korea, Sri Lanka, Taiwan, Thailand,
Turkey, Venezuela and Zimbabwe. As markets in other countries develop, the
Portfolio expects to expand and further diversify the emerging market
countries in which it invests. The Portfolio does not intend to invest in any
security in a country where the currency is not freely convertible to United
States dollars, unless: (i) the Portfolio has obtained the necessary
governmental licensing to convert such currency or other appropriately
licensed or sanctioned contractual guarantees to protect such investment
against loss of that currency's external value, or (ii) the Portfolio has a
reasonable expectation at the time the investment is made that such
governmental licensing or other appropriately licensed or sanctioned
guarantees would be obtained or that the currency in which the security is
quoted would be freely convertible at the time of any proposed sale of the
security by the Portfolio. Currently, investing in many emerging market
countries is not feasible or may involve unacceptable political risks.
In selecting industries and particular issuers, the Adviser will analyze
assets, revenues and earnings of an issuer and, with respect to particular
countries, evaluate costs of labor and raw materials, access to technology,
export of products and government regulation. Although the Portfolio seeks to
invest in larger companies, it may invest in small and medium-size companies
that, in the Adviser's view, have potential for growth.
The Portfolio may also invest in fixed-income securities denominated in the
currency of an emerging market country or issued or guaranteed by an emerging
market country company or
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the government of an emerging market country. In addition, the Portfolio may
invest in equity or fixed-income securities of corporate or governmental
issuers located in industrialized countries, foreign currency and investment
funds (i.e., funds specifically authorized to invest in companies of a
particular emerging market country). The Portfolio may also invest in debt
securities issued or guaranteed by international organizations designed or
supported by multiple governmental entities to promote economic reconstruction
or development such as the International Bank for Reconstruction and
Development (i.e., the World Bank). The Portfolio may invest up to 10% of its
total assets (measured at the time of investment) in fixed-income securities
that are not investment grade securities (commonly referred to as "junk
bonds").
For temporary defensive purposes, the Portfolio may invest less than 65% of
its assets in equity securities of emerging market countries in which case the
Portfolio may invest in other equity securities or fixed income securities.
Moreover, the Portfolio may invest without limitation in high-quality money
market instruments.
The value of the Portfolio's investments and the income they generate will
vary from day to day and generally reflect market conditions, interest rates,
and other company, political, or economic news both in the United States and
abroad. In the short-term, stock prices can fluctuate dramatically in response
to these factors. Over time, however, stocks have shown greater growth
potential than other types of securities. The prices of fixed-income
securities also fluctuate and generally move in the opposite direction from
interest rates.
The Portfolio is a non-diversified portfolio under the 1940 Act, which means
that it may invest a greater proportion of its assets in the securities of a
small number of issuers than a diversified investment company. In this regard,
the Portfolio is not subject to the general limitation that it not invest more
than 5% of its total assets in the securities of a single issuer. As a result,
because the Portfolio is permitted greater flexibility to invest its assets in
the obligations of a single issuer it is exposed to increased risk of loss if
such an investment underperforms expectations. However, the Portfolio intends
to limit its investments so as to comply with diversification requirements
imposed by the Internal Revenue Code of 1986, as amended (the "Code"), for
qualification as a "regulated investment company." The Portfolio spreads
investment risk by limiting its holdings in any one company or industry.
Nevertheless, the Portfolio will experience price volatility, the extent of
which will be affected by the types of securities and techniques the Portfolio
uses. The Adviser may use various investment techniques to hedge risks,
including derivatives, but there is no guarantee that these strategies will
work as intended.
Certain investment strategies and practices which may be employed by the
Portfolio such as the purchase and sale of options, futures contracts, United
States Government securities, hybrid instruments, illiquid securities, foreign
securities, securities loans, borrowings, payment-in-kind bonds, passive
foreign investment companies, derivatives, convertible securities, zero coupon
bonds, investment grade and lower quality fixed-income securities,
mortgage-backed securities, forward commitments, stripped mortgage-backed
securities, collateralized mortgage obligations, asset-backed securities,
floaters, inverse floaters, foreign currency transactions, loan
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participations, repurchase agreements, structured notes and swaps are
discussed under the caption "Investment Strategies" below and in the Statement
of Additional Information.
WARBURG PINCUS SMALL COMPANY VALUE PORTFOLIO.
The investment objective of the Warburg Pincus Small Company Value Portfolio
is to seek long-term capital appreciation. The Portfolio is a diversified
management investment company that pursues its investment objective by
investing primarily in a portfolio of equity securities of small
capitalization companies (i.e., companies having market capitalizations of $1
billion or less at the time of initial purchase) that the Adviser considers to
be relatively undervalued. Current income is a secondary consideration in
selecting portfolio investments.
Under normal market conditions, the Portfolio will invest at least 65% of its
total assets in common stock, preferred stocks, debt securities convertible
into common stocks, warrants and other rights of small companies. The
Portfolio may invest up to 10% of its total assets in warrants.
The Adviser will determine whether a company is undervalued based on a variety
of measures, including: price/earnings ratio, price/book ratio, price/cash
flow ratio, earnings growth and debt/capital ratio. Other relevant factors,
including a company's asset value, franchise value and quality of management,
will also be considered. The Portfolio will invest primarily in companies
whose securities are traded on United States stock exchanges or in the United
States over-the-counter market, but it may invest up to 20% of its total
assets in foreign securities.
The Portfolio may also invest up to 20% of its total assets in investment
grade securities (other than money market obligations) that are not
convertible into common stock for the purpose of seeking capital appreciation.
Subsequent to its purchase by the Portfolio, an issue of securities may cease
to be rated or its rating may be reduced below the minimum required for
purchase by the Portfolio. Neither event will require the sale of such
securities by the Portfolio. The Adviser will consider such events in its
determination of whether the Portfolio should continue to hold the securities.
The interest income to be derived may be considered as one factor in selecting
debt securities by the Adviser.
The Portfolio is authorized to invest, under normal market conditions, up to
20% of its total assets in domestic and foreign short-term (one year or less
remaining to maturity) and medium-term (five years of less remaining to
maturity) money market obligations. For temporary defensive purposes, the
Portfolio may invest in these securities without limit. These instruments
consist of: obligations issued or guaranteed by the United States Government
or a foreign government, their agencies or instrumentalities; bank obligations
(including certificates of deposit, time deposits and bankers' acceptances of
domestic or foreign banks, domestic savings and loans and similar
institutions) that are high-quality investments or, if unrated, deemed by the
Adviser to be high-quality investments; commercial paper rated no lower than
A-2 by Standard & Poor's Rating Service ("S&P") or Prime-2 by Moody's
Investors Service, Inc. ("Moody's") or the equivalent from another NRSRO or,
if unrated, of an issuer
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having an outstanding, unsecured debt issue then rated within the three
highest rating categories by any NRSRO; and repurchase agreements with respect
to the foregoing.
When the Adviser believes that a defensive posture is warranted, the Portfolio
may invest temporarily, without limit, in investment grade debt obligations
and in domestic and foreign money market instruments, including repurchase
agreements.
Certain investment strategies and practices which may be employed by the
Portfolio (such as foreign securities, repurchase agreements, borrowings,
options, futures contracts, foreign currency transactions, United States
Government securities, short sales against the box, convertible securities,
investment grade and lower-quality fixed-income securities, and illiquid
securities) are discussed under the caption "Investment Strategies" below and
in the Statement of Additional Information.
MERRILL LYNCH WORLD STRATEGY PORTFOLIO
The investment objective of the Merrill Lynch World Strategy Portfolio is to
seek high total investment return by investing primarily in a portfolio of
equity and fixed income securities, including convertible securities,
of U.S. and foreign issuers. Total investment return consists of interest,
dividends, discount accruals and capital changes, including changes in the
value of non-dollar denominated securities and other assets and liabilities
resulting from currency fluctuations. Investing in foreign securities involves
special considerations. The Portfolio may employ a variety of instruments and
techniques to enhance income and to hedge against market and currency risk.
The Portfolio seeks to achieve its objective by investing primarily in the
securities of issuers located in the United States, Canada, Western Europe and
the Far East. There are no prescribed limits on the geographical allocation of
the Portfolio among these regions. Such allocation will be made primarily on
the basis of the anticipated total return from investments in the securities
of issuers wherever located, considering such factors as: the condition and
growth potential of the various economies and securities markets and the
issuers domiciled therein; anticipated movements in interest rates in the
various capital markets and in the value of foreign currencies relative to the
U.S. dollar; tax considerations; and economic, social, financial, national and
political factors that may affect the climate for investing within the various
securities markets. When in the judgment of the Adviser, economic or market
conditions warrant, the Portfolio reserves the right to concentrate its
investments in one or more capital markets, including the United States.
The equity and convertible preferred securities in which the Portfolio may
invest are primarily securities issued by quality companies. Generally, the
characteristics of such companies include a strong balance sheet, good
financial resources, a satisfactory rate of return on capital, a good industry
position and superior management.
The corporate debt securities, including convertible debt securities, in which
the Portfolio may invest will be primarily investment grade securities those
rated BBB or better by S&P or Baa or better by Moody's or of comparable
quality. The Fund may also invest in debt obligations issued or guaranteed by
sovereign governments, political subdivisions thereof (including states,
provinces and municipalities) or their agencies or instrumentalities or issued
or guaranteed by international organizations designated or supported by
governmental entities to promote
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economic reconstruction or development (`supranational entities') such as the
International Bank for Reconstruction and Development (the "World Bank) and
the European Coal and Steel Community. Investments in securities of
supranational entities are subject to the risk that member governments will
fail to make required capital contributions and that a supranational entity
will thus be unable to meet its obligations.
When market or financial conditions warrant, the Portfolio may invest as a
temporary defensive measure up to 100% of its assets in United States
Government or Government agency securities issued or guaranteed by the United
States Government or its agencies or instrumentalities, money market
securities or other fixed income securities deemed by the Adviser to be
consistent with a defensive posture, or may hold its assets in cash.
The Portfolio is non-diversified for the 1940 Act purposes and as such may
invest a larger percentage of its assets in individual issuers than a
diversified investment company. In this regard, the Portfolio is not subject
to the general limitation that it not invest more than 5% of its total assets
in the securities of any one issuer. To the extent the Portfolio makes
investments in excess of 5% of its assets in a particular issuer, its exposure
to credit and market risks associated with that issuer is increased. However,
the Portfolio's investments will be limited so as to qualify for the special
tax treatment afforded "regulated investment companies" under the Code.
Certain investment strategies and instruments which may be employed by the
Portfolio (such as the purchase and sale of options, floaters, futures
contracts, foreign securities, foreign currency transactions, United States
Government securities, convertible securities, borrowings, derivatives,
investment grade fixed-income securities, repurchase agreements, securities
loans, illiquid securities and forward commitments) are discussed under the
caption "Investment Strategies" below and in the Statement of Additional
Information.
MERRILL LYNCH BASIC VALUE EQUITY PORTFOLIO
The investment objective of the Merrill Lynch Basic Value Equity Portfolio is
to seek capital appreciation and, secondarily, income by investing in
securities, primarily equities, that the Adviser of the Portfolio believes are
undervalued and therefore represent basic investment value. The Portfolio
seeks special opportunities in securities that are selling at a discount,
either from book value or historical price-earnings ratios, or seem capable of
recovering from temporarily out of favor considerations. Particular emphasis
is placed on securities that provide an above-average dividend return and sell
at a below-average price-earnings ratio.
The investment policy of the Portfolio is based on the belief that the pricing
mechanism of the securities market lacks total efficiency and has a tendency
to inflate prices of securities in favorable market climates and depress
prices of securities in unfavorable climates. Based on this premise, the
Adviser believes that favorable changes in market prices are more likely to
begin when securities are out of favor, earnings are depressed, price-earnings
ratios are relatively low,
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investment expectations are limited, and there is no real general interest in
the particular security or industry involved. On the other hand, the Adviser
believes that negative developments are more likely to occur when investment
expectations are generally high, stock prices are advancing or have advanced
rapidly, price-earnings ratios have been inflated, and the industry or issue
continues to gain new investment acceptance on an accelerated basis. In other
words, the Adviser believes that market prices of securities with relative
high price-earnings ratios are more susceptible to unexpected adverse
developments while securities with relatively low price-earnings rations are
more favorably positioned to benefit from favorable, but generally
unanticipated events. This investment policy departs from traditional
philosophy. The Adviser believes that the market risk involved in this policy
is moderated somewhat by an emphasis on securities with above-average dividend
returns.
The current institutionally-dominated market tends to ignore, to some extent,
the numerous secondary issues whose market capitalizations are below those of
the relatively few larger size growth companies. It is expected that the
Portfolio's portfolio generally will have significant representation in this
secondary segment of the market. The Adviser is responsible for the management
of the Portfolio's securities portfolio and makes portfolio decisions based on
its own research information supplemented by research information provided by
other sources. The basic orientation of the Portfolio's investment policies is
such that at times a large portion of its common stock holdings may carry less
than favorable research ratings from research analysts.
Investment emphasis is on equities, primarily common stock and, to a lesser
extent, securities convertible into common stocks. The Portfolio also may
invest in preferred stocks and non-convertible investment grade debt
securities and utilize covered call options with respect to
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portfolio securities. The Portfolio has the right, as a defensive measure, to
hold other types of securities, including United States Government and
Government agency securities, money market securities, or other fixed-income
securities deemed by the Adviser to be consistent with a defensive posture, or
cash, in such proportions as, in the opinion of the Adviser, prevailing market
or economic conditions warrant. The Portfolio may invest up to 10% of its
total assets, taken at market value at the time of acquisition, in the
securities of foreign issuers.
Certain investment strategies and instruments which may be employed by the
Portfolio (such as options, convertible securities, United States Government
securities, repurchase agreements, securities loans, foreign securities,
borrowings and illiquid securities) 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, loans and other direct indebtedness and engage
in forward foreign currency exchange transactions. They may also enter into
repurchase agreements, lend their portfolio securities, and borrow funds under
certain limited circumstances. In addition, each Portfolio may engage in other
types of investment strategies as described below. Each Portfolio may invest
in or utilize any of these investment strategies and instruments or engage in
any of these practices except where otherwise prohibited by law or the
Portfolio's own investment restrictions. Portfolios that anticipate committing
5% or more of their net assets to a particular type of investment strategy or
instruments are specifically referred to in the descriptions below of such
investment strategy or instrument. Certain investment strategies and
instruments 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.
ASSET-BACKED SECURITIES. The EQ/Putnam Balanced Portfolio, MFS Emerging Growth
Companies Portfolio and Morgan Stanley Emerging Markets Equity Portfolio may
invest in asset-backed securities. These asset-backed securities, issued by
trusts and special purpose corporations, are collateralized by a pool of
assets, such as credit card or automobile loans, home equity loans or computer
leases, and represent the obligations of a number of different parties.
Asset-backed securities present certain risks. For instance, in the case of
credit card receivables, these securities may not have the benefit of any
security interest in the related collateral. Due to the possibility that
prepayments (on automobile loans and other collateral) will alter the cash
flow on asset-backed securities, it is not possible to determine in advance
the actual final maturity date or average life. Faster prepayment will shorten
the average life and slower prepayments will lengthen it. However, it is
possible to determine what the range of that movement could be and to
calculate the effect that it will have on the price of the security. In
selecting these securities, the Adviser will look for those securities that
offer a higher yield to compensate for any variation in average maturity.
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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 Portfolio,
T. Rowe Price Equity Income Portfolio, MFS Research Portfolio, MFS Emerging
Growth Companies Portfolio, Morgan Stanley Emerging Markets Equity, Merrill
Lynch World Strategy Portfolio and Merrill Lynch Basic Value Equity Portfolio
may not exceed 33 1/3% of each Portfolio's total assets. Borrowings for the
Warburg Pincus Small Company Value Portfolio may not exceed 30% of the
Portfolio's total assets. Borrowings for the EQ/Putnam Growth & Income Value
Portfolio, the EQ/Putnam International Equity Portfolio, EQ/Putnam Investors
Growth Portfolio and EQ/Putnam Balanced Portfolio may not exceed 10% of each
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. See also "Reverse Repurchase
Agreements" for information concerning an investment technique that may be
deemed to involve a borrowing. Further information concerning each Portfolio's
fundamental policy with respect to borrowings is provided in the Statement of
Additional Information.
CONVERTIBLE SECURITIES. Each of the Portfolios may invest in convertible
securities, including both convertible debt and convertible preferred stock.
Such securities may be converted into shares of the underlying common stock at
either a stated price or stated rate. Because of this feature, convertible
securities enable an investor to benefit from increases in the market price of
the underlying common stock. Convertible securities provide higher yields than
the underlying common stocks, but generally offer lower yields than
non-convertible securities of similar quality. Like bonds, the value of
convertible securities fluctuates in relation to changes in interest rates
and, in addition, fluctuates in relation to the underlying common stock.
Subsequent to purchase by a Portfolio, convertible securities may cease to be
rated or a rating may be reduced below the minimum required for purchase by
that Portfolio. Neither event will require sale of such securities, although
each Adviser will consider such event in its determination of whether a
Portfolio should continue to hold the securities.
DERIVATIVES. Each Portfolio (except the MFS Research Portfolio) may invest in
one or more types of derivatives. Derivatives are financial products or
instruments that derive their value from the value of one or more underlying
assets, reference rates or indices. Derivatives include, but are not limited
to, the following: asset-backed securities, collateralized mortgage
obligations, floaters, futures, hybrid instruments, inverse floaters,
mortgage-backed securities, options, stripped mortgage-backed securities,
structured notes and swaps. Further information about these instruments and
the risks involved in their use are contained under the description of each of
these instruments in this section or the Statement of Additional Information.
FLOATERS AND INVERSE FLOATERS. The EQ/Putnam Balanced Portfolio and Morgan
Stanley Emerging Markets Equity Portfolio each may invest in floaters, which
are fixed-income securities with a floating or variable rate of interest,
i.e., the rate of interest varies with changes in specified market rates or
indices, such as the prime rate, or at specified intervals. Certain floaters
may carry a demand feature that permits
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the holder to tender them back to the issuer of the underlying instrument, or
to a third party, at par value prior to maturity. When the demand feature of
certain floaters represents an obligation of a foreign entity, the demand
feature will be subject to certain risks discussed under "Foreign Investment".
In addition, the Morgan Stanley Emerging Markets Equity Portfolio may invest
in inverse floating rate obligations which are fixed-income securities that
have coupon rates that vary inversely at a multiple of a designated floating
rate, such as London Inter-Bank Offered Rate ("LIBOR"). Any rise in the
reference rate of an inverse floater (as a consequence of an increase in
interest rates) causes a drop in the coupon rate while any drop in the
reference rate of an inverse floater causes an increase in the coupon rate.
Inverse floaters may exhibit substantially greater price volatility than fixed
rate obligations having similar credit quality, redemption provisions and
maturity, and inverse floater collateralized mortgage obligations ("CMOs")
exhibit greater price volatility than the majority of mortgage-related
securities. In addition, some inverse floater collateralized mortgage
obligations exhibit extreme sensitivity to changes in prepayments. As a
result, the yield to maturity of an inverse floater collateralized mortgage
obligation is sensitive not only to changes in interest rates but also to
changes in prepayment rates on the related underlying mortgage assets.
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 United States dollar will result in a change in the
United States dollar value of a Portfolio's assets and income. In addition,
although a portion of a Portfolio's investment income may be received or
realized in such currencies, the Portfolio will be required to compute and
distribute its income in United States dollars. Therefore, if the exchange
rate for any such currency declines after a Portfolio's income has been earned
and computed in United States dollars but before conversion and payment, the
Portfolio could be required to liquidate portfolio securities to make such
distributions.
The value of foreign investments and the investment income derived from them
may also be affected unfavorably by changes in currency exchange control
regulations. Although the Portfolios will invest only in securities
denominated in foreign currencies that are fully exchangeable into United
States dollars without legal restriction at the time of investment, there can
be no assurance that currency controls will not be imposed subsequently. In
addition, the value of foreign fixed income investments may fluctuate in
response to changes in United States and foreign interest rates.
There may be less information publicly available about a foreign issuer than
about a United States issuer, and a foreign issuer is not generally subject to
accounting, auditing and financial reporting standards and practices
comparable to those in the United States Foreign stock markets are generally
not as developed or efficient as, and may be more volatile than, those in the
United States. While growing in volume, they usually have substantially less
volume than United States markets and a Portfolio's investment securities may
be less liquid and subject to
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more rapid and erratic price movements than securities of comparable United
States companies. Equity securities may trade at price/earnings multiples
higher than comparable United States securities and such levels may not be
sustainable. There is generally less government supervision and regulation of
foreign stock exchanges, brokers and listed companies than in the United
States. Moreover, settlement practices for transactions in foreign markets may
differ from those in United States markets. Such differences may include
delays beyond periods customary in the United States and practices, such as
delivery of securities prior to receipt of payment, which increase the
likelihood of a "failed settlement." Failed settlements can result in losses
to a 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 or global 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.
In addition, investment in foreign securities may also include the risk of
expropriation by a foreign government.
Moreover, investments in foreign government debt securities, particularly
those of emerging market country governments, involve special risks. Certain
emerging market countries have historically experienced, and may continue to
experience, high rates of inflation, high interest rates, exchange rate
fluctuations, large amounts of external debt, balance of payments and trade
difficulties and extreme poverty and unemployment. The issuer or governmental
authority that controls the repayment of an emerging market country's debt may
not be able to willing to repay the principal and/or interest when due in
accordance with the terms of such debt. A debtor's willingness or ability to
repay principal and interest due in a timely manner may be affected by, among
other factors, its cash flow situation, and, in the case of a government
debtor, the extent of its foreign reserves, the availability of sufficient
foreign exchange on the date a payment is due, the relative size of the debt
service burden to the economy as a whole and the political constraints to
which a government debtor may be subject. Government debtors may default on
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their debt and may also be dependent on expected disbursements from foreign
governments, multilateral agencies and others abroad to reduce principal and
interest arrearages on their debt. Holders of government debt may be requested
to participate in the rescheduling of such debt and to extend further loans to
government debtors.
Certain Portfolios may invest in the following types of foreign securities or
engage in the following types of transactions related to foreign securities.
Brady Bonds. The EQ/Putnam Balanced Portfolio, MFS Emerging Growth Companies
Portfolio and Morgan Stanley Emerging Markets Equity Portfolio each may invest
in "Brady Bonds," which are fixed-income securities created through the
exchange of existing commercial bank loans to foreign entities for new
obligations in connection with debt restructuring under a plan introduced by
Nicholas F. Brady when he was the United States Secretary of the Treasury.
Brady Bonds have been issued only recently, and, accordingly, do not have a
long payment history. They may be collateralized or uncollateralized and
issued in various currencies (although most are United States
dollar-denominated) and they are actively traded in the over-the-counter
("OTC") secondary market. The Morgan Stanley Emerging Markets Equity Portfolio
will invest in Brady Bonds only if they are consistent with quality
specifications established from time to time by the Adviser to that Portfolio.
Depositary Receipts. Each of the Portfolios may purchase depositary receipts,
which are securities representing ownership interests in securities of foreign
companies (an "underlying issuer") and are deposited with a securities
depositary. Depositary receipts are not necessarily denominated in the same
currency as the underlying securities. Depositary receipts include ADRs and
Global Depositary Receipts ("GDRs") and other types of depositary receipts
(which, together with ADRs and GDRs, are hereinafter collectively referred to
as "Depositary Receipts"). ADRs are dollar-denominated Depositary Receipts
typically issued by a United States financial institution which evidence
ownership interests in a security or pool of securities issued by a foreign
issuer. ADRs are listed and traded in the United States. GDRs and other types
of depositary receipts are typically issued by foreign banks or trust
companies, although they also may be issued by United States financial
institutions, and evidence ownership interests in a security or pool of
securities issued by either a foreign or a United States corporation.
Generally, depositary receipts in registered form are designed for use in the
United States securities market and depositary receipts in bearer form are
designed for use in securities markets outside the United States. Although
there may be more reliable information available regarding issuers of certain
ADRs that are issued under so-called "sponsored" programs and ADRs do not
involve foreign currency risks, ADRs and other Depositary Receipts are subject
to the risks of other investments in foreign securities, as described directly
above.
FOREIGN CURRENCY TRANSACTIONS. Each of the Portfolios (except the MFS Research
Portfolio) 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
and sell exchange traded call and put options on foreign currency futures
contracts
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and on foreign currencies. The EQ/Putnam Growth & Income Value Portfolio,
EQ/Putnam International Equity Portfolio, EQ/Putnam Investors Growth
Portfolio, EQ/Putnam Balanced Portfolio, MFS Emerging Growth Companies
Portfolio, Morgan Stanley Emerging Markets Equity Portfolio and Merrill Lynch
World Strategy Portfolio may engage in OTC options on foreign currency
transactions. The Merrill Lynch World Strategy Portfolio will engage in OTC
options on foreign currency transactions only with financial institutions
that have capital of at least $50 million or whose obligations are guaranteed
by an entity having capital of at least $50 million. The MFS Emerging Growth
Companies Portfolio may only enter into forward contracts on currencies in the
OTC market. The Advisers may engage in these transactions to protect against
uncertainty in the level of future exchange rates in connection with the
purchase and sale of portfolio securities ("transaction hedging") and to
protect the value of specific portfolio positions ("position hedging").
Hedging transactions involve costs and may result in losses. Each of the
Portfolios (except the 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.
FORWARD COMMITMENTS. Each Portfolio (except the Warburg Pincus Small Company
Value 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 liquid securities in an amount sufficient to meet the purchase price,
or if it enters into offsetting contracts for the forward sale of other
securities it owns. Forward commitments may be considered securities in
themselves and involve a risk of loss if the value of the security to be
purchased declines prior to the settlement date, which risk is in addition to
the risk of decline in value of the Portfolio's other assets. Where such
purchases are made through dealers, a Portfolio relies on the dealer to
consummate the sale. The dealer's failure to do so may result in the loss to a
Portfolio of an advantageous yield or price.
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HYBRID INSTRUMENTS. The T. Rowe Price International Stock Portfolio , T. Rowe
Price Equity Income Portfolio and Morgan Stanley Emerging Markets Equity
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.
ILLIQUID SECURITIES. The Warburg Pincus Small Company Value 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 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 10% or 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 10% or 15% of its assets invested in illiquid or not readily marketable
securities.
INVESTMENT GRADE AND LOWER QUALITY FIXED INCOME SECURITIES. Each Portfolio may
invest in or hold a portion of its total assets in investment grade or lower
quality fixed income securities. The T. Rowe Price International Stock
Portfolio and the Merrill Lynch Basic Value Equity Portfolio each may invest
in or hold investment grade securities, but not lower quality fixed income
securities. Investment grade securities are securities rated Baa or higher by
Moody's or BBB or higher by S&P and comparable unrated securities. Investment
grade securities rated Baa by Moody's or BAA by S&P while normally exhibiting
adequate protection parameters, have speculative characteristics, and,
consequently, changes in economic conditions or other circumstances are more
likely to lead to a weakened capacity of such issuers to make principal and
interest payments than is the case for higher grade fixed
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income securities. Lower quality fixed income securities are securities that
are rated in the lower categories by NRSROs (i.e., Ba or lower by Moody's and
BB or lower by S&P) or comparable unrated securities. Such lower quality
securities are known as "junk bonds" and are regarded as predominantly
speculative with respect to the issuer's continuing ability to meet principal
and interest payments. (Each NRSRO's descriptions of these bond ratings are
set forth in the Appendix to the Statement of Additional Information.) Because
investment in lower quality securities involves greater investment risk,
achievement of a Portfolio's investment objective will be more dependent on
the Adviser's analysis than would be the case if that Portfolio were investing
in higher quality bonds. In addition, lower quality securities may be more
susceptible to real or perceived adverse economic and individual corporate
developments than would investment grade bonds. Moreover, the secondary
trading market for lower quality securities may be less liquid than the market
for investment grade bonds. This potential lack of liquidity may make it more
difficult for the Adviser to value accurately certain portfolio securities.
LOAN PARTICIPATIONS. The EQ/Putnam Balanced Portfolio, MFS Emerging Growth
Companies Portfolio and the Morgan Stanley Emerging Markets Equity Portfolio
may invest a portion of each of their assets in loan participations and other
direct indebtedness. By purchasing a loan, a Portfolio acquires some or all of
the interest of a bank or other lending institution in a loan to a corporate
borrower. Many such loans are secured, and most impose restrictive covenants
that must be met by the borrower. These loans are made generally to finance
internal growth, mergers, acquisitions, stock repurchases, leveraged buy-outs
and other corporate activities. Such loans may be in default at the time of
purchase. The MFS Emerging Growth Companies Portfolio may also purchase other
direct indebtedness such as trade or other claims against companies, which
generally represent money owed by a company to a supplier of goods and
services. These claims may also be purchased at a time when the company is in
default. Certain of the loans and other direct indebtedness acquired by the
Portfolio may involve revolving credit facilities or other standby financing
commitments which obligate the Portfolio to pay additional cash on a certain
date or on demand. The highly leveraged nature of many such loans and other
direct indebtedness may make such loans especially vulnerable to adverse
changes in economic or market conditions. Loans and other direct indebtedness
may not be in the form of securities or may be subject to restrictions on
transfer, and only limited opportunities may exist to resell such instruments.
As a result, the Portfolio may be unable to sell such investments at an
opportune time or may have to resell them at less than fair market value.
MORTGAGE-RELATED SECURITIES. The EQ/Putnam Balanced Portfolio and Morgan
Stanley Emerging Markets Equity Portfolio may invest in mortgage-related
securities (i.e., mortgage-backed securities). A mortgage-backed security may
be an obligation of the issuer backed by a mortgage or pool of mortgages or a
direct interest in an underlying pool of mortgages. Some mortgage-backed
securities, such as CMOs, make payments of both principal and interest at a
variety of intervals; others make semiannual interest payments at a
predetermined rate and repay principal at maturity (like a typical bond).
Mortgage-backed securities are based on different types of mortgages including
those on commercial real estate or residential properties.
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The value of mortgage-backed securities may change due to shifts in the
market's perception of issuers. In addition, regulatory or tax changes may
adversely affect the mortgage securities market as a whole. Non-government
mortgage-backed securities may offer higher yields than those issued by
government entities, but also may be subject to greater price changes than
government issues. Mortgage-backed securities are subject to prepayment risk.
Prepayment, which occurs when unscheduled or early payments are made on the
underlying mortgages, may shorten the effective maturities of these securities
and may lower their returns.
Stripped mortgage-backed securities are created when a United States
government agency or a financial institution separates the interest and
principal components of a mortgage-backed security and sells them as
individual securities. The holder of the "principal-only" security ("PO")
receives the principal payments made by the underlying mortgage-backed
security, while the holder of the "interest-only" security ("IO") receives
interest payments from the same underlying security. The prices of stripped
mortgage-backed securities may be particularly affected by changes in interest
rates. As interest rates fall, prepayment rates tend to increase, which tends
to reduce prices of IOs and increase prices of POs. Rising interest rates can
have the opposite effect.
MUNICIPAL SECURITIES. The Morgan Stanley Emerging Markets Equity Portfolio may
invest in municipal securities ("municipals"), which are debt obligations
issued by local, state and regional governments that provide interest income
that is exempt from federal income taxes. Municipals include both municipal
bonds (those securities with maturities of five years or more) and municipal
notes (those with maturities of less than five years). Municipal bonds are
issued for a wide variety of reasons: to construct public facilities, such as
airports, highways, bridges, schools, hospitals, mass transportation, streets,
water and sewer works; to obtain funds for operating expenses; to refund
outstanding municipal obligations; and to loan funds to various public
institutions and facilities. Certain industrial development bonds are also
considered municipal bonds if their interest is exempt from federal income
tax. Industrial development bonds are issued by or on behalf of public
authorities to obtain funds for various privately-operated manufacturing
facilities, housing, sports arenas, convention centers, airports, mass
transportation systems and water, gas or sewer works. Industrial development
bonds are ordinarily dependent on the credit quality of a private user, not
the public issuer.
OPTIONS AND FUTURES TRANSACTIONS. Each Portfolio (except the MFS Research
Portfolio) may utilize futures contracts and write and purchase put and call
options. Futures contracts (a type of potentially high-risk security) enable
the investor to buy or sell an asset in the future at an agreed upon price.
Options (another type of potentially high-risk security) give the purchaser of
an option the right, but not the obligation, to buy or sell in the future an
asset at a predetermined price during the term of the option. (The writer of a
put or call option would be obligated to buy or sell the underlying asset at a
predetermined price during the term of the option.) Each Portfolio will write
put and call options only if such options are considered to be "covered". A
call option on a security is covered, for example, when the writer of the call
option owns throughout the option period the security on which the option is
written (or a security convertible into such a security without the payment of
additional consideration). A put
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option on a security is covered, for example, when the writer of the put has
deposited and maintained in a segregated account throughout the option period
sufficient cash or other liquid assets in an amount equal to or greater than
the exercise price of the put option. 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 (other than the Warburg Pincus
Small Company Value Portfolio) will not commit more than 5% of its total
assets to premiums when purchasing call or put options. The Warburg Pincus
Small Company Value Portfolio may commit up to 10% of its total assets to
premiums when purchasing put or call options. In addition, the total market
value of securities against which a Portfolio has written call or put options
may not exceed 25% of its total assets. The Merrill Lynch Basic Value Equity
Portfolio will not write covered call options on underlying securities
exceeding 15% of the value of its total assets. The MFS Emerging Growth
Companies Portfolio and Morgan Stanley Emerging Markets Equity Portfolio will
not enter a futures contract if the obligations underlying all such futures
contracts would exceed 50% of the value of each such Portfolio's total assets.
The Warburg Pincus Small Company Value Portfolio may utilize up to 10% of its
total assets to purchase exchange-listed and OTC put and call options on stock
indexes. The EQ/Putnam Growth & Income Portfolio, EQ/Putnam International
Equity Portfolio, EQ/Putnam Investors Growth Portfolios,
EQ/Putnam Balanced Portfolio, MFS Emerging Growth Companies Portfolio ,
Merrill Lynch World Strategy Portfolio and Morgan Stanley Emerging Markets
Equity Portfolio may engage in OTC put and call option transactions. Options
traded in the OTC market may not be as actively traded as those on an
exchange, so it may be more difficult to value such options. In addition, it
may be difficult to enter into closing transactions with respect to such
options. Such OTC options, and the securities used as "cover" for such
options, may be considered illiquid securities.
Each Portfolio may buy and sell futures and options contracts for any number
of reasons, including: to manage its exposure to changes in securities prices
and foreign currencies; as an efficient means of adjusting its overall
exposure to certain markets; in an effort to enhance income; and to protect
the value of portfolio securities. Each Portfolio may purchase, sell, or write
call and put options and futures contracts on securities, financial indices,
and foreign currencies and options on futures contracts.
The risk of loss in trading futures contracts can be substantial because of
the low margin deposits required and the extremely high degree of leveraging
involved in futures pricing. As a result, a relatively small price movement in
a futures contract may cause an immediate and substantial loss or gain. The
primary risks associated with the use of futures contracts and options are:
(i) imperfect correlation between the change in market value of the stocks
held by a Portfolio and the prices of futures contracts and options; and (ii)
possible lack of a liquid secondary market for a futures contract or an OTC
option and the resulting inability to close a futures position or OTC option
prior to its maturity date.
PASSIVE FOREIGN INVESTMENT COMPANIES. The T. Rowe Price International Stock
Portfolio, EQ/Putnam International Equity Portfolio, and Morgan Stanley
Emerging Markets Equity Portfolio may purchase the securities of certain
foreign investment funds or trusts called passive foreign
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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. Like other
foreign securities, interests in passive foreign investment companies also
involve the risk of foreign securities, as described above.
PAYMENT-IN-KIND BONDS. The EQ/Putnam Growth & Income Value Portfolio, the
EQ/Putnam Balanced Portfolio and Morgan Stanley Emerging Markets Equity
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 Portfolios are nonetheless required to accrue interest income on
such investments and to distribute such amounts at least annually to
shareholders. Thus, the Portfolios could be required, at times, to liquidate
other investments in order to satisfy its distribution requirements.
REPURCHASE AGREEMENTS. Each Portfolio may enter into repurchase agreements
with qualified and Board approved banks, broker-dealers or other financial
institutions as a means of earning a fixed rate of return on its cash reserves
for periods as short as overnight. A repurchase agreement is a contract
pursuant to which a Portfolio, against receipt of securities of at least equal
value including accrued interest, agrees to advance a specified sum to the
financial institution which agrees to reacquire the securities at a mutually
agreed upon time (usually one day) and price. Each repurchase agreement
entered into by a Portfolio will provide that the value of the collateral
underlying the repurchase agreement will always be at least equal to the
repurchase price, including any accrued interest. A Portfolio's right to
liquidate such securities in the event of a default by the seller could
involve certain costs, losses or delays and, to the extent that proceeds from
any sale upon a default of the obligation to repurchase are less than the
repurchase price, the Portfolio could suffer a loss.
REVERSE REPURCHASE AGREEMENTS. The Morgan Stanley Emerging Markets Equity
Portfolio may enter into reverse repurchase agreements with brokers, dealers,
domestic and foreign banks or other financial institutions. In a reverse
repurchase agreement, the Portfolio sells a security and agrees to repurchase
it at a mutually agreed upon date and price, reflecting the interest rate
effective for the term of the agreement. It may also be viewed as the
borrowing of money by the Portfolio. The Portfolio's investment of the
proceeds of a reverse repurchase agreement is the speculative factor known as
leverage. The Portfolio may enter into a reverse repurchase agreement only if
the interest income from investment of the proceeds is greater than the
interest expense of the transaction and the proceeds are invested for a period
no longer than the term of the agreement. The Portfolio will maintain with the
custodian a separate account with a segregated portfolio of unencumbered
liquid assets in an amount at least equal to its purchase obligations under
these agreements. If interest rates rise during a reverse repurchase
agreement, it may adversely affect the Portfolio's net asset value. See
"Borrowing" for more information concerning restrictions on borrowing by each
Portfolio.
SECURITIES LOANS. The T. Rowe Price International Stock Portfolio, T. Rowe
Price Equity Income Portfolio, MFS Research Portfolio, MFS Emerging Growth
Companies Portfolio, and Morgan Stanley Emerging Markets Equity Portfolio may
seek to obtain additional income by making secured loans of portfolio
securities with a value up to 33 1/3% of their respective total assets. The EQ/
Putnam Growth & Income Value Portfolio, EQ/Putnam International Equity
Portfolio, EQ/Putnam Investors Growth Portfolio and EQ/Putnam Balanced
Portfolio may lend portfolio securities in an amount up to 25% of their
respective total assets. The Merrill Lynch Basic Value Equity Portfolio,
Merrill Lynch World Strategy Portfolio, and Warburg Pincus Small Company Value
Portfolio may each lend portfolio securities in an amount up to 20% of their
respective total assets. All securities loans will be made pursuant to
agreements requiring the
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loans to be continuously secured by collateral in cash or high-grade debt
obligations at least equal at all times to the market value of the loaned
securities. The borrower pays to the Portfolios an amount equal to any
dividends or interest received on loaned securities. The Portfolios retain all
or a portion of the interest received on investment of cash collateral or
receive a fee from the borrower. Lending portfolio securities involves risks
of delay in recovery of the loaned securities or in some cases loss of rights
in the collateral should the borrower fail financially. Further information
concerning each Portfolio's fundamental policy with respect to loans is
provided in the Statement of Additional Information.
SHORT SALES AGAINST THE BOX. The Warburg Pincus Small Company Value Portfolio
and Morgan Stanley Emerging Markets Equity Portfolio may enter into a "short
sale" of securities in circumstances in which, at the time the short position
is open, the Portfolio owns an equal amount of the securities sold short or
owns preferred stocks or debt securities, convertible or exchangeable without
payment of further consideration, into an equal number of securities sold
short. This kind of short sale, which is referred to as one "against the box,"
may be entered into by each Portfolio to, for example, lock in a sale price
for a security the Portfolio does not wish to sell immediately or to postpone
a gain or loss for federal income tax purposes. Each Portfolio will deposit,
in a segregated account with its custodian or a qualified subcustodian, the
securities sold short or convertible or exchangeable preferred stocks or debt
securities sold in connection with short sales against the box. Each Portfolio
will endeavor to offset transaction costs associated with short sales against
the box with the income from the investment of the cash proceeds. Not more
than 10% of a Portfolio's net assets (taken at current value) may be held as
collateral for short sales against the box at any one time. The extent to
which a Portfolio may make short sales may be limited by Code requirements for
qualification as a regulated investment company.
SMALL COMPANY SECURITIES. The EQ/Putnam International Equity Portfolio,
EQ/Putnam Balanced Portfolio, Morgan Stanley Emerging Markets Equity Portfolio
and Warburg Pincus Small Company Value Portfolio may invest in the securities
of smaller capitalization companies. Investing in securities of small
companies may involve greater risks since these securities may have limited
marketability and, thus, may be more volatile. Because smaller companies
normally have fewer shares outstanding than larger companies, it may be more
difficult for Portfolio to buy or sell significant amounts of shares without
an unfavorable impact on prevailing prices. In addition, small companies are
typically subject to a greater degree of changes in earnings and business
prospects than are larger, more established companies. There is typically less
publicly available information concerning smaller companies than for larger,
more established ones. Therefore, an investment
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in these Portfolios may involve a greater degree of risk than an investment in
other Portfolios that seek capital appreciation by investing in better-known,
larger companies.
STRUCTURED NOTES. The Morgan Stanley Emerging Markets Equity Portfolio may
invest in structured notes, which are derivatives on which the amount of
principal repayment and/or interest payments is based upon the movement of one
or more factors. These factors include, but are not limited to, currency
exchange rates, interest rates (such as the prime lending rate and LIBOR) and
stock indices such as the S&P 500. In some cases, the impact of the movements
of these factors may increase or decrease through the use of multipliers or
deflators. The use of structured notes allows the Portfolio to tailor its
investments to the specific risks and returns the Adviser wishes to accept
while avoiding or reducing certain other risks.
SWAPS. The Morgan Stanley Emerging Markets Equity Portfolio may invest in swap
contracts, which are derivatives in the form of a contract or other similar
instrument which is an agreement to exchange the return generated by one
instrument for the return generated by another instrument. The payment streams
are calculated by reference to a specified index and agreed upon notional
amount. The term "specified index" includes, but is not limited to,
currencies, fixed interest rates, prices and total return on interest rate
indices, fixed-income indices, stock indices and commodity indices (as well as
amounts derived from arithmetic operations on these indices). For example, the
Portfolio may agree to swap the return generated by a fixed-income index for
the return generated by a second fixed-income index. The Portfolio will
usually enter into swaps on a net basis, i.e., the two return streams are
netted out in a cash settlement on the payment date or dates specified in the
instrument, with the Portfolio receiving or paying, as the case may be, only
the net amount of
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the two returns. The Portfolio's obligations under a swap agreement will be
accrued daily (offset against any amounts owing to the Portfolio) and any
accrued but unpaid net amounts owed to a swap counterparty will be covered by
the maintenance of a segregated account consisting of cash, United States
Governments, or high grade debt obligations. The Portfolio will not enter into
any swap agreement unless the counterparty meets the rating requirements set
forth in guidelines established by the Trust's Board of Trustees. The swap
market has grown substantially in recent years with a large number of banks
and investment banking firms acting both as principals and as agents utilizing
standardized swap documentation. As a result, the swap market has become
relatively liquid. Swaps that include more recent innovations for which
standardized documentation has not yet been fully developed are less liquid
than "traditional" swaps. The use of swaps is a highly specialized activity
that involves investment techniques and risks different from those associated
with ordinary portfolio securities transactions. If the Adviser is incorrect
in its forecasts of market values, interest rates, and currency exchange
rates, the investment performance of the Portfolio would be less favorable
than it would have been if this investment technique were not used.
UNITED STATES GOVERNMENT SECURITIES. Each Portfolio may invest in debt
obligations of varying maturities issued or guaranteed by the United States
government, its agencies or instrumentalities ("United States government
securities"). Direct obligations of the United States Treasury include a
variety of securities that differ in their interest rates, maturities and
dates of issuance. United States government securities also include securities
issued or guaranteed by government agencies that are supported by the full
faith and credit of the United States (e.g., securities issued by the
Government National Mortgage Association); securities issued or guaranteed by
government agencies that are supported by the ability to borrow from the
United States Treasury (e.g., securities issued by the Federal National
Mortgage Association); and securities issued or guaranteed by government
agencies that are only supported by the credit of the particular agency (e.g.,
the Tennessee Valley Authority).
WARRANTS. Warrants are securities that give the holder the right, but not the
obligation to purchase equity issues of the company issuing the warrants, or a
related company, at a fixed price either on a date certain or during a set
period. At the time of issue, the cost of a warrant is substantially less than
the cost of the underlying security itself, and price movements in the
underlying security are generally magnified in the price movements of the
warrant. This effect enables the investor to gain exposure to the underlying
security with a relatively low capital investment but increases an investor's
risk in the event of a decline in the value of the underlying security and can
result in a complete loss of the amount invested in the warrant. In addition,
the price of a warrant tends to be more volatile than, and may not correlate
exactly to, the price of the underlying security. If the market price of the
underlying security. If the market price of the underlying security is below
the exercise price of the warrant on its expiration date, the warrant will
generally expire without value.
ZERO-COUPON BONDS. The EQ/Putnam Growth & Income Value Portfolio, EQ/Putnam
Balanced Portfolio and Morgan Stanley Emerging Markets Equity 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
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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 investors in such instruments. Thus, each Portfolio could be
required, at times, to liquidate other investments in order to satisfy its
distribution requirements.
PORTFOLIO TURNOVER. The length of time a Portfolio has held a particular
security is not generally a consideration in investment decisions. A change in
the securities held by a Portfolio is known as "portfolio turnover." 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 Amended and Restated 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"). It is located at 1755 Broadway,
New York, New York 10019. 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, subject to review and approval by the Trustees, 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 Trust's business, and also supervises
the provision of services by third parties such as the Trust's custodian.
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As compensation for managing the T. Rowe Price Equity Income Portfolio,
EQ/Putnam Growth & Income Value Portfolio, EQ/Putnam Investors Growth
Portfolio, EQ/Putnam Balanced Portfolio, MFS Research Portfolio, MFS Emerging
Growth Companies Portfolio and Merrill Lynch Basic Value Equity Portfolio the
Trust pays the Manager a monthly fee at the annual rate of .55% of the
respective 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 of .75% of the Portfolio's average daily net
assets . As compensation for managing the EQ/Putnam International Equity
Portfolio, and Merrill Lynch World Strategy Portfolio, the Trust pays the
Manager a monthly fee at an annual rate of .70% of the respective Portfolio's
average daily net assets . As compensation for managing the Morgan Stanley
Emerging Markets Equity Portfolio, the Trust pays the Manager a monthly fee at
an annual rate of 1.15% of the Portfolio's average daily net assets . As
compensation for managing the Warburg Pincus Small Company Value Portfolio,
the Trust pays the Manager a monthly fee at an annual rate of .65% of the
Portfolio's average daily net assets.
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. The Class IB shares may pay for certain distribution related
expenses in connection with activities primarily intended to result in the
sale of its shares, pursuant to a distribution plan for the Class IB shares
adopted pursuant to Rule 12b-1 under the 1940 Act.
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 an advisory fee based on a
percentage of the average daily net assets of the Portfolio that it advises.
Monthly, with respect to each Portfolio, each Adviser is paid the pro rata
portion of an annual fee, based on the monthly average of the assets of the
Portfolio for which it serves as the Adviser. The Manager will retain, as
compensation for the services described under "The Manager" and to pay its
expenses, the difference between the fees paid to each Adviser and the
management fee of the applicable Portfolio. Each Adviser has agreed that once
the Portfolio has paid the Manager its management fee the Adviser will look
only to the Manager as the party responsible for making the payment of its
advisory fee.
The Advisers are employed for management of the assets of a Portfolio pursuant
to investment
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advisory agreements approved by the Board of Trustees of the Trust (including
a majority of certain Trustees who are not interested persons of the Trust or
the Manager), and an Adviser's services may be terminated at any time by the
Manager, the Board of Trustees, or the shareholders of an affected Portfolio.
The Trust has submitted an application requesting an exemptive order from the
Securities and Exchange Commission ("SEC") that would permit the Manager,
subject to certain conditions, and without the approval of shareholders to:
(a) employ a new Adviser or Advisers for any Portfolio pursuant to the terms
of a new Advisory Agreement, in each case either as a replacement for an
existing Adviser or as an additional Adviser; (b) change the terms of any
Advisory Agreement; and (c) continue the employment of an existing Adviser on
the same advisory contract terms where a contract has been assigned because of
a change in control of the Adviser. In such circumstances, shareholders would
receive notice of such action, including the information concerning the
Adviser that normally is provided in the Prospectus. It is uncertain at this
time whether such exemptive relief will be granted by the SEC.
T. Rowe Price Associates, Inc. ("T. Rowe Price"), 100 East Pratt Street,
Baltimore, MD 21202, has been the Adviser to the T. Rowe Price Equity Income
Portfolio since the Portfolio commenced its operations. 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 $95 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"), 100 East Pratt
Street, Baltimore, MD 21202, has been 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 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.
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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 United States equivalent of approximately
$25 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 the 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") has been the Adviser
to the EQ/Putnam Growth & Income Value Portfolio, EQ/Putnam International
Equity Portfolio, EQ/Putnam Investors Growth Portfolio and EQ/Putnam Balanced
Portfolio since each Portfolio commenced operations. As compensation for
services as the Adviser to the EQ/Putnam Growth & Income Portfolio, EQ/Putnam
Investors Growth Portfolio and EQ/Putnam Balanced Portfolio, the Manager pays
Putnam Management a monthly fee at an annual rate equal to: .50% of the
respective Portfolio's average daily net assets up to and including $150
million; .45% of the respective Portfolio's average daily net assets over $150
million and up to and including $300 million; and .35% of the respective
Portfolio's average daily net assets in excess
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of $300 million. As compensation for services as the EQ/Putnam International
Equity Portfolio's Adviser, the Manager pays Putnam Management a monthly fee
at the annual 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 has been managing mutual funds since 1937. Putnam Management
is located at One Post Office Square, Boston, MA 02109. As of December 31,
1996, Putnam Management and its affiliates managed more than $173 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 has been responsible for the day to day management of the EQ/Putnam
Growth & Income Value Portfolio since the Portfolio commenced operations,
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
EQ/Putnam International Equity 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. Ms. C. Beth Cotner and
Messrs. Richard England, Manuel Weiss Herrero and David J. Santos are
responsible for the day to day management of the EQ/Putnam Investors Growth
Portfolio, which includes investment decisions made on behalf of the
Portfolio. Ms. Cotner has been employed by Putnam Management as an investment
professional since 1995. Prior to 1995, Ms. Cotner was Executive Vice
President of Kemper Financial Services. Mr. England has been employed by
Putnam Management as an investment professional since December, 1992. Prior to
December, 1992, Mr. England was an investment officer at Aetna Equity
Investors. Mr. Herrero has been employed by Putnam Management as an investment
professional since 1987. Mr. Santos has been employed by Putnam Management as
an investment professional since 1988. Messrs. Edward P. Bousa , Kenneth J.
Taubes and Robert M. Paine are responsible for the day to day management of
the EQ/Putnam Balanced Portfolio, which includes investment decisions made on
behalf of the Portfolio. Mr. Bousa has been employed by Putnam Management as
an investment professional since October, 1992. Prior to October, 1992, Mr.
Bousa was Vice President and Portfolio Manager at Fidelity Investments. Mr.
Taubes has been employed by Putnam Management as an investment professional
since 1991. Mr. Paine has been employed by Putnam Management as an investment
professional since 1987.
Massachusetts Financial Services Company ("MFS") has been the Adviser to the
MFS Research Portfolio and the MFS Emerging Growth Companies Portfolio since
each Portfolio commenced operations. As compensation for services as the
Adviser to each of those Portfolios, the Manager pays MFS a monthly fee at an
annual rate equal to: .40% of the respective Portfolio's average daily net
assets up to and including $150 million; .375% of the respective Portfolio's
average daily net assets over $150 million and up to and including $300
million; and .35% of the respective Portfolio's average daily net assets in
excess of $300 million. MFS has
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agreed to waive its advisory fees for the first six months after the
commencement of each Portfolio's investment operations.
MFS is America's oldest mutual fund organization. MFS is located at 500
Boylston Street, Boston, MA 02116. 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 January
31, 1996, MFS managed more than $54.0 billion on behalf of over 2.3 million
investors accounts. MFS is a subsidiary of Sun Life of Canada (United States),
which, in turn, is a wholly-owned subsidiary of Sun Life Assurance Company of
Canada. 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. The
portfolio securities of the MFS Research Portfolio are selected by a committee
of investment research analysts. This committee includes investment analysts
employed not only by MFS but also by MFS International (U.K.) Limited, a
wholly owned subsidiary of MFS. The assets of the MFS Research Portfolio are
allocated among industries by the analysts acting together as a group.
Individual analysts are then responsible for selecting what they view as the
securities best suited to meet the investment objectives of the MFS Research
Portfolio within their assigned industry responsibility. Since it commenced
operations the MFS Emerging Growth Companies Portfolio has been managed by
John W. Ballen, a Senior Vice President of MFS, who has been employed by the
Adviser as a portfolio manager since 1984, and Toni K. Shimura, a Vice
President of MFS, who has been employed as a portfolio manager by the Adviser
since 1987.
Morgan Stanley Asset Management Inc. ("MSAM") has been the Adviser to the
Morgan Stanley Emerging Markets Equity Portfolio since each Portfolio
commenced operations. MSAM is located at 1221 Avenue of the Americas, New
York, NY 10020. As compensation for services as the Portfolio's Adviser, the
Manager pays MSAM a monthly fee at an annual rate equal to: 1.15% of the
Portfolio's average daily net assets up to and including $100 million; .90% of
the Portfolio's average daily net assets over $100 million and up to and
including $150 million; .80% of the Portfolio's average daily net assets over
$150 million and up to and including $200 million; .60% of the Portfolio's
average daily net assets over $200 million and up to and including $500
million; and .40% of the Portfolio's average daily net assets in excess of
$500 million.
MSAM conducts a worldwide investment management business, providing a broad
range of portfolio management services to customers in the United States and
abroad. MSAM is a wholly owned subsidiary of Morgan Stanley Group Inc., which
is a publicly owned financial services
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corporation listed on the New York, London and Pacific stock exchanges. MSAM
serves an investment adviser to numerous open-end and closed-end investment
companies. As of December 31, 1996, MSAM, together with its affiliated asset
management companies, had approximately $172 billion in assets under
management and fiduciary care. On February 5, 1997, Morgan Stanley Group Inc.
and Dean Witter, Discover & Co. announced that they had entered into an
Agreement and Plan of Merger to form Morgan Stanley, Dean Witter, Discover &
Co. Morgan Stanley Group Inc. is the direct parent of MSAM. It is currently
anticipated that the transaction will close in mid-1997. Thereafter, MSAM will
be a subsidiary of Morgan Stanley, Dean Witter, Discover & Co. Dean Witter,
Discover & Co. is a financial services company with three major businesses:
full service brokerage, credit services and asset management.
Madhav Dhar and Marianne L. Hay have been responsible for the day to day
management of the Morgan Stanley Emerging Markets Equity Portfolio, which
includes investment decisions made on behalf of the Portfolio, since the
Portfolio commenced operations. Mr. Dhar is a Managing Director of MSAM and
Morgan Stanley & Co. Incorporated ("Morgan Stanley") and a Director of the
Morgan Stanley Emerging Markets Fund, Inc. He joined MSAM in 1984. Ms. Hay is
a Managing Director of MSAM and Morgan Stanley. She joined MSAM in June 1993.
Prior to joining MSAM, she was a director of Martin Currie Investment
Management, Ltd., where her responsibilities included geographic asset
allocation and portfolio management for global and emerging markets funds.
Warburg, Pincus Counsellors, Inc. ("WPC") has been the Adviser to the Warburg
Pincus Small Company Value Portfolio since the Portfolio commenced operations.
WPC is located at 466 Lexington Avenue, New York, New York 10017-3147. As
compensation for services as the Portfolio's Adviser, the Manager pays WPC a
monthly fee at an annual rate of .50% of the Portfolio's average daily net
assets.
WPC is a professional investment counselling firm that provides investment
services to investment companies, employee benefit plans, endowment funds,
foundations and other institutions and individuals. As of January 31, 1997,
WPC managed approximately $17.9 billion in assets. WPC, incorporated in 1970,
is a wholly-owned subsidiary of Warburg, Pincus Counsellors G.P. ("Warburg
G.P."), a New York general partnership, which itself is controlled by Warburg,
Pincus & Co. ("WP&Co."), also a New York general partnership. Lionel I.
Pincus, the managing partner of WP&Co., may be deemed to control both WP&Co.
and WPC. Warburg G. P. has no business other than being a holding company of
WPC and its subsidiaries.
George U. Wyper has been responsible for the day to day management of the
Warburg Pincus Small Company Value Portfolio, which includes investment
decisions made on behalf of the Portfolio, since the Portfolio commenced
operations. Mr. Wyper is a managing director of WPC, which he joined in
August, 1994. Before joining WPC, he was chief investment officer of White
River Corporation and president of Hanover Advisors, Inc. from 1993 to August,
1994. Prior to that position, he was chief investment officer of Fund American
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Enterprises, Inc. from 1990 to 1993. Kyle F. Frey, a senior vice president of
WPC, is associate portfolio manager and research analysts of the Portfolio.
Mr. Frey has been with WPC since 1989.
Merrill Lynch Asset Management, L.P. ("MLAM") has been the Adviser to the
Merrill Lynch World Strategy Portfolio and the Merrill Lynch Basic Value
Equity Portfolio since each Portfolio commenced operations. MLAM is located at
800 Scudders Mill Road, Plainsboro, New Jersey 08543-9011. As compensation for
services as the Merrill Lynch World Strategy Portfolio's Adviser, the Manager
pays MLAM a monthly fee at an annual rate equal to: .50% of the Portfolio's
average daily net assets up to and including $100 million; .45% of the
Portfolio's average daily net assets over $100 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 Merrill Lynch Basic Value
Equity Portfolio's Adviser, the Manager pays MLAM a
monthly fee at an annual rate equal to: .40% of the Portfolio's average daily
net assets up to and including $100 million; .375% of the Portfolio's average
daily net assets over $100 million and up to and including $300 million; and
.35% of the Portfolio's average daily net assets in excess of $300 million.
MLAM is an indirect wholly-owned subsidiary of Merrill Lynch & Co., Inc., a
financial services holding company and the parent of Merrill Lynch, Pierce,
Fenner & Smith Incorporated. The general partner of MLAM is Princeton
Services, Inc., a wholly-owned subsidiary of Merrill Lynch & Co., Inc. MLAM
and its affiliates act as the manager for more than 130 registered investment
companies. MLAM also offers portfolio management and portfolio analysis
services to individuals and institutions. As of December 31, 1996, the Adviser
and its affiliates had a total of approximately $234 billion in investment
company and other portfolio assets under management, including assets of
certain affiliates of MLAM.
Thomas R. Robinson is the portfolio manager of the Merrill Lynch World
Strategy Portfolio. Mr. Robinson has served as a Senior Portfolio Manager of
MLAM since 1995. Mr. Robinson has been primarily responsible for the day to
day management of the Portfolio's securities portfolio since it commenced
operations. Kevin Rendino is the portfolio manager of the Merrill Lynch Basic
Value Equity Portfolio. Mr. Rendino has been a Vice President of MLAM since
1993 and was a Senior Research Analyst of MLAM from 1990 to 1992. Mr. Rendino
has been primarily responsible for the day to day management of the
Portfolio's securities portfolio since it commenced operations.
THE ADMINISTRATOR
Pursuant to an agreement ("Mutual Funds Service Agreement"), Chase Global Funds
Services Company (the "Administrator") assists the Manager in the performance
of its administrative responsibilities to the Trust and provides the Trust
with other necessary administrative, fund accounting and compliance services.
In addition, the Administrator makes available the office
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space, equipment, personnel and facilities required to provide such services
to the Trust. For these services, the Trust pays the Administrator a monthly
fee at the annual rate of .0525 of 1% of the total Trust assets, plus $25,000
for each Portfolio, until the total Trust assets reach $2.0 billion, and when
the total Trust assets exceed $2.0 billion: .0425 of 1% of the first $0.5
billion of the total Trust assets; .035 of 1% of the next $2.0 billion of the
total Trust assets; .025 of 1% of the next $1.0 billion of the total Trust
assets; .015 of 1% of the next $2.5 billion of the total Trust assets; .01 of
1% of the total Trust assets in excess of $6.0 billion; and except that the
annual fee payable to Chase with respect to any Portfolio which commences
operation after July 1, 1997 and whose assets do not exceed $200 million shall
be computed at the annual rate of .0525% of the Portfolio's total assets
plus $25,000.
THE TRANSFER AGENT
Equitable serves as the transfer agent and dividend disbursing agent of the
Trust and receives no compensation for serving in such capacity.
EXPENSE LIMITATION AGREEMENTS
In the interest of limiting expenses of the Portfolios, the Manager has
entered into an expense limitation agreement with the Trust, with respect to
each Portfolio, ("Expense Limitation Agreements") pursuant to which the
Manager has agreed to waive or limit its fees and to assume other expenses so
that the total annual operating expenses of each Portfolio are limited to:
.85% of the respective average daily net assets of the T. Rowe Price Equity
Income, EQ/Putnam Growth & Income Value, EQ/Putnam Investors Growth, MFS
Research, MFS Emerging Growth Companies and Merrill Lynch Basic Value Equity
Portfolios; .90% of the EQ/Putnam Balanced Portfolio's average daily net
assets; 1.00% of the Warburg Pincus Small Company Value Portfolio's average
daily net assets; 1.20% of the respective average daily net assets of the T.
Rowe Price International Stock, EQ/Putnam International Equity and Merrill
Lynch World Strategy Portfolios; and 1.75% of the Morgan Stanley Emerging
Markets Equity Portfolio's average daily net assets;
Each Portfolio may at a later date reimburse to the Manager the management
fees waived or limited and other expenses assumed and paid by the Manager
pursuant to the Expense Limitation Agreement provided such Portfolio has
reached a sufficient asset size to permit such reimbursement to be made
without causing the total annual expense ratio of each Portfolio to exceed the
percentage limits stated above. Consequently, no reimbursement by a Portfolio
will be made unless: (i) the Portfolio's assets exceed $100 million; (ii) the
Portfolio's total annual expense ratio is less than the respective percentages
stated above; and (iii) the payment of such reimbursement has been approved by
the Trust's Board of Trustees on a quarterly basis.
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BROKERAGE PRACTICES
In selecting brokers and dealers, the Manager and each Adviser may consider
research and brokerage services furnished to either company and their
affiliates. Subject to seeking the most favorable net price and execution
available, the Manager and each Adviser may also consider sales of shares of
the Trust as a factor in the selection of brokers and dealers.
TRANSACTIONS WITH AFFILIATES
In December 1984, Equitable acquired Donaldson, Lufkin & Jenrette, Inc.
("DLJ"). A DLJ subsidiary, Donaldson, Lufkin & Jenrette Securities
Corporation, is one of the nation's largest investment banking and securities
firms. Another DLJ subsidiary, Autranet, Inc., is a securities broker that
markets independently originated research to institutions. Through the
Pershing Division of Donaldson, Lufkin & Jenrette Securities Corporation, DLJ
supplies security execution and clearance services to financial intermediaries
including broker-dealers and banks. To the extent permitted by law, the Trust
may engage in securities and other transactions with 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, which are persons indirectly related to the Adviser, acting as
an agent in accordance with procedures established by the Trust's Board of
Trustees. The Adviser to the Merrill Lynch World Strategy Portfolio and
Merrill Lynch Basic Value Equity Portfolio may execute portfolio transactions
through certain of the Adviser's affiliates. The Adviser to the Morgan Stanley
Emerging Markets Equity Portfolio may execute portfolio transactions through
certain affiliates.
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 May 1, 1997,
Separate Account FP, a separate account of Equitable, owned 100% of
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the shares of the T. Rowe Price Equity Income Portfolio and through such
ownership may be deemed a controlling person of each Portfolio. The Trust
currently is divided into twelve 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 Amended and Restated Declaration of Trust. The
Trust is not required to hold annual shareholder meetings, but special
meetings may be called for purposes such as electing or removing Trustees,
changing fundamental policies or approving an investment 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.
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PURCHASE AND REDEMPTION OF SHARES
EQ Financial , 1755 Broadway, New York, New York, 10019, formerly Equico
Securities, Inc., a wholly-owned subsidiary of Equitable, serves as one of the
Distributors for the Trust's Class IA shares pursuant to a distribution
agreement with the Trust. EDI, 1290 Avenue of the Americas, New York, New
York, 10104, also serves as one of the Distributors for the Trust's Class IA
shares pursuant to a distribution agreement with the Trust. 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 Amended
and Restated Declaration of Trust and By-Laws. Sales and redemptions of shares
of the same class by the same shareholder on the same day will be netted for
each Portfolio. All redemption requests will be processed and payment with
respect thereto 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.
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 United States
are valued at representative quoted prices in the currency
of the country of origin. Foreign currency amounts are
translated into United States dollars at the bid price last
quoted by a composite list of major United States 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.
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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 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 Code, each Portfolio
will also comply with the investment diversification requirements of
Subchapter L of the Code. Were any Portfolio to fail to comply with those
requirements, owners of Contracts (other than "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 Administrator and
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
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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 (or series) managed by each Adviser,
that has investment objectives, 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 past performance of any of the Portfolios
or the future performance of any Portfolio or its Adviser. Consequently,
potential investors should not consider this performance data as an indication
of the future performance of any Portfolio of the Trust or of its Adviser.
Each Adviser's performance data shown below 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.
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T. ROWE PRICE INTERNATIONAL STOCK PORTFOLIO
In the table below, the only account which is included is another registered
investment company, i.e., T. Rowe Price International Stock Fund which is
managed by the Rowe Price-Fleming International, Inc. However, T. Rowe Price
International Stock Fund may be subject to different expenses than the T. Rowe
Price International Stock Portfolio.
The investment results of T. Rowe Price International Stock Fund presented
below are unaudited and are not intended to predict or suggest the returns
that might be experienced by the T. Rowe Price International Stock Portfolio
or an individual investor investing in the T. Rowe Price International Stock
Portfolio.
T. ROWE PRICE MSCI EAFE
YEAR INTERNATIONAL STOCK FUND(1) INDEX(2)
---- --------------------------- --------
One Year(3)
Three Years(3)
Five Years(3)
Since inception(3)
- ----------------------------------
1 Average annual total return reflects changes in share prices and
reinvestment of dividends and distributions and is net of fund
expenses.
2 The Morgan Stanley Capital International Europe, Australia, and Far
East Indes ("MSCI EAFE Index") is an unmanaged
capitalization-weighted measure of stock markets in Europe,
Australia, the Far East and Canada. MSCI EAFE Index returns assume
dividends reinvested net of withholding tax and do not reflect any
fees or expenses.
3 Through December 31, 1996.
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T. ROWE PRICE EQUITY INCOME PORTFOLIO
In the table below, the only account which is included is another registered
investment company, i.e., T. Rowe Price Equity Income Fund which is managed by
the T. Rowe Price Associates, Inc. However, the T. Rowe Price Equity Income
Fund may be subject to different expenses than the T. Rowe Price Equity Income
Portfolio.
The investment results of T. Rowe Price Equity Income Fund presented below are
unaudited and are not intended to predict or suggest the returns that might be
experienced by the T. Rowe Price Equity Income Portfolio or an individual
investor investing in the T. Rowe Price Equity Income Portfolio.
S&P 500
YEAR T. ROWE PRICE EQUITY INCOME FUND(1) INDEX(2)
---- ----------------------------------- --------
One Year(3)
Three Years(3)
Five Years(3)
Ten Years(3)
- ----------------------------------
1 Average annual total return reflects changes in share prices and
reinvestment of dividends and distributions and is net of fund
expenses.
2 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 United States
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.
3 Through December 31, 1996. The investment advisory fee applicable to
the T. Rowe Price Equity Income Fund was capped at 1.00% in 1986 and
capped at the maximum state-allowed fee in 1987.
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EQ/PUTNAM GROWTH & INCOME VALUE PORTFOLIO
In the table below, the only account which is included is another registered
investment company, i.e., Putnam Growth & Income Fund II which is managed by
the Putnam Investment Management, Inc. However, the Putnam Growth & Income
Fund II may be subject to different expenses than the EQ/Putnam Growth &
Income Value Portfolio.
The investment results of Putnam Growth & Income Fund presented below are
unaudited and are not intended to predict or suggest the returns that might be
experienced by the EQ/Putnam Growth & Income Value Portfolio or an individual
investor investing in the EQ/Putnam Growth & Income Value Portfolio.
S&P 500
YEAR PUTNAM GROWTH & INCOME FUND II(1) INDEX(2)
---- --------------------------------- --------
One Year(3)
Five Years(3)
Since inception(3)
- ----------------------------------
1 Average annual total return reflects changes in share prices and
reinvestment of dividends and distributions and is net of fund
expenses.
2 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 United States
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.
3 Through December 31, 1996 for the Class A shares of the Putnam Growth &
Income Fund II. The Class A shares are subject to a front-end sales
charge of 5.75%. The Class B shares are subject to a maximum contingent
deferred sales charge of 5.0%. The Class M shares are subject to a
front-end sales charge of 3.5%. The Class A shares is subject to a Rule
12b-1 fee equal to .25% (which the Board of Trustees can raise to .35%)
of the average net assets attributable to the Class A shares. The
Class B and Class M shares are subject to a Rule 12b-1 fee equal to
.60% of the average net assets attributable to each respective class.
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EQ/PUTNAM INTERNATIONAL EQUITY PORTFOLIO
In the table below, the only account which is included is another registered
investment company, i.e., Putnam International Growth Fund which is managed by
the Putnam Investment Management, Inc. However, the Putnam International
Growth Fund may be subject to different expenses than the EQ/Putnam
International Equity Portfolio.
The investment results of Putnam International Growth Fund presented below are
unaudited and are not intended to predict or suggest the returns that might be
experienced by the EQ/Putnam International Equity Portfolio or an individual
investor investing in the EQ/Putnam International Equity Portfolio.
MSCI EAFE
YEAR PUTNAM INTERNATIONAL GROWTH FUND(1) INDEX(2)
---- ----------------------------------- -------
One Year(3)
Five Years(3)
Since inception(3)
- ----------------------------------
1 Average annual total return reflects changes in share prices and
reinvestment of dividends and distributions and is net of fund
expenses.
2 The MSCI EAFE ("Index") is an unmanaged capitalization-weighted
measure of stock markets in Europe, Australia, the Far East and
Canada. MSCI EAFE Index returns assume dividends reinvested net of
withholding tax and do not reflect any fees or expenses.
3 Through December 31, 1996 for the Class A shares of the Putnam
International Growth Fund. The inception date of the Class A shares
of the Putnam International Growth Fund was _______ __, 199__. The
Class A shares are subject to a front-end sales charge of 5.75%. The
Class B shares are subject to a maximum contingent deferred sales
charge of 5.0%. The Class M shares are subject to a front-end sales
charge of 3.5%. The Class A shares is subject to a Rule 12b-1 fee
equal to .25% (which the Board of Trustees can raise to .35%) of the
average net assets attributable to the Class A shares. The Class B
and Class M shares are subject to a Rule 12b-1 fee equal to .60% of
the average net assets attributable to each respective class.
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EQ/PUTNAM INVESTORS GROWTH PORTFOLIO
In the table below, the only account which is included is another registered
investment company, i.e., Putnam Investors Fund which is managed by the Putnam
Investment Management, Inc. However, the Putnam Investors Fund may be subject
to different expenses than the EQ/Putnam Investors Growth Portfolio.
The investment results of Putnam Investors Fund presented below are unaudited
and are not intended to predict or suggest the returns that might be
experienced by the EQ/Putnam Investors Growth Portfolio or an individual
investor investing in the EQ/Putnam Investors Growth Portfolio.
S&P 500
YEAR PUTNAM INVESTORS FUND(1) INDEX(2)
---- ------------------------ --------
One Year(3)
Five Years(3)
Ten Years(3)
- ----------------------------------
1 Average annual total return reflects changes in share prices and
reinvestment of dividends and distributions and is net of fund
expenses.
2 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 United States
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.
3 Through December 31, 1996 for the Class A shares of the Putnam
Investors Fund. The Class A shares are subject to a front-end sales
charge of 5.75%. The Class B shares are subject to a maximum
contingent deferred sales charge of 5.0%. The Class M shares are
subject to a front-end sales charge of 3.5%. The Class A shares is
subject to a Rule 12b-1 fee equal to .25% (which the Board of
Trustees can raise to .35%) of the average net assets attributable to
the Class A shares. The Class B and Class M shares are subject to a
Rule 12b-1 fee equal to .60% of the average net assets attributable
to each respective class.
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EQ/PUTNAM BALANCED PORTFOLIO
In the table below, the only account which is included is another registered
investment company, i.e., The George Putnam Fund of Boston which is managed by
the Putnam Investment Management, Inc. However, The George Putnam Fund of
Boston may be subject to different expenses than the EQ/Putnam Balanced
Portfolio.
The investment results of The George Putnam Fund of Boston presented below are
unaudited and are not intended to predict or suggest the returns that might be
experienced by the EQ/Putnam Balanced Portfolio or an individual investor
investing in the EQ/Putnam Balanced Portfolio.
S&P LEHMAN BROS.
500 GOV'T/CORP.
YEAR THE GEORGE PUTNAM FUND OF BOSTON(1) INDEX(2) BOND INDEX(3)
---- ----------------------------------- -------- -------------
One Year(4)
Five Years(4)
Ten Years(4)
- ----------------------------------
1 Average annual total return reflects changes in share prices and
reinvestment of dividends and distributions and is net of fund
expenses.
2 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 United States
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.
3 The Lehman Brothers Government/Corporate Bond Index is an unmanaged
list of publicly issued U.S. Treasury obligations, debt obligations
or U.S. government agencies (excluding mortgage-backed securities),
and fixed-rate, nonconvertible investment-grade corporate debt
securities.
4 Through December 31, 1996 for the Class A shares of The George Putnam
Fund of Boston. The Class A shares are subject to a front-end sales
charge of 5.75%. The Class B shares are subject to a maximum
contingent deferred sales charge of 5.0%. The Class M shares are
subject to a front-end sales charge of 3.5%. The Class A shares is
subject to a Rule 12b-1 fee equal to .25% (which the Board of
Trustees can raise to .35%) of the average net assets attributable to
the Class A shares. The Class B and Class M shares are subject to a
Rule 12b-1 fee equal to .60% of the average net assets attributable
to each respective class.
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MFS RESEARCH PORTFOLIO
In the table below, the only account which is included is another registered
investment company, i.e., MFS Research Fund which is managed by the
Massachusetts Financial Services Company. However, MFS Research Fund may be
subject to different expenses than the MFS Research Portfolio.
The investment results of MFS Research Fund presented below are unaudited and
are not intended to predict or suggest the returns that might be experienced
by the MFS Research Portfolio or an individual investor investing in the MFS
Research Portfolio.
S&P 500
YEAR MFS RESEARCH FUND(1) INDEX(2)
---- -------------------- --------
One Year(3)
Five Years(3)
Ten Years(3)
- ----------------------------------
1 Average annual total return reflects changes in share prices and
reinvestment of dividends and distributions and is net of fund
expenses.
2 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 United States
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.
3 Through December 31, 1996 for the Class C shares of the MFS Research
Fund. Class A shares are subject to a maximum sales charge of 5.75%.
Class B shares are subject to a contingent deferred sales charge
("CDSC"). Class C share performance includes the performance of the
fund's Class A shares for periods prior to the commencement offering
of Class C shares on April 1, 1996. Sales charges and operating
expenses for Class A, Class B, and Class C shares differ. Class C
share performance has not been adjusted, however to reflect
differences in operating expenses (e.g., Rule 12b-1 fees).
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MFS EMERGING GROWTH COMPANIES PORTFOLIO
In the table below, the only account which is included is another registered
investment company, i.e., MFS Emerging Growth Fund which is managed by the
Massachusetts Financial Services Company. However, MFS Emerging Growth Fund
may be subject to different expenses than the MFS Emerging Growth Companies
Portfolio.
The investment results of MFS Emerging Growth Fund presented below are
unaudited and are not intended to predict or suggest the returns that might be
experienced by the MFS Emerging Growth Companies Portfolio or an individual
investor investing in the MFS Emerging Growth Companies Portfolio.
RUSSELL 2000
YEAR MFS EMERGING GROWTH FUND(1) INDEX(2)
---- --------------------------- -------
One Year(3)
Five Years(3)
Since inception(3)
- ----------------------------------
1 Average annual total return reflects changes in share prices and
reinvestment of dividends and distributions and is net of fund
expenses.
2 The Russell 2000 Index is an unmanaged index (with no defined
investment objective) of 2000 small-cap stocks and it includes
reinvestments of dividends. It is compiled by the Frank Russell
Company.
3 Through December 31, 1996 for the Class C shares of the MFS Emerging
Growth Fund. Class A shares are subject to a maximum sales charge of
5.75%. Class B shares are subject to a contingent deferred sales
charge ("CDSC"). Class C shares have no initial sales charge but,
along with Class B shares, have higher annual fees and expenses than
Class A shares. Class C shares redeemed within 12 months of purchase
are subject to an CDSC. Class C share performance includes the
performance of the fund's Class B shares for period prior to the
commencement of offering of Class A on September 13, 1993 and Class C
shares on April 1, 1996. The Class B share performance included
within the Class C share SEC performance has been adjusted to reflect
the lower CDSC generally applicable to Class C shares rather than the
higher CDSC generally applicable to Class B shares. Class A and Class
C share performance has not been adjusted, however, to reflect
differences in operating expenses (e.g., Rule 12b-1 fees).
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MORGAN STANLEY EMERGING MARKETS EQUITY PORTFOLIO
In the table below, the only account which is included is another registered
investment company, i.e., Morgan Stanley Universal Funds, Inc. - Emerging
Markets Equity Portfolio which is managed by the Morgan Stanley Asset
Management Inc. However, the Morgan Stanley Universal Funds, Inc. - Emerging
Markets Equity Portfolio may be subject to different expenses than the Morgan
Stanley Emerging Markets Equity Portfolio.
The investment results of Morgan Stanley Universal Funds, Inc. - Emerging
Markets Equity Portfolio presented below are unaudited and are not intended to
predict or suggest the returns that might be experienced by the Morgan Stanley
Emerging Markets Equity Portfolio or an individual investor investing in the
Morgan Stanley Emerging Markets Equity Portfolio.
IFC GLOBAL
MORGAN STANLEY UNIVERSAL FUNDS, INC. - TOTAL RETURN
YEAR EMERGING MARKETS EQUITY PORTFOLIO(1, 2) COMPOSITE INDEX(3)
---- --------------------------------------- ------------------
One Year(4)
Three Years(4)
Since inception(4)
- ----------------------------------
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 Morgan Stanley Universal Funds, Inc. - Emerging
Markets Equity Portfolio was capped at ____% for the period
__________ to __________ (reflecting annualized reimbursement of
expenses of ____%). The expense ratio of the Morgan Stanley Universal
Funds, Inc. - Emerging Markets Equity Portfolio is capped at 1.75%
through December 31, 1996.
3 The IFC Global Total Return Composite Index includes the constituents
of all IFCG market indices, with some delays between the introduction
of a new IFC index market and its inclusion in the composite and with
some exception to coverage.
4 Through December 31, 1996 for the Class A shares of the Morgan
Stanley Universal Funds, Inc. Emerging Markets Equity Portfolio. The
Class A shares of the Emerging Markets Equity Portfolio are not
subject to a Rule 12b-1 fee. The Class B shares of the Emerging
Markets Equity Portfolio are subject to a Rule 12b-1 fee equal to
0.25% of the Portfolio's assets. The inception date for the Emerging
Markets Equity Portfolio was September 25, 1992.
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WARBURG PINCUS SMALL COMPANY VALUE PORTFOLIO
In the table below, the only account which is included is another registered
investment company, i.e., Warburg Pincus Small Company Value Fund which is
managed by the Warburg, Pincus Counsellors, Inc. However, the Warburg Pincus
Small Company Value Fund may be subject to different expenses than the Warburg
Pincus Small Company Value Portfolio.
The investment results of Warburg Pincus Small Company Value Portfolio
presented below are unaudited and are not intended to predict or suggest the
returns that might be experienced by the Warburg Pincus Small Company Value
Portfolio or an individual investor investing in such Portfolio and should not
be considered a substitute for the Warburg Pincus Small Company Value
Portfolio's own performance information.
RUSSELL 2000
YEAR WARBURG PINCUS SMALL COMPANY VALUE FUND(1, 2) INDEX(3)
---- --------------------------------------------- --------
One Year(4)
Since inception(4)
- ----------------------------------
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 Warburg Pincus Small Company Value Fund was
capped at 1.75% for the period __________ to __________ (reflecting
annualized reimbursement of expenses of ____%). Absent this
reimbursement, the performance of Warburg Pincus Small Company Value
Fund would have been lower.
3 The Russell 2000 Index is an unmanaged index (with no defined
investment objective) of 2,000 small-cap stocks, and includes
reinvestment of dividends. It is compiled by the Frank Russell
Company.
4 December 29, 1995 through December 31, 1996.
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<PAGE>
MERRILL LYNCH WORLD STRATEGY PORTFOLIO
In the table below, the only account which is a series of another registered
investment company, i.e., Merrill Lynch Global Strategy Focus Fund, a series
of Merrill Lynch Variable Series Funds, Inc., which is managed by Merrill
Lynch Asset Management, L.P. However, the Merrill Lynch Global Strategy Focus
Fund may be subject to different expenses than the Merrill Lynch World
Strategy Portfolio.
The investment results of Merrill Lynch Global Strategy Focus Fund presented
below are unaudited and are not intended to predict or suggest the returns
that might be experienced by the Merrill Lynch World Strategy Portfolio or an
individual investor investing in the Merrill Lynch World Strategy Portfolio.
MERRILL LYNCH VARIABLE
SERIES FUNDS, INC. -
MERRILL LYNCH GLOBAL MSCI EAFE
YEAR STRATEGY FOCUS FUND(1) INDEX(2)
---- ---------------------- --------
One Year(3)
Five Years(3)
Since inception(3)
- ----------------------------------
1 Average annual total return reflects changes in share prices and
reinvestment of dividends and distributions and is net of fund
expenses.
2 The Morgan Stanley Capital International Europe, Australia, and Far
East Index ("MSCI EAFE Index") is an unmanaged
capitalization-weighted measure of stock markets in Europe,
Australia, the Far East and Canada. MSCI EAFE Index returns assume
dividends reinvested net of withholding tax and do not reflect any
fees or expenses.
3 Through December 31, 1996. The inception date for the Merrill Lynch
Global Strategy Focus Fund was February 28, 1992.
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<PAGE>
MERRILL LYNCH BASIC VALUE EQUITY PORTFOLIO
In the table below, the only account which is another registered investment
company, i.e., Merrill Lynch Basic Value Focus Fund, a series of Merrill Lynch
Variable Series Funds, Inc., which is managed by Merrill Lynch Asset
Management, L.P. However, the Merrill Lynch Basic Value Focus Fund may be
subject to different expenses than the Merrill Lynch Basic Value Equity
Portfolio.
The investment results of Merrill Lynch Basic Value Focus Fund presented below
are unaudited and are not intended to predict or suggest the returns that
might be experienced by the Merrill Lynch Basic Value Equity Portfolio or an
individual investor investing in the Merrill Lynch Basic Value Equity
Portfolio.
MERRILL LYNCH VARIABLE
SERIES FUNDS, INC. - S&P 500
YEAR MERRILL LYNCH BASIC VALUE FOCUS FUND(1) INDEX(2)
---- -------------------------------------- -------
One Year(3)
Since inception(3)
- ----------------------------------
1 Average annual total return reflects changes in share prices and
reinvestment of dividends and distributions and is net of fund
expenses.
2 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 United States
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.
3 Through December 31, 1996. The inception date for the Merrill Lynch
Basic Value Focus Fund was July __, 1993.
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<PAGE>
PROSPECTUS DATED MAY 1, 1997
EQ ADVISORS TRUST
1290 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10104
EQ Advisors Trust ("Trust") is a 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 twelve Portfolios currently offered by
the Trust.
* T. Rowe Price International Stock Portfolio
* T. Rowe Price Equity Income Portfolio
* EQ/Putnam Growth & Income Value Portfolio
* EQ/Putnam International Equity Portfolio
* EQ/Putnam Investors Growth Portfolio
* EQ/Putnam Balanced Portfolio
* MFS Research Portfolio
* MFS Emerging Growth Companies Portfolio
* Morgan Stanley Emerging Markets Equity Portfolio
* Warburg Pincus Small Company Value Portfolio
* Merrill Lynch World Strategy Portfolio
* Merrill Lynch Basic Value Equity 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
<PAGE>
future reference. Additional information contained in a Statement of
Additional Information also dated May 1, 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.
<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 twelve Portfolios. Each Portfolio is a separate series of the
Trust with its own objective and policies. All of the Portfolios, except for
the Morgan Stanley Emerging Markets Equity Portfolio and Merrill Lynch World
Strategy Portfolio, are diversified for 1940 Act purposes. 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., Massachusetts Financial Services Company, Morgan Stanley
Asset Management Inc., Warburg, Pincus Counsellors, Inc., and Merrill Lynch
Asset Management, L.P. 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
EQ/Putnam Growth & Putnam Investment Management,
Income Value Portfolio Inc.
EQ/Putnam International Putnam Investment Management,
Equity Portfolio Inc.
EQ/Putnam Investors Putnam Investment Management,
Growth Portfolio Inc.
EQ/Putnam Balanced Putnam Investment Management,
Portfolio Inc.
MFS Research Portfolio Massachusetts Financial Services
Company
MFS Emerging Growth Companies Massachusetts Financial Services
Portfolio Company
Morgan Stanley Emerging Markets Morgan Stanley Asset Management
Equity Portfolio Inc.
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<PAGE>
Warburg Pincus Small Company Warburg, Pincus Counsellors, Inc.
Value Portfolio
Merrill Lynch Merrill Lynch Asset Management,
World Strategy Portfolio L.P.
Merrill Lynch Basic Value Merrill Lynch Asset Management,
Equity Portfolio L.P.
The Trust offers two classes of shares on behalf of each Portfolio: Class IA
shares and Class IB shares. EQ Financial Consultants, Inc. ("EQ Financial"),
the Trust's Manager, serves as one of the distributors for the Class IB shares
of the Trust offered by this Prospectus. Equitable Distributors, Inc. ("EDI")
also serves as one of the distributors for the Class IB shares of the Trust as
well as one of the distributors of the Class IA shares. (EQ Financial and EDI
are collectively referred to as the "Distributors"). 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 ("Distribution Plan") adopted pursuant to Rule 12b-1 under the 1940 Act.
Inquiries regarding Class IA shares should be addressed to Equitable, at 1290
Avenue of the Americas, New York, NY 10104.
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-United States companies. The Adviser intends to
invest substantially all of the Portfolio's assets outside
-4-
<PAGE>
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.
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 United States 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
-5-
<PAGE>
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, United States Government securities, convertible
securities, borrowings, derivatives, investment grade fixed-income securities,
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).
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.
-6-
<PAGE>
Although the Portfolio will invest primarily in United States 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 United
States and dollar-denominated securities traded in the United States (such as
American Depositary Receipts ("ADRs"). 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").
Certain investment strategies and instruments which may be employed by the
Portfolio (such as the purchase and sale of options, futures contracts,
convertible securities, borrowings, foreign securities, repurchase agreements,
derivatives, United States government securities, securities loans, foreign
currency transactions, illiquid securities and investment grade and lower
quality fixed-income securities) are discussed under the caption "Investment
Strategies" below and in the Statement of Additional Information.
EQ/PUTNAM GROWTH & INCOME VALUE PORTFOLIO
The investment objective of the EQ/Putnam Growth & Income Value 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.
-7-
<PAGE>
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.
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.
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,
foreign securities, securities loans, convertible securities, borrowings,
repurchase agreements, illiquid securities, forward commitments, zero-coupon
bonds, derivatives, United States Government securities, foreign currency
transactions, passive foreign investment companies, payment-in-kind bonds, and
investment grade and lower quality fixed-income securities) are discussed
under the caption "Investment Strategies" below and in the Statement of
Additional Information.
EQ/PUTNAM INTERNATIONAL EQUITY PORTFOLIO
-8-
<PAGE>
The investment objective of the EQ/Putnam International Equity Portfolio is
capital appreciation. The Portfolio is designed for investors seeking capital
appreciation primarily through a diversified portfolio of equity securities of
companies organized under the laws of a country other than the United States.
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 the
United States. The Portfolio will consider an issuer to be located outside the
United States if the issuer is organized under the laws of a country outside
the United States. 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.
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.
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<PAGE>
Certain investment strategies and instruments which may be employed by the
Portfolio (such as the purchase and sale of options, borrowings, derivatives,
repurchase agreements, futures contracts, foreign securities, forward
commitments, foreign currency transactions, securities loans, and illiquid
securities) are discussed under the caption "Investment Strategies" below and
in the Statement of Additional Information.
EQ/PUTNAM INVESTORS GROWTH PORTFOLIO
The investment objective of the EQ/Putnam Investors Growth Portfolio is
long-term growth of capital and any increased income that results from this
growth. The Adviser intends to invest primarily in common stocks in view of
the Adviser's belief that equity ownership affords the best opportunity for
capital growth over the long term. The Portfolio may also purchase convertible
bonds, convertible preferred stocks, preferred stocks and debt securities if
the Adviser believes that they will help to achieve the Portfolio's objective.
In addition, the Portfolio may hold a portion of its assets in cash or money
market instruments.
In analyzing potential investments, the Adviser considers three main factors:
(i) the general outlook of the economy; (ii) a study of various industries to
determine those with the best possibilities for long-term growth; and (iii) a
detailed study of what appear to be the most promising individual companies.
In evaluating individual companies, the Adviser gives more weight to growth
potential characteristics than to dividend income. In particular, the Adviser
believes that evaluating a company's probable future earnings, dividends,
financial strength, working assets and competitive position may be more
profitable in the long run than seeking current dividend income.
Although the Portfolio's investments are not limited to any particular type of
company, the Adviser currently expects that the Portfolio will invest a
substantial portion of its assets in common stocks of companies with equity
market capitalizations of more than $1 billion. The Portfolio may also invest
in small to medium-sized companies having a proprietary product or profitable
market niche and the potential to grow very rapidly. The Adviser believes that
such small to medium-sized companies may present greater opportunities for
capital appreciation because of their high potential earnings growth, but also
may involve greater risk.
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, preferred stocks, United States government and agency obligations,
cash or money market instruments, 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
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<PAGE>
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.
The Portfolio may also engage in a variety of investment management practices
such as buying and selling options and futures contracts and entering into
foreign currency exchange contracts.
Certain investment strategies and instruments which may be employed by the
Portfolio (such as the purchase and sale of options, borrowings, futures
contracts, foreign securities, foreign currency transactions, securities
loans, illiquid securities, derivatives, repurchase agreements and forward
commitments) are discussed under the caption "Investment Strategies" below and
in the Statement of Additional Information.
EQ/PUTNAM BALANCED PORTFOLIO
The investment objective of the EQ/Putnam Balanced Portfolio is to provide a
balanced investment composed of a well-diversified portfolio of stocks and
bonds that will produce both capital growth and current income. In seeking its
objective, the Portfolio may invest in almost any type of security or
negotiable instrument, including cash or money market instruments. While the
proportion invested in each type of security is not fixed, ordinarily the
Adviser will invest no more than 75% of the Portfolio's assets in common
stocks and conversion rights with respect to convertible securities. The
Adviser may, however, invest more than 75% of the Portfolio's assets in such
securities if it determines that unusual market or economic conditions make it
appropriate to do so.
The Portfolio may also invest in debt securities, including lower-rated debt
securities (commonly referred to as "junk bonds"). The Portfolio will not
necessarily dispose of a security when its rating is reduced below its rating
at the time of purchase. However, the Adviser will consider such reduction in
its determination of whether the Portfolio should continue to hold the
security.
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, preferred stocks, United States government and agency obligations,
cash or money market instruments, 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.
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<PAGE>
Certain investment strategies and instruments which may be employed by the
Portfolio (such as the purchase and sale of options, futures contracts,
foreign securities, securities loans, illiquid securities, zero-coupon bonds,
investment grade and lower quality fixed-income securities, payment-in-kind
bonds, derivatives, foreign currency transactions, repurchase agreements,
forward commitments and investment grade and lower quality fixed-income
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.
The portfolio securities of the Portfolio are selected by a committee of
investment research analysts. This committee includes investment analysts
employed not only by the Adviser but also by MFS International (U.K.) Limited,
a wholly-owned subsidiary of the Adviser. The Portfolio's assets are allocated
among industries by the analysts acting together as a group. Individual
analysts are then responsible for selecting what they view as the securities
best suited to meet the Portfolio's investment objective within their assigned
industry responsibility.
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
dollar-denominated and non-dollar-denominated foreign securities . 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, convertible securities, borrowings,
repurchase agreements, securities loans, illiquid securities and investment
grade and lower quality fixed-income securities) are discussed under the
caption "Investment Strategies" below and in the Statement of Additional
Information.
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MFS EMERGING GROWTH COMPANIES PORTFOLIO
The investment objective of the MFS Emerging Growth Companies Portfolio is to
provide long-term growth of capital. Dividend and interest income from
portfolio securities, if any, is incidental to the Portfolio's investment
objective. In pursuing its objective, the Portfolio invests primarily (i.e.,
at least 80% of its assets under normal circumstances) in common stocks of
emerging growth companies that the Adviser believes are early in their life
cycle but which have the potential to become major enterprises. Such emerging
growth companies generally are expected to: (i) show earnings growth over time
that is well above the growth rate of the overall economy and the rate of
inflation; and (ii) have the products, technologies, management and market and
other opportunities that are usually necessary to become more widely
recognized as growth companies.
Emerging growth companies can be of any size and the Portfolio may invest in
larger or more established companies whose rates of earnings growth are
expected to accelerate because of special factors, such as rejuvenated
management, new products, changes in customer demand, or basic changes in the
economic environment. Investing in emerging growth companies involves greater
risk than is customarily associated with investments in more established
companies. Emerging growth companies often have limited product lines, markets
or financial resources and may be more dependent on one-person management. In
addition, there may be less research available on many promising small or
medium-sized emerging growth companies, making it more difficult both to
identify and to analyze such companies. Moreover, the securities of such
companies may have limited marketability and may be subject to more abrupt or
erratic market movements than the securities of larger, more established
companies.
While the Portfolio may invest primarily in common stocks, the Portfolio may,
to a limited extent, seek long-term growth in other types of securities such
as convertible securities and warrants. To the extent that such investments
comply with the Portfolio's investment objective, the Portfolio may invest up
to 25% 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 also invest in debt securities and hold cash and cash
equivalents. In addition, the Portfolio may invest in lower-rated debt
securities (commonly referred to as "junk bonds").
The Portfolio is aggressively managed and, therefore, the value of its shares
is subject to greater fluctuation and investment in its shares generally
involves a higher degree of risk than would be the case with an investment in
a conservative equity or growth fund investing entirely in proven growth
companies.
Certain investment strategies and practices which may be employed by the
Portfolio (such as foreign securities, repurchase agreements, loan
participations, derivatives, United States Government securities, securities
loans, forward commitments, asset-backed securities,
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borrowings, options, futures contracts, convertible securities, foreign
currency transactions, illiquid securities and investment grade and lower
quality fixed-income securities) are discussed under the caption "Investment
Strategies" below and in the Statement of Additional Information.
MORGAN STANLEY EMERGING MARKETS EQUITY PORTFOLIO
The investment objective of the Morgan Stanley Emerging Markets Equity
Portfolio is long-term capital appreciation by investing primarily in equity
securities of emerging market country issuers. In pursuing its investment
objective, the Adviser focuses on issuers in emerging market countries in
which it believes the economies are developing strongly and in which the
markets are becoming more sophisticated.
Under normal circumstances, at least 65% of the Portfolio's total assets will
be invested in emerging market country equity securities, including common
stocks, preferred stocks, convertible securities, rights and warrants to
purchase common stocks, depository receipts and other equity securities of
emerging market country issuers.
For these purposes, an emerging market country security is a security issued
by a company that has one or more of the following characteristics: (i) its
principal securities trading market is in an emerging market country; (ii)
alone or on a consolidated basis, it derives 50% or more of its revenue from
either goods produced, sales made or services performed in emerging markets
countries; or (iii) it is organized under the laws of, and has a principal
office in, an emerging market country. The Adviser will base determinations as
to eligibility on publicly available information and inquiries made to the
companies.
The Portfolio intends to invest primarily in some or all of the following
emerging market countries: Argentina, Botswana, Brazil, Chile, China,
Colombia, Greece, Hong Kong, Hungary, India, Indonesia, Jamaica, Jordan,
Kenya, Malaysia, Mexico, Nigeria, Pakistan, Peru, Philippines, Poland,
Portugal, Russia, South Africa, South Korea, Sri Lanka, Taiwan, Thailand,
Turkey, Venezuela and Zimbabwe. As markets in other countries develop, the
Portfolio expects to expand and further diversify the emerging market
countries in which it invests. The Portfolio does not intend to invest in any
security in a country where the currency is not freely convertible to United
States dollars, unless: (i) the Portfolio has obtained the necessary
governmental licensing to convert such currency or other appropriately
licensed or sanctioned contractual guarantees to protect such investment
against loss of that currency's external value, or (ii) the Portfolio has a
reasonable expectation at the time the investment is made that such
governmental licensing or other appropriately licensed or sanctioned
guarantees would be obtained or that the currency in which the security is
quoted would be freely convertible at the time of any proposed sale of the
security by the Portfolio. Currently, investing in many emerging market
countries is not feasible or may involve unacceptable political risks.
In selecting industries and particular issuers, the Adviser will analyze
assets, revenues and earnings of an issuer and, with respect to particular
countries, evaluate costs of labor and raw materials, access to technology,
export of products and government regulation. Although the
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Portfolio seeks to invest in larger companies, it may invest in small and
medium-size companies that, in the Adviser's view, have potential for growth.
The Portfolio may also invest in fixed-income securities denominated in the
currency of an emerging market country or issued or guaranteed by an emerging
market country company or the government of an emerging market country. In
addition, the Portfolio may invest in equity or fixed-income securities of
corporate or governmental issuers located in industrialized countries, foreign
currency and investment funds (i.e., funds specifically authorized to invest
in companies of a particular emerging market country). The Portfolio may also
invest in debt securities issued or guaranteed by international organizations
designed or supported by multiple governmental entities to promote economic
reconstruction or development such as the International Bank for
Reconstruction and Development (i.e., the World Bank). The Portfolio may
invest up to 10% of its total assets (measured at the time of investment) in
fixed-income securities that are not investment grade securities (commonly
referred to as "junk bonds").
For temporary defensive purposes, the Portfolio may invest less than 65% of
its assets in equity securities of emerging market countries in which case the
Portfolio may invest in other equity securities or fixed income securities.
Moreover, the Portfolio may invest without limitation in high-quality money
market instruments.
The value of the Portfolio's investments and the income they generate will
vary from day to day and generally reflect market conditions, interest rates,
and other company, political, or economic news both in the United States and
abroad. In the short-term, stock prices can fluctuate dramatically in response
to these factors. Over time, however, stocks have shown greater growth
potential than other types of securities. The prices of fixed-income
securities also fluctuate and generally move in the opposite direction from
interest rates.
The Portfolio is a non-diversified portfolio under the 1940 Act, which means
that it may invest a greater proportion of its assets in the securities of a
small number of issuers than a diversified investment company. In this regard,
the Portfolio is not subject to the general limitation that it not invest more
than 5% of its total assets in the securities of a single issuer. As a result,
because the Portfolio is permitted greater flexibility to invest its assets in
the obligations of a single issuer it is exposed to increased risk of loss if
such an investment underperforms expectations. However, the Portfolio intends
to limit its investments so as to comply with diversification requirements
imposed by the Internal Revenue Code of 1986, as amended (the "Code"), for
qualification as a "regulated investment company." The Portfolio spreads
investment risk by limiting its holdings in any one company or industry.
Nevertheless, the Portfolio will experience price volatility, the extent of
which will be affected by the types of securities and techniques the Portfolio
uses. The Adviser may use various investment techniques to hedge risks,
including derivatives, but there is no guarantee that these strategies will
work as intended.
Certain investment strategies and practices which may be employed by the
Portfolio such as the purchase and sale of options, futures contracts, United
States Government securities, hybrid instruments, illiquid securities, foreign
securities, securities loans, borrowings, payment-in-kind
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bonds, passive foreign investment companies, derivatives, convertible
securities, zero coupon bonds, investment grade and lower quality fixed-income
securities, mortgage-backed securities, forward commitments, stripped
mortgage-backed securities, collateralized mortgage obligations, asset-backed
securities, floaters, inverse floaters, foreign currency transactions, loan
participations, repurchase agreements, structured notes and swaps are
discussed under the caption "Investment Strategies" below and in the Statement
of Additional Information.
WARBURG PINCUS SMALL COMPANY VALUE PORTFOLIO.
The investment objective of the Warburg Pincus Small Company Value Portfolio
is to seek long-term capital appreciation. The Portfolio is a diversified
management investment company that pursues its investment objective by
investing primarily in a portfolio of equity securities of small
capitalization companies (i.e., companies having market capitalizations of $1
billion or less at the time of initial purchase) that the Adviser considers to
be relatively undervalued. Current income is a secondary consideration in
selecting portfolio investments.
Under normal market conditions, the Portfolio will invest at least 65% of its
total assets in common stock, preferred stocks, debt securities convertible
into common stocks, warrants and other rights of small companies. The
Portfolio may invest up to 10% of its total assets in warrants.
The Adviser will determine whether a company is undervalued based on a variety
of measures, including: price/earnings ratio, price/book ratio, price/cash
flow ratio, earnings growth and debt/capital ratio. Other relevant factors,
including a company's asset value, franchise value and quality of management,
will also be considered. The Portfolio will invest primarily in companies
whose securities are traded on United States stock exchanges or in the United
States over-the-counter market, but it may invest up to 20% of its total
assets in foreign securities.
The Portfolio may also invest up to 20% of its total assets in investment
grade securities (other than money market obligations) that are not
convertible into common stock for the purpose of seeking capital appreciation.
Subsequent to its purchase by the Portfolio, an issue of securities may cease
to be rated or its rating may be reduced below the minimum required for
purchase by the Portfolio. Neither event will require the sale of such
securities by the Portfolio. The Adviser will consider such events in its
determination of whether the Portfolio should continue to hold the securities.
The interest income to be derived may be considered as one factor in selecting
debt securities by the Adviser.
The Portfolio is authorized to invest, under normal market conditions, up to
20% of its total assets in domestic and foreign short-term (one year or less
remaining to maturity) and medium-term (five years of less remaining to
maturity) money market obligations. For temporary defensive purposes, the
Portfolio may invest in these securities without limit. These instruments
consist of: obligations issued or guaranteed by the United States Government
or a foreign government, their agencies or instrumentalities; bank obligations
(including certificates of deposit, time deposits and bankers' acceptances of
domestic or foreign banks, domestic
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savings and loans and similar institutions) that are high-quality investments
or, if unrated, deemed by the Adviser to be high-quality investments;
commercial paper rated no lower than A-2 by Standard & Poor's Rating Service
("S&P") or Prime-2 by Moody's Investors Service, Inc. ("Moody's") or the
equivalent from another NRSRO or, if unrated, of an issuer having an
outstanding, unsecured debt issue then rated within the three highest rating
categories by any NRSRO; and repurchase agreements with respect to the
foregoing.
When the Adviser believes that a defensive posture is warranted, the Portfolio
may invest temporarily, without limit, in investment grade debt obligations
and in domestic and foreign money market instruments, including repurchase
agreements.
Certain investment strategies and practices which may be employed by the
Portfolio (such as foreign securities, repurchase agreements, borrowings,
options, futures contracts, foreign currency transactions, United States
Government securities, short sales against the box, convertible securities,
investment grade and lower-quality fixed-income securities, and illiquid
securities) are discussed under the caption "Investment Strategies" below and
in the Statement of Additional Information.
MERRILL LYNCH WORLD STRATEGY PORTFOLIO
The investment objective of the Merrill Lynch World Strategy Portfolio is to
seek high total investment return by investing primarily in a portfolio of
equity and fixed income securities, including convertible securities,
of U.S. and foreign issuers. Total investment return consists of interest,
dividends, discount accruals and capital changes, including changes in the
value of non-dollar denominated securities and other assets and liabilities
resulting from currency fluctuations. Investing in foreign securities involves
special considerations. The Portfolio may employ a variety of instruments and
techniques to enhance income and to hedge against market and currency risk.
The Portfolio seeks to achieve its objective by investing primarily in the
securities of issuers located in the United States, Canada, Western Europe and
the Far East. There are no prescribed limits on the geographical allocation of
the Portfolio among these regions. Such allocation will be made primarily on
the basis of the anticipated total return from investments in the securities
of issuers wherever located, considering such factors as: the condition and
growth potential of the various economies and securities markets and the
issuers domiciled therein; anticipated movements in interest rates in the
various capital markets and in the value of foreign currencies relative to the
U.S. dollar; tax considerations; and economic, social, financial, national and
political factors that may affect the climate for investing within the various
securities markets. When in the judgment of the Adviser, economic or market
conditions warrant, the Portfolio reserves the right to concentrate its
investments in one or more capital markets, including the United States.
The equity and convertible preferred securities in which the Portfolio may
invest are primarily securities issued by quality companies. Generally, the
characteristics of such companies include a strong balance sheet, good
financial resources, a satisfactory rate of return on capital, a good industry
position and superior management.
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The corporate debt securities, including convertible debt securities, in which
the Portfolio may invest will be primarily investment grade securities those
rated BBB or better by S&P or Baa or better by Moody's or of comparable
quality. The Fund may also invest in debt obligations issued or guaranteed by
sovereign governments, political subdivisions thereof (including states,
provinces and municipalities) or their agencies or instrumentalities or issued
or guaranteed by international organizations designated or supported by
governmental entities to promote economic reconstruction or development
(`supranational entities') such as the International Bank for Reconstruction
and Development (the "World Bank) and the European Coal and Steel Community.
Investments in securities of supranational entities are subject to the risk
that member governments will fail to make required capital contributions and
that a supranational entity will thus be unable to meet its obligations.
When market or financial conditions warrant, the Portfolio may invest as a
temporary defensive measure up to 100% of its assets in United States
Government or Government agency securities issued or guaranteed by the United
States Government or its agencies or instrumentalities, money market
securities or other fixed income securities deemed by the Adviser to be
consistent with a defensive posture, or may hold its assets in cash.
The Portfolio is non-diversified for the 1940 Act purposes and as such may
invest a larger percentage of its assets in individual issuers than a
diversified investment company. In this regard, the Portfolio is not subject
to the general limitation that it not invest more than 5% of its total assets
in the securities of any one issuer. To the extent the Portfolio makes
investments in excess of 5% of its assets in a particular issuer, its exposure
to credit and market risks associated with that issuer is increased. However,
the Portfolio's investments will be limited so as to qualify for the special
tax treatment afforded "regulated investment companies" under the Code.
Certain investment strategies and instruments which may be employed by the
Portfolio (such as the purchase and sale of options, floaters, futures
contracts, foreign securities, foreign currency transactions, United States
Government securities, convertible securities, borrowings, derivatives,
investment grade fixed-income securities, repurchase agreements, securities
loans, illiquid securities and forward commitments) are discussed under the
caption "Investment Strategies" below and in the Statement of Additional
Information.
MERRILL LYNCH BASIC VALUE EQUITY PORTFOLIO
The investment objective of the Merrill Lynch Basic Value Equity Portfolio is
to seek capital appreciation and, secondarily, income by investing in
securities, primarily equities, that the Adviser of the Portfolio believes are
undervalued and therefore represent basic investment value. The Portfolio
seeks special opportunities in securities that are selling at a discount,
either from book value or historical price-earnings ratios, or seem capable of
recovering from temporarily out of favor considerations. Particular emphasis
is placed on securities that provide an above-average dividend return and sell
at a below-average price-earnings ratio.
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The investment policy of the Portfolio is based on the belief that the pricing
mechanism of the securities market lacks total efficiency and has a tendency
to inflate prices of securities in favorable market climates and depress
prices of securities in unfavorable climates. Based on this premise, the
Adviser believes that favorable changes in market prices are more likely to
begin when securities are out of favor, earnings are depressed, price-earnings
ratios are relatively low, investment expectations are limited, and there is
no real general interest in the particular security or industry involved. On
the other hand, the Adviser believes that negative developments are more
likely to occur when investment expectations are generally high, stock prices
are advancing or have advanced rapidly, price-earnings ratios have been
inflated, and the industry or issue continues to gain new investment
acceptance on an accelerated basis. In other words, the Adviser believes that
market prices of securities with relative high price-earnings ratios are more
susceptible to unexpected adverse developments while securities with
relatively low price-earnings rations are more favorably positioned to benefit
from favorable, but generally unanticipated events. This investment policy
departs from traditional philosophy. The Adviser believes that the market risk
involved in this policy is moderated somewhat by an emphasis on securities
with above-average dividend returns.
The current institutionally-dominated market tends to ignore, to some extent,
the numerous secondary issues whose market capitalizations are below those of
the relatively few larger size growth companies. It is expected that the
Portfolio's portfolio generally will have significant representation in this
secondary segment of the market. The Adviser is responsible for the management
of the Portfolio's securities portfolio and makes portfolio decisions based on
its own research information supplemented by research information provided by
other sources. The basic orientation of the Portfolio's investment policies is
such that at times a large portion of its common stock holdings may carry less
than favorable research ratings from research analysts.
Investment emphasis is on equities, primarily common stock and, to a lesser
extent, securities convertible into common stocks. The Portfolio also may
invest in preferred stocks and non-convertible investment grade debt
securities and utilize covered call options with respect to portfolio
securities. The Portfolio has the right, as a defensive measure, to hold other
types of securities, including United States Government and Government agency
securities, money market securities, or other fixed-income securities deemed
by the Adviser to be consistent with a defensive posture, or cash, in such
proportions as, in the opinion of the Adviser, prevailing market or economic
conditions warrant. The Portfolio may invest up to 10% of its total assets,
taken at market value at the time of acquisition, in the securities of foreign
issuers.
Certain investment strategies and instruments which may be employed by the
Portfolio (such as options, convertible securities, United States Government
securities, repurchase agreements, securities loans, foreign securities,
borrowings and illiquid securities) 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, loans and other direct indebtedness and engage
in forward foreign currency exchange transactions. They may also enter into
repurchase agreements, lend their portfolio securities, and borrow funds under
certain limited circumstances. In addition, each Portfolio may engage in other
types of investment strategies as described below. Each Portfolio may invest
in or utilize any of these investment strategies and instruments or engage in
any of these practices except where otherwise prohibited by law or the
Portfolio's own investment restrictions. Portfolios that anticipate committing
5% or more of their net assets to a particular type of investment strategy or
instruments are specifically referred to in the descriptions below of such
investment strategy or instrument. Certain investment strategies and
instruments 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.
ASSET-BACKED SECURITIES. The EQ/Putnam Balanced Portfolio, MFS Emerging Growth
Companies Portfolio and Morgan Stanley Emerging Markets Equity Portfolio may
invest in asset-backed securities. These asset-backed securities, issued by
trusts and special purpose corporations, are collateralized by a pool of
assets, such as credit card or automobile loans, home equity loans or computer
leases, and represent the obligations of a number of different parties.
Asset-backed securities present certain risks. For instance, in the case of
credit card receivables, these securities may not have the benefit of any
security interest in the related collateral. Due to the possibility that
prepayments (on automobile loans and other collateral) will alter the cash
flow on asset-backed securities, it is not possible to determine in advance
the
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actual final maturity date or average life. Faster prepayment will shorten the
average life and slower prepayments will lengthen it. However, it is possible
to determine what the range of that movement could be and to calculate the
effect that it will have on the price of the security. In selecting these
securities, the Adviser will look for those securities that offer a higher
yield to compensate for any variation in average maturity.
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 Portfolio,
T. Rowe Price Equity Income Portfolio, MFS Research Portfolio, MFS Emerging
Growth Companies Portfolio, Morgan Stanley Emerging Markets Equity, Merrill
Lynch World Strategy Portfolio and Merrill Lynch Basic Value Equity Portfolio
may not exceed 33 1/3% of each Portfolio's total assets. Borrowings for the
Warburg Pincus Small Company Value Portfolio may not exceed 30% of the
Portfolio's total assets. Borrowings for the EQ/Putnam Growth & Income Value
Portfolio, the EQ/Putnam International Equity Portfolio, EQ/Putnam Investors
Growth Portfolio and EQ/Putnam Balanced Portfolio may not exceed 10% of each
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. See also "Reverse Repurchase
Agreements" for information concerning an investment technique that may be
deemed to involve a borrowing. Further information concerning each Portfolio's
fundamental policy with respect to borrowings is provided in the Statement of
Additional Information.
CONVERTIBLE SECURITIES. Each of the Portfolios may invest in convertible
securities, including both convertible debt and convertible preferred stock.
Such securities may be converted into shares of the underlying common stock at
either a stated price or stated rate. Because of this feature, convertible
securities enable an investor to benefit from increases in the market price of
the underlying common stock. Convertible securities provide higher yields than
the underlying common stocks, but generally offer lower yields than
non-convertible securities of similar quality. Like bonds, the value of
convertible securities fluctuates in relation to changes in interest rates
and, in addition, fluctuates in relation to the underlying common stock.
Subsequent to purchase by a Portfolio, convertible securities may cease to be
rated or a rating may be reduced below the minimum required for purchase by
that Portfolio. Neither event will require sale of such securities, although
each Adviser will consider such event in its determination of whether a
Portfolio should continue to hold the securities.
DERIVATIVES. Each Portfolio (except the MFS Research Portfolio) may invest in
one or more types of derivatives. Derivatives are financial products or
instruments that derive their value from the value of one or more underlying
assets, reference rates or indices. Derivatives include, but are not limited
to, the following: asset-backed securities, collateralized mortgage
obligations, floaters, futures, hybrid instruments, inverse floaters,
mortgage-backed securities, options, stripped mortgage-backed securities,
structured notes and swaps. Further information about these instruments and
the risks involved in their use are contained under the description of each of
these instruments in this section or the Statement of Additional Information.
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FLOATERS AND INVERSE FLOATERS. The EQ/Putnam Balanced Portfolio and Morgan
Stanley Emerging Markets Equity Portfolio each may invest in floaters, which
are fixed-income securities with a floating or variable rate of interest,
i.e., the rate of interest varies with changes in specified market rates or
indices, such as the prime rate, or at specified intervals. Certain floaters
may carry a demand feature that permits the holder to tender them back to the
issuer of the underlying instrument, or to a third party, at par value prior
to maturity. When the demand feature of certain floaters represents an
obligation of a foreign entity, the demand feature will be subject to certain
risks discussed under "Foreign Investment".
In addition, the Morgan Stanley Emerging Markets Equity Portfolio may invest
in inverse floating rate obligations which are fixed-income securities that
have coupon rates that vary inversely at a multiple of a designated floating
rate, such as London Inter-Bank Offered Rate ("LIBOR"). Any rise in the
reference rate of an inverse floater (as a consequence of an increase in
interest rates) causes a drop in the coupon rate while any drop in the
reference rate of an inverse floater causes an increase in the coupon rate.
Inverse floaters may exhibit substantially greater price volatility than fixed
rate obligations having similar credit quality, redemption provisions and
maturity, and inverse floater collateralized mortgage obligations ("CMOs")
exhibit greater price volatility than the majority of mortgage-related
securities. In addition, some inverse floater collateralized mortgage
obligations exhibit extreme sensitivity to changes in prepayments. As a
result, the yield to maturity of an inverse floater collateralized mortgage
obligation is sensitive not only to changes in interest rates but also to
changes in prepayment rates on the related underlying mortgage assets.
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 United States dollar will result in a change in the
United States dollar value of a Portfolio's assets and income. In addition,
although a portion of a Portfolio's investment income may be received or
realized in such currencies, the Portfolio will be required to compute and
distribute its income in United States dollars. Therefore, if the exchange
rate for any such currency declines after a Portfolio's income has been earned
and computed in United States dollars but before conversion and payment, the
Portfolio could be required to liquidate portfolio securities to make such
distributions.
The value of foreign investments and the investment income derived from them
may also be affected unfavorably by changes in currency exchange control
regulations. Although the Portfolios will invest only in securities
denominated in foreign currencies that are fully exchangeable into United
States dollars without legal restriction at the time of investment, there can
be no assurance that currency controls will not be imposed subsequently. In
addition, the value of foreign fixed income investments may fluctuate in
response to changes in United States and foreign interest rates.
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There may be less information publicly available about a foreign issuer than
about a United States issuer, and a foreign issuer is not generally subject to
accounting, auditing and financial reporting standards and practices
comparable to those in the United States Foreign stock markets are generally
not as developed or efficient as, and may be more volatile than, those in the
United States. While growing in volume, they usually have substantially less
volume than United States markets and a Portfolio's investment securities may
be less liquid and subject to more rapid and erratic price movements than
securities of comparable United States companies. Equity securities may trade
at price/earnings multiples higher than comparable United States securities
and such levels may not be sustainable. There is generally less government
supervision and regulation of foreign stock exchanges, brokers and listed
companies than in the United States. Moreover, settlement practices for
transactions in foreign markets may differ from those in United States
markets. Such differences may include delays beyond periods customary in the
United States and practices, such as delivery of securities prior to receipt
of payment, which increase the likelihood of a "failed settlement." Failed
settlements can result in losses to a 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 or global 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.
In addition, investment in foreign securities may also include the risk of
expropriation by a foreign government.
Moreover, investments in foreign government debt securities, particularly
those of emerging market country governments, involve special risks. Certain
emerging market countries have historically experienced, and may continue to
experience, high rates of inflation, high interest rates, exchange rate
fluctuations, large amounts of external debt, balance of payments and trade
difficulties and extreme poverty and unemployment. The issuer or governmental
authority that controls the repayment of an emerging market country's debt may
not be able to willing to repay
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the principal and/or interest when due in accordance with the terms of such
debt. A debtor's willingness or ability to repay principal and interest due in
a timely manner may be affected by, among other factors, its cash flow
situation, and, in the case of a government debtor, the extent of its foreign
reserves, the availability of sufficient foreign exchange on the date a
payment is due, the relative size of the debt service burden to the economy as
a whole and the political constraints to which a government debtor may be
subject. Government debtors may default on their debt and may also be
dependent on expected disbursements from foreign governments, multilateral
agencies and others abroad to reduce principal and interest arrearages on
their debt. Holders of government debt may be requested to participate in the
rescheduling of such debt and to extend further loans to government debtors.
Certain Portfolios may invest in the following types of foreign securities or
engage in the following types of transactions related to foreign securities.
Brady Bonds. The EQ/Putnam Balanced Portfolio, MFS Emerging Growth Companies
Portfolio and Morgan Stanley Emerging Markets Equity Portfolio each may invest
in "Brady Bonds," which are fixed-income securities created through the
exchange of existing commercial bank loans to foreign entities for new
obligations in connection with debt restructuring under a plan introduced by
Nicholas F. Brady when he was the United States Secretary of the Treasury.
Brady Bonds have been issued only recently, and, accordingly, do not have a
long payment history. They may be collateralized or uncollateralized and
issued in various currencies (although most are United States
dollar-denominated) and they are actively traded in the over-the-counter
("OTC") secondary market. The Morgan Stanley Emerging Markets Equity Portfolio
will invest in Brady Bonds only if they are consistent with quality
specifications established from time to time by the Adviser to that Portfolio.
Depositary Receipts. Each of the Portfolios may purchase depositary receipts,
which are securities representing ownership interests in securities of foreign
companies (an "underlying issuer") and are deposited with a securities
depositary. Depositary receipts are not necessarily denominated in the same
currency as the underlying securities. Depositary receipts include ADRs and
Global Depositary Receipts ("GDRs") and other types of depositary receipts
(which, together with ADRs and GDRs, are hereinafter collectively referred to
as "Depositary Receipts"). ADRs are dollar-denominated Depositary Receipts
typically issued by a United States financial institution which evidence
ownership interests in a security or pool of securities issued by a foreign
issuer. ADRs are listed and traded in the United States. GDRs and other types
of depositary receipts are typically issued by foreign banks or trust
companies, although they also may be issued by United States financial
institutions, and evidence ownership interests in a security or pool of
securities issued by either a foreign or a United States corporation.
Generally, depositary receipts in registered form are designed for use in the
United States securities market and depositary receipts in bearer form are
designed for use in securities markets outside the United States. Although
there may be more reliable information available regarding issuers of certain
ADRs that are issued under so-called "sponsored" programs and ADRs do not
involve foreign currency risks, ADRs and other Depositary Receipts are subject
to the risks of other investments in foreign securities, as described directly
above.
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FOREIGN CURRENCY TRANSACTIONS. Each of the Portfolios (except the MFS Research
Portfolio) 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
and sell exchange traded call and put options on foreign currency futures
contracts and on foreign currencies. The EQ/Putnam Growth & Income Value
Portfolio, EQ/Putnam International Equity Portfolio, EQ/Putnam Investors
Growth Portfolio, EQ/Putnam Balanced Portfolio, MFS Emerging Growth Companies
Portfolio, Morgan Stanley Emerging Markets Equity Portfolio and Merrill Lynch
World Strategy Portfolio may engage in OTC options on foreign currency
transactions. The Merrill Lynch World Strategy Portfolio will engage in OTC
options on foreign currency transactions only with financial institutions
that have capital of at least $50 million or whose obligations are guaranteed
by an entity having capital of at least $50 million. The MFS Emerging Growth
Companies Portfolio may only enter into forward contracts on currencies in the
OTC market. The Advisers may engage in these transactions to protect against
uncertainty in the level of future exchange rates in connection with the
purchase and sale of portfolio securities ("transaction hedging") and to
protect the value of specific portfolio positions ("position hedging").
Hedging transactions involve costs and may result in losses. Each of the
Portfolios (except the 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.
FORWARD COMMITMENTS. Each Portfolio (except the Warburg Pincus Small Company
Value 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 liquid securities in an amount sufficient to meet the purchase price,
or if it enters into offsetting contracts for the forward sale of other
securities it owns. Forward commitments may be considered securities in
themselves and involve a risk of
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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.
HYBRID INSTRUMENTS. The T. Rowe Price International Stock Portfolio , T. Rowe
Price Equity Income Portfolio and Morgan Stanley Emerging Markets Equity
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.
ILLIQUID SECURITIES. The Warburg Pincus Small Company Value 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 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 10% or 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 10% or 15% of its assets invested in illiquid or not readily marketable
securities.
INVESTMENT GRADE AND LOWER QUALITY FIXED INCOME SECURITIES. Each Portfolio may
invest in or hold a portion of its total assets in investment grade or lower
quality fixed income securities. The T. Rowe Price International Stock
Portfolio and the Merrill Lynch Basic Value Equity Portfolio each may invest
in or hold investment grade securities, but not lower quality fixed income
securities. Investment grade
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securities are securities rated Baa or higher by Moody's or BBB or higher by
S&P and comparable unrated securities. Investment grade securities rated Baa
by Moody's or BAA by S&P while normally exhibiting adequate protection
parameters, have speculative characteristics, and, consequently, changes in
economic conditions or other circumstances are more likely to lead to a
weakened capacity of such issuers to make principal and interest payments than
is the case for higher grade fixed income securities. Lower quality fixed
income securities are securities that are rated in the lower categories by
NRSROs (i.e., Ba or lower by Moody's and BB or lower by S&P) or comparable
unrated securities. Such lower quality securities are known as "junk bonds"
and are regarded as predominantly speculative with respect to the issuer's
continuing ability to meet principal and interest payments. (Each NRSRO's
descriptions of these bond ratings are set forth in the Appendix to the
Statement of Additional Information.) Because investment in lower quality
securities involves greater investment risk, achievement of a Portfolio's
investment objective will be more dependent on the Adviser's analysis than
would be the case if that Portfolio were investing in higher quality bonds.
In addition, lower quality securities may be more susceptible to real or
perceived adverse economic and individual corporate developments than would
investment grade bonds. Moreover, the secondary trading market for lower
quality securities may be less liquid than the market for investment grade
bonds. This potential lack of liquidity may make it more difficult for the
Adviser to value accurately certain portfolio securities.
LOAN PARTICIPATIONS. The EQ/Putnam Balanced Portfolio, MFS Emerging Growth
Companies Portfolio and the Morgan Stanley Emerging Markets Equity Portfolio
may invest a portion of each of their assets in loan participations and other
direct indebtedness. By purchasing a loan, a Portfolio acquires some or all of
the interest of a bank or other lending institution in a loan to a corporate
borrower. Many such loans are secured, and most impose restrictive covenants
that must be met by the borrower. These loans are made generally to finance
internal growth, mergers, acquisitions, stock repurchases, leveraged buy-outs
and other corporate activities. Such loans may be in default at the time of
purchase. The MFS Emerging Growth Companies Portfolio may also purchase other
direct indebtedness such as trade or other claims against companies, which
generally represent money owed by a company to a supplier of goods and
services. These claims may also be purchased at a time when the company is in
default. Certain of the loans and other direct indebtedness acquired by the
Portfolio may involve revolving credit facilities or other standby financing
commitments which obligate the Portfolio to pay additional cash on a certain
date or on demand. The highly leveraged nature of many such loans and other
direct indebtedness may make such loans especially vulnerable to adverse
changes in economic or market conditions. Loans and other direct indebtedness
may not be in the form of securities or may be subject to restrictions on
transfer, and only limited opportunities may exist to resell such instruments.
As a result, the Portfolio may be unable to sell such investments at an
opportune time or may have to resell them at less than fair market value.
MORTGAGE-RELATED SECURITIES. The EQ/Putnam Balanced Portfolio and Morgan
Stanley Emerging Markets Equity Portfolio may invest in mortgage-related
securities (i.e., mortgage-backed securities). A mortgage-backed security may
be an obligation of the issuer backed by a mortgage or pool of mortgages or a
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direct interest in an underlying pool of mortgages. Some mortgage-backed
securities, such as CMOs, make payments of both principal and interest at a
variety of intervals; others make semiannual interest payments at a
predetermined rate and repay principal at maturity (like a typical bond).
Mortgage-backed securities are based on different types of mortgages including
those on commercial real estate or residential properties.
The value of mortgage-backed securities may change due to shifts in the
market's perception of issuers. In addition, regulatory or tax changes may
adversely affect the mortgage securities market as a whole. Non-government
mortgage-backed securities may offer higher yields than those issued by
government entities, but also may be subject to greater price changes than
government issues. Mortgage-backed securities are subject to prepayment risk.
Prepayment, which occurs when unscheduled or early payments are made on the
underlying mortgages, may shorten the effective maturities of these securities
and may lower their returns.
Stripped mortgage-backed securities are created when a United States
government agency or a financial institution separates the interest and
principal components of a mortgage-backed security and sells them as
individual securities. The holder of the "principal-only" security ("PO")
receives the principal payments made by the underlying mortgage-backed
security, while the holder of the "interest-only" security ("IO") receives
interest payments from the same underlying security. The prices of stripped
mortgage-backed securities may be particularly affected by changes in interest
rates. As interest rates fall, prepayment rates tend to increase, which tends
to reduce prices of IOs and increase prices of POs. Rising interest rates can
have the opposite effect.
MUNICIPAL SECURITIES. The Morgan Stanley Emerging Markets Equity Portfolio may
invest in municipal securities ("municipals"), which are debt obligations
issued by local, state and regional governments that provide interest income
that is exempt from federal income taxes. Municipals include both municipal
bonds (those securities with maturities of five years or more) and municipal
notes (those with maturities of less than five years). Municipal bonds are
issued for a wide variety of reasons: to construct public facilities, such as
airports, highways, bridges, schools, hospitals, mass transportation, streets,
water and sewer works; to obtain funds for operating expenses; to refund
outstanding municipal obligations; and to loan funds to various public
institutions and facilities. Certain industrial development bonds are also
considered municipal bonds if their interest is exempt from federal income
tax. Industrial development bonds are issued by or on behalf of public
authorities to obtain funds for various privately-operated manufacturing
facilities, housing, sports arenas, convention centers, airports, mass
transportation systems and water, gas or sewer works. Industrial development
bonds are ordinarily dependent on the credit quality of a private user, not
the public issuer.
OPTIONS AND FUTURES TRANSACTIONS. Each Portfolio (except the MFS Research
Portfolio) may utilize futures contracts and write and purchase put and call
options. Futures contracts (a type of potentially high-risk security) enable
the investor to buy or sell an asset in the future at an agreed upon price.
Options (another type of potentially high-risk security) give the purchaser of
an option the right, but not the obligation, to buy or sell in the future an
asset
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at a predetermined price during the term of the option. (The writer of a put
or call option would be obligated to buy or sell the underlying asset at a
predetermined price during the term of the option.) Each Portfolio will write
put and call options only if such options are considered to be "covered". A
call option on a security is covered, for example, when the writer of the call
option owns throughout the option period the security on which the option is
written (or a security convertible into such a security without the payment of
additional consideration). A put option on a security is covered, for example,
when the writer of the put has deposited and maintained in a segregated
account throughout the option period sufficient cash or other liquid assets in
an amount equal to or greater than the exercise price of the put option. 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
(other than the Warburg Pincus Small Company Value Portfolio) will not commit
more than 5% of its total assets to premiums when purchasing call or put
options. The Warburg Pincus Small Company Value Portfolio may commit up to 10%
of its total assets to premiums when purchasing put or call options. In
addition, the total market value of securities against which a Portfolio has
written call or put options may not exceed 25% of its total assets. The
Merrill Lynch Basic Value Equity Portfolio will not write covered call options
on underlying securities exceeding 15% of the value of its total assets. The
MFS Emerging Growth Companies Portfolio and Morgan Stanley Emerging Markets
Equity Portfolio will not enter a futures contract if the obligations
underlying all such futures contracts would exceed 50% of the value of each
such Portfolio's total assets. The Warburg Pincus Small Company Value
Portfolio may utilize up to 10% of its total assets to purchase
exchange-listed and OTC put and call options on stock indexes. The EQ/Putnam
Growth & Income Portfolio, EQ/Putnam International Equity Portfolio, EQ/Putnam
Investors Growth Portfolios, EQ/Putnam Balanced Portfolio, MFS Emerging Growth
Companies Portfolio , Merrill Lynch World Strategy Portfolio and Morgan
Stanley Emerging Markets Equity Portfolio may engage in OTC put and call
option transactions. Options traded in the OTC market may not be as actively
traded as those on an exchange, so it may be more difficult to value such
options. In addition, it may be difficult to enter into closing transactions
with respect to such options. Such OTC options, and the securities used as
"cover" for such options, may be considered illiquid securities.
Each Portfolio may buy and sell futures and options contracts for any number
of reasons, including: to manage its exposure to changes in securities prices
and foreign currencies; as an efficient means of adjusting its overall
exposure to certain markets; in an effort to enhance income; and to protect
the value of portfolio securities. Each Portfolio may purchase, sell, or write
call and put options and futures contracts on securities, financial indices,
and foreign currencies and options on futures contracts.
The risk of loss in trading futures contracts can be substantial because of
the low margin deposits required and the extremely high degree of leveraging
involved in futures pricing. As a result, a relatively small price movement in
a futures contract may cause an immediate and substantial loss or gain. The
primary risks associated with the use of futures contracts and options are:
(i) imperfect correlation between the change in market value of the stocks
held by a Portfolio and the prices of futures contracts and options; and (ii)
possible lack of a liquid secondary
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market for a futures contract or an OTC option and the resulting inability to
close a futures position or OTC option prior to its maturity date.
PASSIVE FOREIGN INVESTMENT COMPANIES. The T. Rowe Price International Stock
Portfolio, EQ/Putnam International Equity Portfolio, and Morgan Stanley
Emerging Markets Equity 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. Like other foreign
securities, interests in passive foreign investment companies also involve the
risk of foreign securities, as described above.
PAYMENT-IN-KIND BONDS. The EQ/Putnam Growth & Income Value Portfolio, the
EQ/Putnam Balanced Portfolio and Morgan Stanley Emerging Markets Equity
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 Portfolios are nonetheless required to accrue interest income on
such investments and to distribute such amounts at least annually to
shareholders. Thus, the Portfolios could be required, at times, to liquidate
other investments in order to satisfy its distribution requirements.
REPURCHASE AGREEMENTS. Each Portfolio may enter into repurchase agreements
with qualified and Board approved banks, broker-dealers or other financial
institutions as a means of earning a fixed rate of return on its cash reserves
for periods as short as overnight. A repurchase agreement is a contract
pursuant to which a Portfolio, against receipt of securities of at least equal
value including accrued interest, agrees to advance a specified sum to the
financial institution which agrees to reacquire the securities at a mutually
agreed upon time (usually one day) and price. Each repurchase agreement
entered into by a Portfolio will provide that the value of the collateral
underlying the repurchase agreement will always be at least equal to the
repurchase price, including any accrued interest. A Portfolio's right to
liquidate such securities in the event of a default by the seller could
involve certain costs, losses or delays and, to the extent that proceeds from
any sale upon a default of the obligation to repurchase are less than the
repurchase price, the Portfolio could suffer a loss.
REVERSE REPURCHASE AGREEMENTS. The Morgan Stanley Emerging Markets Equity
Portfolio may enter into reverse repurchase agreements with brokers, dealers,
domestic and foreign banks or other financial institutions. In a reverse
repurchase agreement, the Portfolio sells a security and agrees to repurchase
it at a mutually agreed upon date and price, reflecting the interest rate
effective for the term of the agreement. It may also be viewed as the
borrowing of money by the Portfolio. The Portfolio's investment of the
proceeds of a reverse repurchase agreement is the speculative factor known as
leverage. The Portfolio may enter into a reverse repurchase agreement only if
the interest income from investment of the proceeds is greater than the
interest expense of the transaction and the proceeds are invested for a period
no longer than the term of the agreement. The Portfolio will maintain with the
custodian a separate account with a segregated portfolio of unencumbered
liquid assets in an amount at least equal to its purchase obligations under
these agreements. If interest rates rise during a reverse repurchase
agreement, it may adversely affect the Portfolio's net asset value. See
"Borrowing" for more information concerning restrictions on borrowing by each
Portfolio.
SECURITIES LOANS. The T. Rowe Price International Stock Portfolio, T. Rowe
Price Equity Income Portfolio, MFS Research Portfolio, MFS Emerging Growth
Companies Portfolio, and Morgan Stanley Emerging Markets Equity Portfolio may
seek to obtain additional income by making secured loans of portfolio
securities with a value up to 33 1/3% of their respective total assets. The EQ/
Putnam Growth & Income Value Portfolio, EQ/Putnam International Equity
Portfolio, EQ/Putnam Investors Growth Portfolio and EQ/Putnam Balanced
Portfolio may lend portfolio securities in an amount up to
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25% of their respective total assets. The Merrill Lynch Basic Value Equity
Portfolio, Merrill Lynch World Strategy Portfolio, and Warburg Pincus Small
Company Value Portfolio may each lend portfolio securities in an amount up to
20% of their respective 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 receive a fee from the borrower. Lending
portfolio securities involves risks of delay in recovery of the loaned
securities or in some cases loss of rights in the collateral should the
borrower fail financially. Further information concerning each Portfolio's
fundamental policy with respect to loans is provided in the Statement of
Additional Information.
SHORT SALES AGAINST THE BOX. The Warburg Pincus Small Company Value Portfolio
and Morgan Stanley Emerging Markets Equity Portfolio may enter into a "short
sale" of securities in circumstances in which, at the time the short position
is open, the Portfolio owns an equal amount of the securities sold short or
owns preferred stocks or debt securities, convertible or exchangeable without
payment of further consideration, into an equal number of securities sold
short. This kind of short sale, which is referred to as one "against the box,"
may be entered into by each Portfolio to, for example, lock in a sale price
for a security the Portfolio does not wish to sell immediately or to postpone
a gain or loss for federal income tax purposes. Each Portfolio will deposit,
in a segregated account with its custodian or a qualified subcustodian, the
securities sold short or convertible or exchangeable preferred stocks or debt
securities sold in connection with short sales against the box. Each Portfolio
will endeavor to offset transaction costs associated with short sales against
the box with the income from the investment of the cash proceeds. Not more
than 10% of a Portfolio's net assets (taken at current value) may be held as
collateral for short sales against the box at any one time. The extent to
which a Portfolio may make short sales may be limited by Code requirements for
qualification as a regulated investment company.
SMALL COMPANY SECURITIES. The EQ/Putnam International Equity Portfolio,
EQ/Putnam Balanced Portfolio, Morgan Stanley Emerging Markets Equity Portfolio
and Warburg Pincus Small Company Value Portfolio may invest in the securities
of smaller capitalization companies. Investing in securities of small
companies may involve greater risks since these securities may have limited
marketability and,
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thus, may be more volatile. Because smaller companies normally have fewer
shares outstanding than larger companies, it may be more difficult for
Portfolio to buy or sell significant amounts of shares without an unfavorable
impact on prevailing prices. In addition, small companies are typically
subject to a greater degree of changes in earnings and business prospects than
are larger, more established companies. There is typically less publicly
available information concerning smaller companies than for larger, more
established ones. Therefore, an investment in these Portfolios may involve a
greater degree of risk than an investment in other Portfolios that seek
capital appreciation by investing in better-known, larger companies.
STRUCTURED NOTES. The Morgan Stanley Emerging Markets Equity Portfolio may
invest in structured notes, which are derivatives on which the amount of
principal repayment and/or interest payments is based upon the movement of one
or more factors. These factors include, but are not limited to, currency
exchange rates, interest rates (such as the prime lending rate and LIBOR) and
stock indices such as the S&P 500. In some cases, the impact of the movements
of these factors may increase or decrease through the use of multipliers or
deflators. The use of structured notes allows the Portfolio to tailor its
investments to the specific risks and returns the Adviser wishes to accept
while avoiding or reducing certain other risks.
SWAPS. The Morgan Stanley Emerging Markets Equity Portfolio may invest in swap
contracts, which are derivatives in the form of a contract or other similar
instrument which is an agreement to exchange the return generated by one
instrument for the return generated by another instrument. The payment streams
are calculated by reference to a specified index and agreed upon notional
amount. The term "specified index" includes, but is not limited to,
currencies, fixed interest rates, prices and total return on interest rate
indices, fixed-income indices, stock indices and commodity indices (as well as
amounts derived from arithmetic operations on these indices). For example, the
Portfolio may agree to
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swap the return generated by a fixed-income index for the return generated by
a second fixed-income index. The Portfolio will usually enter into swaps on a
net basis, i.e., the two return streams are netted out in a cash settlement on
the payment date or dates specified in the instrument, with the Portfolio
receiving or paying, as the case may be, only the net amount of the two
returns. The Portfolio's obligations under a swap agreement will be accrued
daily (offset against any amounts owing to the Portfolio) and any accrued but
unpaid net amounts owed to a swap counterparty will be covered by the
maintenance of a segregated account consisting of cash, United States
Governments, or high grade debt obligations. The Portfolio will not enter into
any swap agreement unless the counterparty meets the rating requirements set
forth in guidelines established by the Trust's Board of Trustees. The swap
market has grown substantially in recent years with a large number of banks
and investment banking firms acting both as principals and as agents utilizing
standardized swap documentation. As a result, the swap market has become
relatively liquid. Swaps that include more recent innovations for which
standardized documentation has not yet been fully developed are less liquid
than "traditional" swaps. The use of swaps is a highly specialized activity
that involves investment techniques and risks different from those associated
with ordinary portfolio securities transactions. If the Adviser is incorrect
in its forecasts of market values, interest rates, and currency exchange
rates, the investment performance of the Portfolio would be less favorable
than it would have been if this investment technique were not used.
UNITED STATES GOVERNMENT SECURITIES. Each Portfolio may invest in debt
obligations of varying maturities issued or guaranteed by the United States
government, its agencies or instrumentalities ("United States government
securities"). Direct obligations of the United States Treasury include a
variety of securities that differ in their interest rates, maturities and
dates of issuance. United States government securities also include securities
issued or guaranteed by government agencies that are supported by the full
faith and credit of the United States (e.g., securities issued by the
Government National Mortgage Association); securities issued or guaranteed by
government agencies that are supported by the ability to borrow from the
United States Treasury (e.g., securities issued by the Federal National
Mortgage Association); and securities issued or guaranteed by government
agencies that are only supported by the credit of the particular agency (e.g.,
the Tennessee Valley Authority).
WARRANTS. Warrants are securities that give the holder the right, but not the
obligation to purchase equity issues of the company issuing the warrants, or a
related company, at a fixed price either on a date certain or during a set
period. At the time of issue, the cost of a warrant is substantially less than
the cost of the underlying security itself, and price movements in the
underlying security are generally magnified in the price movements of the
warrant. This effect enables the investor to gain exposure to the underlying
security with a relatively low capital investment but increases an investor's
risk in the event of a decline in the value of the underlying security and can
result in a complete loss of the amount invested in the warrant. In addition,
the price of a warrant tends to be more volatile than, and may not correlate
exactly to, the price of the underlying security. If the market price of the
underlying security. If the market price of the underlying security is below
the exercise price of the warrant on its expiration date, the warrant will
generally expire without value.
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ZERO-COUPON BONDS. The EQ/Putnam Growth & Income Value Portfolio, EQ/Putnam
Balanced Portfolio and Morgan Stanley Emerging Markets Equity 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 investors in such instruments. Thus, each Portfolio could be
required, at times, to liquidate other investments in order to satisfy its
distribution requirements.
PORTFOLIO TURNOVER. The length of time a Portfolio has held a particular
security is not generally a consideration in investment decisions. A change in
the securities held by a Portfolio is known as "portfolio turnover." 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 Amended and Restated 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"). It is located at 1755 Broadway,
New York, New York 10019. 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, subject to review and approval by the Trustees, the
investment advisers for the Trust's Portfolios and monitors the Advisers'
investment programs and results, reviews brokerage matters, oversees
compliance by the Trust
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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 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,
EQ/Putnam Growth & Income Value Portfolio, EQ/Putnam Investors Growth
Portfolio, EQ/Putnam Balanced Portfolio, MFS Research Portfolio, MFS Emerging
Growth Companies Portfolio and Merrill Lynch Basic Value Equity Portfolio the
Trust pays the Manager a monthly fee at the annual rate of .55% of the
respective 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 of .75% of the Portfolio's average daily net
assets. As compensation for managing the EQ/Putnam International Equity
Portfolio, and Merrill Lynch World Strategy Portfolio, the Trust pays the
Manager a monthly fee at an annual rate of .70% of the respective Portfolio's
average daily net assets. As compensation for managing the Morgan Stanley
Emerging Markets Equity Portfolio, the Trust pays the Manager a monthly fee at
an annual rate of 1.15% of the Portfolio's average daily net assets . As
compensation for managing the Warburg Pincus Small Company Value Portfolio,
the Trust pays the Manager a monthly fee at an annual rate of .65% of the
Portfolio's average daily net assets.
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 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 an advisory fee based on a
percentage of the average daily net assets of the Portfolio that it advises.
Monthly, with respect to each Portfolio, each Adviser is paid the pro rata
portion of an annual fee, based on the monthly average of the assets of the
Portfolio for which it serves as the Adviser. The Manager will retain, as
compensation for the services described under "The Manager" and to pay its
expenses, the difference between the fees paid to each Adviser and the
management fee of the applicable Portfolio. Each Adviser has agreed that once
the Portfolio has paid the Manager its management fee the Adviser will look
only to the Manager as the party responsible for making the payment of its
advisory fee.
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The Advisers are employed for management of the assets of a Portfolio pursuant
to investment advisory agreements approved by the Board of Trustees of the
Trust (including a majority of certain Trustees who are not interested persons
of the Trust or the Manager), and an Adviser's services may be terminated at
any time by the Manager, the Board of Trustees, or the shareholders of an
affected Portfolio.
The Trust has submitted an application requesting an exemptive order from the
Securities and Exchange Commission ("SEC") that would permit the Manager,
subject to certain conditions, and without the approval of shareholders to:
(a) employ a new Adviser or Advisers for any Portfolio pursuant to the terms
of a new Advisory Agreement, in each case either as a replacement for an
existing Adviser or as an additional Adviser; (b) change the terms of any
Advisory Agreement; and (c) continue the employment of an existing Adviser on
the same advisory contract terms where a contract has been assigned because of
a change in control of the Adviser. In such circumstances, shareholders would
receive notice of such action, including the information concerning the
Adviser that normally is provided in the Prospectus. It is uncertain at this
time whether such exemptive relief will be granted by the SEC.
T. Rowe Price Associates, Inc. ("T. Rowe Price"), 100 East Pratt Street,
Baltimore, MD 21202, has been the Adviser to the T. Rowe Price Equity Income
Portfolio since the Portfolio commenced its operations. 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 $95 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"), 100 East Pratt
Street, Baltimore, MD 21202, has been 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
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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.
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 United States equivalent of approximately
$25 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 the 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") has been the Adviser
to the EQ/Putnam Growth & Income Value Portfolio, EQ/Putnam International
Equity Portfolio, EQ/Putnam Investors Growth Portfolio and EQ/Putnam Balanced
Portfolio since each Portfolio commenced operations. As compensation for
services as the Adviser to the EQ/Putnam Growth & Income Portfolio, EQ/Putnam
Investors Growth Portfolio and EQ/Putnam
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Balanced Portfolio, the Manager pays Putnam Management a monthly fee at an
annual rate equal to: .50% of the respective Portfolio's average daily net
assets up to and including $150 million; .45% of the respective Portfolio's
average daily net assets over $150 million and up to and including $300
million; and .35% of the respective Portfolio's average daily net assets in
excess of $300 million. As compensation for services as the EQ/Putnam
International Equity Portfolio's Adviser, the Manager pays Putnam Management a
monthly fee at the annual 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 has been managing mutual funds since 1937. Putnam Management
is located at One Post Office Square, Boston, MA 02109. As of December 31,
1996, Putnam Management and its affiliates managed more than $173 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 has been responsible for the day to day management of the EQ/Putnam
Growth & Income Value Portfolio since the Portfolio commenced operations,
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
EQ/Putnam International Equity 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. Ms. C. Beth Cotner and
Messrs. Richard England, Manuel Weiss Herrero and David J. Santos are
responsible for the day to day management of the EQ/Putnam Investors Growth
Portfolio, which includes investment decisions made on behalf of the
Portfolio. Ms. Cotner has been employed by Putnam Management as an investment
professional since 1995. Prior to 1995, Ms. Cotner was Executive Vice
President of Kemper Financial Services. Mr. England has been employed by
Putnam Management as an investment professional since December, 1992. Prior to
December, 1992, Mr. England was an investment officer at Aetna Equity
Investors. Mr. Herrero has been employed by Putnam Management as an investment
professional since 1987. Mr. Santos has been employed by Putnam Management as
an investment professional since 1988. Messrs. Edward P. Bousa , Kenneth J.
Taubes and Robert M. Paine are responsible for the day to day management of
the EQ/Putnam Balanced Portfolio, which includes investment decisions made on
behalf of the Portfolio. Mr. Bousa has been employed by Putnam Management as
an investment professional since October, 1992. Prior to October, 1992, Mr.
Bousa was Vice President and Portfolio Manager at Fidelity Investments. Mr.
Taubes has been employed by Putnam Management as an investment professional
since 1991. Mr. Paine has been employed by Putnam Management as an investment
professional since 1987.
Massachusetts Financial Services Company ("MFS") has been the Adviser to the
MFS Research Portfolio and the MFS Emerging Growth Companies Portfolio since
each Portfolio commenced operations. As compensation for services as the
Adviser to each of those Portfolios,
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the Manager pays MFS a monthly fee at an annual rate equal to: .40% of the
respective Portfolio's average daily net assets up to and including $150
million; .375% of the respective Portfolio's average daily net assets over
$150 million and up to and including $300 million; and .35% of the respective
Portfolio's average daily net assets in excess of $300 million. MFS has agreed
to waive its advisory fees for the first six months after the commencement of
each Portfolio's investment operations.
MFS is America's oldest mutual fund organization. MFS is located at 500
Boylston Street, Boston, MA 02116. 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 January
31, 1996, MFS managed more than $54.0 billion on behalf of over 2.3 million
investors accounts. MFS is a subsidiary of Sun Life of Canada (United States),
which, in turn, is a wholly-owned subsidiary of Sun Life Assurance Company of
Canada. 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. The
portfolio securities of the MFS Research Portfolio are selected by a committee
of investment research analysts. This committee includes investment analysts
employed not only by MFS but also by MFS International (U.K.) Limited, a
wholly owned subsidiary of MFS. The assets of the MFS Research Portfolio are
allocated among industries by the analysts acting together as a group.
Individual analysts are then responsible for selecting what they view as the
securities best suited to meet the investment objectives of the MFS Research
Portfolio within their assigned industry responsibility. Since it commenced
operations the MFS Emerging Growth Companies Portfolio has been managed by
John W. Ballen, a Senior Vice President of MFS, who has been employed by the
Adviser as a portfolio manager since 1984, and Toni K. Shimura, a Vice
President of MFS, who has been employed as a portfolio manager by the Adviser
since 1987.
Morgan Stanley Asset Management Inc. ("MSAM") has been the Adviser to the
Morgan Stanley Emerging Markets Equity Portfolio since each Portfolio
commenced operations. MSAM is located at 1221 Avenue of the Americas, New
York, NY 10020. As compensation for services as the Portfolio's Adviser, the
Manager pays MSAM a monthly fee at an annual rate equal to: 1.15% of the
Portfolio's average daily net assets up to and including $100 million; .90% of
the Portfolio's average daily net assets over $100 million and up to and
including $150 million; .80% of the Portfolio's average daily net assets over
$150 million and up to and including $200 million; .60% of the Portfolio's
average daily net assets over $200 million and up to and including $500
million; and .40% of the Portfolio's average daily net assets in excess of
$500 million.
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MSAM conducts a worldwide investment management business, providing a broad
range of portfolio management services to customers in the United States and
abroad. MSAM is a wholly owned subsidiary of Morgan Stanley Group Inc., which
is a publicly owned financial services corporation listed on the New York,
London and Pacific stock exchanges. MSAM serves an investment adviser to
numerous open-end and closed-end investment companies. As of December 31,
1996, MSAM, together with its affiliated asset management companies, had
approximately $172 billion in assets under management and fiduciary care. On
February 5, 1997, Morgan Stanley Group Inc. and Dean Witter, Discover & Co.
announced that they had entered into an Agreement and Plan of Merger to form
Morgan Stanley, Dean Witter, Discover & Co. Morgan Stanley Group Inc. is the
direct parent of MSAM. It is currently anticipated that the transaction will
close in mid-1997. Thereafter, MSAM will be a subsidiary of Morgan Stanley,
Dean Witter, Discover & Co. Dean Witter, Discover & Co. is a financial
services company with three major businesses: full service brokerage, credit
services and asset management.
Madhav Dhar and Marianne L. Hay have been responsible for the day to day
management of the Morgan Stanley Emerging Markets Equity Portfolio, which
includes investment decisions made on behalf of the Portfolio, since the
Portfolio commenced operations. Mr. Dhar is a Managing Director of MSAM and
Morgan Stanley & Co. Incorporated ("Morgan Stanley") and a Director of the
Morgan Stanley Emerging Markets Fund, Inc. He joined MSAM in 1984. Ms. Hay is
a Managing Director of MSAM and Morgan Stanley. She joined MSAM in June 1993.
Prior to joining MSAM, she was a director of Martin Currie Investment
Management, Ltd., where her responsibilities included geographic asset
allocation and portfolio management for global and emerging markets funds.
Warburg, Pincus Counsellors, Inc. ("WPC") has been the Adviser to the Warburg
Pincus Small Company Value Portfolio since the Portfolio commenced operations.
WPC is located at 466 Lexington Avenue, New York, New York 10017-3147. As
compensation for services as the Portfolio's Adviser, the Manager pays WPC a
monthly fee at an annual rate of .50% of the Portfolio's average daily net
assets.
WPC is a professional investment counselling firm that provides investment
services to investment companies, employee benefit plans, endowment funds,
foundations and other institutions and individuals. As of January 31, 1997,
WPC managed approximately $17.9 billion in assets. WPC, incorporated in 1970,
is a wholly-owned subsidiary of Warburg, Pincus Counsellors G.P. ("Warburg
G.P."), a New York general partnership, which itself is controlled by Warburg,
Pincus & Co. ("WP&Co."), also a New York general partnership. Lionel I.
Pincus, the managing partner of WP&Co., may be deemed to control both WP&Co.
and WPC. Warburg G. P. has no business other than being a holding company of
WPC and its subsidiaries.
George U. Wyper has been responsible for the day to day management of the
Warburg Pincus Small Company Value Portfolio, which includes investment
decisions made on behalf of the Portfolio, since the Portfolio commenced
operations. Mr. Wyper is a managing director of
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WPC, which he joined in August, 1994. Before joining WPC, he was chief
investment officer of White River Corporation and president of Hanover
Advisors, Inc. from 1993 to August, 1994. Prior to that position, he was chief
investment officer of Fund American Enterprises, Inc. from 1990 to 1993. Kyle
F. Frey, a senior vice president of WPC, is associate portfolio manager and
research analysts of the Portfolio. Mr. Frey has been with WPC since 1989.
Merrill Lynch Asset Management, L.P. ("MLAM") has been the Adviser to the
Merrill Lynch World Strategy Portfolio and the Merrill Lynch Basic Value
Equity Portfolio since each Portfolio commenced operations. MLAM is located at
800 Scudders Mill Road, Plainsboro, New Jersey 08543-9011. As compensation for
services as the Merrill Lynch World Strategy Portfolio's Adviser, the Manager
pays MLAM a monthly fee at an annual rate equal to: .50% of the Portfolio's
average daily net assets up to and including $100 million; .45% of the
Portfolio's average daily net assets over $100 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 Merrill Lynch Basic Value
Equity Portfolio's Adviser, the Manager pays MLAM a
monthly fee at an annual rate equal to: .40% of the Portfolio's average daily
net assets up to and including $100 million; .375% of the Portfolio's average
daily net assets over $100 million and up to and including $300 million; and
.35% of the Portfolio's average daily net assets in excess of $300 million.
MLAM is an indirect wholly-owned subsidiary of Merrill Lynch & Co., Inc., a
financial services holding company and the parent of Merrill Lynch, Pierce,
Fenner & Smith Incorporated. The general partner of MLAM is Princeton
Services, Inc., a wholly-owned subsidiary of Merrill Lynch & Co., Inc. MLAM
and its affiliates act as the manager for more than 130 registered investment
companies. MLAM also offers portfolio management and portfolio analysis
services to individuals and institutions. As of December 31, 1996, the Adviser
and its affiliates had a total of approximately $234 billion in investment
company and other portfolio assets under management, including assets of
certain affiliates of MLAM.
Thomas R. Robinson is the portfolio manager of the Merrill Lynch World
Strategy Portfolio. Mr. Robinson has served as a Senior Portfolio Manager of
MLAM since 1995. Mr. Robinson has been primarily responsible for the day to
day management of the Portfolio's securities portfolio since it commenced
operations. Kevin Rendino is the portfolio manager of the Merrill Lynch Basic
Value Equity Portfolio. Mr. Rendino has been a Vice President of MLAM since
1993 and was a Senior Research Analyst of MLAM from 1990 to 1992. Mr. Rendino
has been primarily responsible for the day to day management of the
Portfolio's securities portfolio since it commenced operations.
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THE ADMINISTRATOR
Pursuant to an agreement ("Mutual Funds Service Agreement"), Chase Global Funds
Services Company (the "Administrator") assists the Manager in the performance
of its administrative responsibilities to the Trust and provides the Trust
with other necessary administrative, fund accounting and compliance services.
In addition, the Administrator makes available the office space, equipment,
personnel and facilities required to provide such services to the Trust. For
these services, the Trust pays the Administrator a monthly fee at the annual
rate of .0525 of 1% of the total Trust assets, plus $25,000 for each Portfolio,
until the total Trust assets reach $2.0 billion, and when the total Trust
assets exceed $2.0 billion: .0425 of 1% of the first $0.5 billion of the total
Trust assets; .035 of 1% of the next $2.0 billion of the total Trust assets;
.025 of 1% of the next $1.0 billion of the total Trust assets; .015 of 1% of
the next $2.5 billion of the total Trust assets; .01 of 1% of the total Trust
assets in excess of $6.0 billion; and except that the annual fee payable to
Chase with respect to any Portfolio which commences operation after July 1,
1997 and whose assets do not exceed $200 million shall be computed at the
annual rate of .0525% of the Portfolio's total assets plus $25,000.
THE TRANSFER AGENT
Equitable serves as the transfer agent and dividend disbursing agent of the
Trust and receives no compensation for serving in such capacity.
EXPENSE LIMITATION AGREEMENTS
In the interest of limiting expenses of the Portfolios, the Manager has
entered into an expense limitation agreement with the Trust, with respect to
each Portfolio, ("Expense Limitation Agreements") pursuant to which the
Manager has agreed to waive or limit its fees and to assume other expenses so
that the total annual operating expenses of each Portfolio are limited to:
.85% of the respective average daily net assets of the T. Rowe Price Equity
Income, EQ/Putnam Growth & Income Value, EQ/Putnam Investors Growth, MFS
Research, MFS Emerging Growth Companies and Merrill Lynch Basic Value Equity
Portfolios; .90% of the EQ/Putnam Balanced Portfolio's average daily net
assets; 1.00% of the Warburg Pincus Small Company Value Portfolio's average
daily net assets; 1.20% of the respective average daily net assets of the T.
Rowe Price International Stock, EQ/Putnam International Equity and Merrill
Lynch World Strategy Portfolios; and 1.75% of the Morgan Stanley Emerging
Markets Equity Portfolio's average daily net assets;
Each Portfolio may at a later date reimburse to the Manager the management
fees waived or limited and other expenses assumed and paid by the Manager
pursuant to the Expense Limitation Agreement provided such Portfolio has
reached a sufficient asset size to permit such reimbursement to be made
without causing the total annual expense ratio of each Portfolio to exceed the
percentage limits stated above. Consequently, no reimbursement by a Portfolio
will be made unless: (i) the Portfolio's assets exceed $100
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million; (ii) the Portfolio's total annual expense ratio is less than the
respective percentages stated above; and (iii) the payment of such
reimbursement has been approved by the Trust's Board of Trustees on a
quarterly basis.
BROKERAGE PRACTICES
In selecting brokers and dealers, the Manager and each Adviser may consider
research and brokerage services furnished to either company and their
affiliates. Subject to seeking the most favorable net price and execution
available, the Manager and each Adviser may also consider sales of shares of
the Trust as a factor in the selection of brokers and dealers.
TRANSACTIONS WITH AFFILIATES
In December 1984, Equitable acquired Donaldson, Lufkin & Jenrette, Inc.
("DLJ"). A DLJ subsidiary, Donaldson, Lufkin & Jenrette Securities
Corporation, is one of the nation's largest investment banking and securities
firms. Another DLJ subsidiary, Autranet, Inc., is a securities broker that
markets independently originated research to institutions. Through the
Pershing Division of Donaldson, Lufkin & Jenrette Securities Corporation, DLJ
supplies security execution and clearance services to financial intermediaries
including broker-dealers and banks. To the extent permitted by law, the Trust
may engage in securities and other transactions with 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, which are persons indirectly related to the Adviser, acting as
an agent in accordance with procedures established by the Trust's Board of
Trustees. The Adviser to the Merrill Lynch World Strategy Portfolio and
Merrill Lynch Basic Value Equity Portfolio may execute portfolio transactions
through certain of the Adviser's affiliates. The Adviser to the Morgan Stanley
Emerging Markets Equity Portfolio may execute portfolio transactions through
certain affiliates.
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.
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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 May 1, 1997,
Separate Account FP, a separate account of Equitable, owned 100% of the shares
of the T. Rowe Price Equity Income Portfolio and through such ownership may
be deemed a controlling person of each Portfolio. The Trust currently is
divided into twelve 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 Amended and Restated Declaration of Trust. The
Trust is not required to hold annual shareholder meetings, but special
meetings may be called for purposes such as electing or removing Trustees,
changing fundamental policies or approving an investment 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 Distributors 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.
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PURCHASE AND REDEMPTION OF SHARES
EQ Financial, 1755 Broadway, New York, New York, 10019, formerly Equico
Securities, Inc., a wholly-owned subsidiary of Equitable, serves as one of the
Distributors for the Trust's Class IB shares pursuant to a distribution
agreement with the Trust. EDI, 1290 Avenue of the Americas, New York, New York,
10104, also serves as one of the Distributors for the Trust's Class IB shares
pursuant to a distribution agreement with the Trust. Class IB 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.
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 also has a distribution agreement for its Class IB shares with EQ
Financial Consultants, Inc., the Manager, 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 Distributors from assets attributable to the
Class IB shares for services rendered and expenses borne in connection with
activities primarily intended to result in the sale of the Trust's Class IB
shares. It is anticipated that a portion of the amounts received by the
Distributors will be used to defray various costs incurred or paid by the
Distributors in connection with the printing and mailing of Trust prospectuses,
statements of additional information, any supplements thereto and shareholder
reports and holding seminars and sales meetings with wholesale and retail
sales personnel designed to promote the distribution of Class IB shares. The
Distributors may also use a portion of the amounts received to provide
compensation to financial intermediaries and third-party broker-dealers for
their services in connection with the distribution of Class IB shares.
The Distribution Plan provides that the Trust, on behalf of each Portfolio,
may pay annually up to 0.50% of the average daily net assets of a Portfolio
attributable to its Class IB shares in respect of activities primarily
intended to result in the sale of Class IB shares. However, under the
Distribution Agreements, payments to the Distributors for activities pursuant to
the Distribution Plan are limited to payments at an annual rate equal to 0.25%
of average daily net assets of a Portfolio attributable to its Class IB
shares. Under terms of the Distribution Plan and the Distribution Agreements,
each Portfolio is authorized to make payments monthly to the Distributors which
may be used to pay or reimburse entities providing distribution and
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shareholder servicing with respect to the Class IB shares for such entities'
fees or expenses incurred or paid in that regard.
The Distribution Plan is of a type known as a "compensation" plan because
payments are made for services rendered to the Trust with respect to Class IB
shares regardless of the level of expenditures by the Distributors. The
Trustees will, however, take into account such expenditures for purposes of
reviewing operations under the Distribution Plan and in connection with their
annual consideration of the Plan's renewal. The Distributors have indicated that
they expect their expenditures to include, without limitation: (a) the printing
and mailing of Trust prospectuses, statements of additional information, any
supplements thereto and shareholder reports for prospective Contract owners
with respect to the Class IB shares of the Trust; (b) those relating to the
development, preparation, printing and mailing of advertisements, sales
literature and other promotional materials describing and/or relating to the
Class IB shares of the Trust; (c) holding seminars and sales meetings designed
to promote the distribution of Trust Class IB shares; (d) obtaining
information and providing explanations to wholesale and retail distributors of
Contracts regarding Trust investment objectives and policies and other
information about the Trust and its Portfolios, including the performance of
the Portfolios; (e) training sales personnel regarding the Class IB shares of
the Trust; and (f) financing any other activity that the Distributors
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 Amended
and Restated Declaration of Trust and By-Laws. Sales and redemptions of shares
of the same class by the same shareholder on the same day will be netted for
each Portfolio. All redemption requests will be processed and payment with
respect thereto will 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.
All shares are purchased and redeemed in accordance with the Trust's Amended
and Restated Declaration of Trust and By-Laws. Sales and redemptions of shares
of the same class by the same shareholder on the same day will be netted for
each Portfolio. All redemption requests will be processed and payment with
respect thereto 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.
HOW ASSETS ARE VALUED
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Values are determined according to accepted accounting practices and all laws
and regulations that apply. The assets of each Portfolio are 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 United States
are valued at representative quoted prices in the currency
of the country of origin. Foreign currency amounts are
translated into United States dollars at the bid price last
quoted by a composite list of major United States 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 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 Code, each Portfolio
will also comply with the investment diversification requirements of
Subchapter L of the Code. Were any Portfolio to fail to comply with those
requirements, owners of Contracts (other than "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 Administrator and
the Manager.
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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 (or series) managed by each Adviser,
that has investment objectives, 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 past performance of any of the Portfolios
or the future performance
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of any Portfolio or its Adviser. Consequently, potential investors should not
consider this performance data as an indication of the future performance of
any Portfolio of the Trust or of its Adviser.
Each Adviser's performance data shown below 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.
T. ROWE PRICE INTERNATIONAL STOCK PORTFOLIO
In the table below, the only account which is included is another registered
investment company, i.e., T. Rowe Price International Stock Fund which is
managed by the Rowe Price-Fleming International, Inc. However, T. Rowe Price
International Stock Fund may be subject to different expenses than the T. Rowe
Price International Stock Portfolio.
The investment results of T. Rowe Price International Stock Fund presented
below are unaudited and are not intended to predict or suggest the returns
that might be experienced by the T. Rowe Price International Stock Portfolio
or an individual investor investing in the T. Rowe Price International Stock
Portfolio.
T. ROWE PRICE MSCI EAFE
YEAR INTERNATIONAL STOCK FUND(1) INDEX(2)
---- --------------------------- --------
One Year(3)
Three Years(3)
Five Years(3)
Since inception(3)
- ----------------------------------
1 Average annual total return reflects changes in share prices and
reinvestment of dividends and distributions and is net of fund
expenses.
2 The Morgan Stanley Capital International Europe, Australia, and Far
East Indes ("MSCI EAFE Index") is an unmanaged
capitalization-weighted measure of stock markets in Europe,
Australia, the Far East and Canada. MSCI EAFE Index returns assume
dividends reinvested net of withholding tax and do not reflect any
fees or expenses.
3 Through December 31, 1996.
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T. ROWE PRICE EQUITY INCOME PORTFOLIO
In the table below, the only account which is included is another registered
investment company, i.e., T. Rowe Price Equity Income Fund which is managed by
the T. Rowe Price Associates, Inc. However, the T. Rowe Price Equity Income
Fund may be subject to different expenses than the T. Rowe Price Equity Income
Portfolio.
The investment results of T. Rowe Price Equity Income Fund presented below are
unaudited and are not intended to predict or suggest the returns that might be
experienced by the T. Rowe Price Equity Income Portfolio or an individual
investor investing in the T. Rowe Price Equity Income Portfolio.
S&P 500
YEAR T. ROWE PRICE EQUITY INCOME FUND(1) INDEX(2)
---- ----------------------------------- --------
One Year(3)
Three Years(3)
Five Years(3)
Ten Years(3)
- ----------------------------------
1 Average annual total return reflects changes in share prices and
reinvestment of dividends and distributions and is net of fund
expenses.
2 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 United States
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.
3 Through December 31, 1996. The investment advisory fee applicable to
the T. Rowe Price Equity Income Fund was capped at 1.00% in 1986 and
capped at the maximum state-allowed fee in 1987.
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EQ/PUTNAM GROWTH & INCOME VALUE PORTFOLIO
In the table below, the only account which is included is another registered
investment company, i.e., Putnam Growth & Income Fund II which is managed by
the Putnam Investment Management, Inc. However, the Putnam Growth & Income
Fund II may be subject to different expenses than the EQ/Putnam Growth &
Income Value Portfolio.
The investment results of Putnam Growth & Income Fund presented below are
unaudited and are not intended to predict or suggest the returns that might be
experienced by the EQ/Putnam Growth & Income Value Portfolio or an individual
investor investing in the EQ/Putnam Growth & Income Value Portfolio.
S&P 500
YEAR PUTNAM GROWTH & INCOME FUND II(1) INDEX(2)
---- --------------------------------- -------
One Year(3)
Five Years(3)
Since inception(3)
- ----------------------------------
1 Average annual total return reflects changes in share prices and
reinvestment of dividends and distributions and is net of fund
expenses.
2 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 United States
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.
3 Through December 31, 1996 for the Class A shares of the Putnam Growth &
Income Fund II. The Class A shares are subject to a front-end sales
charge of 5.75%. The Class B shares are subject to a maximum
contingent deferred sales charge of 5.0%. The Class M shares are
subject to a front-end sales charge of 3.5%. The Class A shares is
subject to a Rule 12b-1 fee equal to .25% (which the Board of
Trustees can raise to .35%) of the average net assets attributable to
the Class A shares. The Class B and Class M shares are subject to a
Rule 12b-1 fee equal to .60% of the average net assets attributable
to each respective class.
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EQ/PUTNAM INTERNATIONAL EQUITY PORTFOLIO
In the table below, the only account which is included is another registered
investment company, i.e., Putnam International Growth Fund which is managed by
the Putnam Investment Management, Inc. However, the Putnam International
Growth Fund may be subject to different expenses than the EQ/Putnam
International Equity Portfolio.
The investment results of Putnam International Growth Fund presented below are
unaudited and are not intended to predict or suggest the returns that might be
experienced by the EQ/Putnam International Equity Portfolio or an individual
investor investing in the EQ/Putnam International Equity Portfolio.
MSCI EAFE
YEAR PUTNAM INTERNATIONAL GROWTH FUND(1) INDEX(2)
---- ----------------------------------- --------
One Year(3)
Five Years(3)
Since inception(3)
- ----------------------------------
1 Average annual total return reflects changes in share prices and
reinvestment of dividends and distributions and is net of fund
expenses.
2 The MSCI EAFE ("Index") is an unmanaged capitalization-weighted
measure of stock markets in Europe, Australia, the Far East and
Canada. MSCI EAFE Index returns assume dividends reinvested net of
withholding tax and do not reflect any fees or expenses.
3 Through December 31, 1996 for the Class A shares of the Putnam
International Growth Fund. The inception date of the Class A shares
of the Putnam International Growth Fund was _______ __, 199__. The
Class A shares are subject to a front-end sales charge of 5.75%. The
Class B shares are subject to a maximum contingent deferred sales
charge of 5.0%. The Class M shares are subject to a front-end sales
charge of 3.5%. The Class A shares is subject to a Rule 12b-1 fee
equal to .25% (which the Board of Trustees can raise to .35%) of the
average net assets attributable to the Class A shares. The Class B
and Class M shares are subject to a Rule 12b-1 fee equal to .60% of
the average net assets attributable to each respective class.
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EQ/PUTNAM INVESTORS GROWTH PORTFOLIO
In the table below, the only account which is included is another registered
investment company, i.e., Putnam Investors Fund which is managed by the Putnam
Investment Management, Inc. However, the Putnam Investors Fund may be subject
to different expenses than the EQ/Putnam Investors Growth Portfolio.
The investment results of Putnam Investors Fund presented below are unaudited
and are not intended to predict or suggest the returns that might be
experienced by the EQ/Putnam Investors Growth Portfolio or an individual
investor investing in the EQ/Putnam Investors Growth Portfolio.
S&P 500
YEAR PUTNAM INVESTORS FUND(1) INDEX(2)
----- ------------------------ --------
One Year(3)
Five Years(3)
Ten Years(3)
- ----------------------------------
1 Average annual total return reflects changes in share prices and
reinvestment of dividends and distributions and is net of fund
expenses.
2 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 United States
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.
3 Through December 31, 1996 for the Class A shares of the Putnam
Investors Fund. The Class A shares are subject to a front-end sales
charge of 5.75%. The Class B shares are subject to a maximum
contingent deferred sales charge of 5.0%. The Class M shares are
subject to a front-end sales charge of 3.5%. The Class A shares is
subject to a Rule 12b-1 fee equal to .25% (which the Board of
Trustees can raise to .35%) of the average net assets attributable to
the Class A shares. The Class B and Class M shares are subject to a
Rule 12b-1 fee equal to .60% of the average net assets attributable
to each respective class.
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EQ/PUTNAM BALANCED PORTFOLIO
In the table below, the only account which is included is another registered
investment company, i.e., The George Putnam Fund of Boston which is managed by
the Putnam Investment Management, Inc. However, The George Putnam Fund of
Boston may be subject to different expenses than the EQ/Putnam Balanced
Portfolio.
The investment results of The George Putnam Fund of Boston presented below are
unaudited and are not intended to predict or suggest the returns that might be
experienced by the EQ/Putnam Balanced Portfolio or an individual investor
investing in the EQ/Putnam Balanced Portfolio.
S&P LEHMAN BROS.
500 GOV'T/CORP.
YEAR THE GEORGE PUTNAM FUND OF BOSTON(1) INDEX(2) BOND INDEX(3)
---- ----------------------------------- -------- -------------
One Year4
Five Years4
Ten Years4
- ----------------------------------
1 Average annual total return reflects changes in share prices and
reinvestment of dividends and distributions and is net of fund
expenses.
2 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 United States
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.
3 The Lehman Brothers Government/Corporate Bond Index is an unmanaged
list of publicly issued U.S. Treasury obligations, debt obligations
or U.S. government agencies (excluding mortgage-backed securities),
and fixed-rate, nonconvertible investment-grade corporate debt
securities.
4 Through December 31, 1996 for the Class A shares of The George Putnam
Fund of Boston. The Class A shares are subject to a front-end sales
charge of 5.75%. The Class B shares are subject to a maximum
contingent deferred sales charge of 5.0%. The Class M shares are
subject to a front-end sales charge of 3.5%. The Class A shares is
subject to a Rule 12b-1 fee equal to .25% (which the Board of
Trustees can raise to .35%) of the average net assets attributable to
the Class A shares. The Class B and Class M shares are subject to a
Rule 12b-1 fee equal to .60% of the average net assets attributable
to each respective class.
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MFS RESEARCH PORTFOLIO
In the table below, the only account which is included is another registered
investment company, i.e., MFS Research Fund which is managed by the
Massachusetts Financial Services Company. However, MFS Research Fund may be
subject to different expenses than the MFS Research Portfolio.
The investment results of MFS Research Fund presented below are unaudited and
are not intended to predict or suggest the returns that might be experienced
by the MFS Research Portfolio or an individual investor investing in the MFS
Research Portfolio.
S&P 500
YEAR MFS RESEARCH FUND(1) INDEX(2)
---- -------------------- --------
One Year(3)
Five Years(3)
Ten Years(3)
- ----------------------------------
1 Average annual total return reflects changes in share prices and
reinvestment of dividends and distributions and is net of fund
expenses.
2 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 United States
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.
3 Through December 31, 1996 for the Class C shares of the MFS Research
Fund. Class A shares are subject to a maximum sales charge of 5.75%.
Class B shares are subject to a contingent deferred sales charge
("CDSC"). Class C share performance includes the performance of the
fund's Class A shares for periods prior to the commencement offering
of Class C shares on April 1, 1996. Sales charges and operating
expenses for Class A, Class B, and Class C shares differ. Class C
share performance has not been adjusted, however to reflect
differences in operating expenses (e.g., Rule 12b-1 fees).
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MFS EMERGING GROWTH COMPANIES PORTFOLIO
In the table below, the only account which is included is another registered
investment company, i.e., MFS Emerging Growth Fund which is managed by the
Massachusetts Financial Services Company. However, MFS Emerging Growth Fund
may be subject to different expenses than the MFS Emerging Growth Companies
Portfolio.
The investment results of MFS Emerging Growth Fund presented below are
unaudited and are not intended to predict or suggest the returns that might be
experienced by the MFS Emerging Growth Companies Portfolio or an individual
investor investing in the MFS Emerging Growth Companies Portfolio.
RUSSELL 2000
YEAR MFS EMERGING GROWTH FUND(1) INDEX(2)
---- --------------------------- --------
One Year(3)
Five Years(3)
Since inception(3)
- ----------------------------------
1 Average annual total return reflects changes in share prices and
reinvestment of dividends and distributions and is net of fund
expenses.
2 The Russell 2000 Index is an unmanaged index (with no defined
investment objective) of 2000 small-cap stocks and it includes
reinvestments of dividends. It is compiled by the Frank Russell
Company.
3 Through December 31, 1996 for the Class C shares of the MFS Emerging
Growth Fund. Class A shares are subject to a maximum sales charge of
5.75%. Class B shares are subject to a contingent deferred sales
charge ("CDSC"). Class C shares have no initial sales charge but,
along with Class B shares, have higher annual fees and expenses than
Class A shares. Class C shares redeemed within 12 months of purchase
are subject to an CDSC. Class C share performance includes the
performance of the fund's Class B shares for period prior to the
commencement of offering of Class A on September 13, 1993 and Class C
shares on April 1, 1996. The Class B share performance included
within the Class C share SEC performance has been adjusted to reflect
the lower CDSC generally applicable to Class C shares rather than the
higher CDSC generally applicable to Class B shares. Class A and Class
C share performance has not been adjusted, however, to reflect
differences in operating expenses (e.g., Rule 12b-1 fees).
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MORGAN STANLEY EMERGING MARKETS EQUITY PORTFOLIO
In the table below, the only account which is included is another registered
investment company, i.e., Morgan Stanley Universal Funds, Inc. - Emerging
Markets Equity Portfolio which is managed by the Morgan Stanley Asset
Management Inc. However, the Morgan Stanley Universal Funds, Inc. - Emerging
Markets Equity Portfolio may be subject to different expenses than the Morgan
Stanley Emerging Markets Equity Portfolio.
The investment results of Morgan Stanley Universal Funds, Inc. - Emerging
Markets Equity Portfolio presented below are unaudited and are not intended to
predict or suggest the returns that might be experienced by the Morgan Stanley
Emerging Markets Equity Portfolio or an individual investor investing in the
Morgan Stanley Emerging Markets Equity Portfolio.
IFC GLOBAL
MORGAN STANLEY UNIVERSAL FUNDS, INC. - TOTAL RETURN
YEAR EMERGING MARKETS EQUITY PORTFOLIO(1, 2) COMPOSITE INDEX(3)
---- --------------------------------------- ------------------
One Year(4)
Three Years(4)
Since inception(4)
- ----------------------------------
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 Morgan Stanley Universal Funds, Inc. - Emerging
Markets Equity Portfolio was capped at ____% for the period
__________ to __________ (reflecting annualized reimbursement of
expenses of ____%). The expense ratio of the Morgan Stanley Universal
Funds, Inc. - Emerging Markets Equity Portfolio is capped at 1.75%
through December 31, 1996.
3 The IFC Global Total Return Composite Index includes the constituents
of all IFCG market indices, with some delays between the introduction
of a new IFC Index market and its inclusion in the composite and with
some exception to coverage.
4 Through December 31, 1996 for the Class A shares of the Morgan
Stanley Universal Funds, Inc. Emerging Markets Equity Portfolio. The
Class A shares of the Emerging Markets Equity Portfolio are not
subject to a Rule 12b-1 fee. The Class B shares of the Emerging
Markets Equity Portfolio are subject to a Rule 12b-1 fee equal to
0.25% of the Portfolio's assets. The inception date for the Emerging
Markets Equity Portfolio was September 25, 1992.
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<PAGE>
WARBURG PINCUS SMALL COMPANY VALUE PORTFOLIO
In the table below, the only account which is included is another registered
investment company, i.e., Warburg Pincus Small Company Value Fund which is
managed by the Warburg, Pincus Counsellors, Inc. However, the Warburg Pincus
Small Company Value Fund may be subject to different expenses than the Warburg
Pincus Small Company Value Portfolio.
The investment results of Warburg Pincus Small Company Value Portfolio
presented below are unaudited and are not intended to predict or suggest the
returns that might be experienced by the Warburg Pincus Small Company Value
Portfolio or an individual investor investing in such Portfolio and should not
be considered a substitute for the Warburg Pincus Small Company Value
Portfolio's own performance information.
RUSSELL 2000
YEAR WARBURG PINCUS SMALL COMPANY VALUE FUND(1, 2) INDEX(3)
---- --------------------------------------------- --------
One Year(4)
Since inception(4)
- ----------------------------------
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 Warburg Pincus Small Company Value Fund was
capped at 1.75% for the period __________ to __________ (reflecting
annualized reimbursement of expenses of ____%). Absent this
reimbursement, the performance of Warburg Pincus Small Company Value
Fund would have been lower.
3 The Russell 2000 Index is an unmanaged index (with no defined
investment objective) of 2,000 small-cap stocks, and includes
reinvestment of dividends. It is compiled by the Frank Russell
Company.
4 December 29, 1995 through December 31, 1996.
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<PAGE>
MERRILL LYNCH WORLD STRATEGY PORTFOLIO
In the table below, the only account which is a series of another registered
investment company, i.e., Merrill Lynch Global Strategy Focus Fund, a series
of Merrill Lynch Variable Series Funds, Inc., which is managed by Merrill
Lynch Asset Management, L.P. However, the Merrill Lynch Global Strategy Focus
Fund may be subject to different expenses than the Merrill Lynch World
Strategy Portfolio.
The investment results of Merrill Lynch Global Strategy Focus Fund presented
below are unaudited and are not intended to predict or suggest the returns
that might be experienced by the Merrill Lynch World Strategy Portfolio or an
individual investor investing in the Merrill Lynch World Strategy Portfolio.
MERRILL LYNCH VARIABLE
SERIES FUNDS, INC. -
MERRILL LYNCH GLOBAL MSCI EAFE
YEAR STRATEGY FOCUS FUND(1) INDEX(2)
---- ---------------------- --------
One Year(3)
Five Years(3)
Since inception(3)
- ----------------------------------
1 Average annual total return reflects changes in share prices and
reinvestment of dividends and distributions and is net of fund
expenses.
2 The Morgan Stanley Capital International Europe, Australia, and Far
East Index ("MSCI EAFE Index") is an unmanaged
capitalization-weighted measure of stock markets in Europe,
Australia, the Far East and Canada. MSCI EAFE Index returns assume
dividends reinvested net of withholding tax and do not reflect any
fees or expenses.
3 Through December 31, 1996. The inception date for the Merrill Lynch
Global Strategy Focus Fund was February 28, 1992.
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<PAGE>
MERRILL LYNCH BASIC VALUE EQUITY PORTFOLIO
In the table below, the only account which is another registered investment
company, i.e., Merrill Lynch Basic Value Focus Fund, a series of Merrill Lynch
Variable Series Funds, Inc., which is managed by Merrill Lynch Asset
Management, L.P. However, the Merrill Lynch Basic Value Focus Fund may be
subject to different expenses than the Merrill Lynch Basic Value Equity
Portfolio.
The investment results of Merrill Lynch Basic Value Focus Fund presented below
are unaudited and are not intended to predict or suggest the returns that
might be experienced by the Merrill Lynch Basic Value Equity Portfolio or an
individual investor investing in the Merrill Lynch Basic Value Equity
Portfolio.
MERRILL LYNCH VARIABLE
SERIES FUNDS, INC. - S&P 500
YEAR MERRILL LYNCH BASIC VALUE FOCUS FUND (1) INDEX(2)
---- ---------------------------------------- --------
One Year(3)
Since inception(3)
- ----------------------------------
1 Average annual total return reflects changes in share prices and
reinvestment of dividends and distributions and is net of fund
expenses.
2 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 United States
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.
3 Through December 31, 1996. The inception date for the Merrill Lynch
Basic Value Focus Fund was July __, 1993.
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<PAGE>
EQ ADVISORS TRUST
STATEMENT OF ADDITIONAL INFORMATION
May 1, 1997
This Statement of Additional Information is not a prospectus. It should be
read in conjunction with the Prospectus for the EQ Advisors Trust ("Trust")
dated May 1, 1997, which may be obtained without charge by writing to the
Trust at 1290 Avenue of the Americas, New York, New York 10104 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 Strategy...................................................
Purchase and Pricing of Securities....................................
Redemption of Shares .................................................
Certain Tax Considerations............................................
Portfolio Performance.................................................
Other Services........................................................
Appendix .............................................................
1
<PAGE>
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, EQ/Putnam Growth & Income Value Portfolio, EQ/Putnam
International Equity Portfolio, EQ/Putnam Investors Growth Portfolio,
EQ/Putnam Balanced Portfolio, MFS Research Portfolio, MFS Emerging Growth
Companies Portfolio, Morgan Stanley Emerging Markets Equity Portfolio, Warburg
Pincus Small Company Value Portfolio, Merrill Lynch World Strategy Portfolio
and Merrill Lynch Basic Value Equity 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 March 31,
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, the "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 April 1, 1997, Separate Account FP, a separate
account of 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 (the "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 the date of this
Statement of Additional Information ("SAI"), no Contractowners owned Contracts
entitling such persons to give voting instructions regarding more than 5% of
the outstanding shares of any Portfolio.
2
<PAGE>
The Trust may in the future offer its shares to separate accounts of insurance
companies unaffiliated with Equitable, as well as to the tax-qualified
retirement plans. 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 or to
tax-qualified retirement plans. However, it is theoretically possible that, at
some time, the interests of various Contractowners participating in the Trust
through their separate accounts and tax-qualified retirement plans might
conflict. In the case of a material irreconcilable conflict, one or more
separate accounts or the tax-qualified retirement plans might withdraw their
investments in the Trust, which would possibly force the Trust to sell
portfolio securities at disadvantageous prices. The Trustees of the Trust
intend to monitor events for the existence of any material irreconcilable
conflicts between or among such separate accounts and tax-qualified retirement
plans and will take whatever remedial action may be necessary.
EQ Financial Consultants, Inc. (the "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"), Massachusetts Financial Services
Company ("MFS"), Morgan Stanley Asset Management Inc. ("MSAM"), Warburg,
Pincus Counsellors, Inc. ("Warburg"), and Merrill Lynch Asset Management, L.P.
("MLAM") (each an "Adviser," and together the "Advisers") serve as investment
advisers to one or more of the Portfolios, as described more fully in the
Prospectus.
LEGAL CONSIDERATIONS
Under Delaware law, annual election of Trustees is not required, and, in the
normal course, the Trust does not expect to hold annual meetings of
shareholders. There will normally be no meetings of shareholders for the
purpose of electing Trustees unless and until such time as less than a
majority of the Trustees holding office have been elected by shareholders, at
which time the Trustees then in office will call a shareholders' meeting for
the election of Trustees. Pursuant to the procedures set forth in Section
16(c) of the 1940 Act, shareholders of record of not less than two-thirds of
the outstanding shares of the Trust may remove a Trustee by a vote cast in
person or by proxy at a meeting called for that purpose.
Except as set forth above, the Trustees will continue to hold office and may
appoint successor Trustees. Voting rights are not cumulative, so that the
holders of more than 50% of the shares voting in the election of Trustees can,
if they choose to do so, elect all the Trustees of the Trust, in which event
the holders of the remaining shares will be unable to elect any person as a
Trustee. The Amended and Restated Declaration of Trust of the Trust requires
the affirmative vote of a majority of the outstanding shares of the Trust.
The shares of each Portfolio, when issued, will be fully paid and
non-assessable and will have no preference, preemptive, conversion, exchange
or similar rights.
3
<PAGE>
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 restrictions adopted by each of the
Portfolios. Fundamental policies (5) and (6) below shall not apply to the
Morgan Stanley Emerging Markets Portfolio and the Merrill Lynch World Strategy
Portfolio. Certain non-fundamental operating policies are also described in
this section because of their direct relevance to the fundamental restrictions
adopted by the Portfolios.
Each Portfolio, except as described directly above, may not as a matter of
fundamental policy:
(1) Borrow money, except that:
a. each Portfolio may (i) borrow for non-leveraging,
temporary or emergency purposes 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 33
1/3% of the value of the Portfolios' respective
total assets (including the amount borrowed) less
liabilities (other than borrowings) or such other
percentage permitted by law (except that the
Merrill Lynch World Strategy Portfolio and the
Merrill Lynch Basic Value Equity Portfolio may
purchase securities on margin to the extent
permitted by applicable law). Any borrowings which
come to exceed this amount will be reduced in
accordance with applicable law. Each Portfolio may
borrow from banks or other persons to the extent
permitted by applicable law;
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 EQ/Putnam Growth & Income Value Portfolio,
EQ/Putnam International Equity Portfolio, EQ/Putnam
Investors Growth Portfolio, and EQ/Putnam Balanced
Portfolio each, as a matter of non-fundamental
operating policy, may borrow only from banks (i) as
a temporary measure to facilitate the
4
<PAGE>
meeting of redemption requests (not for leverage)
which might otherwise require the untimely
disposition of portfolio investments or (ii) for
extraordinary or emergency purposes, provided that
the combination of (i) and (ii) shall not exceed
10% of the applicable Portfolio's net assets (taken
at lower of cost or current value), not including
the amount borrowed, at the time the borrowing is
made. Each Portfolio will repay borrowings before
any additional investments are purchased;
d. the Merrill Lynch World Strategy Portfolio, as a
matter of fundamental policy, and the Merrill Lynch
Basic Value Equity Portfolio, as a matter of
non-fundamental operating policy, may to the extent
permitted by applicable law, borrow up to an
additional 5% of their respective total assets for
temporary purposes.
(2) Purchase or sell physical commodities, except that it may (i) enter
into futures contracts and options thereon in accordance with
applicable law and (ii) purchase or sell physical commodities if
acquired as a result of ownership of securities or other instruments.
No Portfolio will consider currency contracts, hybrid investments,
swaps or other similar instruments to be commodities;
(3) Purchase the securities of any issuer if, as a result, more than 25%
of the value of the Portfolio's total assets would be invested in the
securities of issuers having their principal business activities in
the same industry. 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 33
1/3% 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;
5
<PAGE>
b. the EQ/Putnam Growth & Income Value Portfolio and
EQ/Putnam International Equity Portfolio, as a
matter of non- fundamental operating policy, may
purchase debt obligations consistent with the
respective investment objectives and policies of
each of those Portfolios: (i) by entering into
repurchase agreements with respect to not more than
25% of the Portfolios' respective total assets
(taken at current value) or (ii) through the
lending of the Portfolios' portfolio securities
with respect to not more than 25% of the
Portfolios' respective total assets (taken at
current value);
c. the MFS Emerging Growth Companies Portfolio, as a
matter or non-fundamental operating policy, may
lend its portfolio securities provided that no such
loan may be made if, as a result, the aggregate of
such loans would exceed 30% of its total assets
(taken at market value).
d. the Warburg Pincus Small Company Value Portfolio,
the Merrill Lynch World Strategy Portfolio and the
Merrill Lynch Basic Value Equity Portfolio, as a
matter of non-fundamental policy, may lend its
portfolio securities provided that no such loan may
be made if, as a result, the aggregate of such
loans would exceed 20% of such Portfolio's total
assets (taken at market value).
(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).*
(7) Purchase or sell real estate, except each 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 each Portfolio may acquire and dispose
of real estate or interests in real estate acquired through the
exercise of its rights as a holder of debt obligations secured by
real estate or interests therein;
(8) Issue senior securities except in compliance with the 1940 Act; or
- --------
* The Morgan Stanley Emerging Markets Equity Portfolio and Merrill Lynch
World Strategy Portfolio are classified as non-diversified investment
companies under the 1940 Act and therefore these restrictions are not
applicable to these Portfolios.
6
<PAGE>
(9) Underwrite securities issued by other persons, except to the extent
that the Portfolio may be deemed to be an underwriter within the
meaning of the Securities Act of 1933, as amended (the "1933 Act"),
in connection with the purchase and sale of its portfolio securities
in the ordinary course of pursuing its investment objective, policies
and program.
NON-FUNDAMENTAL RESTRICTIONS
The following investment restrictions apply to each Portfolio, but are not
fundamental. They may be changed for any Portfolio without a vote of that
Portfolio's shareholders.
Each Portfolio may not:
(1) Purchase a futures contract or an option thereon if, with respect to
positions in futures or options on futures which do not represent
bona fide hedging, the aggregate initial margin and premiums on such
options would exceed 5% of the Portfolio's net asset value;
(2) Purchase (a) illiquid securities, (b) securities restricted as to
resale (excluding securities determined by the Board of Trustees to
be readily marketable), and (c) repurchase agreements maturing in
more than seven days if, as a result, more than 15% of each
Portfolio's net assets would be invested in such securities.
(Securities purchased in accordance with Rule 144A under the
Securities Act and determined to be liquid by the Trust's Board are
not subject to the limitations set forth in this investment
restriction.)
(3) Purchase securities on margin, except that each Portfolio may: (a)
make use of any short-term credit necessary for clearance of
purchases and sales of portfolio securities and (b) may make initial
or variation margin deposits in connection with futures contracts,
options, currencies, or other permissible investments;
(4) Mortgage, pledge, hypothecate or, in any manner, transfer any security
owned by the Portfolio as security for indebtedness, except as may be
necessary in connection with permissible borrowings or investments;
and then such mortgaging, pledging or hypothecating may not exceed
331/3% of the respective total assets of each Portfolio (except for
the EQ/Putnam International Equity Portfolio), and may not exceed 15%
of EQ/Putnam International Equity Portfolio's total assets and 10% of
each the Merrill Lynch World Strategy Portfolio's and Merrill Lynch
Basic Value Equity Portfolio's total assets (taken at the lower of
cost or market value), each taken at the time of the permissible
borrowing or investment. The deposit of underlying securities and
other assets in escrow and collateral arrangements with respect to
margin accounts for futures contracts, options, currencies or other
permissible
7
<PAGE>
investments are not deemed to be mortgages, pledges, or
hypothecations for these purposes;
(5) Purchase participations or other direct interests in or enter into
leases with respect to, oil, gas, or other mineral exploration or
development programs, except that the MFS Emerging Growth Companies
Portfolio, Warburg Pincus Small Company Value Portfolio, Merrill
Lynch World Strategy Portfolio, and Merrill Lynch Basic Value Equity
Portfolio may invest in securities issued by companies that engage in
oil, gas or other mineral exploration or development activities or
hold mineral leases acquired as a result of its ownership of
securities;
(6) Invest in puts, calls, straddles, spreads, swaps or any combination
thereof, except to the extent permitted by the Portfolio's Prospectus
and Statement of Additional Information, as may be amended from time
to time; 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 convertible into or exchangeable for securities of
the same issue as, and at least equal in amount to, the securities
sold short. Permissible futures contracts, options, or currency
transactions will not be deemed to constitute selling securities
short.
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, consequently, each Portfolio may have to subject
any of its investments in other investment companies, including 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
ASSET-BACKED SECURITIES
Asset-backed securities, issued by trusts and special purpose corporations,
are backed by a pool of assets, such as credit card and automobile loan
receivables, representing the obligations of a number of different parties.
Asset-backed securities present certain risks. For instance, in the case of
credit card receivables, these securities may not have the benefit of any
security interest in the related collateral. Credit card receivables are
generally unsecured and the debtors are entitled to the protection of a number
of state and federal consumer credit laws, many of which
8
<PAGE>
give such debtors the right to set off certain amounts owed on the credit
cards, thereby reducing the balance due. Most issuers of automobile
receivables permit the servicers to retain possession of the underlying
obligations. If the servicer were to sell these obligations to another party,
there is a risk that the purchaser would acquire an interest superior to that
of the holders of the related automobile receivables. In addition, because of
the large number of vehicles involved in a typical issuance and technical
requirements under state laws, the trustee for the holders of the automobile
receivables may not have a proper security interest in all of the obligations
backing such receivables. Therefore, there is the possibility that recoveries
on repossessed collateral may not, in some cases, be available to support
payments on these securities. The underlying assets (e.g., loans) are also
subject to prepayments which shorten the securities' weighted average life and
may lower their return.
Asset-backed securities are often backed by a pool of assets representing the
obligations of a number of different parties. To lessen the effect of failures
by obligors on underlying assets to make payments, the securities may contain
elements of credit support which fall into two categories: (i) liquidity
protection and (ii) protection against losses resulting from ultimate default
by an obligor on the underlying assets. Liquidity protection refers to the
provision of advances, generally by the entity administering the pool of
assets, to ensure that the receipt of payments on the underlying pool occurs
in a timely fashion. Protection against losses resulting from ultimate default
ensures payment through insurance policies or letters of credit obtained by
the issuer or sponsor from third parties. A Portfolio will not pay any
additional or separate fees for credit support. The degree of credit support
provided for each issue is generally based on historical information
respecting the level of credit risk associated with the underlying assets.
Delinquency or loss in excess of that anticipated or failure of the credit
support could adversely affect the return on an investment in such a security.
FOREIGN CURRENCY TRANSACTIONS
Forward Foreign Currency Transactions. A forward foreign currency exchange
contract ("forward contract") involves an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number of days from
the date of the contract agreed upon by the parties, at a price set at the
time of the contract. These contracts are principally traded in the interbank
market conducted directly between currency traders (usually large, commercial
banks) and their customers. A forward contract generally has no margin deposit
requirement, and no commissions are charged at any stage for trades.
A Portfolio may enter into forward contracts for a variety of purposes in
connection with the management of the foreign securities portion of its
portfolio. 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
9
<PAGE>
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, multinational currency
units, or a proxy currency where such currency or currencies act as an
effective proxy for other currencies. In such a case, the Portfolio may enter
into a forward contract where the amount of the foreign currency to be sold
exceeds the value of the securities denominated in such currency. The use of
this basket hedging technique may be more efficient and economical than
entering into separate forward contracts for each currency held in the
Portfolio.
The precise matching of the forward contract amounts and the value of the
securities involved will not generally be possible since the future value of
such securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the forward
contract is entered into and the date it matures. The projection of short-term
currency market movement is extremely difficult, and the successful execution
of a short-term hedging strategy is highly uncertain. Under normal
circumstances, consideration of the prospect for currency parities will be
incorporated into the diversification strategies. However, the Adviser to the
Portfolio believes that it is important to have the flexibility to enter into
such forward contracts when it determines that the best interests of the
Portfolio will be served.
A Portfolio may enter into forward contracts for any other purpose consistent
with the Portfolio's investment objective and program. However, the Portfolio
will not enter into a forward contract, or maintain exposure to any such
contract(s), if the amount of foreign currency required to be delivered
thereunder would exceed the Portfolio's holdings of liquid, securities and
currency available for cover of the forward contract(s). In determining the
amount to be delivered under a contract, the Portfolio may net offsetting
positions.
At the maturity of a forward contract, a Portfolio may sell the portfolio
security and make delivery of the foreign currency, or it may retain the
security and either extend the maturity of the forward contract (by "rolling"
that contract forward) or may initiate a new forward contract. If a Portfolio
retains the portfolio security and engages in an offsetting transaction, the
Portfolio will incur a gain or a loss (as described below) to the extent that
there has been movement in forward contract prices. If the Portfolio engages
in an offsetting transaction, it may subsequently enter into a new forward
contract to sell the foreign currency.
Should forward prices decline during the period between the Portfolio's
entering into a forward contract for the sale of a foreign currency and the
date it enters into an offsetting contract for the purchase of the foreign
currency, the Portfolio will realize a gain to the extent the price of
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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 and Merrill
Lynch Basic Value Equity Portfolio) may purchase or sell exchange-traded
foreign currency options, foreign currency futures contracts and related
options on foreign currency futures contracts as a hedge against possible
variations in foreign exchange rates. The Portfolios will write options on
foreign currency or on foreign currency futures contracts only if they are
"covered." A put on a foreign currency or on a foreign currency futures
contract written by a Portfolio will be considered "covered" if, so long as
the Portfolio is obligated as the writer of the put, it segregates with the
Portfolio's custodian cash, United States Government securities or other
liquid high-grade debt securities equal at all times to the aggregate exercise
price of the put. A call on a foreign currency or on a foreign currency 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-United States dollar-denominated securities owned by a Portfolio,
sold by a Portfolio but not yet delivered or anticipated to be purchased by a
Portfolio. As an illustration, a Portfolio may use such techniques to hedge
the stated value in United States dollars of an investment in a Japanese
yen-denominated security. In these circumstances, a Portfolio may purchase a
foreign currency put option enabling it to sell a specified amount of yen for
dollars at a specified price by a future date. To the extent the hedge is
successful, a loss in the value of the dollar relative to the yen will tend to
be offset by an increase in the value of the put option.
Certain differences exist between foreign currency hedging instruments.
Foreign currency options provide the holder the right to buy or to sell a
currency at a fixed price on or before a future date. Listed options are
third-party contracts (performance is guaranteed by an exchange or clearing
corporation) which are issued by a clearing corporation, traded on an exchange
and have standardized prices and expiration dates. Over-the-counter options
are two-party contracts and have negotiated prices and expiration dates. A
futures contract on a foreign currency is an agreement between two parties to
buy and sell a specified amount of the currency for a set price on a future
date. Futures contracts and listed options on futures contracts are traded on
boards of trade or futures exchanges. Options traded in the over-the-counter
market may not be as
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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. See "Options" --
"Over-the-Counter Options," below.
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 ___.
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
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.
Depositary Receipts. For many foreign securities there are depositary
receipts. Depositary receipts are securities representing ownership interests
in securities of foreign companies (an "underlying issuer") and are deposited
with a securities depositary. Depositary receipts include American Depositary
Receipts ("ADRs"), Global Depositary Receipts ("GDRs") and other types of
Depositary Receipts (which, together with ADRs and GDRs, are hereinafter
collectively referred to as "Depositary Receipts"). ADRs are
dollar-denominated Depositary Receipts typically issued by a U.S. financial
institution which evidence ownership interests in a security
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of pool of securities issued by a foreign issuer. ADRs are listed and traded
in the United States. GDRs and other types of Depositary Receipts are
typically issued by foreign banks or trust companies, although they also may
be issued by U.S. financial institutions, and evidence ownership interests in
a security or pool of securities issued by either a foreign or a U.S.
corporation. Generally, Depositary Receipts in registered form are designed
for use in the U.S. securities market and Depositary Receipts in bearer form
are designed for use in securities markets outside the United States.
Depositary receipts may be "sponsored" or "unsponsored". Sponsored depositary
receipts are established jointly by a depositary and the underlying issuer,
whereas unsponsored depositary receipts may be established by a depositary
without participation by the underlying issuer. Holders of an unsponsored
depositary receipt generally bear all the costs associated with establishing
the unsponsored depositary receipt. In addition, the issuers of the securities
underlying unsponsored depositary receipts are not obligated to disclose
material information in the U.S. and, therefore, there may be less information
available regarding such issuers and there may not be a correlation between
such information and the market value of the depositary receipts. For purposes
of a Portfolio's investment policies, the Portfolio's investment in depositary
receipts will be deemed to be investments in the underlying securities except
as noted.
Eastern European and Russian Securities. The economies of Eastern European
countries are currently suffering both from the stagnation resulting from
centralized economic planning and control and the higher prices and
unemployment associated with the transition to market economics. Unstable
economic and political conditions may adversely affect security values. Upon
the accession to power of Communist regimes approximately 40 years ago, the
governments of a number of Eastern European countries expropriated a large
amount of property. The claims of many property owners against those
governments were never finally settled. In the event of the return to power of
the Communist Party, there can be no assurance that a Portfolio's investments
in Eastern Europe would not be expropriated, nationalized or otherwise
confiscated.
The registration, clearing and settlement of securities transactions involving
Russian issuers are subject to significant risks not normally associated with
securities transactions in the United States and other more developed markets.
Ownership of equity securities in Russian companies is evidenced by entries in
a company's share register (except where shares are held through depositories
that meet the requirements of the 1940 Act) and the issuance of extracts from
the register or, in certain limited cases, by formal share certificates.
However, Russian share registers are frequently unreliable and a Portfolio
could possibly lose its registration through oversight, negligence or fraud.
Moreover, Russia lacks a centralized registry to record shares and companies
themselves maintain share registers. Registrars are under no obligation to
provide extracts to potential purchasers in a timely manner or at all and are
not necessarily subject to effective state supervision. In addition, while
registrars are liable under law for losses resulting from their errors, it may
be difficult for a Portfolio to enforce any rights it may have against the
registrar or issuer of the securities in the event of loss of share
registration.
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Although Russian companies with more than 1,000 shareholders are required by
law to employ an independent company to maintain share registers, in practice,
such companies have not always followed this law. Because of this lack of
independence of registrars, management of a Russian company may be able to
exert considerable influence over who can purchase and sell the company's
shares by illegally instructing the registrar to refuse to record transactions
on the share register. Furthermore, these practices could cause a delay in the
sale of Russian securities by a Portfolio if the company deems a purchaser
unsuitable, which may expose a Portfolio to potential loss on its investment.
In light of the risks described above, the Board of Trustees of the Trust has
approved certain procedures concerning a Portfolio's investments in Russian
securities. Among these procedures is a requirement that a Portfolio will not
invest in the securities of a Russian company unless that issuer's registrar
has entered into a contract with a Portfolio's sub-custodian containing
certain protective conditions, including, among other things, the
sub-custodian's right to conduct regular share confirmations on behalf of a
Portfolio. This requirement will likely have the effect of precluding
investments in certain Russian companies that a Portfolio would otherwise
make.
Emerging Market Securities. Investments in emerging market country securities
involve special risks. Certain emerging market countries have historically
experienced, and may continue to experience, high rates of inflation, high
interest rates, exchange rate fluctuations, large amounts of external debt,
balance of payments and trade difficulties and extreme poverty and
unemployment. The issuer or governmental authority that controls the repayment
of an emerging market country's debt may not be able or willing to repay the
principal and/or interest when due in accordance with the terms of such debt.
As a result of the foregoing, a government obligor may default on its
obligations. If such an event occurs, a Portfolio may have limited legal
recourse against the issuer and/or guarantor. Remedies must, in some cases, be
pursued in the courts of the defaulting party itself, and the ability of the
holder of foreign government fixed income securities to obtain recourse may be
subject to the political climate in the relevant country. In addition, no
assurance can be given that the holders of commercial bank debt will not
contest payments to the holders of other foreign government debt obligations
in the event of default under their commercial bank loan agreements.
The economies of individual emerging market countries may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross domestic
product, rate of inflation, currency depreciation, capital reinvestment,
resource self-sufficiency and balance of payments position. Further, the
economies of developing countries generally are heavily dependent upon
international trade and, accordingly, have been, and may continue to be,
adversely affected by trade barriers, exchange controls, managed adjustments
in relative currency values and other protectionist measures imposed or
negotiated by the countries with which they trade. These economies also have
been, and may continue to be, adversely affected by economic conditions in the
countries with which they trade.
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Investing in emerging market countries may entail purchasing securities issued
by or on behalf of entities that are insolvent, bankrupt, in default or
otherwise engaged in an attempt to reorganize or reschedule their obligations,
and in entities that have little or no proven credit rating or credit history.
In any such case, the issuer's poor or deteriorating financial condition may
increase the likelihood that the investing Portfolio will experience losses or
diminution in available gains due to bankruptcy, insolvency or fraud.
Eurodollar and Yankee Dollar Obligations. Eurodollar bank obligations are U.S.
dollar-denominated certificates of deposit and time deposits issued outside
the U.S. capital markets by foreign branches of U.S. banks and by foreign
banks. Yankee dollar bank obligations are U.S. dollar-denominated obligations
issued in the U.S. capital markets by foreign banks.
Eurodollar and Yankee dollar obligations are subject to the same risks that
pertain to domestic issues, notably credit risk, market risk and liquidity
risk. Additionally, Eurodollar (and to a limited extent, Yankee dollar)
obligations are subject to certain sovereign risks. One such risk is the
possibility that a sovereign country might prevent capital, in the form of
dollars, from flowing across their borders. Other risks include adverse
political and economic developments; the extent and quality of government
regulation of financial markets and institutions; the imposition of foreign
withholding taxes; and the expropriation or nationalization of foreign
issuers.
FORWARD COMMITMENTS, WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
Forward commitments, when-issued and delayed delivery transactions arise when
securities are purchased by a Portfolio with payment and delivery taking place
in the future in order to secure what is considered to be an advantageous
price or yield to the Portfolio at the time of entering into the transaction.
However, the price of or yield on a comparable security available when
delivery takes place may vary from the price of or yield on the security at
the time that the forward commitment or when-issued or delayed delivery
transaction was entered into. Agreements for such purchases might be entered
into, for example, when a Portfolio anticipates a decline in interest rates
and is able to obtain a more advantageous price or yield by committing
currently to purchase securities to be issued later. When a Portfolio
purchases securities on a forward commitment, when-issued or delayed delivery
basis it does not pay for the securities until they are received, and the
Portfolio is required to create a segregated account with the Trust's
custodian and to maintain in that account cash or other liquid securities in
an amount equal to or greater than, on a daily basis, the amount of the
Portfolio's forward commitments, when-issued or delayed delivery commitments.
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
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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
Securities and Exchange Commission ("SEC"), purchases of securities on such a
basis may involve more risk than other types of purchases. For example, by
committing to purchase securities in the future, a Portfolio subjects itself
to a risk of loss on such commitments as well as on its portfolio securities.
Also, a Portfolio may have to sell assets which have been set aside in order
to meet redemptions. In addition, if a Portfolio determines it is advisable as
a matter of investment strategy to sell the forward commitment or when-issued
or delayed delivery securities before delivery, that Portfolio may incur a
gain or loss because of market fluctuations since the time the commitment to
purchase such securities was made. Any such gain or loss would be treated as a
capital gain or loss and would be treated for tax purposes as such. When the
time comes to pay for the securities to be purchased under a forward
commitment or on a when-issued or delayed delivery basis, a Portfolio will
meet its obligations from the then available cash flow or the sale of
securities, or, although it would not normally expect to do so, from the sale
of the forward commitment or when-issued or delayed delivery securities
themselves (which may have a value greater or less than a Portfolio's payment
obligation).
FUTURES
Futures Transactions. A futures contract is a bilateral agreement to buy or
sell a security (or deliver a cash settlement price, in the case of a contract
relating to an index or otherwise not calling for physical delivery at the end
of trading in the contracts) for a set price in the future. Futures contracts
are designated by boards of trade which have been designated "contracts
markets" by the Commodities Futures Trading Commission ("CFTC").
No purchase price is paid or received when the contract is entered into.
Instead, a Portfolio upon entering into a futures contract (and to maintain
the Portfolio's open positions in futures contracts) would be required to
deposit with its custodian in a segregated account in the name of the futures
broker an amount of cash, United States government securities, suitable money
market instruments, or liquid, high-grade debt securities, known as "initial
margin." The margin required for a particular futures contract is set by the
exchange on which the contract is traded, and may be significantly modified
from time to time by the exchange during the term of the contract. Futures
contracts are customarily purchased and sold on margin that may range upward
from less than 5% of the value of the contract being traded. By using futures
contracts as a risk management technique, given the greater liquidity in the
futures market than in the cash market, it may be possible to accomplish
certain results more quickly and with lower transaction costs.
If the price of an open futures contract changes (by increase in the case of a
sale or by decrease in the case of a purchase) so that the loss on the futures
contract reaches a point at which the margin on deposit does not satisfy
margin requirements, the broker will require an increase in
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the margin. However, if the value of a position increases because of favorable
price changes in the futures contract so that the margin deposit exceeds the
required margin, the broker will pay the excess to the Portfolio. These
subsequent payments called "variation margin," to and from the futures broker,
are made on a daily basis as the price of the underlying assets fluctuate
making the long and short positions in the futures contract more or less
valuable, a process known as "marking to the market." The Portfolios expect to
earn interest income on their initial and variation margin deposits.
A Portfolio will incur brokerage fees when it purchases and sells futures
contracts. Positions taken in the futures markets are not normally held until
delivery or cash settlement is required, but are instead liquidated through
offsetting transactions which may result in a gain or a loss. While futures
positions taken by a Portfolio will usually be liquidated in this manner, the
Portfolio may instead make or take delivery of underlying securities whenever
it appears economically advantageous 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 in an attempt to protect a Portfolio's current
or intended investments from broad fluctuations in securities prices. A
securities index futures contract does not require the physical delivery of
securities, but merely provides for profits and losses resulting from changes
in the market value of the contract to be credited or debited at the close of
each trading day to the respective accounts of the parties to the contract. On
the contract's expiration date a final cash settlement occurs and the futures
positions are simply closed out. Changes in the market value of a particular
index futures contract reflect changes in the specified index of securities on
which the future is based.
By establishing an appropriate "short" position in index futures, a Portfolio
may also seek to protect the value of its portfolio against an overall decline
in the market for such securities. Alternatively, in anticipation of a
generally rising market, a Portfolio can seek to avoid losing the benefit of
apparently low current prices by establishing a "long" position in securities
index futures and later liquidating that position as particular securities are
in fact acquired. To the extent that these hedging strategies are successful,
the Portfolio will be affected to a lesser degree by adverse overall market
price movements than would otherwise be the case.
Options on Futures Contracts. Each Portfolio, as specified in the Prospectus,
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
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futures contract (assume a "short" position), for a specified exercise price,
at any time before the option expires.
The Portfolios will write only options on futures contracts which are
"covered." A Portfolio will be considered "covered" with respect to a put
option it has written if, so long as it is obligated as a writer of the put,
the Portfolio segregates with its custodian cash, United States Government
securities or liquid securities at all times equal to or greater than the
aggregate exercise price of the puts it has written (less any related margin
deposited with the futures broker). A Portfolio will be considered "covered"
with respect to a call option it has written on a debt security future if, so
long as it is obligated as a writer of the call, the Portfolio owns a security
deliverable under the futures contract. A Portfolio will be considered
"covered" with respect to a call option it has written on a securities index
future if the Portfolio owns, so long as the Portfolio is obligated as the
writer of the call, a portfolio of securities the price changes of which are,
in the opinion of its Adviser, expected to replicate substantially the
movement of the index upon which the futures contract is based.
Upon the exercise of a call option, the writer of the option is obligated to
sell the futures contract (to deliver a "long" position to the option holder)
at the option exercise price, which will presumably be lower than the current
market price of the contract in the futures market. Upon exercise of a put,
the writer of the option is obligated to purchase the futures contract
(deliver a "short" position to the option holder) at the option exercise price
which will presumably be higher than the current market price of the contract
in the futures market. When the holder of an option exercises it and assumes a
long futures position, in the case of a call, or a short futures position, in
the case of a put, its gain will be credited to its futures margin account,
while the loss suffered by the writer of the option will be debited to its
account and must be immediately paid by the writer. However, as with the
trading of futures, most participants in the options markets do not seek to
realize their gains or losses by exercise of their option rights. Instead, the
holder of an option will usually realize a gain or loss by buying or selling
an offsetting option at a market price that will reflect an increase or a
decrease from the premium originally paid.
If a Portfolio writes options on futures contracts, the Portfolio will receive
a premium but will assume a risk of adverse movement in the price of the
underlying futures contract comparable to that involved in holding a futures
position. If the option is not exercised, the Portfolio will realize a gain in
the amount of the premium, which may partially offset unfavorable changes in
the value of securities held in or to be acquired for the Portfolio. If the
option is exercised, the Portfolio will incur a loss in the option
transaction, which will be reduced by the amount of the premium it has
received, but which will offset any favorable changes in the value of its
portfolio securities or, in the case of a put, lower prices of securities it
intends to acquire.
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
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present less risk in hedging than the purchase and sale of the underlying
futures contracts since the potential loss is limited to the amount of the
premium plus related transaction costs.
The purchase of put options on futures contracts is a means of hedging a
portfolio of securities against a general decline in market prices. The
purchase of a call option on a futures contract represents a means of hedging
against a market advance when a Portfolio is not fully invested.
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 ___.
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
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maturity, redemption or retirement, is determined by reference to prices,
changes in prices, or differences between prices, of securities, currencies,
intangibles, goods, articles or commodities (collectively "Underlying Assets")
or by another objective index, economic factor or other measure, such as
interest rates, currency exchange rates, commodity indices, and securities
indices (collectively "Benchmarks"). Thus, Hybrid Instruments may take a
variety of forms, including, but not limited to, debt instruments with
interest or principal payments or redemption terms determined by reference to
the value of a currency or commodity or securities index at a future point in
time, preferred stock with dividend rates determined by reference to the value
of a currency, or convertible securities with the conversion terms related to
a particular commodity.
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
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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 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 persons in the United States,
the SEC, which regulates the offer and sale of securities by and to persons in
the United States, or any other governmental regulatory authority. The various
risks discussed above, particularly the market risk of such instruments, may
in turn cause significant fluctuations in the net asset value of the
Portfolio.
INVESTMENT COMPANY SECURITIES.
Investment company securities are securities of other open-end or closed-end
investment companies. The 1940 Act generally prohibits a Portfolio from
acquiring more than 3% of the outstanding voting shares of an unaffiliated
investment company and limits such investments to no more than 5% of the
Portfolio's total assets in any unaffiliated investment company and no more
than 10% in any combination of unaffiliated investment companies. The 1940 Act
also prohibits a Portfolio from acquiring in the aggregate more than 10% of
the outstanding voting shares of any registered closed-end investment company.
INVESTMENT GRADE AND LOWER QUALITY FIXED INCOME SECURITIES
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, 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.,
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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." Such lower quality fixed income
securities or junk bonds 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.
LOANS AND OTHER DIRECT INDEBTEDNESS
In purchasing a loan, a Portfolio acquires some or all of the interest of a
bank or other lending institution in a loan to a corporate borrower. Many such
loans are secured, although some may be unsecured. Such loans may be in
default at the time of purchase. Loans and other direct indebtedness that are
fully secured offer a Portfolio more protection than an unsecured loan in the
event of non-payment of scheduled interest or principal. However, there is no
assurance that the liquidation of collateral from a secured loan or other
direct indebtedness would satisfy the corporate borrower's obligation, or that
the collateral can be liquidated.
These loans and other direct indebtedness are made generally to finance
internal growth, mergers, acquisitions, stock repurchases, leveraged buyouts
and other corporate activities. Such loans and other direct indebtedness loans
are typically made by a syndicate of lending institutions, represented by an
agent lending institution which has negotiated and structured the loan and is
responsible for collecting interest, principal and other amounts due on its
own behalf
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and on behalf of the others in the syndicate, and for enforcing its rights and
the rights of other loan participants against the borrower. Alternatively,
such loans and other direct indebtedness may be structured as a "novation"
(i.e., a new loan) pursuant to which a Portfolio would assume all of the
rights of the lending institution in a loan, or as an assignment, pursuant to
which a Portfolio would purchase an assignment of a portion of a lender's
interest in a loan or other direct indebtedness either directly from the
lender or through an intermediary. A Portfolio may also purchase trade or
other claims against companies, which generally represent money owed by the
company to a supplier of goods or services. These claims may also be purchased
at a time when the company is in default.
Certain of the loans and other direct indebtedness acquired by a Portfolio may
involve revolving credit facilities or other standby financing commitments
that obligate a Portfolio to pay additional cash on a certain date or on
demand. These commitments may have the effect of requiring a Portfolio to
increase its investment in a company at a time when a Portfolio might not
otherwise decide to do so (including at a time when the company's financial
condition makes it unlikely that such amounts will be repaid). To the extent
that a Portfolio is committed to advance additional funds, it will at all
times hold and maintain in a segregated account cash or assets in an amount
sufficient to meet such commitments.
A Portfolio's ability to receive payment of principal, interest and other
amounts due in connection with these investments will depend primarily on the
financial condition of the borrower. In selecting the loans and other direct
indebtedness that a Portfolio will purchase, the Adviser will rely upon its
own credit analysis of the borrower. As a Portfolio may be required to rely
upon another lending institution to collect and pass on to a Portfolio amounts
payable with respect to the loan and to enforce a Portfolio's rights under the
loan and other direct indebtedness, an insolvency, bankruptcy or
reorganization of the lending institution may delay or prevent a Portfolio
from receiving such amounts. In such cases, a Portfolio will also evaluate the
creditworthiness of the lending institution and will treat both the borrower
and the lending institutions as an "issuer" of the loan for purposes of
certain investment restrictions pertaining to the diversification of a
Portfolio's portfolio investments. The highly leveraged nature of many such
loans and other direct indebtedness may make such loans and other direct
indebtedness especially vulnerable to adverse changes in economic or market
conditions. Investments in such loans and other direct indebtedness may
involve additional risk to a Portfolio. For example, if a loan or other direct
indebtedness is foreclosed, a Portfolio could become part owner of any
collateral, and would bear the costs and liabilities associated with owning
and disposing of the collateral. In addition, it is conceivable that under
emerging legal theories of lender liability, a Portfolio could be held liable.
It is unclear whether loans and other forms of direct indebtedness offer
securities law protections against fraud and misrepresentation. In the absence
of definitive regulatory guidance, a Portfolio relies on the Adviser's
research in an attempt to avoid situations where fraud and misrepresentation
could adversely affect a Portfolio. In addition, loans and other direct
investments may not be in the form of securities or may be subject to
restrictions on transfer, and only limited opportunities may exist to resell
such instruments. As a result, a Portfolio may be unable to sell such
investments at an opportune time or may have to resell them at less than fair
market value. To the extent that the Adviser
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determines that any such investments are illiquid, a Portfolio will include
them in the investment limitations described below.
MORTGAGE RELATED SECURITIES
Mortgage-backed securities have yield and maturity characteristics
corresponding to the underlying assets. Unlike traditional debt securities,
which may pay a fixed rate of interest until maturity, when the entire
principal amount comes due, payments on certain mortgage-backed securities
include both interest and a partial repayment of principal. Besides the
scheduled repayment of principal, repayments of principal may result from the
voluntary prepayment, refinancing, or foreclosure of the underlying mortgage
loans. If property owners make unscheduled prepayments of their mortgage
loans, these prepayments will result in early payment of the applicable
mortgage-related securities. In that event, the Portfolios may be unable to
invest the proceeds from the early payment of the mortgage-related securities
in an investment that provides as high a yield as the mortgage-related
securities. Consequently, early payment associated with mortgage-related
securities may cause these securities to experience significantly greater
price and yield volatility than that experienced by traditional fixed-income
securities. The occurrence of mortgage prepayments is affected by factors
including the level of interest rates, general economic conditions, the
location and age of the mortgage and other social and demographic conditions.
During periods of falling interest rates, the rate of mortgage prepayments
tends to increase, thereby tending to decrease the life of mortgage-related
securities. During periods of rising interest rates, the rate of mortgage
prepayments usually decreases, thereby tending to increase the life of
mortgage-related securities. If the life of a mortgage-related security is
inaccurately predicted, a Portfolio may not be liable to realize the rate of
return it expected.
Mortgage-backed securities are less effective than other types of securities
as a means of "locking in" attractive long-term interest rates. One reason is
the need to reinvest prepayments of principal; another is the possibility of
significant unscheduled prepayments resulting from declines in interest rates.
Prepayments may cause losses on securities purchased at a premium. At times,
some of the mortgage-backed securities in which a Portfolio may invest will
have higher than market interest rates and, therefore, will be purchased at a
premium above their par value. Unscheduled prepayments, which are made at par,
will cause a Portfolio to experience a loss equal to any unamortized premium.
The Morgan Stanley Emerging Markets Equity Portfolio may invest in
collateralized mortgage obligations ("CMOs") and stripped mortgage-backed
securities that represent a participation in, or are secured by, mortgage
loans.
CMOs may be issued by a United States government agency or instrumentality or
by a private issuer. Although payment of the principal of, and interest on,
the underlying collateral securing privately issued CMOs may be guaranteed by
the United States government or its agencies or
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instrumentalities, these CMOs represent obligations solely of the private
issuer and are not insured or guaranteed by the U.S. government, its agencies
or instrumentalities or any other person or entity. Prepayments could cause
early retirement of CMOs. CMOs are designed to reduce the risk of prepayment
for investors by issuing multiple classes of securities (or "tranches"), each
having different maturities, interest rates and payment schedules, and with
the principal and interest on the underlying mortgages allocated among the
several classes in various ways. Payment of interest or principal on some
classes or series of CMOs may be subject to contingencies or some classes or
series may bear some or all of the risk of default on the underlying
mortgages. CMOs of different classes or series are generally retired in
sequence as the underlying mortgage loans in the mortgage pool are repaid. If
enough mortgages are repaid ahead of schedule, the classes or series of a CMO
with the earliest maturities generally will be retired prior to their
maturities. Thus, the early retirement of particular classes or series of a
CMO held by a Portfolio would have the same effect as the prepayment of
mortgages underlying other mortgage-backed securities. Conversely, slower than
anticipated prepayments can extend the effective maturities of CMOs,
subjecting them to a greater risk of decline in market value in response to
rising interest rates than traditional debt securities, and, therefore,
potentially increasing the volatility of a Portfolio that invests in CMOs.
Prepayments may also result in losses on stripped mortgage-backed securities.
Stripped mortgage-backed securities, may be issued by agencies or
instrumentalities of the United States Government and private originators of,
or investors in, mortgage loans, including savings and loan associations,
mortgage banks, commercial banks, investment banks and special purpose
entities of the foregoing. Stripped mortgage-backed securities are usually
structured with two classes that receive different portions of the interest
and principal distributions on a pool of mortgage loans. The Portfolios may
invest in both the interest-only or "IO" class and the principal-only or "PO"
class. The yield to maturity on an IO class of stripped mortgage-backed
securities is extremely sensitive not only to changes in prevailing interest
rates but also to the rate of principal payments (including prepayments) on
the underlying assets. A rapid rate of principal prepayments may have a
measurable adverse effect on a Portfolio's yield to maturity to the extent it
invests in IOs. If the assets underlying the IO experience greater than
anticipated prepayments of principal, a Portfolio may fail to recoup fully its
initial investment in these securities. Conversely, POs tend to increase in
value if prepayment are greater than anticipated and decline if prepayments
are slower than anticipated. The secondary market for stripped mortgage-backed
securities may be more volatile and less liquid than that for other
mortgage-backed securities, potentially limiting the Portfolios' ability to
buy or sell those securities at any particular time.
NON-PUBLICLY TRADED AND ILLIQUID SECURITIES
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act, securities which are otherwise not
readily marketable and repurchase agreements having a maturity of longer than
seven days. Securities which have not been registered under the Securities Act
are referred to as private placements or restricted securities and are
purchased directly from the issuer or in the
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secondary market. Mutual funds do not typically hold a significant amount of
these restricted or other illiquid securities because of the potential for
delays on resale and uncertainty in valuation. Limitations on resale may have
an adverse effect on the marketability of portfolio securities and a mutual
fund might be unable to dispose of restricted or other illiquid securities
promptly or at reasonable prices and might thereby experience difficulty
satisfying redemptions within seven days. A mutual fund might also have to
register such restricted securities in order to dispose of them resulting in
additional expense and delay. Adverse market conditions could impede such a
public offering of securities.
In recent years, however, a large institutional market has developed for
certain securities that are not registered under the Securities Act including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be
readily resold or on an issuer's ability to honor a demand for repayment. The
fact that there are contractual or legal restrictions on resale to the general
public or to certain institutions may not be indicative of the liquidity of
such investments.
Rule 144A Securities will be considered illiquid and therefore subject to a
Portfolio's limit on the purchase of illiquid securities unless the Board or
its delegates determines that the Rule 144A Securities are liquid. In reaching
liquidity decisions, the Board and its delegates may consider, inter alia, the
following factors: (i) the unregistered nature of the security; (ii) the
frequency of trades and quotes for the security; (iii) the number of dealers
wishing to purchase or sell the security and the number of other potential
purchasers; (iv) dealer undertakings to make a market in the security and (v)
the nature of the security and the nature of the marketplace trades (e.g., the
time needed to dispose of the security, the method of soliciting offers and
the mechanics of the transfer).
OPTIONS
Writing Call Options. A call option is a contract which gives the purchaser of
the option (in return for a premium paid) the right to buy, and the writer of
the option (in return for a premium received) the obligation to sell, the
underlying security at the exercise price at any time prior to the expiration
of the option, regardless of the market price of the security during the
option period. A call option on a security is covered, for example, when the
writer of the call option owns the security on which the option is written (or
on a security convertible into such a security without additional
consideration) throughout the option period.
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 securities having a value
equal to or greater than the exercise price of the option.
The Portfolios may write put options either to earn additional income in the
form of option premiums (anticipating that the price of the underlying
security will remain stable or rise during the option period and the option
will therefore not be exercised) or to acquire the underlying security at a
net cost below the current value (e.g., the option is exercised because of a
decline in the price of the underlying security, but the amount paid by the
Portfolio, offset by the option premium, is less than the current price). The
risk of either strategy is that the price of the underlying security may
decline by an amount greater than the premium received. The premium which a
Portfolio receives from writing a put option will reflect, among other things,
the current market price of the underlying security, the relationship of the
exercise price to that market price, the historical price volatility of the
underlying security, the option period, supply and demand and interest rates.
A Portfolio may effect a closing purchase transaction to realize a profit on
an outstanding put option or to prevent an outstanding put option from being
exercised.
Purchasing Put and Call Options. A Portfolio may purchase put options on
securities to protect their holdings against a substantial decline in market
value. The purchase of put options on securities will enable a Portfolio to
preserve, at least partially, unrealized gains in an appreciated security in
its portfolio without actually selling the security. In addition, the
Portfolio will continue to receive interest or dividend income on the
security. The Portfolios may also
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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. A Portfolio may write covered put and call options
and purchase call and put options on securities indexes for the purpose of
hedging against the risk of unfavorable price movements adversely affecting
the value of a Portfolio's securities or securities it intends to purchase.
Each Portfolio writes only "covered" options. A call option on a securities
index is considered covered, for example, if, so long as the Portfolio is
obligated as the writer of the call, it holds securities the price changes of
which are, in the opinion of a Portfolio's Adviser, expected to replicate
substantially the movement of the index or indexes upon which the options
written by the Portfolio are based. A put on a securities index written by a
Portfolio will be considered covered if, so long as it is obligated as the
writer of the put, the Portfolio segregates with its custodian cash, United
States Government securities or other liquid high-grade debt obligations
having a value equal to or greater than the exercise price of the option.
Unlike a stock option, which gives the holder the right to purchase or sell a
specified stock at a specified price, an option on a securities index gives
the holder the right to receive a cash "exercise settlement amount" equal to
(i) the difference between the exercise price of the option and the value of
the underlying stock index on the exercise date, multiplied by (ii) a fixed
"index multiplier."
A securities index fluctuates with changes in the market value of the
securities so included. For example, some securities index options are based
on a broad market index such as the 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. Certain Portfolios may enter into contracts (or
amend existing contracts) with primary dealers with whom they write
over-the-counter options. The contracts will provide that each Portfolio has
the absolute right to repurchase an option it writes at any time at a
repurchase price which represents the fair market value, as determined in good
faith through negotiation between the parties, but which in no event will
exceed a price determined pursuant to a formula contained in the contract.
Although the specific details of the formula may vary between contracts with
different primary dealers, the formula will generally be based on a multiple
of the premium received by each Portfolio for writing the option, plus the
amount, if any, of the option's intrinsic value (i.e., the amount the option
is "in-the-money"). The formula will also include a factor to account for the
difference between the price of the security and the strike price of the
option if the option is written "out-of-the-money." Although the specific
details of the formula may vary with different primary dealers, each contract
will provide a formula to determine the maximum price at which each Portfolio
can repurchase the option at any time. The Portfolios have established
standards of creditworthiness for these
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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 __.
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.
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.
REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS
Reverse repurchase agreements involve the sale of securities held by the
Portfolio pursuant to its agreement to repurchase them at a mutually agreed
upon date, price and
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rate of interest. At the time a Portfolio enters into a reverse repurchase
agreement, it will establish and maintain a segregated account with an
approved custodian containing cash or other liquid securities having a value
not less than the repurchase price (including accrued interest). The assets
contain in the segregated account will be marked-to-market daily and
additional assets will be placed in such account on any day in which the
assets fall below the repurchase price (plus accrued interest). A Portfolio's
liquidity and ability to manage its assets might be affected when it sets
aside cash or portfolio securities to cover such commitments. Reverse
repurchase agreements involve the risk that the market value of the securities
retained in lieu of sale may decline below the price of the securities a
Portfolio has sold but it obligated to repurchase. In the even the buyer of
securities under a reverse repurchase agreement files for bankruptcy or
becomes insolvent, such buyer or its trustee or receiver may receive an
extension of time to determine whether to enforce a Portfolio's obligation to
repurchase the securities, and a Portfolio's use of the proceeds of the
reverse repurchase agreement may effectively be restricted pending such
decision.
In "dollar rolls" transactions, a Portfolio sells fixed-income securities for
delivery in the current month and simultaneously contracts to repurchase
similar but not identical (same type, coupon and maturity) securities on a
specified future date. During the roll period, a Portfolio would forego
principal and interest paid on such securities. A Portfolio would be
compensated by the difference between the current sales price and the forward
price for the future purchase, as well as by the interest earned on the cash
proceeds of the initial sale. At the time a Portfolio enters into a dollar
roll transaction, it will place in a segregated account maintained with an
approved custodian cash or other liquid securities having a value not less
than the repurchase price (including accrued interest) and will subsequently
monitor the account to ensure that its value is maintained. Reverse repurchase
agreements are considered to be borrowings under the 1940 Act.
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.
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The effectiveness of hedging through the purchase of securities index options
will depend upon the extent to which price movements in the portion of the
securities portfolio being hedged correlate with price movements in the
selected securities index. Perfect correlation is not possible because the
securities held or to be acquired by a Portfolio will not exactly match the
composition of the securities indexes on which options are written. In the
purchase of securities index options the principal risk is that the premium
and transaction costs paid by a Portfolio in purchasing an option will be lost
if the changes (increase in the case of a call, decrease in the case of a put)
in the level of the index do not exceed the cost of the option.
Futures. The prices of futures contracts are volatile and are influenced,
among other things, by actual and anticipated changes in the market and
interest rates, which in turn are affected by fiscal and monetary policies and
national and international political and economic events.
Most United States futures exchanges limit the amount of fluctuation permitted
in futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of a
trading session. Once the daily limit has been reached in a particular type of
futures contract, no trades may be made on that day at a price beyond that
limit. The daily limit governs only price movement during a particular trading
day and therefore does not limit potential losses, because the limit may
prevent the liquidation of unfavorable positions. Futures contract prices have
occasionally moved to the daily limit for several consecutive trading days
with little or no trading, thereby preventing prompt liquidation of futures
positions and subjecting some futures traders to substantial losses.
Because of the low margin deposits required, futures trading involves an
extremely high degree of leverage. As a result, a relatively small price
movement in a futures contract may result in immediate and substantial loss,
as well as gain, to the investor. For example, if at the time of purchase, 10%
of the value of the futures contract is deposited as margin, a subsequent 10%
decrease in the value of the futures contract would result in a total loss of
the margin deposit, before any deduction for the transaction costs, 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.
31
<PAGE>
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, 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
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<PAGE>
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.
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 generally not have the
right to vote securities while they are being loaned, but its Manager or
Adviser will call a loan in anticipation of any important vote. The risks in
lending portfolio securities, as with other extensions of secured credit,
consist of possible delay in receiving additional collateral or in the
recovery of the securities or possible loss of rights in the collateral should
the borrower fail financially. Loans will only be made to firms deemed by a
Portfolio's Adviser to be of good standing and will not be made unless, in the
judgment of the Adviser, the consideration to be earned from such loans would
justify the risk.
STRUCTURED NOTES
The Morgan Stanley Emerging Markets Equity Portfolio may enter into structured
notes transactions. Structured notes are interests in entities organized and
operated solely for the purpose of restructuring the investment
characteristics of sovereign debt obligations. This type of restructuring
involves the deposit with or purchase by an entity, such as a corporation or
trust, of specified instruments (such as commercial bank loans) and the
issuance by that entity of one or more classes of securities and the issuance
by that entity of one or more classes of securities backed by, or representing
interests in, the underlying instruments. The cash flow on the underlying
instruments may be apportioned among the newly issued structured notes to
create securities with different investment characteristics such as varying
maturities, payment priorities and interest rate provisions, and the extent of
the payment made with respect to structured notes is dependent on the extent
of the cash flow on the underlying instruments. Because structured notes of
the type in which the Portfolio may invest typically involve no credit
enhancement, their credit risk generally will be equivalent to that of the
underlying instruments. The Portfolio may invest in a class of structured
notes that is either subordinated or unsubordinated to the right of payment of
another class. Subordinated structured notes typically have higher yields and
present greater risks than unsubordinated structured notes. Certain issuers of
structured notes may be deemed to be "investment companies" as defined in the
1940 Act. As a result, the Portfolio's investment in these structured notes
may be limited by restrictions contained in the 1940 Act. Structured notes are
typically sold in private placement transactions, and there currently is no
active trading market for structured notes.
SWAPS
A swap is an agreement to exchange the return generated by one instrument for
the return generated by another instrument. The payment
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<PAGE>
streams are calculated by reference to a specified index and agreed upon
single or fixed amount (or premium). The term "specified index" includes
currencies, fixed interest rates, prices, total return on interest rate
indices, fixed income indices, stock indices and commodity indices (as well as
amounts derived from arithmetic operations on these indices). For example, a
Portfolio may agree to swap the return generated by a fixed income index for
the return generated by a second fixed income index. The currency swaps in
which a Portfolio may enter will generally involve an agreement to pay
interest streams in one currency based on a specified index in exchange for
receiving interest streams denominated in another currency. Such swaps may
involve initial and final exchanges that correspond to the agreed upon
notional amount.
The swaps in which a Portfolio may engage may include instruments under which
one party pays a single or periodic fixed amount(s) (or premium), and the
other party pays periodic amounts based on the movement of a specified index.
Swaps do not involve the delivery of securities, other underlying assets, or
principal. Accordingly, the risk of loss with respect to swaps is limited to
the net amount of payments the Portfolio is contractually obligated to make.
If the other party to a swap defaults, Portfolio's risk of loss consists of
the net amount of payments that the Portfolio contractually entitled to
receive. Currency swaps usually involve the delivery of the entire principal
value of one designated currency in exchange for the other designated
currency. Therefore, the entire principal value of a currency swap is subject
to the risk that the other party to the swap will default on its contractual
delivery obligations. If there is a default by the counterparty, a Portfolio
may have contractual remedies pursuant to the agreements related to the
transaction. The swap market has grown substantially in recent years with a
large number of banks and investment banking firms acting both as principals
and as agents utilizing standardized swap documentation. As a result, the swap
market has become relatively liquid. Certain swap transactions involve more
recent innovations for which standardized documentation has not yet been fully
developed and, accordingly, they are less liquid than traditional swap
transactions.
A Portfolio will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or
dates specified in the instrument, with the Portfolio receiving or paying, as
the case may be, only the net amount of the two payments. A Portfolio's
obligations under a swap agreement will be accrued daily (offset against any
amounts owing to the Portfolio) and any accrued but unpaid net amounts owed to
a swap counterparty will be covered by the maintenance of a segregated account
consisting of unencumbered liquid assets, to avoid any potential leveraging of
a Portfolio. To the extent that these swaps are entered into for hedging
purposes, the Advisers believe such obligations do not constitute "senior
securities" under the 1940 Act and, accordingly, the Adviser will not treat
them as being subject to a Portfolio's borrowing restrictions. The Portfolio
may enter into OTC swap transactions with counterparties that are approved by
the Advisers in accordance with guidelines established by the Board of
Trustees. These guidelines provide for a minimum credit rating for each
counterparty and various credit enhancement techniques (for example,
collateralization of amounts due from counterparties) to limit exposure to
counterparties that have a S&P rating below AA.
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<PAGE>
The use of swaps is a highly specialized activity which involves investment
techniques and risks different from those associated with ordinary portfolio
securities transactions. If an Adviser is incorrect in its forecasts of market
values, interest rates, and currency exchange rates, the investment
performance of the Portfolio would be less favorable than it would have been
if this investment technique were not used.
WARRANTS
Warrants give the holder, under certain circumstances, the right to
purchase equity securities consisting of common and preferred stock. The
equity security underlying a warrant is authorized at the time the warrant is
issued or is issued together with the warrant. Investing in warrants can
provide a greater potential for profit or loss than an equivalent investment
in the underlying security, and, thus, can be a speculative investment.
The value of a warrant may decline because of a decline in the
value of the underlying security, the passage of time, changes in interest
rates or in the dividend or other policies of the company whose equity
underlies the warrant or a change in the perception as to the future priced of
the underlying security, or any combination thereof. Warrants generally pay no
dividends and confer no voting or other rights other than to purchase the
underlying security.
MANAGEMENT OF THE TRUST
As of May 1, 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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<PAGE>
THE TRUSTEES
<TABLE>
<CAPTION>
NAME, ADDRESS AND AGE Principal Occupation During Last Five Years
- --------------------- -------------------------------------------
<S> <C>
Peter D. Noris* (40) Executive Vice President and Chief Investment
Equitable Officer of Equitable since May 1995; prior thereto,
787 Seventh Avenue Vice President of Salomon Brothers Inc., from
New York, New York 10019 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.
Jetti M. Edwards (49) Consultant, Syrus Associates since 1986. Trustee,
Syrus Associates Provident Investment Counsel Trust (investment
76 Seaview Drive company) since 1992.
Santa Barbara, CA 93108
William M. Kearns, Jr. (61) President, W.M. Kearns, & Co., Inc. since 1994.
Village Road Advisory Director, Lehman Brothers from 1992 to
P.O. Box 276 1994.
New Vernon, NJ 07976
Christopher P.A. Komisarjevsky ( ) President and Chief Executive Officer, Burson-
Marsteller USA since 1996. President and Chief
Executive Officer, Burson-Marsteller New York
from 1995 to 1996. President and Chief Executive
Officer, Gavin Anderson & Company New York
from 1994 to 1995. Prior thereto, he held various
positions with Hill and Knowlton, Inc. for twenty
years.
Harvey Rosenthal ( ) Member, Board of Directors of CVS Corporation.
President and Chief Operating Officer, CVS
Corporation (formerly Melville Corporation)
until 1996. Prior thereto, he held various
positions with CVS Corporation for twenty-seven
years.
36
<PAGE>
William T. McCaffrey* ( ) Director, Senior Executive Vice President and
EQ Advisors Seventh Avenue Chief Operating Officer of The Equitable Life
New York, New York 10019 Assurance Society of the United States since
1996; Executive Vice President and Chief
Administrative Officer of The Equitable
Companies; Director of Equitable Foundation;
Chairman of the Board of Xavier University of
Louisiana.
* 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.
</TABLE>
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 Peter D. Noris, Harvey
Blitz, Mary Breen, Kevin Byrne, and such other officers of the Trust, the
Manager, and Chase Global Funds Services Company, as well as such officers of
any investment adviser to any Portfolio as are deemed necessary by Mr. Noris
or Mr. Blitz from time to time, shall serve at the pleasure of the Board of
Trustees as members of the Valuation Committee. This committee determines the
value of any of the Trust's securities and assets for which market quotations
are not readily available or for which valuation cannot otherwise be provided.
The Trust has a compensation committee consisting of Jettie M. Edwards,
William K. Kearns, Jr., Christopher P.A. Komisarjevsky, and Harvey Rosenthal.
The compensation committee's function is to review the Trustees' compensation
arrangements.
The Trust has a conflicts committee consisting of Peter D. Noris and William
T. McCaffrey. The conflicts committee's function is to take any action
necessary to resolve conflicts among shareholders.
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<PAGE>
<TABLE>
<CAPTION>
TRUSTEE COMPENSATION TABLE
TRUSTEE AGGREGATE Pension or Estimated Total
COMPENSATION* Retirement Annual Benefits Compensation
FROM THE TRUST Benefits Upon from Fund
Accrued As Retirement Complex
Part of Trust
Expenses
<S> <C> <C> <C> <C>
Peter D. Noris $-0- $-0- $-0- $-0-
Jettie M. Edwards $31,000 $31,000
William M.
Kearns, Jr. $31,000 $31,000
Christopher P.A.
Komisarjevsky $31,000 $31,000
Harvey Rosenthal $31,000 $31,000
William T.
McCaffrey -0- -0- -0- -0-
</TABLE>
* For the initial fiscal year.
COMPENSATION OF THE TRUSTEES
Each Trustee, other than those who are "interested persons" of the Trust (as
defined in the 1940 Act), receives from the Trust an annual fee of $25,000
plus an additional fee of $1,000 per Board meeting and $500 per committee
meeting attended in person or by telephone.
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.
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.,
Equitable Distributors, Inc. ("EDI") or Equitable. The Trust's principal
officers are:
38
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE AND POSITION
WITH TRUST PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- ----------------------- -------------------------------------------
<S> <C>
Peter D. Noris (40) (see above)
President
Harvey Blitz (50) Senior Vice President of Equitable since
Vice President and Chief September 1987. Deputy Chief Financial Officer of
Financial Officer 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 Consultants, Inc. since September
1992 and November 1996, respectively.
Mary Breen ( ) Vice President and Associate General Counsel of Equitable
Vice President and Secretary since October 1996. Vice President and Counsel of
Equitable from 1992 to 1996.
Kevin R. Byrne ( ) Vice President and Treasurer of the Equitable Companies
Vice President and Incorporated and Equitable. Treasurer of Equitable
Treasurer Variable Life Insurance Company, Equitable of Colorado,
Equitable of Colorado, Equitable Casualty of Vermont and
Frontier Trust Company.
Gordon Dinsmore ( ) Senior Vice President of Equitable. Chief Actuary of
Vice President Equitable since 1996. Head of Equitable's Annuity
Products and Services group from 1991 to 1996.
Michael S. Martin ( ) Senior Vice President and Chief of The Marketing Group
Vice President in Agency Operations of Equitable. Chairman and Chief
Executive Officer of EQ Financial Consultants, Inc.
Edna H. Russo ( ) Vice President of Equitable since 1986. First Vice President
Vice President of EQ Financial Consultants, Inc. since 1997.
Barry A. Schub ( ) Senior Vice President of the Income Management Group of
Vice President Equitable since 1996. Prior thereto, he held various
positions for eighteen years with Bankers Trust Company.
39
<PAGE>
<CAPTION>
NAME, AGE AND POSITION
WITH TRUST PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- ----------------------- -------------------------------------------
<S> <C>
Samuel B. Shlesinger ( ) Senior Vice President of Equitable. President
Vice President of Equitable of Colorado.
Marty Telles ( ) Executive Vice President and Chief Marketing Officer of
Vice President Equico Securities since 1993. Director of Royal Alliance.
Stanley B. Tulin ( ) Senior Vice President and Chief Financial Officer of
Vice President Equitable since 1996. Co-Chairman of the Insurance
Industry Practice group of Coopers & Lybrand.
Allen T. Zabusky (45) Vice President and Deputy Controller of Equitable since
Vice President and 1990. Controller of Equitable of Colorado Inc. since 1996.
Controller
Rose A. Osorio ( ) Vice President of EQ Financial Consultants, Inc. since 1997.
Assistant Vice President Assistant Compliance Manager in the Law Department of
Equitable from 1995 to 1997. Manager of Legal
Administration at Bertelsmann, Inc. from 1991 to July 1995.
James Rooney ( ) Vice President/Director of Fund Administration &
Assistant Treasurer Compliance and Control of Chase Global Funds
Services Company since 1994; and Assistant Vice
President/Manager Fund Compliance from 1992
to 1994.
Karl O. Hartman (41) Senior Vice President and General Counsel of Chase
Assistant Secretary Global Funds Services Company.
Lloyd Lipsett ( ) Vice President and Associate General Counsel of Chase
Assistant Secretary Global Funds Services Company since 1997; Associate
at Hale and Dorr from 1995 to 1997; Associate at
Choate, Hall & Stewart from 1993 to 1995; and
Associate at Rogers & Wells from 1990 to 1993.
</TABLE>
INVESTMENT MANAGEMENT AND OTHER SERVICES
THE MANAGER
The Manager, EQ Financial Consultants, Inc., 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-
40
<PAGE>
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 1290 Avenue of the Americas, New York,
New York 10104.
AXA, a French insurance holding company, currently owns approximately 63.9% of
the outstanding voting shares of common stock of The Equitable Companies. As
majority shareholder of 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 holding
company for an international group or insurance and related financial services
companies. AXA is the second largest insurance group in the world based on
worldwide revenues in 1996 and also the world's largest insurer-based
investment manager with over $450 billion in assets under management. AXA is
also engaged in asset management, investment banking, securities trading and
other financial services activities principally in the United States, as well
as in Western Europe and the Asia Pacific area.
The Trust and Manager have entered into an investment management agreement
("Management Agreement"). 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).
41
<PAGE>
THE ADVISERS
On behalf of the T. Rowe Price Equity Income Portfolio and the T. Rowe Price
International Stock Portfolio, the Manager has entered into investment
advisory agreements ("Advisory Agreements") with T. Rowe Price and
Price-Fleming, respectively. The Manager has also entered into Advisory
Agreements on behalf of EQ/Putnam Growth & Income Value Portfolio, EQ/Putnam
International Equity Portfolio, EQ/Putnam Investors Growth Portfolio and
EQ/Putnam Balanced Portfolio with Putnam Management. In addition, the Manager
has entered into Advisory Agreements on behalf of MFS Research Portfolio and
MFS Emerging Growth Companies Portfolio with MFS. Also, the Manager has
entered into Advisory Agreements on behalf of Morgan Stanley Emerging Markets
Equity Portfolio and Warburg Pincus Small Company Value Portfolio with MSAM
and Warburg, respectively. Finally, the Manager has entered into Advisory
Agreements on behalf of Merrill Lynch World Strategy Portfolio and Merrill
Lynch Basic Value Equity Portfolio with MLAM. The Advisory Agreements obligate
T. Rowe Price, Price-Fleming, Putnam Management, MFS, Warburg, MSAM and MLAM
to: (i) furnish continuously an investment program for their respective
Portfolios; (ii) place all orders for the purchase and sale of investments for
their respective Portfolios with brokers or dealers selected by the Manger or
an Adviser; and (iii) perform certain limited related administrative functions
in connection therewith.
The Manager recommends Advisers for each Portfolio to the Trustees based upon
its continuing quantitative and qualitative evaluation of each Adviser's
skills in managing assets pursuant to specific investment styles and
strategies. Unlike many other mutual funds, the Portfolios are not associated
with any one portfolio manager, and benefit from independent specialists
carefully selected from the investment management industry. Short-term
investment performance, by itself, is not a significant factor in selecting or
terminating an Adviser, and the Manager does not expect to recommend frequent
changes of Advisers. The Trust has obtained from the SEC an order permitting
the Manager, subject to certain conditions, to enter into Advisory Agreements
with Advisers approved by the Trustees, but without the requirement of
shareholder approval. Pursuant to the terms of the SEC order, the Manager is
to be able, subject to the approval of the Trustees but without shareholder
approval, to employ new Advisers for new or existing Portfolios, change the
terms of particular Advisory Agreements or continue the employment of existing
Advisers after events that under the 1940 Act and the Advisory Agreements
would cause an automatic termination of the agreement. Although shareholder
approval will not be required for the termination of Advisory Agreements,
shareholders of a Portfolio will continue to have the right to terminate such
agreements for the Portfolio at any time by a vote of a majority of
outstanding voting securities of the Portfolio.
When a Portfolio has more than one Adviser, the assets of each Portfolio are
allocated by the Manager among the Advisers selected for the Portfolio. Each
Adviser has discretion, subject to oversight by the Trustees, and the Manager,
to purchase and sell portfolio assets, consistent with each Portfolio's
investment objectives, policies and restrictions and specific investment
strategies developed by the Manager.
42
<PAGE>
Generally, no Adviser provides any services to any Portfolio except asset
management and related recordkeeping services. However, a Portfolio or its
affiliated broker-dealer may execute portfolio transactions for a Fund and
receive brokerage commissions in connection therewith as permitted by Section
17(e) of the 1940 Act.
THE ADMINISTRATOR
Pursuant to an administrative agreement ("Mutual Funds Services Agreement"),
Chase Global Funds Services Company ("Administrator") 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 Delaware corporation. Its principal
place of business is at 73 Tremont Street, Boston, Massachusetts 02108. The
Mutual Funds Services Agreement shall remain in effect until April __, 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 Consultants, Inc. 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
1290 Avenue of Americas, New York, New York 10104, and that for EQ Financial
Consultants, Inc. is 1755 Broadway, Third Floor, New York, New York 10019.
EQ Financial Consultants, Inc. is the distributor for the Trust's Class IA
shares and Class IB shares and also serves as the Manager of the Trust. EDI
also serves as the distributor for the Trust's Class IA shares Class IB shares.
The Trust's distribution agreements with respect to the Class IA shares and
Class IB shares, each dated April __, 1997 ("Distribution Agreements"), will
remain in effect until April __, 1999, 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 Distributors or their 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
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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 Distributors 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 Distributors shall accept
orders for shares at net asset value without sales commission or load being
charged. The Distributors have made no firm commitment to acquire shares of
any Portfolio.
A description of the 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 March 31, 1997, 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 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.
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The Distribution Plan and any Rule 12b-1 related agreement that is entered
into by the Trust or the Distributors of the Class IB shares in connection
with the 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 STRATEGY
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 net price and execution
on all orders placed for the Portfolios, considering all the circumstances
except to the extent it may be permitted to pay higher commissions as
described below.
It is expected that securities will ordinarily be purchased in the primary
markets, whether over-the-counter or listed, and that listed securities may be
purchased in the over-the-counter market if that market is deemed the primary
market.
Transactions on stock exchanges involve the payment of brokerage commissions.
In transactions on stock exchanges in the United States, these commissions are
negotiated, whereas on many foreign stock exchanges these commissions are
fixed. However, brokerage commission rates in certain countries in which the
Portfolios may invest may be discounted for certain large domestic and foreign
investors such as the Portfolios. A number of foreign banks and brokers will
be used for execution of each Portfolio's portfolio transactions. In the case
of securities traded in the foreign and domestic over-the-counter markets,
there is generally no stated commission, but the price usually includes an
undisclosed 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
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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 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.
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The net asset value of the shares of each class of a Portfolio of the Trust
will be determined once daily, immediately after the declaration of dividends,
if any, at the close of business on each business day. The net asset value per
share of each class of a Portfolio will be computed by dividing the sum of the
investments held by that Portfolio applicable to that class, plus any cash or
other assets, minus all liabilities, by the total number of outstanding shares
of that class of the Portfolio at such time. All expenses borne by the Trust
and each of its Classes, will be accrued daily.
The net asset value per share of each Portfolio will be determined and
computed as follows, in accordance with generally accepted accounting
principles, and consistent with the 1940 Act:
o The assets belonging to each Portfolio will include (i) all
consideration received by the Trust for the issue or sale of
shares of that particular Portfolio, together with all
assets in which such consideration is invested or
reinvested, (ii) all income, earnings, profits, and proceeds
thereof, including any proceeds derived from the sale,
exchange or liquidation of such assets, (iii) any funds or
payments derived from any reinvestment of such proceeds in
whatever form the same may be, and (iv) "General Items", if
any, allocated to that Portfolio. "General Items" include
any assets, income, earnings, profits, and proceeds thereof,
funds, or payments which are not readily identifiable as
belonging to any particular Portfolio. General Items will be
allocated as the Trust's Board of Trustees considers fair
and equitable.
o The liabilities belonging to each Portfolio will include (i)
the liabilities of the Trust in respect of that Portfolio,
(ii) all expenses, costs, changes and reserves attributable
to that Portfolio, and (iii) any general liabilities,
expenses, costs, charges or reserves of the Trust which are
not readily identifiable as belonging to any particular
Portfolio which have been allocated as the Trust's Board of
Trustees considers fair and equitable.
The value of each Portfolio will be determined at the close of business on
each "business day," 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 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
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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 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.
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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.
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.
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As a regulated investment company, each Portfolio will not be subject to
federal income or excise tax on any of its net investment income or net
realized capital gains which are timely distributed to shareholders under the
Code. A number of technical rules are prescribed for computing net investment
income and net capital gains. For example, dividends are generally treated as
received on the ex-dividend date. Also, certain foreign currency losses and
capital losses arising after October 31 of a given year may be treated as if
they arise on the first day of the next taxable year.
A Portfolio investing in foreign securities or currencies may be subject to
foreign taxes which could reduce the investment performance of such Portfolio.
However, if foreign securities comprise more than 50% of the year-end value of
a Portfolio, the Portfolio may elect to pass through such foreign taxes as a
deemed dividend to shareholders. In such a case the shareholder and not the
Portfolio would be entitled to claim a federal tax deduction or credit for
foreign taxes, as appropriate. The deduction or credit will not necessarily
result in a direct or immediate benefit to Contractowners.
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.
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
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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 United States Government agency or
instrumentality is treated as a separate issuer. Compliance with the
regulations is tested on the first day of each calendar year quarter. There is
a thirty (30) day period after the end of each calendar year quarter in which
to cure any non-compliance.
FEDERAL TAX TREATMENT OF OPTIONS, FUTURES CONTRACTS AND FORWARD FOREIGN EXCHANGE
CONTRACTS
Certain option, futures, and forward foreign exchange contracts, including
options and futures on currencies, 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 generally 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
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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. Future 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
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.
Under Internal Revenue Code Section 988, special rules are provided for
certain transactions in a foreign currency other than the taxpayer's
functional currency (i.e., unless certain special rules apply, currencies
other than the U.S. dollar). In general, foreign currency gains or losses from
forward contracts, from futures contracts that are not "regulated futures
contracts", and from unlisted options will be treated as ordinary income or
loss under Code Section 988. Also, certain foreign exchange gains or losses
derived with respect to foreign fixed-income securities are also subject to
Section 988 treatment. In general, therefore, Code Section 988 gains or losses
will increase or decrease the amount of a Portfolio's investment company
taxable income available to be distributed to shareholders as ordinary income,
rather than increasing or decreasing the amount of a Portfolio's net capital
gain. Additionally, if Code Section 988 losses exceed other investment company
taxable income during a taxable year, a Portfolio would not be able to make
any ordinary dividend distributions.
If a Portfolio invests in an entity which is classified as a "passive foreign
investment company" ("PFIC") for United States tax purposes, the application
of certain technical tax provisions applying to such companies could result in
the imposition of federal income tax with respect to such investments at the
Portfolio level which could not be eliminated by distributions to
shareholders. It is not anticipated that any taxes on the Portfolio with
respect to investments in PFIC's would be significant.
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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
equate the initial amount invested to the ending redeemable value of such
investment, according to the following formula:
T=(ERV/P)1/n -1
where "T" equals average annual total return; where "ERV", the ending
redeemable value, is the value at the end of the applicable period of a
hypothetical $1,000 investment made at the beginning of the applicable period;
where "P" equals a hypothetical initial investment of $1,000; and where "n"
equals the number of years.
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.
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OTHER SERVICES
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP, 1177 Avenue of the Americas, New York, New York 10036,
serves as the Trust's independent accountants. Price Waterhouse LLP is
responsible for auditing the annual financial statements of the Trust.
Price Waterhouse LLP provides a number of additional related services to
the Trust, including, from time to time, the preparation of certain reports.
CUSTODIAN
Chase Manhattan Bank, N.A., 1211 Avenue of the Americas, New York, New York
10036 serve as custodian of the Trust's portfolio securities and other assets.
Under the terms of the custody agreement between the Trust and Chase Manhattan
Bank, Chase Manhattan Bank maintains and deposits in separate accounts cash,
securities and other assets of the Portfolios. Chase Manhattan Bank is also
required, upon the order of the Trust, to deliver securities held by Chase
Manhattan Bank, and to make payments for securities purchased by the Trust.
Chase Manhattan Bank has also entered into sub-custodian agreements with a
number of foreign banks and clearing agencies, pursuant to which portfolio
securities purchased outside the U.S. are maintained in the custody of these
entities.
TRANSFER AGENT
Equitable serves as the transfer agent and dividend disbursing agent for the
Trust. Equitable receives no compensation for providing such services for the
Trust.
COUNSEL
Katten Muchin & Zavis, 1025 Thomas Jefferson Street, N.W., East Lobby, Suite
700, Washington, D.C. 20007, serves as counsel to the Trust.
Sullivan & Worcester, LLP, One Post Office Square, Boston, Massachusetts
02109, serves as counsel to the independent Trustees of the Trust.
FINANCIAL STATEMENTS
Set forth below is the initial audited Statement of Assets and Liabilities
at April 1, 1997 for the Trust.
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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
56
<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.
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
57
<PAGE>
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.
58
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder and
Board of Trustees of EQ Advisors Trust
In our opinion, the accompanying statement of assets and liabilities presents
fairly, in all material respects, the financial position of each of the
portfolios constituting EQ Advisors Trust (the "Fund") at April 1, 1997, in
conformity with generally accepted accounting principles. This financial
statement is the responsibility of the Fund's management; our responsibility
is to express an opinion on this financial statement based on our audit. We
conducted our audit of this financial statement in accordance with generally
accepted auditing standards which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statement is free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statement,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
April 2, 1997
<PAGE>
EQ Advisors Trust
Statement of Assets and Liabilities
April 1, 1997
<TABLE>
<CAPTION>
T. ROWE PRICE EQ/PUTNAM
T. ROWE PRICE INTERNATIONAL EQ/PUTNAM INTERNATIONAL
EQUITY INCOME STOCK GROWTH & INCOME EQUITY
PORTFOLIO PORTFOLIO VALUE PORTFOLIO PORTFOLIO
------------- ------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Assets
Cash $100,000 $ 0 $ 0 $ 0
Deferred organization costs (Note 3) 28,750 28,750 28,750 28,750
======== ======= ======= =======
Total Assets 128,750 28,750 28,750 28,750
Liabilities
Organization costs payable 28,750 28,750 28,750 28,750
Commitments and contingencies (Note 2)
Net Assets
Common Stock, $.01 par value, unlimited shares
authorized, 10,000 shares of Class IA issued and
outstanding (of the T. Rowe Price Equity Income
Portfolio) 100,000
Total Net Assets $100,000 $ 0 $ 0 $ 0
======== ======= ======= =======
Net Asset Value per Share $ 10.00 $ 0 $ 0 $ 0
======== ======= ======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
<CAPTION>
EQ/PUTNAM EQ/PUTNAM MFS MFS MORGAN STANLEY WARBURG PINCUS MERRILL LYNCH MERRILL LYNCH
INVESTORS GROWTH BALANCED RESEARCH EMERGING GROWTH EMERGING MARKETS SMALL COMPANY WORLD STRATEGY BASIC VALUE
PORTFOLIO PORTFOLIO PORTFOLIO COMPANIES PORTFOLIO EQUITY PORTFOLIO VALUE PORTFOLIO PORTFOLIO EQUITY PORTFOLIO
- ---------------- --------- --------- ------------------- ----------------- --------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
28,750 28,750 28,750 28,750 28,750 28,750 28,750 28,750
------ ------ ------ ------ ------ ------ ------ ------
28,750 28,750 28,750 28,750 28,750 28,750 28,750 28,750
28,750 28,750 28,750 28,750 28,750 28,750 28,750 28,750
$ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
====== ====== ====== ====== ====== ====== ====== =======
$ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
====== ====== ====== ====== ====== ====== ====== =======
</TABLE>
<PAGE>
NOTE 1 ORGANIZATION
EQ Advisors Trust (the "Trust") was organized as a Delaware business
trust on October 31, 1996 and is registered with the Securities and Exchange
Commission ("SEC") under the Investment Company Act of 1940, as amended (the
"1940 Act"), as an open-end management investment company with diversified
and non-diversified series portfolios. Its shares are registered with the SEC
under the Securities Act of 1933, as amended. It is anticipated that the
Trust will offer twelve portfolios (the "Portfolios") each with two classes
of shares: Class IA and Class IB. 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 issued
by The Equitable Life Assurance Society of the United States ("Equitable"),
a wholly-owned subsidiary of The Equitable Companies Incorporated. The Trust
has had no operations other than the issuance of 10,000 shares of its Class IA
common stock of the T. Rowe Price Equity Income Portfolio (the "Portfolio") to
Equitable Separate Account FP on April 1, 1997.
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures. Actual results
could differ from those estimates.
NOTE 2 AGREEMENTS
The Trust intends to enter into an investment management agreement
(the "Management Agreement") with EQ Financial Consultants, Inc. (the
"Manager"), an indirect wholly-owned subsidiary of Equitable. The Management
Agreement obligates the Manager to (i) provide investment, management and
certain administrative services to the Trust; (ii) select Advisers for the
Portfolios; (iii) monitor the Advisers' 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. For its services under the Management Agreement, the
Manager will receive an annual fee for each of the Portfolios, calculated
daily and payable quarterly. The fee is calculated based on an annual rate
of .55% of average daily net assets of the T. Rowe Price Equity Income
Portfolio, the EQ/Putnam Growth & Income Value Portfolio, the EQ/Putnam
Investors Growth Portfolio, the EQ/Putnam Balanced Portfolio, the MFS
Research Portfolio, the MFS Emerging Growth Companies Portfolio and the
Merrill Lynch Basic Value Equity Portfolio; .65% of average daily net assets
of the Warburg Pincus Small Company Value Portfolio; .70% of average daily
net assets of the EQ/Putnam International Equity Portfolio and the Merrill
Lynch World Strategy Portfolio; .75% of average daily net assets of the T. Rowe
Price International Stock Portfolio, and 1.15% of average daily net assets
of the Morgan Stanley Emerging Markets Equity Portfolio.
The Trust intends to enter into distribution agreements with the
Manager and Equitable Distributors, Inc. ("EDI"), an indirect wholly-owned
subsidiary of Equitable (collectively, the "Distributors") pursuant to which
the Distributors will serve as principal underwriters of the Class IA and
Class IB shares of the Trust. Class IB shares are subject to distribution fees
imposed pursuant to a distribution plan ("Distribution Plan") adopted
pursuant to Rule 12b-1 under the 1940 Act. Under the Distribution Plan, the
Distributors will be entitled to receive a distribution fee of .25% of the
average net assets attributable to the Trust's Class IB shares. The Trust's
Class IA shares will not be subject to such fees.
On behalf of the Trust, the Manager intends to enter into investment
advisory agreements ("Advisory Agreements") with unaffilated sub-advisers.
Each of the Advisory Agreements obligates the sub-advisers for the respective
Portfolios to: (i) continuously furnish investment programs for the
Portfolios; (ii) place all orders for the purchase and sale of investments
for the Portfolios with brokers or dealers selected by the Manager or the
respective sub-advisers; and (iii) perform certain limited related
administrative functions in connection therewith. The Manager pays the
expenses of providing investment advisory services to the Portfolios,
including the fees of the sub-advisers of each Portfolio.
<PAGE>
The Trust intends to enter into an Administrative Agreement, with
Chase Global Funds Services Company ("Chase Global"), a subsidiary of The
Chase Manhattan Bank, ("Chase"), pursuant to which Chase Global will provide
certain transfer agent, fund accounting and administrative services to the
Trust. For such services, Chase Global will receive compensation at the
annual rate of .0525 of 1% of the total Trust assets, plus $25,000 for each
Portfolio, until the total Trust assets reach $2.0 billion, and when the
total Trust assets exceed $2.0 billion: .0425 of 1% of the first $500 million
of the total Trust assets; .035 of 1% of the next $2.0 billion of the total
Trust assets; .025 of 1% of the next $1.0 billion of the total Trust assets;
.015 of 1% of the next $2.5 billion of the total Trust assets; and .010 of 1%
of the total Trust assets in excess of $6.0 billion; except that the annual
fee payable to Chase Global with respect to any Portfolio which commences
operation after July 1, 1997 and whose assets do no exceed $200 million shall
be computed at the rate of .0525 of 1% of the Portfolio's total assets plus
$25,000.
The Trust intends to enter into a Custody Agreement with Chase. The
Custody Agreement will provide for an annual fee based on the amount of assets
under custody plus transaction charges.
In the interest of limiting expenses of each of the Portfolios, the
Manager has entered into an expense limitation agreement with the Trust, with
respect to each Portfolio, ("Expense Limitation Agreements") pursuant to which
the Manager has agreed to waive or limit its fees and to assume other expenses
so that the total annual operating expenses of each Portfolio are limited to
.85% of the respective average daily net assets of the T. Rowe Price Equity
Income, EQ/Putnam Growth & Income Value, EQ/Putnam Investors Growth, MFS
Research, MFS Emerging Growth Companies and Merrill Lynch Basic Value Equity
Portfolios; .90% of the EQ/Putnam Balanced Portfolio's average daily net
assets; 1.00% of the Warburg Pincus Small Company Value Portfolio's average
daily net assets; 1.20% of the respective average daily net assets of the
T. Rowe Price International Stock, EQ/Putnam International Equity and
Merrill Lynch World Strategy Portfolios; and 1.75% of the Morgan Stanley
Emerging Markets Equity Portfolio's average daily net assets.
Each Portfolio may at a later date reimburse to the Manager the
management fees waived or limited and other expenses assumed and paid by
the Manager pursuant to the Expense Limitation Agreement provided such
Portfolio has reached a sufficient asset size to permit such reimbursement to
be made without causing the total annual expense ratio of each Portfolio to
exceed the percentage limit stated above. Consequently, no reimbursement by
a Portfolio will be made unless: (i) the Portfolio's average daily net assets
exceed $100 million; (ii) the Portfolio's total annual expense ratio is less
than the respective percentages stated above; and (iii) the payment of such
reimbursement has been approved by the Trust's Board of Trustees on a
quarterly basis.
Certain employees of the Manager and Chase Global are officers of the
Trust.
NOTE 3 ORGANIZATION COSTS
Trust organization costs estimated at $345,000 have been allocated
equally to and capitalized by each of the Portfolios and will be deferred and
amortized on a straight line basis over a 60-month period from the date the
Portfolios commence operations. In the event that any of the shares
representing initial capital of the Portfolios are redeemed by any holder
thereof during the period that the Portfolios are amortizing their organization
costs, the redemption proceeds payable to the holder thereof by the Portfolios
will be reduced by the unamortized organization costs in the same ratio as
the number of such shares being redeemed bears to the number of initial shares
outstanding immediately prior to redemption.
The Trust has entered into an Organization Expense Reimbursement
Agreement with the Manager under which the Trust is obligated to reimburse
and pay to the Manager, or affiliated companies of the Manager and its
affiliates, organizational expenses incurred prior to the Portfolios commencing
operations.
<PAGE>
PART C: OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
Part B - Statement of Additional Information
Statement of Assets and Liabilities at April 1, 1997 for EQ
Advisors Trust.
(b) Exhibits:
1(a). Agreement and Declaration of Trust.*
1(b). Amended and Restated Agreement and Declaration of Trust.**
1(c). Certificate of Trust.*
1(d). Certificate of Amendment.**
2. By-Laws of the Trust.*
3. Not applicable.
4. None other than Exhibit 1.
5(a). Form of Investment Management Agreement between EQ Advisors
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.*
5(f). Form of Investment Advisory Agreement between EQ Financial
Consultants, Inc. and Morgan Stanley Asset Management Inc.
5(g). Form of Investment Advisory Agreement between EQ Financial
Consultants, Inc. and Warburg, Pincus Counsellors, Inc. (to be
filed by amendment)
5(h). Form of Investment Advisory Agreement between EQ Financial
Consultants, Inc. and Merrill Lynch Asset Management, L.P. (to
be filed by amendment)
6(a). Form of Distribution Agreement between EQ Advisors Trust and
EQ Financial Consultants, Inc. with respect to the Class IA
shares.
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<PAGE>
6(b). Form of Distribution Agreement between EQ Advisors Trust and
EQ Financial Consultants, Inc. with respect to the Class IB
shares.
6(c). Form of Distribution Agreement between EQ Advisors Trust and
Equitable Distributors, Inc. with respect to the Class IA
shares.
6(d). Form of Distribution Agreement between EQ Advisors Trust and
Equitable Distributors, Inc. with respect to the Class IB
shares.
7. Form of Deferred Compensation Plan.
8. Form of Custody Agreement between EQ Advisors Trust and North
American Insurance Securities Division of the Chase Manhattan
Bank.
9(a). Form of Mutual Fund Services Agreement between EQ Advisors
Trust and Chase Global Funds Services Company.
9(b). Form of Expense Limitation Agreement between EQ Advisors
Trust, on behalf of each series of the Trust, and EQ Financial
Consultants, Inc.
9(c). Form of Organizational Expense Reimbursement Agreement between
EQ Advisors Trust, on behalf of each series of the Trust, and
EQ Financial Consultants, Inc.
9(d). Form of Participation Agreement.
9(e). License Agreement Relating to Use of Name between Merrill
Lynch & Co., Inc., and EQ Advisors Trust. (to be filed by
amendment)
10. Opinion and Consent of Katten Muchin & Zavis regarding the
legality of the securities being registered.*
11. Consent of Price Waterhouse LLP, Independent Public
Accountants.
12. Not applicable.
13. Form of Stock Subscription Agreement between the Trust , on
behalf of the T. Rowe Price Equity Income Portfolio, and
Separate Account FP.
14. Not Applicable.
15. Form of Distribution Plan Pursuant to Rule 12b-1 for the
Trust's Class IB Shares.*
16. Not Applicable.
18. Form of Plan Pursuant to Rule 18f-3 under the 1940 Act.*
19. Not Applicable.
20. Power of Attorney.
27. Financial Data Schedule
- ---------------
* Incorporated herein by reference to Registrant's Registration
Statement on Form N-1A filed on December 3, 1996 (File No. 33-17217).
** Incorporated herein by reference to Registrant's Registration
Statement on Form N-1A filed on January 23, 1997 (File No. 33-17217).
Item 25. Persons Controlled by or under Common Control with Registrant
Upon commencement of the EQ Advisors Trust's operations, and
Separate Account FP, a separate account of The Equitable Life Assurance
Society of the United States ("Equitable"), will be the sole
initial shareholder of the EQ Advisors Trust and will control the EQ
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<PAGE>
Advisors Trust by virtue of its ownership of 100% of the EQ Advisors Trust's
outstanding shares. All EQ Advisors Trust shareholders are required to solicit
instructions from their respective contract owners as to certain matters. EQ
Advisors Trust may in the future offer its shares to insurance companies
unaffiliated with Equitable 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.
AXA, a French insurance holding company, currently owns approximately
63.9% of the outstanding voting shares of common stock of The Equitable
Companies. As majority shareholder of 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 holding
company for an international group or insurance and related financial services
companies. AXA is the second largest insurance group in the world based on
worldwide revenues in 1996 and also the world's largest insurer-based
investment manager with over 8450 billion in assets under management.
AXA is also engaged in asset management, investment banking, securities
trading and other financial services activities principally in the
United States, as well as in Western Europe and the Asia Pacific area.
Item 26. Number of Holders of Securities
NUMBER OF RECORD HOLDERS
TITLE OF CLASS AS OF APRIL 1, 1997
- ------------------------------ ---------------------
Class IA Shares of beneficial interest 1
Class IB Shares of beneficial interest None
Item 27. Indemnification
Amended and Restated Agreement and Declaration of Trust ("Declaration
of Trust") and By- Laws.
Article VII, Section 2 of the Trust's Declaration of Trust of EQ
Advisors Trust ("Trust") states, in relevant part, that a "Trustee, when
acting in such capacity, shall not be personally liable to any Person, other
than the Trust or a Shareholder to the extent provided in this Article VII,
for any act, omission or obligation of the Trust, of such Trustee or of any
other Trustee. The Trustees shall not be responsible or liable in any event
for any neglect or wrongdoing of any officer, agent, employee, Manager, or
Principal Underwriter of the Trust. The Trust shall indemnify each Person who
is serving or has served at the Trust's request as a director, officer,
trustee, employee, or agent of another organization in which the Trust has any
interest as a shareholder, creditor, or otherwise to the extent and in the
manner provided in the By-Laws." Article VII, Section 4 of the Trust's
Declaration of Trust further states, in relevant part, that the "Trustees
shall be entitled and empowered to the fullest extent permitted by law to
purchase with Trust assets insurance for liability and for all expenses
reasonably incurred or paid or expected to be paid by a Trustee, officer,
employee, or agent of the Trust in connection with any claim, action, suit, or
proceeding in which he or she may become involved by virtue of his or her
capacity or former capacity as a Trustee of the Trust."
Article VI, Section 2 of the Trust's By-Laws states, in relevant
part, that "[s]ubject to the exceptions and limitations contained in Section 3
of this Article VI, every [Trustee, officer, employee or other agent of the
Trust] shall be indemnified by the Trust to the fullest extent permitted by
law against all liabilities and against all expenses reasonably incurred or
paid by him or her in connection with any proceeding in which he or she
becomes involved as a party or otherwise by virtue of his or her being or
having been an agent." Article VI, Section 3 of the Trust's By-Laws further
states, in
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<PAGE>
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 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.
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<PAGE>
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 forth in Putnam Investment Management, Inc.'s Form ADV
filed with the Securities and Exchange Commission on April 2, 1996 (File No.
801-07974) and amended through the date hereof, is incorporated by reference.
The information as to the directors and officers of Massachusetts Financial
Services Company is set forth in Massachusetts Financial Services Company's
Form ADV filed with the Securities and Exchange Commission on May 23, 1996
(File No. 801-17352) and amended through the date hereof, is incorporated by
reference.
The information as to the directors and officers of Morgan Stanley Asset
Management Inc. is set forth in Morgan Stanley Asset Management Inc.'s Form
ADV filed with the Securities and Exchange Commission on July 8, 1996 (File
No. 801-15757) and amended through the date hereof, is incorporated by
reference.
The information as to the directors and officers of Warburg, Pincus
Counsellors, Inc. is set forth in Warburg, Pincus Counsellors, Inc.'s Form ADV
filed with the Securities and Exchange Commission on April 4, 1996 (File No.
801-07321) and amended through the date hereof, is incorporated by reference.
The information as to the directors and officers of Merrill Lynch Asset
Management, L.P. is set forth in Merrill Lynch Asset Management, L.P.'s Form
ADV filed with the Securities and Exchange Commission on November 18, 1996
(File No. 801-11583) 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 Class IB shares, and Equitable Distributors,
Inc. is also the principal underwriter of the Trust's Class IA shares and
Class IB shares. EQ Financial Consultants Inc. also serves as the principal
underwriter for the following entities: the Class IA shares 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., and of Equitable Distributors,
Inc., the principal underwriters of the Trust's Class IA and Class IB shares.
The business address of the persons whose names are preceded by a single
asterisk is EQ Advisors 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.
C-5
<PAGE>
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES WITH POSITIONS AND OFFICES WITH
BUSINESS ADDRESS EQ FINANCIAL CONSULTANTS, REGISTRANT
INC.
<S> <C> <C>
DIRECTORS
* Derry E. Bishop Director
* Harvey Blitz Director Chief Financial Officer
and Vice President
Barbara J. Krumsiek Director
* Michael S. Martin Director
** Michael F. McNelis Director Vice President
* Richard V. Silver Director
* Mark R. Wut Director
<CAPTION>
OFFICERS
<S> <C> <C>
* Michael S. Martin Chairman of the Board and Vice President
Chief Executive Officer
** Michael F. McNelis President and Chief Operating
Officer
* Derry E. Bishop Executive Vice President
* Harvey Blitz Executive Vice President Chief Financial Officer and
Vice President
* Gordon G. Dinsmore Executive Vice President Vice President
* Donald D. Higgins Executive Vice President
** Martin J. Telles Executive Vice President and Vice President
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 President
* Dennis D. Witte Executive Vice President
** Robert McKenna Senior Vice President and
Chief Financial Officer
** Theresa A. Nurge-Alws Senior Vice President
** 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
Mary Breen Secretary and Vice President
C-6
<PAGE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES WITH POSITIONS AND OFFICES WITH
BUSINESS ADDRESS EQUITIABLE DISTRIBUTORS, REGISTRANT
INC.
<S> <C> <C>
DIRECTORS
* James M. Benson Director
Greg Brakovich Director
* Jerome S. Golden Director
* William T. McCaffrey Director Trustee
James A. Shepherdson, III Director
<CAPTION>
OFFICERS
<S> <C> <C>
* Jerome S. Golden Chairman of the Board
* Greg Brakovich Co-President and Co-Chief Executive
Officer and Managing Director
* James A. Shepherdson, III Co-President and Co-Chief Executive
Officer and Managing Director
* Dennis D. Witte
Philip D. Meserve Senior Vice President
* Thomas D. Bullen Managing Director
** Michael Brzozowski Chief Financial Officer
* Ronald R. Quist Chief Compliance Officer
* Janet Hannon Treasurer
* Linda J. Galasso Secretary
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:
1211 Avenue of the Americas
New York, New York 10036
(b) With respect to Rules 31a-1(a); 31a-1(b)(1), (4); (2)(C) and (D);
(4); (5); (6); (8); (9); (10); (11) and 31a-1(f), the required books
and records are currently maintained at the offices of the
Registrant's Administrator:
73 Tremont Street
Boston, Massachusetts 02108
(c) With respect to Rules 31a-1(b)(5), (6), (9) and (10) and 31a-1(f),
the required books and records are maintained at the principal
offices of the Registrant's Manager or Advisers:
EQ Financial Consultants, Inc. T. Rowe Price Associates, Inc.
1755 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
C-7
<PAGE>
Massachusetts Financial Services Company Merrill Lynch Asset Management, L.P.
500 Boylston Street 800 Scudders Mill Road
Boston, MA 02116 Plainsboro, New Jersey 08543-9011
Warburg, Pincus Counsellors, Inc. Morgan Stanley Asset Management Inc.
466 Lexington Avenue 1221 Avenue of the Americas
New York, New York 10017-3147 New York, New York 10020
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.
C-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,as amended, and the
Investment Company Act of 1940, as amended, the Registrant has duly caused
this Pre-Effective Amendment No. 2 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
New York, and the State of New York on the 31st day of March, 1997.
EQ ADVISORS TRUST
By: /s/ Peter D. Noris
-----------------------------
Peter D. Noris
President
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Peter D. Noris President and Trustee March 31,1997
- --------------------------------
Peter D. Noris
/s/ William McCaffrey Trustee March 31, 1997
- --------------------------------
William McCaffrey
/s/ Jettie M. Edwards Trustee March 31, 1997
- --------------------------------
Jettie M. Edwards
/s/ William M. Kearns, Jr. Trustee March 31, 1997
- --------------------------------
William M. Kearns, Jr.
/s/ Christopher P.A. Komisarjevsky Trustee March 31, 1997
- ----------------------------------
Christopher P.A. Komisarjevsky
/s/ Harvey Rosenthal Trustee March 31, 1997
- --------------------------------
Harvey Rosenthal
/s/ Harvey Blitz Chief Financial Officer March 31, 1997
- --------------------------------
Harvey Blitz
</TABLE>
C-9
<PAGE>
EXHIBIT LIST
EXHIBIT
NUMBER DESCRIPTION
5(f) Form of Investment Advisory Agreement between EQ Financial
Consultants, Inc. and Morgan Stanley Asset Management Inc.
6(a) Form of Distribution Agreement between EQ Advisors Trust and
EQ Financial Consultants, Inc. with respect to the Class IA
shares.
6(b) Form of Distribution Agreement between EQ Advisors Trust and
EQ Financial Consultants, Inc. with respect to the Class IB
shares.
6(c) Form of Distribution Agreement between EQ Advisors Trust and
Equitable Distributors, Inc. with respect to the Class IA
shares.
6(d) Form of Distribution Agreement between EQ Advisors Trust and
Equitable Distributors, Inc., with respect to the Class IB
shares.
7 Form of Deferred Compensation Plan.
8 Form of Custody Agreement between EQ Advisors Trust and
North American Insurance Securities Division of the Chase
Manhattan Bank.
9(a) Form of Mutual Fund Services Agreement between EQ Advisors
Trust and Chase Global Funds Services Company.
9(b) Form of Expense Limitation Agreement between EQ Advisors
Trust, on behalf of each series of the Trust, and EQ
Financial Consultants, Inc.
9(c) Form of Organizational Expense Reimbursement Agreement
between EQ Advisors Trust, on behalf of each series of the
Trust, and EQ Financial Consultants, Inc.
9(d) Form of Participation Agreement.
11 Consent of Price Waterhouse LLP, Independent Public
Accountants.
13 Form of Stock Subscription Agreement between the Trust, on
behalf of the T. Rowe Price Equity Income Portfolio, and
Separate Account FP.
20 Power of Attorney.
27 Financial Data Schedule.
<PAGE>
EXHIBIT 5(f)
FORM OF
INVESTMENT ADVISORY AGREEMENT
AGREEMENT, dated as of [date], by and between EQ Financial
Consultants, Inc., a Delaware corporation ("EQ Financial" or the "Manager"),
and Morgan Stanley Asset Management, Inc., a Delaware corporation (the
"Adviser").
WHEREAS, EQ Advisors Trust (the "Trust") is registered as an
investment company under the Investment Company Act of 1940, as amended (the
"Investment Company Act");
WHEREAS, the Trust's shareholders are and will be separate accounts
maintained by insurance companies for variable life insurance policies and
variable annuity contracts (the "Policies") under which income, gains, and
losses, whether or not realized, from assets allocated to such accounts are,
in accordance with the Policies, credited to or charged against such accounts
without regard to other income, gains, or losses of such insurance companies;
WHEREAS, the Trust is and will continue to be a series fund having
two or more investment portfolios, each with its own investment objectives,
policies and restrictions;
WHEREAS, EQ Financial is registered as an investment adviser under
the Investment Advisers Act of 1940, as amended ("Advisers Act") and is the
investment manager to the Trust;
WHEREAS, the Adviser is registered as an investment adviser under the
Advisers Act;
WHEREAS, the Investment Company Act prohibits any person from acting
as an investment adviser to a registered investment company except pursuant to
a written contract (the "Agreement"); and
WHEREAS, the Board of Trustees of the Trust and EQ Financial desire
to retain the Adviser to render investment advisory services to the portfolio
specified in Schedule A hereto ("Portfolio") in the manner and on the terms
hereinafter set forth;
NOW, THEREFORE, EQ Financial and Adviser agree as follows:
1. APPOINTMENT OF ADVISER
The Manager hereby appoints the Adviser to act as investment adviser
for the Portfolio and to manage the investment and reinvestment of the assets
of the Portfolio, subject to the supervision of the Trustees of the Trust and
the terms and conditions of this Agreement. The Adviser will be an independent
contractor and will have no authority to act for or represent the Trust or
Manager in any way or otherwise be deemed an agent of the Trust or Manager
except as expressly authorized in this Agreement or another writing by the
Trust, Manager and the Adviser.
<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, and
requirements applicable to registered investment companies under
other applicable laws;
(iii) take whatever steps are necessary to implement the
investment program for the Portfolio by the purchase and sale of
securities and other investments authorized under the Trust's
Agreement and Declaration of Trust, By-Laws, and such Portfolio's
currently effective Prospectus and SAI, including the placing of
orders for such purchases and sales;
(iv) regularly report to the Trustees of the Trust and the
Manager with respect to the implementation of the investment program
and, in addition, provide such statistical information and special
reports concerning the Portfolio and/or important developments
materially affecting the investments held, or contemplated to be
purchased, by the Portfolio, as may reasonably be requested by the
Manager or the Trustees of the Trust, including attendance at Board
of Trustees Meetings, as reasonably requested, to present such
information and reports to the Board;
(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;
provided, however, Adviser shall not be required to provide the name
or identity of any client (other than a registered investment
company) with respect to such information, records and supporting
documentation, nor shall Adviser be required to provide any
information which is considered by it to be confidential; and
(vii) establish appropriate interfaces with the Trust's
administrator and Manager in order to provide such administrator and
Manager with all necessary information reasonably 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 fully and in
good faith 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.
In accordance with Section 11(a) of the Securities Exchange Act of
1934, as amended ("1934 Act") and subject to any other applicable laws and
regulations, including Section 17(e) of the Investment Company Act and Rule
17e-1 thereunder, the Adviser may engage affiliates and broker-dealers to
effect portfolio transaction in securities for the Portfolio.
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 1934 Act, 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.
3
<PAGE>
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 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 affiliates, directors, officers,
or employees nor anyone who controls the Adviser (or any of its affiliates,
directors, officers, or employees) within the meaning of Section 15 of the
Securities Act of 1933, as amended ("1933 Act"), 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 affiliates, directors, officers or employees. The Adviser, its
affiliates, directors, officers or employees and anyone who controls the
Adviser (and any of its affiliates, directors, officers and employees) within
the meaning of Section 15 of the 1933 Act 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.
4
<PAGE>
5. NON-EXCLUSIVITY
The services of the Adviser to the Portfolio and the Trust are not to
be deemed to be exclusive, and the Adviser shall be free to render investment
advisory or other services to others (including other investment companies)
and to engage in other activities. It is understood and agreed that the
directors, officers, and employees of the Adviser are not prohibited from
engaging in any other business activity or from rendering services to any
other person, or from serving as partners, officers, directors, trustees, or
employees of any other firm or corporation, including other investment
companies.
6. SUPPLEMENTAL ARRANGEMENTS
The Adviser may 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.
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 the Adviser is
required by applicable law or regulatory authorities to retain as well as
those records that the Adviser 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. In such event, the Adviser will be permitted to
retain duplicates of such records as are required by the Adviser to be
retained under applicable law or by regulatory authorities. 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 required or requested by applicable
federal or state regulatory authorities or self regulatory organization of
which the Adviser or its affiliates may be a member.
9. DURATION OF AGREEMENT
This Agreement shall become effective with respect to the Portfolio
on the later of the date of its execution or the date of the commencement of
operations of the Portfolio. This
5
<PAGE>
Agreement will continue in effect for a period more than two years from the
date of its execution only so long as such continuance is specifically
approved at least annually by the Board of Trustees, provided that in such
event such continuance shall also be approved by the vote of a majority of the
Trustees who are not "interested persons" (as defined in the Investment
Company Act) ("Independent Trustees") of any party to this Agreement cast in
person at a meeting called for the purpose of voting on such approval.
10. TERMINATION OF AGREEMENT
This Agreement may be terminated at any time, without the payment of
any penalty, by the Board of Trustees, including a majority of the Independent
Trustees, by the vote of a majority of the outstanding voting securities of
the Portfolio, on sixty (60) 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, including the name "Morgan Stanley") in Trust promotional or sales
related materials prepared by or on behalf of the Manager of the Trust without
prior review and approval by the Adviser, which may not be unreasonably
withheld or delayed. The Manager and the Trust agree that if this Agreement is
6
<PAGE>
terminated and the Adviser or an affiliate of the Adviser shall no longer be
the adviser to the Portfolio, the Trust will change the name of the Portfolio
to delete any reference to "Morgan Stanley."
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 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.
7
<PAGE>
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.
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]
MORGAN STANLEY ASSET MANAGEMENT INC.
By:________________________________
[Name, Title]
8
<PAGE>
APPENDIX A
Portfolio Advisory Fee
- --------- ------------
Morgan Stanley Emerging Markets Equity Portfolio 1.15% of the Portfolio's
average daily net assets up
to and including $100 million;
.90% of the Portfolio's
average daily net assets over
$100 million and up to and
including $150 million; .80%
of the Portfolio's average
daily net assets over $150
million and up to and
including $200 million; .60%
of the Portfolio's average
daily net assets over $200
million and up to and
including $500 million; and
.40% of the Portfolio's
average daily net assets in
excess of $500 million.
9
<PAGE>
EXHIBIT 6(a)
DISTRIBUTION AGREEMENT
CLASS IA SHARES
EQ FINANCIAL CONSULTANTS, INC.
AGREEMENT, dated as of ___________, 1997 by and between EQ Advisors
Trust (the "Trust") and EQ Financial Consultants, Inc. ("EQ Financial").
W I T N E S S E T H:
WHEREAS, the Trust is a Delaware business trust whose shareholders
are and will be separate accounts in unit investment trust form ("Eligible
Separate Accounts") of insurance companies ("Participating Insurance
Companies"); and
WHEREAS, such Participating Insurance Companies issue, among other
products, variable insurance and annuity products ("Variable Products") whose
net premiums, contributions or other considerations may be allocated to
Eligible Separate Accounts for investment in the Trust; and
WHEREAS, the Trust's Class IA shares will not be sold except in
connection with such Variable Products or directly to tax-qualified pension
and retirement plans ("Qualified Plans") outside the separate account context;
and
WHEREAS, the Trust desires that EQ Financial undertake marketing
activities with respect to the Class IA Shares of the Trust's constituent
series or investment portfolios ("Portfolios") Portfolios; and
WHEREAS, the Trust is registered as an open-end investment company
under the Investment Company Act of 1940 ("Investment Company Act"); and
WHEREAS, the Investment Company Act prohibits any principal
underwriter for a registered open-end management investment company from
offering for sale, selling, or delivering after sale any security of which
such company is the issuer, except pursuant to a written contract with such
investment company, and EQ Financial will be a distributor for sale of the
Class IA shares issued by the Trust; and
WHEREAS, EQ Financial is registered as a broker-dealer under the
Securities Exchange Act of 1934, as amended, ("Securities Exchange Act") and
is a member of the National Association of Securities Dealers, Inc. ("NASD").
NOW THEREFORE, the Trust and EQ Financial agree as follows:
Section 1. The Trust has adopted a form of Participation Agreement,
which was approved by the Board of Trustees of the Trust. This Agreement shall
be subject to the provisions of the form of Participation Agreement, the terms
of which are incorporated herein by reference, made a part hereof and
controlling. The form of Participation Agreement may be amended or superseded,
without prior notice, and this Agreement shall be deemed amended to the extent
the
<PAGE>
form of Participation Agreement is amended or superseded. EQ Financial
represents and warrants that it will act in a manner consistent with such form
of Participation Agreement as it is currently set forth and as it may be
amended or superseded, so long as EQ Financial serves as the principal
underwriter of the Class IA shares of the Trust.
Section 2. EQ Financial is hereby authorized, from time to time, to
enter into separate written agreements ("Sales Agreements" or, individually, a
"Sales Agreement"), on terms and conditions not inconsistent with this
Agreement, with Participating Insurance Companies which have Eligible Separate
Accounts and which agree to participate in the distribution of the Trust's
Class A shares, directly or through affiliated broker dealers by means of
distribution of Variable Products and to use their best efforts to solicit
applications for Variable Products. EQ Financial may not enter into any Sales
Agreement with any Participating Insurance Company that is more favorable than
that maintained with any other Participating Insurance Company and Eligible
Separate Account, except that not all Portfolios of the Trust need be made
available for investment by all Participating Insurance Companies, Eligible
Separate Accounts or Variable Products. The Board of Trustees of the Trust
may, in its sole discretion, determine that certain Portfolios and classes of
shares of the Trust shall be available only to certain types of Variable
Products or to a single Participating Insurance Company and its affiliates.
Section 3. Such Participating Insurance Companies and their agents or
representatives soliciting applications for Variable Products shall be duly
and appropriately licensed, registered or otherwise qualified for the sale of
Variable Products under any applicable insurance laws and any applicable
securities laws of one or more states or other jurisdictions in which Variable
Products may be lawfully sold. Each such Participating Insurance Company
shall, when required by law, be both registered as a broker-dealer under the
Securities Exchange Act and a member of the NASD. Each such Participating
Insurance Company shall agree to comply with all laws and regulations, whether
federal or state, and whether relating to insurance, securities or other
general areas, including but not limited to the recordkeeping and sales
supervision requirements of such laws and regulations.
Section 4. The Trust's shares are divided into series or Portfolios,
each representing a different portfolio of investments. Each Portfolio is
further divided into Class IA and Class IB shares. The Trust's Portfolios and
any restrictions on availability for Class IA shares relating thereto are set
forth in Schedule A hereto, which may be amended from time to time.
Purchases and redemptions of the Trust's Class IA shares of each
Portfolio shall be at the net asset value therefor, computed as set forth in
the most recent relevant Prospectus and Statement of Additional Information
relating to the Trust's Class IA contained in its Registration Statement on
Form N-1A, or any amendments thereto (respectively, "Trust Prospectus" and
"SAI"), and any supplements thereto and shall be submitted by the
Participating Insurance Company to the Trust's transfer agent pursuant to
procedures and in accordance with payment provisions adopted by EQ Financial
and the Trust from time to time. The Trust's Class IA shares may not be sold
or transferred, except to an Eligible Separate Account or Qualified Plan,
without the prior approval of the Trust's Board of Trustees.
Section 5. The Trust shall not pay any compensation to EQ Financial
for services as a distributor hereunder, nor shall the Trust reimburse EQ
Financial for any expenses related to
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<PAGE>
such services. EQ Financial may, but need not, pay or charge Participating
Insurance Companies pursuant to Sales Agreements, as described in Section 2
hereof.
Section 6. The Trust represents to EQ Financial that the Trust
Prospectus and SAI, as of their respective effective dates, contain all
statements and information which are required to be stated therein by the
Securities Act of 1933, as amended ("1933 Act"), and in all respects conform
to the requirements thereof, and neither the Trust Prospectus nor the SAI
include any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading; provided, however, that the foregoing representations shall
not apply to information contained in or omitted from the Trust Prospectus and
SAI in reliance upon, and in conformity with, written information furnished by
EQ Financial specifically for use in the preparation thereof.
In this connection, EQ Financial acknowledges that the day-to-day
operations of the Trust, including without limitation, investment management,
securities brokerage allocation, cash control, accounting, recordkeeping and
other administrative, marketing and regulatory compliance functions, are
carried on and may in the future be carried on by The Equitable Life Assurance
Society of the United States ("Equitable"), affiliates of Equitable, and other
parties unaffiliated with Equitable on behalf of the Trust (collectively, the
"Preparing Parties"), under various agreements and arrangements, and that such
activities in large measure provide the basis upon which statements and
information are included or omitted from the Trust Prospectus and SAI. EQ
Financial further acknowledges that because of the foregoing arrangements, the
preparation of the Trust Prospectus and SAI is substantially in the control of
the Preparing Parties, subject to the broad supervisory authority and
responsibility of the Trust's Board of Trustees, and that, essentially, the
only Trust Prospectus or SAI information not independently known to, or
prepared by, the Preparing Parties is personal information as to each
Trustee's full name, age, background, business experience and other personal
information that may require disclosures under securities laws and for which
the Preparing Parties necessarily must rely on each such Trustee to produce.
Section 7. The Trust will periodically prepare Prospectuses (and, if
applicable, SAIs) and any supplements thereto, proxy materials and annual and
semi-annual reports (collectively, the "Documents") and shall, in accordance
with the form of Participation Agreement, provide sufficient copies of such
Documents or shall make camera ready copy available to EQ Financial for
reproduction by EQ Financial or the Participating Insurance Companies. With
respect to Documents provided to existing owners of Variable Products, the
cost of preparing, printing, mailing or otherwise distributing such Documents
shall be borne by the Trust. With respect to the Trust's Class IA shares, the
Trust shall not pay the cost of printing, mailing or otherwise distributing
such Documents except as specified in this Section 7. The Trust will use its
best efforts to provide notice to EQ Financial of anticipated filings or
supplements. EQ Financial or the Participating Insurance Companies may alter
the form of some or all of the Documents, with the prior approval of the
Trust's officers and legal counsel. Any preparation costs associated with
altering the form of the Documents will be borne by EQ Financial or the
Participating Insurance Companies, not the Trust.
Section 8. EQ Financial and officers of the Trust may, from time to
time, authorize descriptions of the Trust for use in sales literature or
advertising by the Participating Insurance
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<PAGE>
Companies (including brochures, letters, illustrations and other similar
materials, whether transmitted directly to potential applicants or published
in print or audio-visual media), which authorization will not be unreasonably
withheld or delayed.
Section 9. EQ Financial shall furnish to the Trust, at least
quarterly, reports as to the sales of the Trust's Class IA shares made
pursuant to this Agreement. These reports may be combined with any similar
report prepared by EQ Financial or any of the Preparing Parties.
Section 10. EQ Financial shall submit to all regulatory and
administrative bodies having jurisdiction over the operations of EQ Financial,
the Trust, or any Participating Insurance Company, present or future, any
information, reports or other material which any such body by reason of this
Agreement may request or require as authorized by applicable laws or
regulations.
Section 11. This Agreement shall be subject to the provisions of the
Investment Company Act, the Securities Exchange Act and the 1933 Act and the
rules, regulations, and rulings thereunder and of the NASD, from time to time
in effect, including such exemptions and no-action positions as the Securities
and Exchange Commission or its staff may grant, and the terms hereof shall be
interpreted and construed in accordance therewith. Without limiting the
generality of the foregoing, (a) the term "assigned" shall not include any
transaction exempted from section 15(b)(2) of the Investment Company Act and
(b) the vote of the persons having voting rights in respect of the Trust
referred to in Section 12 shall be the affirmative votes of the lesser of (i)
the holders of more than 50% of all votes in respect of Class IA shares
entitled to be cast in respect of the Trust or (ii) the holders of at least
67% of the votes in respect of Class IA shares which are present at a meeting
of such persons if the holders of more than 50% of all votes in respect of
Class IA shares entitled to be cast in respect of the Trust are present or
represented by proxy at such meeting, in either case voted in accordance with
the provisions contained in the form of Participation Agreement or any
policies on conflicts adopted by the Board of Trustees.
Section 12. This Agreement shall continue in effect only so long as
such continuance is specifically approved at least annually by a majority of
the Trustees of the Trust who are not interested persons of the Trust or EQ
Financial ("Independent Trustees") and by (a) persons having voting rights in
respect of the Trust, by the vote stated in Section 11, voted in accordance
with the provisions contained in the form of Participation Agreement or any
policies on conflicts adopted by the Board of Trustees, or (b) the Board of
Trustees of the Trust. This Agreement may be terminated at any time, without
penalty, by a majority of the Independent Trustees or by persons having voting
rights in respect of the Trust by the vote stated in Section 11.
Section 13. This Agreement shall terminate automatically if it shall
be assigned.
Section 14. The Trust shall indemnify and hold harmless EQ Financial
from any and all losses, claims, damages or liabilities (or actions in respect
thereof) to which EQ Financial may be subject, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or result
from negligent, improper, fraudulent or unauthorized acts or omissions by the
Trust or its officers, trustees, agents or representatives, other than acts or
omissions caused directly or indirectly by EQ Financial.
-4-
<PAGE>
EQ Financial will indemnify and hold harmless the Trust, its
officers, trustees, agents and representatives against any losses, claims,
damages or liabilities, to which the Trust its officers, trustees, agents and
representatives may become subject, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon:
(i) any untrue statement or alleged untrue statement of any material fact
contained in the Trust Prospectus and/or SAI or any supplements thereto; (ii)
the omission or alleged omission to state any material fact required to be
stated in the Trust Prospectus and/or SAI or any supplements thereto or
necessary to make the statements therein not misleading; or (iii) other
misconduct or negligence of EQ Financial in its capacity as a principal
underwriter of the Trust's Class IA shares and will reimburse the Trust, its
officers, trustees, agents and representatives for any legal or other expenses
reasonably incurred by any of them in connection with investigating or
defending against such loss, claim, damage, liability or action; provided,
however, that EQ Financial shall not be liable in any such instance to the
extent that any such loss, claim, damage or liability arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in the Trust Prospectus and/or SAI or any supplement in
good faith reliance upon and in conformity with written information furnished
by the Preparing Parties specifically for use in the preparation of the Trust
Prospectus and/or SAI.
Section 15. A copy of the Agreement and Declaration of Trust of the
Trust is on file with the Secretary of State of Delaware and notice is given
hereby that this Agreement is executed on behalf of the Trustees of the Trust
as trustees and not individually, and that the obligations of or arising out
of this Agreement are not binding upon any of the Trustees or shareholders
individually but are binding only upon the assets and property of each
Portfolio.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
EQ ADVISORS TRUST
By: __________________________________
EQ FINANCIAL CONSULTANTS, INC.
By: ___________________________________
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<PAGE>
SCHEDULE A
Portfolios of
EQ Advisors Trust
T. Rowe Price International Stock Portfolio
T. Rowe Price Equity Income Portfolio
EQ/Putnam Growth & Income Value Portfolio
EQ/Putnam International Equity Portfolio
EQ/Putnam Investors Growth Portfolio
EQ/Putnam Balanced Portfolio
MFS Research Portfolio
MFS Emerging Growth Companies Portfolio
Morgan Stanley Emerging Markets Equity Portfolio
Warburg Pincus Small Company Value Portfolio
Merrill Lynch World Strategy Portfolio
Merrill Lynch Basic Value Equity Portfolio
-6-
<PAGE>
EXHIBIT 6(b)
DISTRIBUTION AGREEMENT
CLASS IB SHARES
EQ FINANCIAL CONSULTANTS, INC.
AGREEMENT, dated as of ____________, 1997 by and between EQ Advisors
Trust (the "Trust") and EQ Financial Consultants, Inc. ("EQ Financial").
W I T N E S S E T H:
WHEREAS, the Trust is a Delaware business trust whose shareholders
are and will be separate accounts in unit investment trust form ("Eligible
Separate Accounts") of insurance companies ("Participating Insurance
Companies"); and
WHEREAS, such Participating Insurance Companies issue, among other
products, variable insurance and annuity products ("Variable Products") whose
net premiums, contributions or other consideration may be allocated to
Eligible Separate Accounts for investment in the Trust; and
WHEREAS, the Trust's Class IB shares will not be sold except in
connection with such Variable Products or directly to tax-qualified pension
and retirement plans ("Qualified Plans") outside the separate account context;
and
WHEREAS, the Trust has adopted a Distribution Plan with respect to
its Class IB shares pursuant to Rule 12b-1 under the Investment Company Act of
1940, as amended ("Investment Company Act"); and
WHEREAS, the Trust desires that EQ Financial undertake marketing
activities with respect to the Class IB shares of the Trust's constituent
series or investment portfolios ("Portfolios") and to compensate EQ Financial
for services rendered and expenses borne in connection therewith; and
WHEREAS, the Trust is registered as an open-end management investment
company under the Investment Company Act; and
WHEREAS, the Investment Company Act prohibits any principal
underwriter for a registered open-end management investment company from
offering for sale, selling, or delivering after sale any security of which
such investment company is the issuer, except pursuant to a written contract
with such investment company, and EQ Financial will be a distributor for sale
of the Class IB shares issued by the Trust; and
WHEREAS, EQ Financial is registered as a broker-dealer under the
Securities Exchange Act of 1934, as amended, ("Securities Exchange Act"), and
is a member of the National Association of Securities Dealers, Inc. ("NASD").
NOW THEREFORE, the Trust and EQ Financial agree as follows:
<PAGE>
Section 1. The Trust has adopted a form of Participation Agreement,
which was approved by the Board of Trustees of the Trust. This Agreement shall
be subject to the provisions of the form of Participation Agreement, the terms
of which are incorporated herein by reference, made a part hereof and
controlling. The form of Participation Agreement may be amended or superseded,
without prior notice, and this Agreement shall be deemed amended to the extent
the form of Participation Agreement is amended or superseded. EQ Financial
represents and warrants that it will act in a manner consistent with the form
of Participation Agreement as it is currently set forth and as it may be
amended or superseded, so long as EQ Financial serves as the principal
underwriter of the Class IB shares of the Trust.
Section 2. EQ Financial on behalf of the Trust is hereby authorized,
from time to time, to enter into separate written agreements ("Sales
Agreements" or, individually, a "Sales Agreement"), on terms and conditions
not inconsistent with this Agreement, with Participating Insurance Companies
that have Eligible Separate Accounts and that agree to participate in the
distribution of the Trust's Class IB shares, directly or through their
affiliated broker-dealers, by means of the distribution of Variable Products
and to use their best efforts to solicit applications for Variable Products.
EQ Financial may not enter into any Sales Agreement with any Participating
Insurance Company that is more favorable than that maintained with any other
Participating Insurance Company and Eligible Separate Account, except that not
all Portfolios of the Trust need be made available for investment by all
Participating Insurance Companies, Eligible Separate Accounts or Variable
Products. The Board of Trustees of the Trust may, in its sole discretion,
determine that certain Portfolios and classes of shares of the Trust shall be
available only to certain types of Variable Products or to a single
Participating Insurance Company and its affiliates.
Section 3. Such Participating Insurance Companies and their agents or
representatives soliciting applications for Variable Products shall be duly
and appropriately licensed, registered or otherwise qualified for the sale of
Variable Products under any applicable insurance laws and any applicable
securities laws of one or more states or other jurisdictions in which Variable
Products may be lawfully sold. Each such Participating Insurance Company
shall, when required by law, be both registered as a broker-dealer under the
Securities Exchange Act and a member of the NASD. Each such Participating
Insurance Company shall agree to comply with all laws and regulations, whether
federal or state, and whether relating to insurance, securities or other
general areas, including but not limited to the recordkeeping and sales
supervision requirements of such laws and regulations.
Section 4. The Trust's shares are divided into series or Portfolios,
each representing a different portfolio of investments. Each Portfolio is
further divided into Class IA and Class IB shares. The Trust's Portfolios and
any restrictions on availability for Class IB shares relating thereto are set
forth in Schedule A hereto, which may be amended from time to time.
Purchases and redemptions of the Trust's Class IB shares of each
Portfolio shall be at the net asset value therefor, computed as set forth in
the most recent relevant Prospectus and Statement of Additional Information
relating to the Trust's Class IB shares contained in its Registration
Statement on Form N-1A or any amendments thereto (respectively, "Trust
Prospectus" and "SAI"), and any supplements thereto and shall be submitted by
the Participating Insurance Company to the Trust's transfer agent pursuant to
procedures and in accordance with payment provisions adopted by EQ Financial
and the Trust from time to time. The Trust's Class
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<PAGE>
IB shares may not be sold or transferred, except to an Eligible Separate
Account or Qualified Plan, without the prior approval of the Trust's Board of
Trustees.
Section 5. As compensation to EQ Financial for services rendered and
expenses borne as a distributor hereunder, each Portfolio shall pay EQ
Financial a monthly fee (payable on or before the fifth business day of the
following month) at a rate equal to .25% per annum of the average daily net
assets of the Portfolio attributable to Class IB shares with respect to which
EQ Financial provides services and/or assumes expenses under the Class IB
Distribution Plan. EQ Financial may, but need not, pay or charge Participating
Insurance Companies pursuant to Sales Agreements, as described in Section 2
hereof.
Section 6. The Trust represents to EQ Financial that the Trust
Prospectus and SAI, as of their respective effective dates, contain (or will
contain) all statements and information which are required to be stated
therein by the Securities Act of 1933, as amended ("1933 Act"), and in all
respects conform to the requirements thereof, and neither the Trust Prospectus
nor the SAI include any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading; provided, however, that the foregoing
representations shall not apply to information contained in or omitted from
the Trust Prospectus and SAI in reliance upon, and in conformity with, written
information furnished by EQ Financial specifically for use in the preparation
thereof.
In this connection, EQ Financial acknowledges that the day-to-day
operations of the Trust, including without limitation, investment management,
securities brokerage allocation, cash control, accounting, recordkeeping and
other administrative, marketing and regulatory compliance functions, are
carried on and may in the future be carried on by The Equitable Life Assurance
Society of the United States ("Equitable"), affiliates of Equitable, and other
parties unaffiliated with Equitable on behalf of the Trust (collectively, the
"Preparing Parties"), under various agreements and arrangements, and that such
activities in large measure provide the basis upon which statements and
information are included or omitted from the Trust Prospectus and SAI. EQ
Financial further acknowledges that because of the foregoing arrangements, the
preparation of the Trust Prospectus and SAI is substantially in the control of
the Preparing Parties, subject to the broad supervisory authority and
responsibility of the Trust's Board of Trustees, and that, essentially, the
only Trust Prospectus or SAI information not independently known to, or
prepared by, the Preparing Parties is personal information as to each
Trustee's full name, age, background, business experience and other personal
information that may require disclosures under securities laws and for which
the Preparing Parties necessarily must rely on each such Trustee to produce.
Section 7. The Trust will periodically prepare Prospectuses (and, if
applicable, SAIs) and any supplements thereto, proxy materials and semi-annual
reports (collectively, the "Documents") and shall, in accordance with the form
of Participation Agreement, provide sufficient copies of such Documents or
shall make camera ready copy available to EQ Financial for reproduction by EQ
Financial or the Participating Insurance Companies. To the extent that the
foregoing Documents are with respect to Class IB shares, the cost of
preparing, printing, mailing and otherwise distributing such Documents will be
at the expense of such Class IB shares with respect to prospective owners of
Variable Products. In addition, with respect to Documents provided to existing
owners of Variable Products, the cost of preparing, printing,
-3-
<PAGE>
mailing and otherwise distributing such Documents shall be borne by the Trust.
The Trust will use its best efforts to provide notice to EQ Financial of
anticipated filings or supplements. EQ Financial or the Participating
Insurance Companies may alter the form of some or all of the Documents, with
the prior approval of the Trust's officers and legal counsel. Any preparation
costs associated with altering the form of the Documents will be borne by EQ
Financial or the Participating Insurance Companies, not the Trust.
Section 8. EQ Financial and officers of the Trust may, from time to
time, authorize descriptions of the Trust for use in sales literature or
advertising by the Participating Insurance Companies (including brochures,
letters, illustrations and other similar materials, whether transmitted
directly to potential applicants or published in print or audio-visual media),
which authorization will not be unreasonably withheld or delayed.
Section 9. EQ Financial shall furnish to the Trust, at least
quarterly, reports as to the sales of the Trust's Class IB shares made
pursuant to this Agreement. These reports may be combined with any similar
report prepared by EQ Financial or any of the Preparing Parties.
Section 10. EQ Financial shall submit to all regulatory and
administrative bodies having jurisdiction over the operations of EQ Financial,
the Trust, or any Participating Insurance Company, present or future, any
information, reports or other material which any such body by reason of this
Agreement may request or require as authorized by applicable laws or
regulations.
Section 11. This Agreement shall be subject to the provisions of the
Investment Company Act, the Securities Exchange Act and the 1933 Act and the
rules, regulations, and rulings thereunder and of the NASD, from time to time
in effect, including such exemptions and no-action positions as the Securities
and Exchange Commission or its staff may grant, and the terms hereof shall be
interpreted and construed in accordance therewith. Without limiting the
generality of the foregoing, (a) the term "assigned" shall not include any
transaction exempted from section 15(b)(2) of the Investment Company Act and
(b) the vote of the persons having voting rights in respect of the Trust
referred to in Section 12 shall be the affirmative votes of the lesser of (i)
the holders of more than 50% of all votes in respect of Class IB shares
entitled to be cast in respect of the Trust or (ii) the holders of at least
67% of the votes in respect of Class IB shares which are present at a meeting
of such persons if the holders of more than 50% of all votes in respect of
Class IB shares entitled to be cast in respect of the Trust are present or
represented by proxy at such meeting, in either case voted in accordance with
the provisions contained in the form of Participation Agreement or any
policies on conflicts adopted by the Board of Trustees.
Section 12. This Agreement shall continue in effect only so long as
such continuance is specifically approved at least annually by a majority of
the Trustees of the Trust who are not interested persons of the Trust or EQ
Financial and who have no direct or indirect financial interest in the
distribution plan pursuant to which this Agreement has been authorized (or any
agreement thereunder) (the "Independent Trustees") by (a) persons having
voting rights in respect of the Trust, by the vote stated in Section 11, voted
in accordance with the provisions contained in the form of Participation
Agreement or any policies on conflicts adopted by the Board of Trustees, or
(b) the Board of Trustees of the Trust. This Agreement may be
-4-
<PAGE>
terminated at any time, without penalty, by a majority of the Independent
Trustees or by persons having voting rights in respect of the Trust by the
vote stated in Section 11.
Section 13. This Agreement shall terminate automatically if it shall
be assigned.
Section 14. The Trust shall indemnify and hold harmless EQ Financial
from any and all losses, claims, damages or liabilities (or actions in respect
thereof) to which EQ Financial may be subject, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or result
from negligent, improper, fraudulent or unauthorized acts or omissions by the
Trust or its officers, trustees, agents or representatives, other than acts or
omissions caused directly or indirectly by EQ Financial.
EQ Financial will indemnify and hold harmless the Trust, its
officers, trustees, agents and representatives against any losses, claims,
damages or liabilities, to which the Trust its officers, trustees, agents and
representatives may become subject, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon:
(i) any untrue statement or alleged untrue statement of any material fact
contained in the Trust Prospectus and/or SAI or any supplements thereto; (ii)
the omission or alleged omission to state any material fact required to be
stated in the Trust Prospectus and/or SAI or any supplements thereto or
necessary to make the statements therein not misleading; or (iii) other
misconduct or negligence of EQ Financial in its capacity as a principal
underwriter of the Trust's Class IB shares and will reimburse the Trust, its
officers, trustees, agents and representatives for any legal or other expenses
reasonably incurred by any of them in connection with investigating or
defending against such loss, claim, damage, liability or action; provided,
however, that EQ Financial shall not be liable in any such instance to the
extent that any such loss, claim, damage or liability arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in the Trust Prospectus and/or SAI or any supplement in
good faith reliance upon and in conformity with written information furnished
by the Preparing Parties specifically for use in the preparation of the Trust
Prospectus and/or SAI.
Section 15. A copy of the Agreement and Declaration of Trust of the
Trust is on file with the Secretary of State of Delaware and notice is given
hereby that this Agreement is executed on behalf of the Trustees of the Trust
as trustees and not individually, and that the obligations of or arising out
of this Agreement are not binding upon any of the Trustees or shareholders
individually but are binding only upon the assets and property of each
Portfolio.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
EQ ADVISORS TRUST
By:____________________________________
EQ FINANCIAL CONSULTANTS, INC.
By:____________________________________
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<PAGE>
SCHEDULE A
Portfolios of
EQ Advisors Trust
T. Rowe Price International Stock Portfolio
T. Rowe Price Equity Income Portfolio
EQ/Putnam Growth & Income Value Portfolio
EQ/Putnam International Equity Portfolio
EQ/Putnam Investors Growth Portfolio
EQ/Putnam Balanced Portfolio
MFS Research Portfolio
MFS Emerging Growth Companies Portfolio
Morgan Stanley Emerging Markets Equity Portfolio
Warburg Pincus Small Company Value Portfolio
Merrill Lynch World Strategy Portfolio
Merrill Lynch Basic Value Equity Portfolio
-6-
<PAGE>
EXHIBIT 6(c)
DISTRIBUTION AGREEMENT
CLASS IA SHARES
EQUITABLE DISTRIBUTORS, INC.
AGREEMENT, dated as of ____________, 1997 by and between EQ Advisors
Trust (the "Trust") and Equitable Distributors, Inc. ("EDI").
W I T N E S S E T H:
WHEREAS, the Trust is a Delaware business trust whose shareholders
are and will be separate accounts in unit investment trust form ("Eligible
Separate Accounts") of insurance companies ("Participating Insurance
Companies"); and
WHEREAS, such Participating Insurance Companies issue, among other
products, variable insurance and annuity products ("Variable Products") whose
net premiums, contributions or other considerations may be allocated to
Eligible Separate Accounts for investment in the Trust; and
WHEREAS, the Trust's Class IA shares will not be sold except in
connection with such Variable Products or directly to tax-qualified pension
and retirement plans ("Qualified Plans") outside the separate account context;
and
WHEREAS, the Trust desires that EDI undertake marketing activities
with respect to the Class IA Shares of the Trust's constituent series or
investment portfolios ("Portfolios") Portfolios; and
WHEREAS, the Trust is registered as an open-end investment company
under the Investment Company Act of 1940 ("Investment Company Act"); and
WHEREAS, the Investment Company Act prohibits any principal
underwriter for a registered open-end management investment company from
offering for sale, selling, or delivering after sale any security of which
such company is the issuer, except pursuant to a written contract with such
investment company, and EDI will be a distributor for sale of the Class IA
shares issued by the Trust; and
WHEREAS, EDI is registered as a broker-dealer under the Securities
Exchange Act of 1934, as amended, ("Securities Exchange Act") and is a member
of the National Association of Securities Dealers, Inc. ("NASD").
NOW THEREFORE, the Trust and EDI agree as follows:
Section 1. The Trust has adopted a form of Participation Agreement,
which was approved by the Board of Trustees of the Trust. This Agreement shall
be subject to the provisions of the form of Participation Agreement, the terms
of which are incorporated herein by reference, made a part hereof and
controlling. The form of Participation Agreement may be amended or superseded,
without prior notice, and this Agreement shall be deemed amended to the extent
the
<PAGE>
form of Participation Agreement is amended or superseded. EDI represents and
warrants that it will act in a manner consistent with such form of
Participation Agreement as it is currently set forth and as it may be amended
or superseded, so long as EDI serves as the principal underwriter of the Class
IA shares and Class IB shares of the Trust (collectively, "Shares").
Section 2. EDI is hereby authorized, from time to time, to enter into
separate written agreements ("Sales Agreements" or, individually, a "Sales
Agreement"), on terms and conditions not inconsistent with this Agreement,
with Participating Insurance Companies which have Eligible Separate Accounts
and which agree to participate in the distribution of the Trust's Class IA
shares, directly or through affiliated broker dealers by means of distribution
of Variable Products and to use their best efforts to solicit applications for
Variable Products. EDI may not enter into any Sales Agreement with any
Participating Insurance Company that is more favorable than that maintained
with any other Participating Insurance Company and Eligible Separate Account,
except that not all Portfolios of the Trust need be made available for
investment by all Participating Insurance Companies, Eligible Separate
Accounts or Variable Products. The Board of Trustees of the Trust may, in its
sole discretion, determine that certain Portfolios and classes of shares of
the Trust shall be available only to certain types of Variable Products or to
a single Participating Insurance Company and its affiliates.
Section 3. Such Participating Insurance Companies and their agents or
representatives soliciting applications for Variable Products shall be duly
and appropriately licensed, registered or otherwise qualified for the sale of
Variable Products under any applicable insurance laws and any applicable
securities laws of one or more states or other jurisdictions in which Variable
Products may be lawfully sold. Each such Participating Insurance Company
shall, when required by law, be both registered as a broker-dealer under the
Securities Exchange Act and a member of the NASD. Each such Participating
Insurance Company shall agree to comply with all laws and regulations, whether
federal or state, and whether relating to insurance, securities or other
general areas, including but not limited to the recordkeeping and sales
supervision requirements of such laws and regulations.
Section 4. The Trust's shares are divided into series or Portfolios,
each representing a different portfolio of investments. Each Portfolio is
further divided into Class IA and Class IB shares. The Trust's Portfolios and
any restrictions on availability for Class IA shares relating thereto are set
forth in Schedule A hereto, which may be amended from time to time.
Purchases and redemptions of the Trust's Class IA shares of each
Portfolio shall be at the net asset value therefor, computed as set forth in
the most recent relevant Prospectus and Statement of Additional Information
relating to the Trust's Class IA contained in its Registration Statement on
Form N-1A, or any amendments thereto (respectively, "Trust Prospectus" and
"SAI"), and any supplements thereto and shall be submitted by the
Participating Insurance Company to the Trust's transfer agent pursuant to
procedures and in accordance with payment provisions adopted by EDI and the
Trust from time to time. The Trust's Class IA shares may not be sold or
transferred, except to an Eligible Separate Account or Qualified Plan, without
the prior approval of the Trust's Board of Trustees.
Section 5. The Trust shall not pay any compensation to EDI for
services as a distributor hereunder, nor shall the Trust reimburse EDI for any
expenses related to such services. EDI
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<PAGE>
may, but need not, pay or charge Participating Insurance Companies pursuant to
Sales Agreements, as described in Section 2 hereof.
Section 6. The Trust represents to EDI that the Trust Prospectus and
SAI, as of their respective effective dates, contain all statements and
information which are required to be stated therein by the Securities Act of
1933, as amended ("1933 Act"), and in all respects conform to the requirements
thereof, and neither the Trust Prospectus nor the SAI include any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading;
provided, however, that the foregoing representations shall not apply to
information contained in or omitted from the Trust Prospectus and SAI in
reliance upon, and in conformity with, written information furnished by EDI
specifically for use in the preparation thereof.
In this connection, EDI acknowledges that the day-to-day operations
of the Trust, including without limitation, investment management, securities
brokerage allocation, cash control, accounting, recordkeeping and other
administrative, marketing and regulatory compliance functions, are carried on
and may in the future be carried on by The Equitable Life Assurance Society of
the United States ("Equitable"), affiliates of Equitable, and other parties
unaffiliated with Equitable on behalf of the Trust (collectively, the
"Preparing Parties"), under various agreements and arrangements, and that such
activities in large measure provide the basis upon which statements and
information are included or omitted from the Trust Prospectus and SAI. EDI
further acknowledges that because of the foregoing arrangements, the
preparation of the Trust Prospectus and SAI is substantially in the control of
the Preparing Parties, subject to the broad supervisory authority and
responsibility of the Trust's Board of Trustees, and that, essentially, the
only Trust Prospectus or SAI information not independently known to, or
prepared by, the Preparing Parties is personal information as to each
Trustee's full name, age, background, business experience and other personal
information that may require disclosures under securities laws and for which
the Preparing Parties necessarily must rely on each such Trustee to produce.
Section 7. The Trust will periodically prepare Prospectuses (and, if
applicable, SAIs) and any supplements thereto, proxy materials and annual and
semi-annual reports (collectively, the "Documents") and shall, in accordance
with the form of Participation Agreement, provide sufficient copies of such
Documents or shall make camera ready copy available to EDI for reproduction by
EDI or the Participating Insurance Companies. With respect to Documents
provided to existing owners of Variable Products, the cost of preparing,
printing, mailing or otherwise distributing such Documents shall be borne by
the Trust. With respect to the Trust's Class IA shares, the Trust shall not
pay the cost of printing, mailing or otherwise distributing such Documents
except as specified in this Section 7. The Trust will use its best efforts to
provide notice to EDI of anticipated filings or supplements. EDI or the
Participating Insurance Companies may alter the form of some or all of the
Documents, with the prior approval of the Trust's officers and legal counsel.
Any preparation costs associated with altering the form of the Documents will
be borne by EDI or the Participating Insurance Companies, not the Trust.
Section 8. EDI and officers of the Trust may, from time to time,
authorize descriptions of the Trust for use in sales literature or advertising
by the Participating Insurance Companies (including brochures, letters,
illustrations and other similar materials, whether transmitted
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<PAGE>
directly to potential applicants or published in print or audio-visual media),
which authorization will not be unreasonably withheld or delayed.
Section 9. EDI shall furnish to the Trust, at least quarterly,
reports as to the sales of Trust's Class IA shares made pursuant to this
Agreement. These reports may be combined with any similar report prepared by
EDI or any of the Preparing Parties.
Section 10. EDI shall submit to all regulatory and administrative
bodies having jurisdiction over the operations of EDI, the Trust, or any
Participating Insurance Company, present or future, any information, reports
or other material which any such body by reason of this Agreement may request
or require as authorized by applicable laws or regulations.
Section 11. This Agreement shall be subject to the provisions of the
Investment Company Act, the Securities Exchange Act and the 1933 Act and the
rules, regulations, and rulings thereunder and of the NASD, from time to time
in effect, including such exemptions and no-action positions as the Securities
and Exchange Commission or its staff may grant, and the terms hereof shall be
interpreted and construed in accordance therewith. Without limiting the
generality of the foregoing, (a) the term "assigned" shall not include any
transaction exempted from section 15(b)(2) of the Investment Company Act and
(b) the vote of the persons having voting rights in respect of the Trust
referred to in Section 12 shall be the affirmative votes of the lesser of (i)
the holders of more than 50% of all votes in respect of Class IA shares
entitled to be cast in respect of the Trust or (ii) the holders of at least
67% of the votes in respect of Class IA shares which are present at a meeting
of such persons if the holders of more than 50% of all votes in respect of
Class IA shares entitled to be cast in respect of the Trust are present or
represented by proxy at such meeting, in either case voted in accordance with
the provisions contained in the form of Participation Agreement or any
policies on conflicts adopted by the Board of Trustees.
Section 12. This Agreement shall continue in effect only so long as
such continuance is specifically approved at least annually by a majority of
the Trustees of the Trust who are not interested persons of the Trust or EDI
("Independent Trustees") and by (a) persons having voting rights in respect of
the Trust, by the vote stated in Section 11, voted in accordance with the
provisions contained in the form of Participation Agreement or any policies on
conflicts adopted by the Board of Trustees, or (b) the Board of Trustees of
the Trust. This Agreement may be terminated at any time, without penalty, by a
majority of the Independent Trustees or by persons having voting rights in
respect of the Trust by the vote stated in Section 11.
Section 13. This Agreement shall terminate automatically if it shall
be assigned.
Section 14. The Trust shall indemnify and hold harmless EDI from any
and all losses, claims, damages or liabilities (or actions in respect thereof)
to which EDI may be subject, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or result from
negligent, improper, fraudulent or unauthorized acts or omissions by the Trust
or its officers, trustees, agents or representatives, other than acts or
omissions caused directly or indirectly by EDI.
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<PAGE>
EDI will indemnify and hold harmless the Trust, its officers,
trustees, agents and representatives against any losses, claims, damages or
liabilities, to which the Trust its officers, trustees, agents and
representatives may become subject, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon:
(i) any untrue statement or alleged untrue statement of any material fact
contained in the Trust Prospectus and/or SAI or any supplements thereto; (ii)
the omission or alleged omission to state any material fact required to be
stated in the Trust Prospectus and/or SAI or any supplements thereto or
necessary to make the statements therein not misleading; or (iii) other
misconduct or negligence of EDI in its capacity as a principal underwriter of
the Trust's Class IA shares and will reimburse the Trust, its officers,
trustees, agents and representatives for any legal or other expenses
reasonably incurred by any of them in connection with investigating or
defending against such loss, claim, damage, liability or action; provided,
however, that EDI shall not be liable in any such instance to the extent that
any such loss, claim, damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in the Trust Prospectus and/or SAI or any supplement in good faith
reliance upon and in conformity with written information furnished by the
Preparing Parties specifically for use in the preparation of the Trust
Prospectus and/or SAI.
Section 15. A copy of the Agreement and Declaration of Trust of the
Trust is on file with the Secretary of State of Delaware and notice is given
hereby that this Agreement is executed on behalf of the trustees of the Trust
as trustees and not individually, and that the obligations of or arising out
of this Agreement are not binding upon any of the trustees or shareholders
individually but are binding only upon the assets and property of each
Portfolio.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
EQ ADVISORS TRUST
By: __________________________________
EQUITABLE DISTRIBUTORS, INC.
By: ___________________________________
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<PAGE>
SCHEDULE A
Portfolios of
EQ Advisors Trust
T. Rowe Price International Stock Portfolio
T. Rowe Price Equity Income Portfolio
EQ/Putnam Growth & Income Value Portfolio
EQ/Putnam International Equity Portfolio
EQ/Putnam Investors Growth Portfolio
EQ/Putnam Balanced Portfolio
MFS Research Portfolio
MFS Emerging Growth Companies Portfolio
Morgan Stanley Emerging Markets Equity Portfolio
Warburg Pincus Small Company Value Portfolio
Merrill Lynch World Strategy Portfolio
Merrill Lynch Basic Value Equity Portfolio
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<PAGE>
EXHIBIT 6(d)
DISTRIBUTION AGREEMENT
CLASS IB SHARES
EQUITABLE DISTRIBUTORS, INC.
AGREEMENT, dated as of ____________, 1997 by and between EQ Advisors
Trust (the "Trust") and Equitable Distributors, Inc. ("EDI").
W I T N E S S E T H:
WHEREAS, the Trust is a Delaware business trust whose shareholders
are and will be separate accounts in unit investment trust form ("Eligible
Separate Accounts") of insurance companies ("Participating Insurance
Companies"); and
WHEREAS, such Participating Insurance Companies issue, among other
products, variable insurance and annuity products ("Variable Products") whose
net premiums, contributions or other consideration may be allocated to
Eligible Separate Accounts for investment in the Trust; and
WHEREAS, the Trust's Class IB shares will not be sold except in
connection with such Variable Products or directly to tax-qualified pension
and retirement plans ("Qualified Plans") outside the separate account context;
and
WHEREAS, the Trust has adopted a Distribution Plan with respect to
its Class IB shares pursuant to Rule 12b-1 under the Investment Company Act of
1940, as amended ("Investment Company Act"); and
WHEREAS, the Trust desires that EDI undertake marketing activities
with respect to the Class IB shares of the Trust's constituent series or
investment portfolios ("Portfolios") and to compensate EDI for services
rendered and expenses borne in connection therewith; and
WHEREAS, the Trust is registered as an open-end management investment
company under the Investment Company Act; and
WHEREAS, the Investment Company Act prohibits any principal
underwriter for a registered open-end management investment company from
offering for sale, selling, or delivering after sale any security of which
such investment company is the issuer, except pursuant to a written contract
with such investment company, and EDI will be a distributor for sale of the
Class IB shares issued by the Trust; and
WHEREAS, EDI is registered as a broker-dealer under the Securities
Exchange Act of 1934, as amended, ("Securities Exchange Act"), and is a member
of the National Association of Securities Dealers., Inc. ("NASD").
NOW THEREFORE, the Trust and EDI agree as follows:
<PAGE>
Section 1. The Trust has adopted a form of Participation Agreement,
which was approved by the Board of Trustees of the Trust. This Agreement shall
be subject to the provisions of the form of Participation Agreement, the terms
of which are incorporated herein by reference, made a part hereof and
controlling. The form of Participation Agreement may be amended or superseded,
without prior notice, and this Agreement shall be deemed amended to the extent
the form of Participation Agreement is amended or superseded. EDI represents
and warrants that it will act in a manner consistent with the form of
Participation Agreement as it is currently set forth and as it may be amended
or superseded, so long as EDI serves as the principal underwriter of the Class
IA shares and Class IB shares of the Trust (collectively, the "Shares").
Section 2. EDI on behalf of the Trust is hereby authorized, from time
to time, to enter into separate written agreements ("Sales Agreements" or,
individually, a "Sales Agreement"), on terms and conditions not inconsistent
with this Agreement, with Participating Insurance Companies that have Eligible
Separate Accounts and that agree to participate in the distribution of the
Trust's Class IB shares, directly or through their affiliated broker-dealers,
by means of the distribution of Variable Products and to use their best
efforts to solicit applications for Variable Products. EDI may not enter into
any Sales Agreement with any Participating Insurance Company that is more
favorable than that maintained with any other Participating Insurance Company
and Eligible Separate Account, except that not all Portfolios of the Trust
need be made available for investment by all Participating Insurance
Companies, Eligible Separate Accounts or Variable Products. The Board of
Trustees of the Trust may, in its sole discretion, determine that certain
Portfolios and classes of shares of the Trust shall be available only to
certain types of Variable Products or to a single Participating Insurance
Company and its affiliates.
Section 3. Such Participating Insurance Companies and their agents or
representatives soliciting applications for Variable Products shall be duly
and appropriately licensed, registered or otherwise qualified for the sale of
Variable Products under any applicable insurance laws and any applicable
securities laws of one or more states or other jurisdictions in which Variable
Products may be lawfully sold. Each such Participating Insurance Company
shall, when required by law, be both registered as a broker-dealer under the
Securities Exchange Act and a member of the NASD. Each such Participating
Insurance Company shall agree to comply with all laws and regulations, whether
federal or state, and whether relating to insurance, securities or other
general areas, including but not limited to the recordkeeping and sales
supervision requirements of such laws and regulations.
Section 4. The Trust's shares are divided into series or Portfolios,
each representing a different portfolio of investments. Each Portfolio is
further divided into Class IA and Class IB shares. The Trust's Portfolios and
any restrictions on availability for Class IB shares relating thereto are set
forth in Schedule A hereto, which may be amended from time to time.
Purchases and redemptions of the Trust's Class IB shares of each
Portfolio shall be at the net asset value therefor, computed as set forth in
the most recent relevant Prospectus and Statement of Additional Information
relating to the Trust's Class IB shares contained in its Registration
Statement on Form N-1A or any amendments thereto (respectively, "Trust
Prospectus" and "SAI"), and any supplements thereto and shall be submitted by
the Participating Insurance Company to the Trust's transfer agent pursuant to
procedures and in accordance with
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<PAGE>
payment provisions adopted by EDI and the Trust from time to time. The Trust's
Class IB shares may not be sold or transferred, except to an Eligible Separate
Account or Qualified Plan, without the prior approval of the Trust's Board of
Trustees.
Section 5. As compensation to EDI for services rendered and expenses
borne as a distributor hereunder, each Portfolio shall pay EDI a monthly fee
(payable on or before the fifth business day of the following month) at a rate
equal to .25% per annum of the average daily net assets of the Portfolio
attributable to Class IB shares with respect to which EDI provides services
and/or assumes expenses under the Class IB Distribution Plan. EDI may, but
need not, pay or charge Participating Insurance Companies pursuant to Sales
Agreements, as described in Section 2 hereof.
Section 6. The Trust represents to EDI that the Trust Prospectus and
SAI, as of their respective effective dates, contain (or will contain) all
statements and information which are required to be stated therein by the
Securities Act of 1933, as amended ("1933 Act"), and in all respects conform
to the requirements thereof, and neither the Trust Prospectus nor the SAI
include any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading; provided, however, that the foregoing representations shall
not apply to information contained in or omitted from the Trust Prospectus and
SAI in reliance upon, and in conformity with, written information furnished by
EDI specifically for use in the preparation thereof.
In this connection, EDI acknowledges that the day-to-day operations
of the Trust, including without limitation, investment management, securities
brokerage allocation, cash control, accounting, recordkeeping and other
administrative, marketing and regulatory compliance functions, are carried on
and may in the future be carried on by The Equitable Life Assurance Society of
the United States ("Equitable"), affiliates of Equitable, and other parties
unaffiliated with Equitable on behalf of the Trust (collectively, the
"Preparing Parties"), under various agreements and arrangements, and that such
activities in large measure provide the basis upon which statements and
information are included or omitted from the Trust Prospectus and SAI. EDI
further acknowledges that because of the foregoing arrangements, the
preparation of the Trust Prospectus and SAI is substantially in the control of
the Preparing Parties, subject to the broad supervisory authority and
responsibility of the Trust's Board of Trustees, and that, essentially, the
only Trust Prospectus or SAI information not independently known to, or
prepared by, the Preparing Parties is personal information as to each
Trustee's full name, age, background, business experience and other personal
information that may require disclosures under securities laws and for which
the Preparing Parties necessarily must rely on each such Trustee to produce.
Section 7. The Trust will periodically prepare Prospectuses (and, if
applicable, SAIs) and any supplements thereto, proxy materials and semi-annual
reports (collectively, the "Documents") and shall, in accordance with the form
of Participation Agreement, provide sufficient copies of such Documents or
shall make camera ready copy available to EDI for reproduction by EDI or the
Participating Insurance Companies. To the extent that the foregoing Documents
are with respect to Class IB shares, the cost of preparing, printing, mailing
and otherwise distributing such Documents will be at the expense of such Class
IB shares with respect to prospective owners of Variable Products. In
addition, with respect to Documents
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<PAGE>
provided to existing owners of Variable Products, the cost of preparing,
printing, mailing and otherwise distributing such Documents shall be borne by
the Trust. The Trust will use its best efforts to provide notice to EDI of
anticipated filings or supplements. EDI or the Participating Insurance
Companies may alter the form of some or all of the Documents, with the prior
approval of the Trust's officers and legal counsel. Any preparation costs
associated with altering the form of the Documents will be borne by EDI or the
Participating Insurance Companies, not the Trust.
Section 8. EDI and officers of the Trust may, from time to time,
authorize descriptions of the Trust for use in sales literature or advertising
by the Participating Insurance Companies (including brochures, letters,
illustrations and other similar materials, whether transmitted directly to
potential applicants or published in print or audio-visual media), which
authorization will not be unreasonably withheld or delayed.
Section 9. EDI shall furnish to the Trust, at least quarterly,
reports as to the sales of the Trust's Class IB shares made pursuant to this
Agreement. These reports may be combined with any similar report prepared by
EDI or any of the Preparing Parties.
Section 10. EDI shall submit to all regulatory and administrative
bodies having jurisdiction over the operations of EDI, the Trust, or any
Participating Insurance Company, present or future, any information, reports
or other material which any such body by reason of this Agreement may request
or require as authorized by applicable laws or regulations.
Section 11. This Agreement shall be subject to the provisions of the
Investment Company Act, the Securities Exchange Act and the 1933 Act and the
rules, regulations, and rulings thereunder and of the NASD, from time to time
in effect, including such exemptions and no-action positions as the Securities
and Exchange Commission or its staff may grant, and the terms hereof shall be
interpreted and construed in accordance therewith. Without limiting the
generality of the foregoing, (a) the term "assigned" shall not include any
transaction exempted from section 15(b)(2) of the Investment Company Act and
(b) the vote of the persons having voting rights in respect of the Trust
referred to in Section 12 shall be the affirmative votes of the lesser of (i)
the holders of more than 50% of all votes in respect of Class IB shares
entitled to be cast in respect of the Trust or (ii) the holders of at least
67% of the votes in respect of Class IB shares which are present at a meeting
of such persons if the holders of more than 50% of all votes in respect of
Class IB shares entitled to be cast in respect of the Trust are present or
represented by proxy at such meeting, in either case voted in accordance with
the provisions contained in the form of Participation Agreement or any
policies on conflicts adopted by the Board of Trustees.
Section 12. This Agreement shall continue in effect only so long as
such continuance is specifically approved at least annually by a majority of
the Trustees of the Trust who are not interested persons of the Trust or EDI
and who have no direct or indirect financial interest in the distribution plan
pursuant to which this Agreement has been authorized (or any agreement
thereunder) (the "Independent Trustees") by (a) persons having voting rights
in respect of the Trust, by the vote stated in Section 11, voted in accordance
with the provisions contained in the form of Participation Agreement or any
policies on conflicts adopted by the Board of Trustees, or (b) the Board of
Trustees of the Trust. This Agreement may be terminated at any time,
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<PAGE>
without penalty, by a majority of the Independent Trustees or by persons
having voting rights in respect of the Trust by the vote stated in Section 11.
Section 13. This Agreement shall terminate automatically if it shall
be assigned.
Section 14. The Trust shall indemnify and hold harmless EDI from any
and all losses, claims, damages or liabilities (or actions in respect thereof)
to which EDI may be subject, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or result from
negligent, improper, fraudulent or unauthorized acts or omissions by the Trust
or its officers, trustees, agents or representatives, other than acts or
omissions caused directly or indirectly by EDI.
EDI will indemnify and hold harmless the Trust, its officers,
trustees, agents and representatives against any losses, claims, damages or
liabilities, to which the Trust its officers, trustees, agents and
representatives may become subject, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon:
(i) any untrue statement or alleged untrue statement of any material fact
contained in the Trust Prospectus and/or SAI or any supplements thereto; (ii)
the omission or alleged omission to state any material fact required to be
stated in the Trust Prospectus and/or SAI or any supplements thereto or
necessary to make the statements therein not misleading; or (iii) other
misconduct or negligence of EDI in its capacity as a principal underwriter of
the Trust's Class IB shares and will reimburse the Trust, its officers,
trustees, agents and representatives for any legal or other expenses
reasonably incurred by any of them in connection with investigating or
defending against such loss, claim, damage, liability or action; provided,
however, that EDI shall not be liable in any such instance to the extent that
any such loss, claim, damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in the Trust Prospectus and/or SAI or any supplement in good faith
reliance upon and in conformity with written information furnished by the
Preparing Parties specifically for use in the preparation of the Trust
Prospectus and/or SAI.
Section 15. A copy of the Agreement and Declaration of Trust of the
Trust is on file with the Secretary of State of Delaware and notice is given
hereby that this Agreement is executed on behalf of the Trustees of the Trust
as trustees and not individually, and that the obligations of or arising out
of this Agreement are not binding upon any of the Trustees or shareholders
individually but are binding only upon the assets and property of each
Portfolio.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
EQ ADVISORS TRUST
By:____________________________________
EQUITABLE DISTRIBUTORS, INC.
By:____________________________________
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<PAGE>
SCHEDULE A
Portfolios of
EQ Advisors Trust
T. Rowe Price International Stock Portfolio
T. Rowe Price Equity Income Portfolio
EQ/Putnam Growth & Income Value Portfolio
EQ/Putnam International Equity Portfolio
EQ/Putnam Investors Growth Portfolio
EQ/Putnam Balanced Portfolio
MFS Research Portfolio
MFS Emerging Growth Companies Portfolio
Morgan Stanley Emerging Markets Equity Portfolio
Warburg Pincus Small Company Value Portfolio
Merrill Lynch World Strategy Portfolio
Merrill Lynch Basic Value Equity Portfolio
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<PAGE>
EXHIBIT 7
DEFERRED COMPENSATION PLAN FOR
TRUSTEES OF EQ ADVISORS TRUST
The purpose of this Plan is to make available on a voluntary basis to
any Trustee of EQ Advisors Trust (the "Trust") an Agreement with the Trust
whereby payment of all or a portion of fees for services as a Trustee would be
deferred, with the total amount so deferred to be disbursed in annual or
semi-annual installments or in a single lump sum payment, as elected by the
Trustee, upon a certain date specified by the Trustee, which date shall be no
sooner than the earlier of five years following the date of the Agreement or
the Trustee's retirement as a Trustee, or upon the occurrence of certain
circumstances specified in the Agreement. The period for disbursement of
installments shall not be less than five nor more than 20 years, and shall be
elected by the Trustee upon execution of the Agreement or subsequently thereto
as provided by the Agreement.
The Agreement for deferral to be entered into with the Trust by any
Trustee electing to participate under this Plan will be in the form approved
at the meeting of the Board of Trustees at which this Plan is adopted or
amended.
Such deferral will commence under the Agreement on the first day of
the month that is more than ten days after the execution of the Agreement.
The Trust expects this Plan to remain in effect indefinitely but
reserves the right to modify or terminate the Plan at any time. However, any
modification will be applicable only to amounts credited to the Trustee's
account after the effective date of the change, and any termination will not
affect amounts credited to the account prior to the date of termination.
<PAGE>
THIS AGREEMENT made between
EQ ADVISORS TRUST
(hereinafter called the "Trust")
and
________________________________________(name)
(a member of the Trust's Board of Trustees,
hereinafter called the "Trustee"
pursuant to the Trust's Deferred Compensation Plan for Trustees
(hereinafter called the "Plan")
WITNESSETH, That
1. The Trustee elects to defer receipt of [all fees]* which, but for
this Agreement, would be payable to the Trustee for his or her services as a
Trustee of the Trust on and after the first of _____________, 19__** and prior
to the Initial Disbursement Date provided for herein. Such election shall
continue in effect with respect to such Trustee's fees which may otherwise
become payable to Trustee unless, at least 60 days prior to January 1 in any
calendar year, Trustee has delivered to the Secretary of the Trust a written
revocation of such election with respect to all or a portion of Trustee's fees
which may otherwise become payable to him or her for such year. Any such
revocation will take effect on January 1 of such year. Deferred fees shall be
credited to an Account (as defined hereinafter in paragraph 9).
The Trust shall credit amounts of interest to the Account from time
to time using the interest rate determined under The Equitable Investment Plan
for Employees, Managers and Agents for the purpose of crediting interest for
fixed income accounts of members under that plan. The rate for crediting
interest to the Account balance is the "Account Percentage Rate". The Trust,
however, reserves the right to change the rate of interest with respect to
amounts to be credited after the date of the change.
Payments under the terms of this Agreement of fees and amounts so
credited shall not commence until the Initial Disbursement Date, as specified
in paragraph 4 below. Such payments (to be charged to the Trustee's Account)
shall be made in a single lump sum or in annual or semi-annual installments,
as elected by the Trustee, for the number of years elected
- --------
* If a Trustee so requests, the Agreement will set forth, instead of "all
fees", a portion of the fees, to be deferred, as specified by the Trustee
before the Agreement is executed (an alternate form of Agreement will be
furnished for this purpose upon request).
** The date must be more than 10 days after the date of execution of the
Agreement.
<PAGE>
by the Trustee, or until the amount credited to his or her Account is
exhausted.(1) The amount of each installment shall be determined by dividing the
undistributed balance of the Account prior to each installment by the number
of remaining installments.
The election specifying the period for disbursement of installments
may be changed by a new election on the Trust's form filed with its Secretary.
No election, however, may be made or filed within 60 days immediately
preceding the Initial Disbursement Date. The election(s) on file immediately
before said 60 days is (are) irrevocable.
2. If the Trustee elects to have amounts paid in installments, the
number of years for which installments shall be paid shall be in accordance
with such election by the Trustee. There shall be no right to change such
election after the Initial Disbursement Date. The minimum number of years
during which installments will be paid shall be five and the maximum number
shall be 20. The first installment shall be payable on the Initial
Disbursement Date and subsequent installments shall be payable annually or
semiannually thereafter, as applicable, but no such installment shall be less
than $50 or more than the amount in the Account at the time any installment is
payable. If an election results in installments of less than $50, the period
for installment payments will be changed so that each monthly installment will
be at least $50. In the event of the Trustee's death prior to complete
distribution of his or her Account hereunder, the balance of the Account shall
be paid to the Trustee's executors or administrators in a lump sum, in
accordance with his or her said elections. The Trust, in its sole discretion,
reserves the right to accelerate payment of amounts in Trustee's Account at
any time after termination of Trustee's service as a trustee of the Trust.
3. This Agreement may be amended to change the amount of fees to be
deferred, or to discontinue any deferment, or to resume such deferment after a
prior discontinuance, but at least three years must elapse between the
execution of this Agreement and the first amendment or between any two
amendments. Any such amendment will apply to fees payable on or after the
first day of the calendar year that is more than sixty days after the date of
execution thereof and will have no retroactive effect with respect to amounts
previously credited to the Trustee's Account. In the event of a discontinuance
of deferment, or retirement from the Board, the amounts previously deferred
will remain to the credit of the Trustee in his or her Account and will be
subject to payment, in a lump sum or in installments, in accordance with the
provisions of this Agreement. No amounts credited to the Account may be
assigned, commuted or encumbered by the Trustee, and to the extent permitted
by law, no such amount shall in any way be subject to any legal process to
subject the same to the payment of any claim against such Trustee. In no event
will the Trustee have the right to recover any fees credited to the Account
otherwise than in accordance with this Agreement.
4. The Initial Disbursement Date with respect to the Trustee shall be
as soon as practicable following ______________, 19__, a date specified by the
Trustee, which date shall not be sooner than the earlier of:
- --------
1 If the Trustee does not so specify the period of disbursement in his or her
election, payments shall be made to the Trustee in such number of annual
installments as shall be determined by the Trust in its sole discretion.
<PAGE>
(a) a date five (5) Years following the date of this Agreement, or
(b) the date of the Trustee's anticipated retirement as a trustee
of the Trust in accordance with the Trust's normal retirement policy for
Trustees;
provided, that if a Trustee does not specify an Initial Disbursement Date in
this Agreement, the Trustee shall be deemed to have elected to begin receiving
the deferred amounts and any credited amounts thereon upon ceasing to be a
trustee of the Trust; and further provided, that in all events and
notwithstanding any elections under this Agreement, the deferred amounts and
any credited amounts thereon shall be distributed
(i) in the event of the Trustee's death prior to
complete distribution of his or her Account, in accordance with paragraph 2
above; or
(ii) upon the dissolution, liquidation or winding
up of the Trust, whether voluntary or involuntary; or the voluntary sale,
conveyance or transfer of all or substantially all of the Trust's assets
(unless, as part of any such sale, conveyance or transfer, the obligations of
the Trust hereunder shall have been assumed by another Equitable-affiliated
trust, corporation or its consolidation with one or more other trusts or
corporations (unless the obligations of the Trust hereunder shall have been
assumed by such surviving entity, and such surviving entity is an
Equitable-affiliated entity, or unless, prior to the effective date of the
merger or consolidation, the Trust's Trustees determine that deferrals under
the Plan shall survive the merger or consolidation). In this case, any
deferred amounts and any credited amounts thereon in the Account shall be paid
to the Trustee in a single lump sum on the effective date.
Prior to such Initial Disbursement Date, the Trustee shall have no
right to receive any disbursements under this Agreement. After such date, the
Trustee's right in respect to any deferred fees or interest accrued thereon,
including the right to receive payment of such fees and interest and the
method, manner, period, and frequency of such payment (after such date) shall
be in accordance with the provisions of this Agreement as now constituted or
as hereafter amended.
5. Upon application by the Trustee under this paragraph and a
determination by the Administrator that the Trustee has suffered a severe and
unanticipated financial hardship, the Administrator shall distribute to the
Trustee, in a single lump sum, an amount equal to the lesser of (i) the amount
needed by the Trustee to meet the unanticipated hardship, or (ii) the balance
of the Trustee's Account.
6. The Trust's obligation to make payments of the Account shall be a
general obligation of the Trust, and such payments shall be made from the
Trust's general assets and property. Trustee's relationship to the Trust under
this Agreement shall be only that of a general unsecured creditor, and neither
this Agreement or any action taken pursuant hereto shall create or be
construed to create a trust or fiduciary relationship of any kind between the
Trust and Trustee, Trustee's estate, Trustee's designated beneficiary or any
other person, or a security interest of any kind in any property of the Trust
in favor of Trustee or any other person. The
<PAGE>
Trust shall provide an annual statement to Trustee showing such information as
is appropriate, including the aggregate amount in the Account, as of a
reasonably current date.
7. The Trust reserves the right to modify or terminate this Agreement
in accordance with any modification or termination of the Plan; provided,
however, that any modification will be applicable only to amounts credited to
the Account after the effective date of the change and any termination will
not affect amounts credited to the Account prior to the date of termination.
8. Payment of amounts credited to the Account shall be made in the
form of a check. Such payment shall be made to Trustee except that:
(a) in the event that Trustee shall be determined by a court
of competent jurisdiction to be incapable of managing Trustee's financial
affairs, and if the Trust has actual notice of such determination, payment
shall be made to Trustee's personal representative(s); and
(b) in the event of Trustee's death, payment shall be made
to Trustee's executors or administrators.
9. "Retirement" from the board as used herein shall be deemed to
occur on the date when the Trustee ceases to be a member of the Trust's Board
of Trustees, for any reason, including death.
"Account" as used herein shall mean a record maintained by the
Administrator of the Trustee's deferred fees, increments credited thereon, and
installments paid under this Agreement. The use of the word "Account" does not
contemplate or imply any segregation by the Trust of any monies or other
assets, nor shall it be deemed to mean that any amount credited to the Account
is the property of the Trustee.
IN WITNESS WHEREOF, the parties to this Agreement have subscribed
their names.
EXECUTED IN DUPLICATE THIS _________ DAY OF ________________, 199___.
EQ ADVISORS TRUST
By:___________________________
______________________________
(Trustee)
<PAGE>
EXHIBIT 8
FORM OF CUSTODY AGREEMENT
[INST/FIN]
DOMESTIC CUSTODY AGREEMENT
To: The Chase Manhattan Bank
Institutional Client Services
4 New York Plaza, 4th Floor
New York, New York 10004
Gentlemen:
We hereby request you to open and to maintain a separate Custody
Account in the name of EQ Advisors Trust (the "Trust") on behalf of each of
the Trust's Portfolios designated in Appendix A. We further request that you
hold therein as our custodian, upon the following terms and conditions (but
only to the extent those terms and conditions are consistent with the
investment objectives, policies and restrictions of each Portfolio, as well as
with applicable law), all stocks, bonds, rights, warrants and other negotiable
and non-negotiable paper issued in certificated or book-entry form and
commonly treated or dealt with on securities exchanges or securities markets
as shall be received by and acceptable to you and the Trust for the Custody
Account (hereinafter referred to as "securities"). As used herein, the term
Custody Account shall include all such Custody Accounts opened pursuant to
this Domestic Custody Agreement (the "Agreement").
Securities held by you for the Custody Account shall be segregated at
all times from your proprietary assets, and from the assets of any other
account holder for which you serve as custodian or in any other capacity.
1. TRANSACTIONS. Unless you receive contrary written instructions
from us, and subject to the provisions of this Agreement and applicable law,
you are authorized and instructed:
(a) to collect on a timely basis and/or receive all income,
dividends and other payments payable on the securities to which the
Portfolios are entitled either by law or pursuant to custom in the
securities business, and (except as hereinafter set forth in the
section entitled "Miscellaneous") to credit such payments to the
demand deposit cash account of the appropriate Portfolio as
designated by us to receive all sums collected in respect of
transactions to the Custody Account (each such account a "Cash
Account");
(b) to credit all proceeds received from sales and
redemptions of securities to the Cash Account:
(c) to debit the Cash Account for the cost of acquiring
securities for the Custody Account. Cost is deemed to consist of the
price of the security plus brokerage fees. You will be responsible
for administrative expenses associated with the acquisition;
<PAGE>
(d) to present obligations (including coupons) for payment
upon maturity, when called for redemption and when income payments
are due;
(e) to exchange securities for other securities where the
exchange is purely ministerial as, for example, the exchange of
securities in temporary form for securities in definitive form or the
mandatory exchange of certificates;
(f) to sell fractional interests resulting from a stock
split or a stock dividend and to credit the Cash Account with the
proceeds thereof;
(g) to execute in our name, whenever you deem it
appropriate, such ownership and other certificates as may be required
to obtain payments with respect to, or to effect the sale, transfer
or other disposition of, securities in the Custody Account and to
guarantee as our signature the signature so affixed;
(h) to receive and hold in the Custody Account securities
which have transfer limitations imposed upon them by the Securities
Act of 1933, as amended, but only to the extent those securities do
not exceed the 10% or 15% limitation, or as otherwise permitted or
restricted by law or undertaking; and
(i) to convert moneys received with respect to securities of
foreign issue into United States dollars whenever it is practical to
do so through customary banking channels. In effecting such
conversion you may use any method or agency available to you,
including the facilities of your own divisions, subsidiaries or
affiliates. To the extent you act in good faith in accordance with
custom in the securities business, and consistent with the investment
objectives, policies and restrictions of the Portfolios, you shall
incur no liability on account of any loss suffered or expense
incurred as a result of such conversion, including, without
limitation, losses arising from fluctuations in exchange rates
affecting any such conversion.
2. INSTRUCTIONS. You are authorized to rely and act upon all written
instructions given or purported to be given by one or more officers, employees
or agents of ours (i) authorized by or in accordance with a corporate
resolution of ours delivered to you or (ii) described as authorized in a
certificate delivered to you by our Secretary or an Assistant Secretary or
similar officer of ours (each such officer, employee or agent or combination
of officers, employees and agents authorized pursuant to clause (i) or
described pursuant to clause (ii) of this paragraph is hereinafter referred to
as an "Authorized Officer". (The term "instructions" includes, without
limitation, instructions to sell, assign, transfer, deliver, purchase or
receive for the Custody Account, any and all stocks, bonds and other
securities or to transfer funds in the Cash Account. Instructions must set
forth the specific transaction or type of transaction involved, including a
statement of the purpose for which the action is requested, and may be a
blanket instruction authorizing specific transactions of a routine nature or
occurring repeatedly.) You may also rely and act upon instructions when
bearing or purporting to bear the facsimile signature of any of the
individuals designated by an Authorized Officer if such facsimile signature or
signatures
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<PAGE>
resemble(s) the facsimile specimen or specimens from time to time furnished to
you by any of such Authorized Officers, our Secretary or an Assistant
Secretary or similar officer of ours in writing, addressed to you, indicating
that the signatures are those belonging to persons authorized to give
instructions with respect to the Portfolios. In addition, you may rely and act
upon instructions received by telephone, telex, TWX, facsimile transmission,
bank wire or other teleprocess or electronic instruction or trade information
system acceptable to both you and us which you believe in good faith to have
been given by an Authorized Officer or which are transmitted with proper
testing or authentication pursuant to terms and conditions agreed by both of
us. You may also rely and act upon instructions transmitted electronically
through your TITAN Data Entry System or any similar electronic instruction
system acceptable to both of us, subject to the appropriate verification
procedures as we, the parties, establish. You shall incur no liability to us
or otherwise as a result of any act or omission by you in accordance with
instructions on which you are authorized to rely pursuant to the provisions of
this paragraph. Any instructions delivered to you by telephone shall promptly
thereafter be confirmed in writing by an Authorized Officer, but you shall
incur no liability for our failure to send such confirmation in writing, the
failure of any such written confirmation to conform to the telephone
instructions which you received, the failure of any such written confirmation
to be signed or properly signed, or your failure to produce such confirmation
at any subsequent time. You shall incur no liability for refraining from
acting upon any instructions which for any reason you, in good faith, are
unable to verify to your own satisfaction. Notwithstanding the foregoing, you
are required immediately to notify us of any discrepancies between oral and
written instructions, the lack of a valid signature, and with respect to
instructions you choose not to follow, and you will incur liability for
failure to so notify us. With respect to instructions received hereunder to
transfer funds from the Cash Account to any other account or party, we agree
to implement any callback or other authentication method or procedure or
security device to which we together agree from time to time. Unless otherwise
expressly provided, blanket instructions authorizing specific transactions of
a routine nature or occurring repeatedly shall continue in full force and
effect until canceled or superseded by subsequent authorizations or
instructions received by your safekeeping account administrator with
reasonable opportunity to act thereon. Your authorization to rely and act upon
instructions pursuant to this paragraph shall be in addition to, and shall not
limit, any other authorization which we may give you regarding our accounts
with you.
We agree that, if you require test arrangements, authentication
methods or procedures or other security devices to be used with respect to
instructions which we may give hereunder, thereafter instructions given by us
shall be given and processed in accordance with terms and conditions for the
use of such arrangements, methods or procedures or devices as you we together
put into effect and modify from time to time. We shall take reasonable steps
to safeguard any test keys, identification codes or other security devices
which you make available to us and agree that we shall be responsible for any
loss, liability or damage incurred by you or by us as a result of your acting
in accordance with instructions from any unauthorized person using the proper
security device; except that we will not be responsible for your actions where
you had reason to know that the instructions were given by an unauthorized
person and you failed to take any action. Both of us may electronically record
any instructions given by
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<PAGE>
telephone, and any other telephone discussions with respect to the Custody
Account or transactions pursuant to this Agreement.
If you are instructed by us to purchase or sell securities for the
Custody Account you may enter purchase and sale orders and confirmations, and
perform any other acts incidental or necessary to the performance thereof with
brokers or dealers or similar agents selected by you, including any broker or
dealer or similar agent affiliated with you, for our account, and at the risk
level consistent with accepted industry practices in the relevant market.
Except as may be provided otherwise herein or prohibited by
applicable law or regulatory interpretation, you are authorized to execute our
instructions and take other actions pursuant to this Agreement in accordance
with your customary processing practices for customers similar to us and, in
accordance with such practices, you may retain agents qualified to act for our
benefit under the Investment Company Act of 1940 ("1940 Act"), including
subsidiaries or affiliates of yours, to perform certain of such functions.
In acting upon instructions to deliver securities against payment,
you are authorized, to the extent you deem the practice under the
circumstances to be in accordance with customary securities processing
practices, to deliver such securities to the purchaser thereof or dealer
therefor (including to an agent for any such purchaser or dealer) against a
receipt, with the expectation of collecting payment from the purchaser, dealer
or agent to whom the securities were so delivered before the close of business
on the same day. The decision to deliver securities against a receipt instead
of payment having been made in your sole discretion, you shall be responsible
to the Portfolios for payments not so collected and you will credit the
affected Portfolio(s) from your own accounts at your own expense prior to the
close of business on the same day.
3. REGISTRATION. Unless you receive contrary instructions from us,
you are authorized to keep securities in your own vaults or in book entry form
registered in the name of the Portfolio or in the name of one or more of your
nominees assigned exclusively to the Portfolio, unless we have authorized in
writing the appointment of a nominee to be used in common with other
portfolios or registered investment companies having the same investment
adviser as any of the Portfolios, or in the name of any agent or subcustodian
appointed pursuant to the terms of this Agreement. Where securities are
eligible for deposit in a Depository (hereinafter defined), such as The
Depository Trust Company, the Federal Reserve Bank of New York or Participants
Trust Company, you may use any such Depository and permit the registration of
registered securities in the name of its nominee or nominees, and we agree to
hold you and the nominees harmless from any liability as holders of record. We
shall accept the return or delivery of securities of the same class and
denomination as those deposited with you by us or otherwise received by you
for the Custody Account, and you need not retain the particular certificates
so deposited or received.
If any of our securities registered in your name or the name of your
nominee or held in a Depository and registered in the name of the Depository's
nominee are called for partial
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<PAGE>
redemption by the issuer of such securities, you are authorized to allot the
called portion to the respective beneficial holders of the securities in any
manner deemed to be fair and equitable in your sole discretion, as is
consistent with the requirements of all applicable laws.
4. SEGREGATED ACCOUNT. You will, upon receipt of instructions,
establish and maintain a segregated account or accounts for and on behalf of
each Portfolio, into which may be transferred cash and/or securities:
(a) in accordance with the provisions of any agreement
among the Trust, the Custodian and a broker-dealer
(registered under the Securities Exchange Act of 1934
("Exchange Act") and a member of the National
Association of Securities Dealers, Inc. ("NASD"), or
any futures commission merchant registered under the
Commodity Exchange Act, relating to compliance with the
rules of the Options Clearing Corporation and of any
registered national securities exchange (or the
Commodity Futures Trading Commission or any registered
contract market), or of any similar organization,
regarding escrow or other arrangements in connection
with the transactions by a Portfolio;
(b) for purposes of segregating cash or government
securities in connection with options purchased or sold
or written by a portfolio;
(c) for the purpose of compliance by the Trust with the
procedures required by 1940 Act Release No. 10,666, or
any subsequent release, rule or policy of the
Securities and Exchange Commission ("SEC") relating to
the maintenance of segregated accounts by registered
investment companies; and
(d) for other proper corporate purposes, but only in the
case of this clause upon receipt of, in addition to
instructions as defined below, a certified copy of a
resolution of the Board of Trustees setting forth the
purpose of such segregated account and declaring such
purposes to be proper corporate purposes.
5. STATEMENTS. You shall notify us of each securities transaction
effected for the Custody Account and of income on and redemptions of the
securities in the Custody Account, as well as furnish us a listing of such
securities, at such times upon which you and we mutually agree. Periodic
statements shall be rendered to us as we may reasonably require, but not less
frequently than monthly. You shall at all times maintain proper books and
records that shall identify the securities as belonging to the appropriate
Portfolio. Your books and records relating to the Custody Account shall be
available for inspection upon reasonable notice to you during your regular
business hours by duly authorized officers, employees, or agents of ours, or
by legally authorized regulatory officials who are then in the process of
reviewing our financial affairs upon proof to you of such official status. You
agree to use reasonable efforts to maintain
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<PAGE>
records sufficient to enable us to determine and verify information concerning
the custodied securities. You agree to furnish, upon our request or the
request of any regulatory authority of any jurisdiction in which we are
authorized to do business, a verification certificate in sufficient detail to
permit adequate identification of the securities belonging to each Portfolio
and held by you under the terms of this Agreement. Such certificate shall be
signed by a responsible official of yours and furnished to the requestor, with
a copy to us if the requestor is a regulatory authority.
Unless we shall send to you a written exception or objection to any
statement of account within 60 days of our receipt of such statement from you,
we shall be deemed to have approved such statement. In such event, or where we
have otherwise approved such statement, you shall, to the extent permitted by
law, be released, relieved and discharged with respect to all matters set
forth in such statement or reasonably implied therefrom; provided, however,
that any matter that could not reasonably have been known by us or our agents
during the 60-day period shall survive past that time limit, and we shall have
available to us all legal remedies with respect to any matter set forth in or
reasonably implied from the statement.
6. CORPORATE ACTIONS. You shall send us such proxies (signed in
blank, if issued in your name or the name of your nominee or a nominee of a
Depository) and communications with respect to securities in the Custody
Account as call for voting or relate to legal proceedings within a reasonable
time after sufficient copies are received by you for forwarding to customers.
In addition, you shall follow coupon payments, redemptions, exchanges or
similar matters with respect to securities in the Custody Account and advise
us of rights issued, tender offers or any other discretionary rights with
respect to such securities, in each case, of which you receive notice at your
central corporate actions department from the issuer or from the Depository in
which such securities are held or notice published in publications and
reported in reporting services routinely used by you for this purpose. If we
desire to take action with respect to any tender offer, exchange offer or any
other similar transaction, we will notify you at least three (3) business-days
prior to the time such action must be taken under the terms of the
transaction, and it will be your responsibility to transmit the notice to the
appropriate parties on a timely basis. If we do not notify you of our desired
action within the three (3) business-day period, you will use your best
efforts to transmit on a timely basis our notice to the appropriate person,
but you will not be liable for any failure to do so if such transmission was
not practicable.
7. CUSTODIAN RESPONSIBILITY. Except as provided in the next following
paragraph, you shall be obligated to indemnify us for any loss of securities
credited to the Custody Account resulting from (i) the negligence or willful
misconduct of you or your officers, employees or agents retained by you to
hold such securities or (ii) the burglary, robbery, hold-up, theft or
mysterious disappearance, including loss by damage or destruction. In the
event of a loss of securities in the Custody Account for which you are
required to indemnify us pursuant to the immediately preceding sentence, at
your option, you shall promptly replace such securities (by among other means
posting appropriate security or bond with the issuer(s) of such securities and
obtaining their reissue) or the value thereof (determined based upon the
market value of the securities which are the subject of such loss as of the
date of the discovery of such loss) and the
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value of any loss of rights or privileges resulting from the loss of such
securities. The foregoing indemnity shall be your exclusive liability to us
for your loss of securities from the Custody Account. You shall be responsible
for exercising good faith and reasonable care in carrying out your duties and
obligations under this Agreement. In respect of all your other duties and
obligations pursuant to the terms of this Agreement, you shall be liable to us
only to the extent of our general damages suffered or incurred as a result of
any act or omission of you or your officers, employees or agents which
constitutes negligence or willful misconduct. Such negligence or willful
misconduct may be deemed to have occurred to the extent you fail to carry out
your duties, including the supervisory oversight of your personnel having
responsibilities relating to the Trust or the Portfolios, in good faith with
the reasonable care constituting the standard in the industry as it relates to
the handling of the property of investment companies registered under the 1940
Act. General damages shall mean only those damages as directly and necessarily
result from such act or omission without reference to any special conditions
or circumstances of ours or of any transaction, whether or not you have been
advised of any such special conditions or circumstances. Anything in this
Agreement to the contrary notwithstanding, in no event shall you be liable to
us under this Agreement for special, indirect or consequential loss or damage
of any kind whatsoever, whether or not you are advised as to the possibility
of such loss or damage and regardless of the form of action in which any such
loss or damage may be claimed.
You shall at all times maintain a bond issued by a reputable fidelity
insurance company authorized to do business in the place where the bond is
issued. The bond will be issued against larceny and embezzlement, and will
cover each of your officers and employees who may, singly or jointly with
others, have access to our securities or funds, either directly or through
authority to receive and carry out any certificate instruction, order request,
note or other instrument required or permitted by this Agreement. You agree
that you will not cancel, terminate or modify the bond so as to affect us
adversely, except after written notice to us not less than ten (10) days prior
to the effective date of such cancellation, termination or modification. You
will furnish us with a copy of each such bond and each amendment thereto.
You shall not be liable for the acts or omissions of (or the
bankruptcy or insolvency of) any Depository. If, however, as a result of any
act or omission of, or the bankruptcy or insolvency of, any Depository we
suffer any loss or liability, you will take such steps with respect thereto in
order to effect a recovery as you shall reasonably deem appropriate under the
circumstances (including the bringing and settling of legal proceedings),
provided that unless you shall be liable as set forth in the immediately
preceding paragraph of this Agreement, for such loss or liability by virtue of
the negligence or misconduct of you or your officers, employees or agents, the
amount of any cost or expense in effecting, or attempting to effect, such
recovery shall be for our account, and you shall have the right to charge such
cost or expense to the Cash Account. We further agree to be bound by the
Depository rules and procedures applicable to you as a participant in respect
of any securities held by you in your account with such Depository.
"Depository" shall mean a federal reserve bank and any "clearing corporation"
as defined under Article 8 of the New York Uniform Commercial Code, as amended
from time to time.
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<PAGE>
All collection and receipt of funds or securities and all payment and
delivery of funds or securities under this Agreement shall be made by you as
our agent, at our risk with respect to our actions or omissions and those of
persons other than you, including, without limitation, the risk associated
with the securities processing practice of delivering securities against a
receipt and the risk that the counterparty in any transaction into which we
enter will not transfer funds or securities or otherwise perform in accordance
with our expectation of its obligations thereunder (including, without
limitation, where, as a result of such nonperformance, a Depository reverses,
or requires repayment of, any credit given in connection with the transfer of
securities).
You will perform all your duties in a timely manner. What constitutes
timeliness in connection with a particular action will be determined by the
standards of the industry as they apply to the specific type of transaction in
question and taking into account relevant facts and circumstances.
In no event shall you be responsible or liable for any loss due to
forces beyond your control, including, but not limited to, acts of God, flood,
fire, nuclear fusion, fission or radiation, war (declared or undeclared),
terrorism, insurrection, revolution, riot, strikes or work stoppages for any
reason, embargo, closure or disruption of any market, government action,
including any laws, ordinances, regulations or the like which restrict or
prohibit the providing of the services contemplated by this Agreement,
inability to obtain equipment or communications facilities, or the error in
transmission of information caused by any machines or systems or the failure
of equipment or interruption of communications facilities, and other causes
whether or not of the same class or kind as specifically named above. In the
event that you are unable substantially to perform for any of the reasons
described in the immediately preceding sentence, you shall so notify us as
soon as reasonably practicable.
You shall be responsible for only those duties expressly stated in
this Agreement or expressly contained in instructions to perform the services
described herein given to you pursuant to the provisions of this Agreement and
accepted by you and. without limiting the foregoing, you shall have no duty or
responsibility:
(a) to supervise the investment of, or make recommendations
with respect to the purchase, retention or sale of, securities relating to the
Custody Account;
(b) with regard to any security in the Custody Account as to
which a default in the payment of principal or interest has occurred, to give
notice of default, make demand for payment or take any other action with
respect to such default;
(c) except as otherwise specifically provided in this
section under the heading "Custodian Responsibility", for any act or omission,
or for the solvency or insolvency, or notice to us of the solvency or
insolvency, of any broker or agent which is selected by you with reasonable
care or by us or any other person to effect any transaction for the Custody
Account or to perform any service under this Agreement;
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(d) to evaluate, or report to us regarding, the financial
condition of any person, firm or corporation to which you deliver securities
or funds pursuant to this Agreement:
(e) for any loss occasioned by delay in the actual receipt
of notice by you of any payment, redemption or other transaction in respect to
which you are authorized to take some action pursuant to this Agreement; or
(f) for any errors or omissions made by any securities
pricing service used by you to value securities credited to the Custody
Account as part of any service subscribed to by us from you.
8. SETTLEMENTS. We agree with you that all credits of securities and
proceeds by you to the Custody Account and the Cash Account, respectively, on
the settlement or payable date shall be provisional when made and you shall be
entitled to reverse any such credits subject to actual receipt or collection
of immediately available funds.
We shall have sufficient immediately available funds each day in the
Cash Account to pay for the settlement of all securities delivered against
payment to you and credited to the Custody Account. Should we fail to have
sufficient immediately available funds in the Cash Account to settle these
deliveries of securities pursuant to the preceding sentence (a "Deficit"),
you, in your sole discretion, may elect (i) to reject the settlement of any or
all of the securities delivered to you that day to the Custody Account, (ii)
to settle the deliveries on our behalf and debit the Cash Account (A) for the
amount of such Deficit and (B) for the amount of the funding or other cost or
expense incurred or sustained by you for our failure to have sufficient
immediately available funds in the Cash Account by the applicable settlement
deadline for you, or (iii) to reverse the posting of the securities credited
to the Custody Account.
You shall have the right to reverse any erroneous or provisional
credit entries to the Cash Account retroactively to the date upon which the
correct entry, or no entry, should have been made.
The foregoing rights are in addition to and not in limitation of any
other rights or remedies available to you under this Agreement or otherwise.
Any advances made by you to us in connection with the purchase, sale,
redemption, transfer or other designation of securities or in connection with
disbursements of funds to any party, which create or result in an overdraft in
the Cash Account shall be deemed a loan by you to us, payable on demand, and
bear interest on the amount of the loan each day that the loan remains unpaid
at your prime rate in effect as announced by you from time to time, plus the
cost to you of any required reserves; subject, however, to any limitations on
borrowing in the Portfolios' registration statement filed with the Securities
and Exchange Commission. We shall also bear the cost of any Federal Reserve
Bank daylight overdraft charge incurred by you and allocated to transactions
effected for the Custody Account or the Cash Account.
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<PAGE>
No prior action or course of dealing on your part with respect to the
settlement of securities transactions on our behalf shall be used by or give
rise to any claim or action by us against you for your refusal to pay or
settle for a securities transaction we have not timely funded as required
herein.
9. RESPONSIBLE AS PRINCIPAL. We agree that we shall be responsible to
you as a principal for all of our obligations to you arising under or in
connection with this Agreement, notwithstanding that we may be acting on
behalf of other persons, and we warrant our authority to deposit in the
Custody Account and Cash Account, respectively, any securities and funds which
you or your agents receive therefor and to give instructions relative thereto.
We further agree that you shall not be subject to, nor shall your rights and
obligations with respect to this Agreement and the Custody Account or the Cash
Account be affected by, any agreement between us and any such person.
10. CREDITING AND DEBITING PROCEDURES. With respect to all
transactions for the Custody Account and the Cash Account, including, without
limitation, dividend and interest payments and sales and redemptions of
securities, availability of funds credited to the Custody Account and Cash
Account shall be based on the type of funds used in the trade settlement or
payment, including, but not limited to, same day availability for federal or
same day funds and next business day availability for clearing house or next
day funds. Furthermore, with respect to all purchases and sales of securities
for the Custody Account, the proceeds from the sale of securities shall be
credited to the Cash Account on the date proceeds are received by you and the
cost of securities purchased shall be debited to the Cash Account on the date
securities are received by you, unless we request your contractual settlement
service for the Custody Account in which case the following provisions shall
apply with respect to the delivery and receipt of securities for the Custody
Account for those securities and transactions as to which you customarily
offer this service.
(a) When we instruct you to deliver or receive securities,
on the contractual settlement date you shall credit the Cash Account with the
expected proceeds of the transaction and debit the Custody Account for the
securities which we have instructed you to deliver, in the case of deliveries,
and debit the Cash Account for the cost of the securities which we have
instructed you to receive and credit the Custody Account with such securities,
in the case of receives. These credits and debits are provisional accounting
entries which you shall reverse on our instructions and which you may reverse,
even in the absence of instructions from us, if the transaction with respect
to which they were made fails to settle within a reasonable period, determined
by you in your discretion, after the contractual settlement date, but only
upon prior or simultaneous notice to us. If you deliver securities which are
returned by the recipient thereof, you may reverse such credits and debits at
any time. You have no obligation to use this crediting and debiting procedure
with respect to a delivery of securities if we do not have actually in our
account sufficient securities to make the delivery. If we agree in writing,
you may use a different crediting and debiting procedure as long as it is
reasonably customary in the industry, and qualifies under the standard imposed
on you to carry out your duties under this Agreement in good faith using
reasonable care.
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(b) As with other transactions processed by you, your
responsibility with respect to transactions for which you use this crediting
and debiting procedure shall be governed by the provisions of this Custody
Agreement, including the section headed "Custodian Responsibility". We agree
that your using this procedure is not an assurance by you that the transaction
will actually settle on the contractual settlement date and does not impose
any additional responsibility on you with respect to the transaction. Without
limiting your right to reverse credits and debits described above, the account
statements which you furnish to us shall reflect transactions as to which you
use this procedure as if they had actually settled on the contractual
settlement date, unless prior to the date to which the statement relates, you
have reversed such credits and debits.
(c) We agree that you may terminate this contractual
settlement service to us at any time and for any reason.
With respect to securities or transactions as to which you do not
customarily offer this service, you shall (i) in the case of deliveries of
securities, credit the proceeds of the transaction to the Cash Account on the
date they are received by you and debit the securities from the Custody
Account on the date they are delivered by you, and (ii) in the case of
securities received, debit the Cash Account for the cost of such securities
and credit the Custody Account with such securities on the date the securities
are received by you.
11. SWEEP OF CASH BALANCES. You are authorized to arrange for the
investment of cash in the Cash Account in mutual funds (including, without
limitation, the VISTA Money Market Funds and any other mutual fund with
respect to which you or an affiliate or subsidiary of yours serves as an
investment adviser, administrator, shareholder servicing agent, and/or
custodian or subcustodian) or money market accounts (including, without
limitation, accounts of yours or an affiliate or subsidiary of yours) which
you make available for such purposes and which we shall select through
instructions to you, BUT ONLY IF: (i) you do not receive contrary instructions
from us; (ii) our Board of Trustees approves the arrangement; (iii) the
arrangement does not violate any federal or state laws, regulations or
interpretations applicable to us and the Portfolios; and (iv) the arrangement
does not violate any investment objectives, policies or restrictions
applicable to us and the Portfolios. Further, in this regard and in the
absence of prohibitions or contrary instructions, you are authorized to
arrange for the redemption of such mutual fund shares or for the withdrawal of
amounts from such money market accounts as may be necessary to avoid any
potential overdraft hereunder that you perceive based upon the information
available to you at the time of such redemption or withdrawal.
12. OTHER ACCOUNTS. From time to time we may instruct you to open and
maintain more than one Custody Account for us. Unless we and you otherwise
expressly agree, such accounts will be governed by the provisions of this
Agreement.
13. FEES. We agree to pay you compensation for your services pursuant
to this Agreement according to the attached Addendum.
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<PAGE>
14. EXEMPTION FROM LIEN. Except as otherwise provided in this
Agreement, the securities and other assets held by you for a Portfolio will be
subject to no lien or charge of any kind in your favor or in the favor of any
person claiming through you, but nothing in this Agreement will be deemed to
deprive you of your right to invoke any and all remedies available at law or
equity to called amounts due to you under this Agreement. Neither you nor your
agents have any power or authority to assign, hypothecate, pledge or otherwise
dispose of any securities held by you for a Portfolio, except at our direction
duly given or provided in this Agreement, and only for the account of the
Portfolio.
15. TERMINATION. Either party may terminate this Agreement at any
time upon thirty days written notice. Our obligations pursuant to the
paragraphs under the headings "Registration", "Settlements" and "Fees" shall
survive the termination of this Agreement, to the extent the survival of those
provisions does not violate any applicable law.
16. NOTICES. Notices with respect to termination, specification of
Authorized Officers and terms and conditions for instructions required
hereunder shall be in writing, and shall be deemed to have been duly given if
delivered personally, by courier service or by mail, postage prepaid, to the
following addresses (or to such other address as either party hereto may from
time to time designate by notice duly given in accordance with this
paragraph):
To us at:
To you, to the attention of the individual designated by you
as the safekeeping account administrator for our account, at:
The Chase Manhattan Bank
Institutional Client Services
4 New York Plaza, 4th Floor
New York, New York 10004
17. CONFIDENTIALITY. You agree to treat as confidential all record
and other information relating to us and the Portfolios and their prior,
present or future shareholders. You agree to keep such information
confidential except when requested to divulge such information by duly
constituted authorities, or when so requested by us. If requested to divulge
confidential information, you will not release the information until you
notify us in writing and receive approval from us in writing. Approval by us
will not be unreasonably withheld and may not be withheld where you may be
exposed to civil or criminal contempt proceedings for failure to comply.
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<PAGE>
18. GOVERNING LAW, SUCCESSORS AND ASSIGNS, HEADINGS. This Agreement
shall be governed by and construed in accordance with the laws of the State of
New York, without regard to laws as to conflicts of laws, and shall be binding
on our and your respective successors and assigns. We and you hereby
irrevocably submit to the exclusive jurisdiction of the state and federal
courts in the State and County of New York for the purposes of any suit,
action or other proceedings arising out of this Agreement. We and you hereby
irrevocably waive any objection on the ground of venue, forum non conveniens,
or any similar grounds, and irrevocably consent to service of process by mail
or in any manner permitted by New York law. The headings of the paragraphs
hereof are included for convenience of reference only and do not form a part
of this Agreement.
19. INTERPRETIVE AND ADDITIONAL PROVISIONS. In connection with the
operation of this Agreement, we may from time to time agree on such provisions
interpretive of or in addition to the provision of this Agreement as may in
our joint opinion be consistent with the general tenor of this Agreement. Any
such interpretive or additional provisions will be in a writing signed by both
of us and will be annexed to this Agreement. No interpretive or additional
provisions will contravene any applicable federal or state regulations or any
provision of the Governing Documents of the Trust, nor will they be deemed
amendments to this Agreement. (The term "Governing Documents" refers to the
Trust Instrument, Bylaws and Registration Statement filed under the Securities
Act of 1933, as amended from time to time with regard to the Trust.)
20. DELAWARE BUSINESS TRUST. With respect to the Trust, which is a
party to this Agreement and which is organized as a business trust under the
Delaware Business Trust Act, the term Trust means and refers to the Trustees
serving under the applicable Trust Instrument. It is expressly understood that
the obligations of the Trust under this Agreement will not be binding on any
of the Trustees, Portfolio shareholders, nominees, officers, agents or
employees of the Trust personally, but bind only the property of the Trust's
Portfolios.
21. PRIOR PROPOSALS. This Agreement (including any Riders relating to
additional services in respect of the Custody Account we may request of you)
shall contain the complete agreement of the parties hereto with respect to the
Custody Account (except as may be expressly provided to the contrary herein)
and supersedes and replaces any previously made proposals, representations,
warranties or agreements with respect thereto by either or both of the parties
hereto. This Agreement shall become effective upon execution hereof by us and
acceptance by you or as of the effective date of the Trust or its commencement
of operations, as we mutually agree.
22. SEPARABILITY. Any provisions of this Agreement which may be
determined by competent authority to be prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in
any other jurisdiction.
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<PAGE>
23. RESERVATION OF RIGHT. You shall have the right not to accept for
deposit to the Custody Account any securities which are in a form or condition
which you, in your sole discretion, determine not to be suitable for the
services you provide under this Agreement.
24. ADDITIONAL DUTIES. If we shall ask you to perform duties or
responsibilities not specifically set forth in this Agreement and you choose
to perform such additional duties or responsibilities, you shall be held to
the same standard of care and you shall be entitled to all the protective
provisions (including but not limited to limitation of liability and
indemnification) set forth herein.
25. COUNTERPARTS. This Agreement may be executed in several
counterparts each of which shall be deemed to be an original and together
shall constitute one and the same agreement.
26. MISCELLANEOUS. We understand that we may request to have a
Custody Account established under this Agreement which is not linked to a Cash
Account. We understand further that with respect to any such Custody Account
so established any funds received by you in respect of transactions for such
Custody Account will be credited to the Custody Account and, further, funds
credited to the Custody Account must be transferred by us by means of
instruction (a "payment order") to one of your account administrators assigned
by you for the Custody Account, which you will identify to us. We agree that
payment orders and communications seeking to cancel or amend payment orders
which are issued by telephone, telecopier or in writing shall be subject to a
mutually agreed security procedure and you may execute or pay payment orders
issued in our name when verified by you in accordance with such procedure.
In executing or paying a payment order you may rely upon the
identifying number (e.g. Fedwire routing number or account) or any party as
instructed in the payment order.
With respect to any Custody Account established under this Agreement
which is not linked to a Cash Account, all references to Cash Account shall be
read to mean Custody Account.
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<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this instrument to
be executed in its name and on its behalf by its duly authorized
representative and its seal to be affixed as of ___________________________.
EQ ADVISORS TRUST
By: ____________________________
Title: _________________________
Date: __________________________
THE CHASE MANHATTAN BANK
By: __________________________
Title: _______________________
Date: ________________________
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<PAGE>
GLOBAL CUSTODY RIDER
TO
DOMESTIC CUSTODY AGREEMENT
FOR
MUTUAL FUNDS
We hereby request you, The Chase Manhattan Bank, to provide to us and
the Portfolios Global Custody Services subject to the terms of our Domestic
Custody Agreement with you, and the terms herein. If there is any conflict
between the terms in our Domestic Custody Agreement and the terms in this
Rider with regard to your providing Global Custody Services to us, the terms
of this Rider shall govern. The terms of this Rider shall be effective as of
the date you commence to provide Global Custody Services to us.
1. Maintenance of Securities and Cash Outside the United States.
Unless our instructions specifically require another location
acceptable to you and permitted under applicable law:
(a) securities shall be held in the country or other jurisdiction in
which the principal trading market for such securities are located, where such
securities are to be presented for payment or where such securities are
acquired; and
(b) cash shall be credited to an account in a country or other
jurisdiction in which such cash may be legally deposited or is the legal
currency for the payment of public or private debts.
Cash may be held pursuant to instructions in either interest or
non-interest bearing accounts as may be available for the particular currency.
To the extent you can comply with our instructions to you, you are authorized
to maintain cash balances on deposit for us with you or one of your
"Affiliates" at such reasonable rates of interest as may from time to time be
paid on such accounts, or in non-interest bearing accounts as we may direct,
if acceptable to you. For purposes hereof, the term "Affiliate" shall mean an
entity controlling, controlled by, or under common control with, Bank.
If we wish to have any of the securities held in the custody of an
institution other than the established Subcustodians as defined in Section 2
hereof (or their securities depositories), such arrangement must be authorized
by a written agreement, signed by you and us.
2. Subcustodians and Depositories.
You may act under this Rider through the subcustodians listed in
Schedule A hereto with which you have entered into subcustodial agreements
("Subcustodians"). We authorize you to
<PAGE>
hold securities recorded to the Custody Account in accounts which you have
established with one or more of your branches or Subcustodians. You and
Subcustodians are authorized to hold any of the securities in your accounts
with any Depository in which you or they participate.
You may add new, replace or remove Subcustodians. We shall be given
reasonable notice by you of any amendment to Schedule A. Upon our request, you
shall identify the name, address and principal place of business of any
Subcustodian of our securities and the name and address of the governmental
agency or other regulatory authority that supervises or regulates such
Subcustodian.
With respect to securities maintained outside the United States, the
terms Subcustodian and securities depositories as used herein shall mean a
branch of a qualified U.S. bank, an eligible foreign custodian or an eligible
foreign securities depository as those terms are defined in Rule 17f-5 under
the 1940 Act.
We represent that our Board of Directors has approved each of the
Subcustodians listed in Schedule A hereto and that our Board has determined
that the use of each Subcustodian is consistent with the best interests of the
Trust, the relevant Portfolios and their shareholders (to the extent such
approvals are required under the 1940 Act). You shall supply us with any
proposed amendment to Schedule A, but you shall not place Trust assets with
proposed Subcustodians until you have received from us evidence of a certified
resolution representing Board approval of such amendment, as required. We have
supplied or shall supply you with certified copies of our Board of Trustees
resolutions with respect to the foregoing prior to your placing securities
with any Subcustodian so approved.
3. Use of Subcustodian.
(a) You shall identify the securities on your books as belonging to
us.
(b) A Subcustodian shall hold the Portfolios' securities in accounts
identified on such Subcustodian's books as for your exclusive benefit as our
agent.
(c) Any securities in the accounts held by a Subcustodian shall be
subject only to the instruction of you or your agent. Any securities held in a
Depository for the account of a Subcustodian shall be subject only to the
directions of such Subcustodian.
(d) Any agreement you enter into with a Subcustodian for holding your
customers' assets shall provide that (i) such assets shall not be subject to
any right, charge, security interest, lien or claim of any kind in favor of
such Subcustodian except for safe custody or administration; (ii) the
beneficial ownership of such assets shall be freely transferable without the
payment of money or value other than for safe custody or administration; (iii)
adequate records will be maintained identifying the assets as belonging to us;
(iv) your officers or auditors employed by you, or other representative of
yours, including, to the extent permitted under applicable law, our
independent public accounts, will be given access to the books and records of
the
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<PAGE>
Subcustodian relating to its actions under its agreements with you; and (v)
our assets held by the Subcustodian will be subject only to your instructions
or the instructions of your agent. Where securities are deposited by a
Subcustodian with a securities depository, you shall cause the Subcustodian to
identify on its books as belonging to you, as agent, the securities shown on
the Subcustodian's account on the books of such securities depository. The
foregoing shall not apply to the extent of any special agreement or
arrangement made by us with any particular Subcustodian.
4. Global Securities Account Transactions.
(a) Securities shall be transferred, exchanged or delivered by you or
Subcustodian upon receipt by you of instructions which include all information
required by you. Settlement and payment for securities received for, and
delivery of securities out of, the Custody Account may be made in accordance
with the customary or established securities trading or securities processing
practices and procedures in the jurisdiction or market in which the
transaction occurs, including, without limitation, delivery of securities to a
purchaser, dealer or their agents against a receipt with the expectation of
receiving later payment and free delivery. Delivery of securities out of the
Custody Account may be made in any manner specifically required by our
instructions acceptable to you.
All collections of funds or other property paid or
distributed in respect of securities in the Custody Account shall be made at
our risk. You shall have no liability for any loss occasioned by delay in the
actual receipt of notice by you or by Subcustodians of any payment, redemption
or other transaction regarding securities in the Custody Account in respect of
which you have agreed to take any action under the Agreement.
5. Corporate Actions; Proxies; Tax Reclaims.
(a) Corporate Actions. Whenever you receive information concerning
the securities which requires discretionary action by the beneficial owner of
the securities (other than a proxy), such as subscription rights, bonus
issues, stock repurchase plans and rights offerings, or legal notices or other
material intended to be transmitted to securities holders ("Corporate
Actions"), you shall give us notice of such Corporate Actions to the extent
that your central corporate actions department has actual knowledge of a
Corporate Action in time to notify your customers.
When a rights entitlement or a fractional interest resulting from a
rights issue, stock dividend, stock split or similar Corporate Action is
received which bears an expiration date, you shall endeavor to obtain
instructions from us or an Authorized Officer, but if instructions are not
received in time for you to take timely action, or actual notice of such
Corporate Action was received too late to seek instructions, you are
authorized to sell such rights entitlement or fractional interest and to
credit the Cash Account with the proceeds or take any other action you deem,
in good faith, to be appropriate in which case you shall be held harmless for
any such action.
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<PAGE>
(b) Proxy Voting. You shall provide proxy voting services, if elected
by us, in accordance with the terms of the Proxy Voting Services Rider hereto.
Proxy voting services may be provided by you or, in whole or in part, by one
or more third parties appointed by you (which may be your Affiliates);
provided that you shall be liable for the performance of any such third party
to the same extent as you would have been if you performed such services
yourself. If you provide such services, it will be with the recognition of
your assumption of any fiduciary duty we have to vote the shares of any stock
owned consistent with the investment objectives, policies and restrictions of
the Portfolios.
(c) Tax Reclaims.
(i) Subject to the provisions hereof, you shall apply for a reduction
of withholding tax and any refund of any tax paid or tax credits
which apply in each applicable market in respect of income payments
on securities for our benefit which you believe may be available to
us.
(ii) The provision of tax reclaim services by you is conditional upon
your receiving from us or to the extent beneficially owned by others,
the beneficial owners, of securities (A) a declaration of its
identity and place of residence and (B) certain other documentation
(pro forma copies of which are available from you). We acknowledge
that, if you do not receive such declarations, documentation and
information, additional United Kingdom taxation shall be deducted
from all income received in respect of securities issued outside the
United Kingdom and that U.S. non-resident alien tax or U.S. backup
withholding tax shall be deducted from U.S. source income. We shall
provide to you such documentation and information as you may require
in connection with taxation, and warrant that, when given, this
information shall be true and correct in every respect, not
misleading in any way, and contain all material information. We
undertake to notify you immediately if any such information requires
updating or amendment.
(iii) You shall not be liable to us or any third party for any taxes,
fines or penalties payable by you or us, and shall be indemnified
accordingly, whether these result from the inaccurate completion of
documents by us or any third party, or as a result of the provision
to you or any third party or inaccurate or misleading information or
the withholding of material information by us or any other third
party, or as a result of any delay of any revenue authority or any
other matter beyond your control.
(iv) We confirm that you are authorized to deduct from any cash
received or credited to the Cash Account any taxes or levies required
by any revenue or governmental authority for whatever reason in
respect of the Custody Account.
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<PAGE>
(v) You shall perform tax reclaim services only with respect to
taxation levied by the revenue authorities of the countries notified
to us from time to time and you may, by notification in writing, at
your absolute discretion, supplement or amend the markets in which
the tax reclaim services are offered. Other than as expressly
provided in this sub-clause, you shall have no responsibility with
regard to our tax position or status in any jurisdiction.
(vi) We confirm that you are authorized to disclose any information
requested by any revenue authority or any governmental body in
relation to us or the securities and/or cash held for us.
(vii) Tax reclaim services may be provided by you or, in whole or in
part, by one or more third parties appointed by you (which may be
your Affiliates); provided that you shall be liable for the
performance of any such third party to the same extent as you would
have been if you performed such services yourself.
6. Nominees.
Securities which are ordinarily held in registered form may be
registered in a nominee name of yours, Subcustodian or Depository, as the case
may be. You may without notice to us cause any such securities to cease to be
registered in the name of any such nominee and to be registered in our name.
We agree to hold you, Subcustodian, Depository and your and their respective
nominees harmless from any liability arising directly or indirectly from your
or their status as a mere record holder of securities in the Custody Account.
7. Standard of Care.
(a) Delete the second paragraph under "Custodian Responsibility" and
insert, in lieu thereof, the following
You shall be liable to us for any loss which shall occur as the
result of the failure of a Subcustodian to exercise reasonable care
with respect to the safekeeping of securities to the same extent that
you would be liable to us if you were holding such securities in New
York. In the event of any loss to us by reason of the failure of a
Subcustodian to utilize reasonable care, you shall be liable to us
only to the extent of our direct damages, to be determined based on
the market value of the property which is the subject of the loss at
the date of discovery of such loss and without reference to any
special conditions or circumstances. You shall have no liability
whatsoever for any consequential, special, indirect or speculative
loss or damages (including, but not limited to, lost profits)
suffered by us in connection with the transactions contemplated
hereby and the relationship established hereby even if you have been
advised as to the possibility of the same and regardless of the form
of the action. You shall not be responsible for the insolvency of any
Subcustodian which is not a branch of your Affiliate except that you
will be held to a standard of reasonable care in not entering into
any arrangement where,
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<PAGE>
through the due diligence you are required to undertake, you have
reason to know that the Subcustodian is financially insecure or, with
respect to an ongoing relationship, you have reason to know that the
financial stability of the Subcustodian has deteriorated to the point
where it has become imprudent to maintain the subcustodial
relationship.
(b) Add the following at the end of the "Custodian Responsibility" section:
(i) You shall be entitled to rely, and may act, upon the advice of
counsel (who may be counsel for us) on all matters and shall be
without liability for any action reasonably taken or omitted pursuant
to such advice.
(ii) Without limiting anything else contained in this Section, you
shall not be liable for any loss which results from: 1) the general
risk of investing, or 2) investing or holding securities in a
particular country including, but not limited to, nationalization,
expropriation or other governmental actions; regulation of the
banking or securities industry; currency restrictions, devaluations
or fluctuations; and market conditions which prevent the orderly
execution of securities transactions or affect the value of
securities.
(iii) Consistent with and without limiting the remainder hereof, it
is specifically acknowledged that you shall have no duty or
responsibility to: (i) question instructions; (ii) supervise or make
recommendations with respect to investments or the retention of
securities; (iii) advise us or any Authorized Person regarding any
default in the payment of principal or income of any security; (iv)
review or reconcile trade confirmations received from brokers. We
shall bear any responsibility to review such confirmations against
instructions issued to and statements issued by you.
(iv) We authorize you to act hereunder (but do not indemnify you or
assume any liabilities you might incur in connection with actions you
take which are deemed by any regulatory agency or court of law to be
improper) notwithstanding that you or any of your divisions or
Affiliates may have a material interest in a transaction, or
circumstances are such that you may have a potential conflict of duty
or interest including the fact that you or any of your Affiliates may
provide brokerage services to other customers, act as financial
advisor to the issuer of securities, act as a lender to the issuer of
securities, act in the same transaction as agent for more than one
customer, have a material interest in the issue of securities, or
earn profits from any of the activities listed herein.
(v) You hereby warrant to us that in your opinion, after due inquiry,
the established procedures to be followed by each of your branches,
each branch of a qualified U.S. Bank, each eligible foreign custodian
and each eligible foreign securities depository holding our
securities pursuant hereto afford protection for such securities at
least equal to that afforded by your established procedures with
respect to similar securities held by you and your securities
depositories in New York.
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<PAGE>
(c) Each agreement pursuant to which you employ a Subcustodian will
require the institution to exercise reasonable care in the
performance of its duties and to indemnify, and hold harmless, both
you and us from and against any loss, damage, cost, expense,
liability or claim arising out of or in connection with the
institution's performance of such obligations. At our election we
will be entitled to be subrogated to your rights with respect to any
claims against a Subcustodian as a consequence of any such loss,
damage, cost, expense, liability or claim if and to the extent that
we have not been made whole for any such loss, damage, expense,
liability or claim.
8. Fees and Expenses.
We agree to pay you for Global Custody Services hereunder the fees
set forth in Schedule B hereto or such other amounts as may be agreed upon in
writing.
9. Purposes for instructions.
Cash Account and Custody Account transactions made pursuant hereto
may be made only for the purposes listed below. Instructions must
specify the purpose for which any transaction is to be made and we
shall be solely responsible to assure that instructions are in accord
with any limitations or restrictions applicable to us by law or as
may be set forth in our prospectus.
(a) In connection with the purchase or sale of securities at prices
as confirmed by instructions;
(b) When securities are called, redeemed or retired, or otherwise
become payable;
(c) In exchange for or upon conversion into other securities alone or
other securities and cash pursuant to any plan or merger,
consolidation, reorganization, recapitalization or readjustment;
(d) Upon conversion of securities pursuant to their terms into other
securities;
(e) Upon exercise of subscription, purchase or other similar rights
represented by securities;
(f) For the payment of interest, taxes, management or supervisory
fees, distribution or operating expenses;
(g) In connection with any borrowings by us requiring a pledge of
securities, but only against receipt of amounts borrowed;
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(h) In connection with any loans, but only against receipt of
adequate collateral as specified in instructions which shall reflect
any restrictions applicable to us;
(i) For the purpose of redeeming shares of our capital stock and the
delivery to, or the crediting to the account of yours, your
Subcustodian or our transfer agent, such shares to be purchased or
redeemed;
(j) For the purpose of redeeming in kind shares of ours against
delivery to you, your Subcustodian or our transfer agent of such
shares to be so redeemed;
(k) For delivery in accordance with the provisions of any agreement
among you, us and a broker-dealer registered under the Securities
Exchange Act of 1934 and a member of The National Association of
Securities Dealers, Inc., relating to compliance with the rules of
The Options Clearing Corporation and of any registered national
securities exchange, or of any similar organization or organizations,
regarding escrow or other arrangements in connection with
transactions by us;
(l) For release of securities to designated brokers under covered
call options, provided, however, that such securities shall be
released only upon payment of you of monies for the premium due and a
receipt for the securities which are to be held in escrow. Upon
exercise of the option, or at expiration, you shall receive from
brokers the securities previously deposited. You shall act strictly
in accordance with instructions in the delivery of securities to be
held in escrow and shall have no responsibility or liability for any
such securities which are not returned promptly when due other than
to make proper request for such return;
(m) For spot or forward foreign exchange transactions to facilitate
security trading, receipt of income from securities or related
transactions;
(n) For other proper purposes as may be specified in instructions
issued by an officer of ours which shall include a statement of the
purpose for which the delivery or payment is to be made, the amount
of the payment or specific securities to be delivered, the name of
the person or persons to whom delivery or payment is to be made, and
a certification that the purpose is a proper purpose under the
instructions governing us; and
(o) Upon the termination hereof as set forth in Section [ ].
10. Miscellaneous.
(a) Foreign Exchange Transactions. To facilitate the administration
of our trading and investment activity, you are authorized to enter into spot
or forward foreign exchange contracts with us or an Authorized Officer for us
and may also provide foreign exchange through your subsidiaries, Affiliates or
Subcustodians. Instructions including standing instructions, may be issued
with respect to such contracts but you may establish rules or limitations
concerning
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any foreign exchange facility made available. In all cases where you and your
subsidiaries, Affiliates or Subcustodian and, to the extent not inconsistent,
the Agreement shall apply to such transaction.
(b) Access to Records. You shall allow our independent public
accountants reasonable access to records relating to the Custody Account as is
required in connection with their examination of books and records pertaining
to our affairs. Subject to restrictions under applicable law, you shall also
obtain an undertaking to permit our independent public accountants reasonable
access to the records of any Subcustodian which has physical possession of any
securities as may be required in connection with the examination of our books
and records. Upon our reasonable request, you shall furnish us such reports
(or portions thereof) of your system of internal accounting controls
applicable to your duties hereunder. You shall endeavor to obtain and furnish
us with such similar reports as it may reasonably request with respect to each
Subcustodian and securities depository holding securities.
(c) Representation. By accepting our securities for safekeeping, you
acknowledge that the securities being placed in your custody are subject to
the 1940 Act, as the same may be amended from time to time, and that your
handling of the securities will at all times be consistent with applicable
law.
(d) Compliance with Rule 17f-5. With respect to all aspects of
custodial services within your authority and control, and unless acting on
specific instructions from us to the contrary, you shall be responsible for
performing all actions with respect to our securities, and overseeing the
actions of Subcustodians with which you do business, in compliance with Rule
17f-5 under the 1940 Act.
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<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this instrument to
be executed in its name and on its behalf by its duly authorized
representative and its seal to be affixed as of ___________________________.
EQ ADVISORS TRUST
By: ____________________________
Title: _________________________
Date: __________________________
THE CHASE MANHATTAN BANK
By: __________________________
Title: _______________________
Date: ________________________
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APPENDIX A
March ____, 1997
The following Portfolios are covered by the Custodian Agreement dated
_________________________ between The Chase Manhattan Bank and EQ Advisors
Trust:
* T. Rowe Price International Stock Portfolio
Class IA and Class IB
* T. Rowe Price Equity Income Portfolio
Class IA and Class IB
* EQ/Putnam Growth & Income Value Portfolio
Class IA and Class IB
* EQ/Putnam International Equity Portfolio
Class IA and Class IB
* EQ/Putnam Investors Growth Portfolio
Class IA and Class IB
* EQ/Putnam Balanced Portfolio
Class IA and Class IB
* MFS Research Portfolio
Class IA and Class IB
* MFS Emerging Growth Companies Portfolio
Class IA and Class IB
* Morgan Stanley Emerging Markets Equity Portfolio
Class IA and Class IB
* Warburg Pincus Small Company Value Portfolio
Class IA and Class IB
* Merrill Lynch World Strategy Portfolio
Class IA and Class IB
* Merrill Lynch Basic Value Equity Portfolio
Class IA and Class IB
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SCHEDULE A
The following foreign banking institutions and foreign securities
depositories, referred to as Subcustodians in the Agreement, are hereby
authorized to provide subcustodial services to those Portfolios of the Trust
authorized to trade in foreign securities:
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EXHIBIT 9(a)
FORM OF
MUTUAL FUNDS SERVICE AGREEMENT
TRUST ADMINISTRATION AND COMPLIANCE SERVICES
TRUST ACCOUNTING SERVICES
CHASE GLOBAL FUNDS SERVICES COMPANY
______________, 1997
<PAGE>
MUTUAL FUNDS SERVICE AGREEMENT
TABLE OF CONTENTS
-----------------
SECTION PAGE
------- ----
1. Appointment 1
2. Representations and Warranties 1
3. Delivery of Documents 3
4. Services Provided 4
5. Fees and Expenses 5
5. Limitation of Liability and Indemnification 7
7. Term 10
8. Notices 10
9. Waiver 11
10. Force Majeure 11
11. Amendments 11
12. Severability 11
13. Governing Law 11
Signatures 12
14. Miscellaneous
15. Confidentiality
16. Signatures
Schedule A - Fees and Expenses A-1
Schedule B - Trust Administration and Compliance Services Description B-1
Schedule C - Trust Accounting Services Description C-1
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MUTUAL FUNDS SERVICE AGREEMENT
AGREEMENT made as of ________ __, 1997 by and between the EQ ADVISORS
TRUST (the "Trust"), a business trust organized under Delaware law, and CHASE
GLOBAL FUNDS SERVICES COMPANY ("Chase"), a Delaware corporation.
WITNESSETH:
WHEREAS, the Trust is registered as an open-end management investment
company of the series type under the Investment Company Act of 1940, as
amended (the "1940 Act"); and
WHEREAS, the Trust wishes to contract with Chase to provide certain
administrative, accounting and compliance services with respect to the Trust,
including its constituent portfolios (the "Portfolios" and, each, a
"Portfolio");
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. APPOINTMENT. The Trust hereby appoints Chase to provide
administrative, accounting and compliance services for the Trust, as described
hereinafter, subject to the supervision of the Board of Trustees of the Trust
(the "Board")and EQ Financial Consultants, Inc., the Trust's manager
("Manager"), for the period and on the terms set forth in this Agreement.
Chase accepts such appointment and agrees to furnish the services herein set
forth in return for the compensation as provided in Section 5 of and Schedule
A to this Agreement.
2. REPRESENTATIONS AND WARRANTIES.
(a) Chase represents and warrants to the Trust that:
(i) Chase is a corporation, duly organized and existing under
the laws of the State of Delaware;
(ii) Chase is duly qualified to carry on its business in the
State of New York and in the Commonwealth of Massachusetts in performance of
its duties under this Agreement;
(iii) Chase is empowered under applicable laws and by its
Articles of Incorporation and By-Laws to enter into and perform this
Agreement;
(iv) all requisite corporate proceedings have been taken to
authorize Chase to enter into and perform this Agreement;
(v) Chase has, and will continue to have, access to the
facilities, personnel and equipment required to fully perform its duties and
obligations hereunder;
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(vi) no legal or administrative proceedings have been instituted
or threatened which would impair Chase's ability to perform its duties and
obligations under this Agreement; and
(vii) Chase's entrance into this Agreement shall not cause a
material breach or be in material conflict with any other agreement or
obligation of Chase or any law or regulation applicable to Chase;
(b) The Trust represents and warrants to Chase that:
(i) the Trust is a Delaware business trust, duly organized and
existing and in good standing under the laws of the State of Delaware;
(ii) the Trust is empowered under applicable laws and by its
Charter Document and By-Laws to enter into and perform this Agreement;
(iii) all requisite proceedings have been taken to authorize the
Trust to enter into and perform this Agreement;
(iv) the Trust is an investment company properly registered
under the 1940 Act,
(v) a registration statement under the Securities Act of 1933,
as amended (" 1933 Act") and the 1940 Act on Form N-1A has been fled and will
be effective and will remain effective during the term of this Agreement, and
all necessary filings under the laws of the states will have been made and
will be currant during the term of this Agreement;
(vi) no legal or administrative proceedings have been instituted
or threatened which would impair the Trust's ability to perform its duties and
obligations under this Agreement;
(vii) the Trust's registration statements comply in all material
respects with the 1933 Act and the 1940 Act (including the rules and
regulations thereunder) and none of the Trust's prospectuses and/or statements
of additional information contain any untrue statement of material fact or
omit to state a material fact necessary to make the statements therein not
misleading; and
(viii) the Trust's entrance into this Agreement shall not cause
a material breach or be in material conflict with any other agreement or
obligation of the Trust or any law or regulation applicable to it.
3. DELIVERY OF DOCUMENTS. The Trust will promptly furnish to Chase such
copies, properly certified or authenticated, of contracts, documents and other
related information, other than confidential documents or information, that
Chase may reasonably request or require to properly discharge its duties. In
the event that the Trust does not furnish to Chase copies of any documents or
information that Chase requires to properly discharge its duties, Chase shall
not
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be liable to the Trust for any losses resulting from the failure to deliver
such documents or information. Such documents may include but are not limited
to the following:
(a) Resolutions of the Board authorizing the appointment of Chase to
provide certain services to the Trust and approving this Agreement;
(b) The Trust's Declaration of Trust;
(c) The Trust's By-Laws;
(d) The Trust's Notification of Registration on Form N-8A under the
1940 Act as filed with the Securities and Exchange Commission ("SEC");
(e) The Trust's registration statement including exhibits, as
amended, on Form N-1A (the "Registration Statement") under the 1933 Act and
the 1940 Act, as filed with the SEC;
(f) Copies of the Investment Management Agreement between the Trust
and the Manager (the "Management Agreement");
(g) Copies of each of the Investment Advisory Agreements between the
Manager and the investment advisers;
(h) The Trust's prospectus(es) and statement(s) of additional
information relating to all Trusts, series, portfolios and classes, as
applicable, and all amendments and supplements thereto (such Prospectus(es)
and Statement(s) of Additional Information and supplements thereto, as
presently in effect and as from time to time hereafter amended and
supplemented, herein called the "Prospectuses"); and
(i) Such other material agreements as the Trust may enter into from
time to time including securities lending agreements, futures and commodities
account agreements, brokerage agreements and options agreements.
4. SERVICES PROVIDED.
(a) Chase will provide the following services subject to the control,
direction and supervision of the Board and in compliance with the objectives,
policies and limitations set forth in the Trust's Registration Statement,
Declaration of Trust and By-Laws; applicable laws and regulations; and all
resolutions and policies implemented by the Board:
(i) Trust Administration,
(ii) Trust Accounting, and
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(iii) Compliance Services.
A detailed description of each of the above services is contained in Schedules
B and C, respectively, to this Agreement.
(b) Chase will also:
(i) provide, without additional cost to the Trust except for
out-of-pocket expenses, office facilities in an appropriate location with
respect to the provision of the services contemplated herein (which may be in
the offices of Chase or a corporate affiliate of Chase);
(ii) provide, without additional remuneration from or other cost
to the Trust except for out-of-pocket expenses, the services of individuals to
serve as officers of the Trust who will be designated by Chase and elected by
the Board subject to reasonable Board approval;
(iii) provide or otherwise obtain, without additional
remuneration from or other cost to the Trust except for out-of-pocket
expenses, personnel sufficient for provision of the services contemplated
herein;
(iv) furnish, at no additional cost to the Trust except for
out-of-pocket expenses, equipment and other materials, which are necessary or
desirable for provision of the services contemplated herein; and
(v) keep records, at no additional cost to the Trust except for
out-of-pocket expenses, relating to the services provided hereunder in such
form and manner as Chase may deem appropriate or advisable. To the extent
required by Section 31 of the 1940 Act and the rules thereunder, Chase agrees
that all such records prepared or maintained by Chase relating to the services
provided hereunder are the property of the Trust and will be preserved for the
periods prescribed under Rule 3la-2 under the 1940 Act and made available in
accordance with such Section and rules.
5. FEES AND EXPENSES.
(a) As compensation for the services rendered to the Trust pursuant
to this Agreement, as set forth in Section 4 and in Schedules B and C hereof,
the Trust shall pay Chase monthly fees determined as set forth in Schedule A
to this Agreement. Such fees are to be billed monthly and shall be due and
payable upon receipt of the invoice. If this Agreement becomes effective or
the provision of services under this Agreement terminates before the end of
any month, the fee for the part of the month from the effective date to the
end of the month or from the beginning of the month to the date of such
termination shall be prorated according to the proportion which such part
bears to the full monthly period and shall be payable upon the date of such
termination.
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(b) For the purpose of determining fees calculated as a function of
the Trust's assets, the value of the Trust's assets and net assets shall be
computed as required by its currently effective Prospectus, generally accepted
accounting principles, and resolutions of the . Board.
(c) The Trust may request additional services, additional processing,
or special reports, with such specifications and requirements as may be
reasonably required by Chase. If Chase elects to provide such additional
services or arrange for their provision, it shall be entitled to additional
fees and expenses at its customary rates and charges.
(d) Chase will bear its own expenses, in connection with the
performance of the services under this Agreement, except as provided herein or
as agreed to by the parties. The Trust agrees to bear all expenses that are
incurred in its operation and not specifically assumed by Chase. Such other
expenses to be incurred in the operation of the Trust and to be borne by the
Trust, include, but are not limited to: taxes; interest; brokerage fees and
commissions; salaries and fees of officers and trustees who are not officers,
directors, shareholders or employees of Chase, or the Manager, the Trust's
investment advisers, transfer agent, or distributor, SEC and state
registration and qualification fees, levies, fines and other charges; EDGAR
filing fees, processing services and related fees; postage and mailing costs;
costs of share certificates; management, investment advisory, transfer agency,
distribution, shareholder service and administration fees; charges and
expenses of data services, independent public accountants and custodians;
insurance premiums including fidelity bond premiums; legal expenses;
consulting fees; customary bank charges and fees; costs of maintenance of
trust existence; expenses of typesetting and printing of Trust prospectuses
for regulatory purposes and for distribution to current shareholders of the
Trust in the case of those classes of shares of any of the Portfolios that
have adopted a Rule 12b-1 plan, such classes of shares may bear the expense of
all other printing, production, and distribution of prospectuses, and
marketing materials provided to potential investors); expenses of printing and
production costs of shareholders' reports and proxy statements and materials;
expenses of proxy solicitation, proxy tabulation and Trust shareholder
meetings; costs and expenses of Trust stationery and forms; costs associated
with Trust, shareholder and Board meetings; trade association dues and
expenses; charges and expenses related to the CMO System licensed by Chase as
such system is utilized by Chase in conjunction with its obligations under
this Agreement; charges and expenses related to the Fund Works System licensed
by Chase, provided, however, that the Trust will only be responsible for a pro
rata share of such charges and expenses based upon the number of shareholder
reports produced by Chase utilizing this system; and any extraordinary
expenses and other customary Trust expenses. In addition, Chase may utilize
one or more independent pricing services to obtain securities prices and to
act as backup to the primary pricing services, in connection with determining
the net asset values of the Trust. The Trust will reimburse Chase for the
Trust's share of the cost of such pricing services based upon the actual
usage, or a pro-rata estimate of the use, of the services for the benefit of
the Trust.
(e) All fees, approved out-of-pocket expenses, or additional charges
of Chase shall be billed on a monthly basis and shall be due and payable upon
receipt of the invoice. Out-of-
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pocket expenses shall be considered and approved in accordance with Expense
Approval Guidelines as mutually agreed upon by the parties hereto from time to
time.
(f) Chase will render, after the close of each month in which
services have been furnished, a statement reflecting all of the charges for
such month.
(g) The Trust must notify Chase in writing of any contested amounts
within sixty (60) days of receipt of a billing for such amounts. Disputed
amounts are not due and payable while they are being investigated.
6. LIMITATION OF LIABILITY AND INDEMNIFICATION.
(a) Chase shall not be liable for any error of judgment or mistake of
law or for any loss or expense suffered by the Trust, in connection with the
matters to which this Agreement relates, except for a loss or expense caused
by or resulting from or attributable to willful misfeasance, bad faith or
negligence on Chase's part in the performance of its duties or from reckless
disregard by Chase of its obligations and duties under this Agreement or
Chase's refusal or failure to comply with the material terms of this Agreement
or its breach of any representation or warranty under this Agreement. In no
event shall Chase be liable for any indirect, incidental special or
consequential losses or damages of any kind whatsoever (including but not
limited to lost profits), even if Chase has been advised of the likelihood of
such loss or damage and regardless of the form of action.
(b) Subject to Section 6(a) above, and as long as Chase acts in good
faith, with due diligence and without negligence, Chase shall not be
responsible for, and the Trust shall indemnify and hold Chase harmless from
and against any and all losses, damages (excluding consequential, punitive,
special or indirect damages), costs, reasonable attorneys' fees and expenses,
payments, expenses and liabilities incurred by Chase, any of its agents, or
the Trust's agents in the performance of its/their duties hereunder, including
but not limited to those arising out of or attributable to:
(i) any and all actions of Chase or its officers or agents
required to be taken pursuant to this Agreement;
(ii) the reliance on or use by Chase or its officers or agents
of information, records, or documents which are received by Chase or its
officers or agents and furnished to it or them by or on behalf of the Trust,
and which have been prepared or maintained by the Trust or any third party on
behalf of the Trust;
(iii) the Trust's refusal or failure to comply with the terms of
this Agreement or the Trust's lack of good faith, or its actions, or lack
thereof, involving negligence or willful misfeasance;
(iv) the breach of any representation or warranty of the Trust
hereunder;
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(v) the reliance on or the carrying out by Chase or its officers
or agents of any proper instructions reasonably believed to be duly
authorized, or requests of the Trust;
(vi) any delays, inaccuracies, errors in or omissions from
information or data provided to Chase by data services, including data
services providing information in connection with the CMO System licensed by
Chase, and by any corporate action services, pricing services or securities
brokers and dealers;
(vii) the offer or sale of shares by the Trust in violation of
any requirement under the Federal securities laws or regulations or the
securities laws or regulations of any state, or in violation of any stop order
or other determination or ruling by any Federal agency or any state agency
with respect to the offer or sale of such shares in such state (1) resulting
from activities, actions, or omissions by the Trust or its other service
providers and agents, or (2) existing or arising out of activities, actions or
omissions by or on behalf of the Trust prior to the effective date of this
Agreement;
(viii) any failure of the Trust's registration statement to
comply with the 1933 Act and the 1940 Act (including the rules and regulations
thereunder) and any other applicable laws, or any untrue statement of a
material fact or omission of a material fact necessary to make any statement
therein not misleading in a Trust's prospectus;
(ix) except as provided for in Schedule B.I., the actions taken
by the Trust, its Manager, and its distributor in compliance with applicable
securities, tax, commodities and other laws, rules and regulations, or the
failure to so comply, and
(x) all actions, inactions, omissions, or errors caused by third
parties to whom Chase or the Trust has assigned any rights and/or delegated
any duties under this Agreement at the specific request of or as required by
the Trust, its Manager, investment advisers, distributor, administrator or
sponsor.
The Trust shall not be liable for any indirect, incidental, special or
consequential losses or damages of any kind whatsoever (including but not
limited to lost profits) even if the Trust has been advised of the likelihood
of such loss or damage and regardless of the form of action.
7. TERM. This Agreement shall become effective on the date first
hereinabove written and may be modified or amended from time to time in
writing by mutual agreement between the parties hereto. The Agreement shall
continue in effect unless terminated by either party on ninety (90) days'
prior written notice. Upon termination of this Agreement, the Trust shall pay
to Chase such compensation and any documented and agreed upon out-of-pocket or
other reimbursable expenses which may become due or payable under the terms
hereof as of the date of termination or after the date that the provision of
services ceases, whichever is later.
8. NOTICES. Any notice required or permitted hereunder shall be in
writing and shall be deemed effective on the date of personal delivery (by
private messenger, courier service or
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otherwise) or upon confirmed receipt of telex or facsimile, whichever occurs
first, or upon receipt if by mail to the parties at the following address (or
such other address as a party may specify by notice to the other):
If to the Trust:
Attention:
Fax:
If to Chase:
Chase Global Funds Services Company
73 Tremont Street
Boston, MA 02108 Attention:
Fax:
9. WAIVER. The failure of a party to insist upon strict adherence to any
term of this Agreement on any occasion shall not be considered a waiver nor
shall it deprive such party of the right thereafter to insist upon strict
adherence to that term or any term of this Agreement.
Any waiver must be in writing signed by the waiving party.
10. FORCE MAJEURE. In the event Chase is unable to perform its
obligations or duties under the terms of this Agreement because of any act of
God, strike, riot, act of war, equipment failure, power failure or damage or
other causes reasonably beyond its control, Chase shall not be liable for any
loss, damage, cost, charge, counsel fee, payment, expense or liability to any
other party (whether or not a party to this Agreement) resulting from such
failure to perform its obligations or duties under this Agreement or otherwise
from such causes. This provision, however, shall in no way excuse Chase from
liability to the Trust for any and all losses, damages, costs, charges,
counsel fees, payments and expenses incurred by the Trust due to the
non-performance or delay in performance by Chase of its duties and obligations
under this Agreement if such non-performance or delay in performance could
have been reasonably prevented by Chase through back-up systems and other
procedures commonly employed by other administrators in the mutual fund
industry, provided that Chase shall have the right, at all times, to mitigate
or cure any losses.
11. AMENDMENTS. This Agreement may be modified or amended from time to
time by mutual written agreement between the parties. No provision of this
Agreement may be changed, discharged, or terminated orally, but only by an
instrument in writing signed by the party against which enforcement of the
change, discharge or termination is sought.
12. SEVERABILITY. If any provision of this Agreement is invalid or
unenforceable, the balance of the Agreement shall remain in effect, and if any
provision is inapplicable to any
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person or circumstance it shall nevertheless remain applicable to all other
persons and circumstances.
13. GOVERNING LAW. This Agreement shall be governed by the substantive
laws of the State of New York.
14. MISCELLANEOUS. In performing its services hereunder, Chase shall be
entitled to rely on any oral or written instructions, notices or other
communications, including electronic transmissions, from the Trust and its
custodians, officers and trustees, investors, agents and other service
providers which Chase reasonably believes to be genuine, valid and authorized.
Chase shall also be entitled to consult with and rely on the advice and
opinions of outside legal counsel retained by the Trust, as necessary or
appropriate.
15. CONFIDENTIALITY. Chase agrees that, except as otherwise required by
law or in connection with any required disclosure to a banking or other
regulatory authority or for purposes of performing its obligation hereunder,
it will keep confidential all records and information in its possession
relating to the Trust or its shareholders and will not disclose any
confidential information except at the request or with the written consent of
the Trust.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the date first written
above.
EQ ADVISORS TRUST
By:_________________________________
Name:
Title:
CHASE GLOBAL FUNDS
SERVICES COMPANY
By:_________________________________
Name:
Title:
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MUTUAL FUNDS SERVICE AGREEMENT
SCHEDULE A
FEES AND EXPENSES
TRUST ADMINISTRATION, ACCOUNTING AND COMPLIANCE FEES
A. For the services rendered under this Agreement, the Trust shall pay
to Chase an annual fee in accordance with the following schedule:
i. Until the total Trust assets reach $2.0 billion:
.055 of 1% of the total Trust assets, plus $25,000 for each
Portfolio.
ii When the total Trust assets exceed $2.0 billion:
.045 of 1% of the first $0.5 billion of the total Trust assets;
.035 of 1% of the next $2.0 billion of the total Trust assets;
.025 of 1% of the next $1.0 billion of the total Trust assets;
.015 of 1% of the next $2.5 billion of the total Trust assets; and
.01 of 1% of the total Trust assets in excess of $6.0 billion;
except that the annual fee payable to Chase hereunder with
respect to any Portfolio which commences operations after July 1,
1997 and whose assets do not exceed $200 million shall be
computed in accordance with paragraph A.i. of this Schedule A.
B. The foregoing calculations are based on the average daily net assets
of the Trust, as described. The fees will be computed, billed and
payable monthly.
C. Approved out-of-pocket expenses, as provided in Section 5, will be
computed, billed and payable monthly.
D. Notwithstanding the foregoing provisions of this Schedule A and
Section 5 of this Agreement, no fees will be charged by Chase for its
services under this Agreement until November 1, 1997.
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MUTUAL FUNDS SERVICE AGREEMENT
SCHEDULE B
GENERAL DESCRIPTION OF TRUST ADMINISTRATION
AND COMPLIANCE SERVICES
I. FINANCIAL AND TAX REPORTING
A. Prepare management reports and Board of Trustees materials,
such as unaudited financial statements and summaries of
dividends and distributions.
B. Report Trust performance to outside services as directed by
Trust management.
C. Calculate dividend and capital gain distributions in
accordance with distribution policies detailed in the
Trust's prospectus(es) or Board resolutions. Assist Trust
management in making final determinations of distribution
amounts.
D. Estimate and recommend year-end dividend and capital gain
distributions necessary to establish Trust's status as a
regulated investment company ("RIC") under Section 4982 of
the Internal Revenue Code of 1986, as amended (the "Code"),
regarding minimum distribution requirements.
E. The Trust will advise Chase of the declaration of any
dividend or distribution and the record and payable date
thereof at least five (5) days prior to the record date; and
Chase will make appropriate credits to each shareholder's
account.
F. Working with the Trust's independent public accountants and
other appropriate persons, prepare and file Trust's Federal
tax return on Form 1120-RIC along with all state and local
tax returns where applicable. Prepare and file Federal
Excise Tax Return (Form 8613).
G. Prepare for review by appropriate persons and file Trust's
Form N-SAR with the SEC.
H. Prepare and coordinate printing of Trust's semi-annual and
annual reports to shareholders and file such reports with
the appropriate regulatory agencies. Notwithstanding the
foregoing, Chase shall not be responsible for preparing the
"President's Letters" or the "Management's discussion of
each Portfolio's performance" but shall review the text of
the "President's letters" and "Management's discussion of
each Portfolio's performance" (which shall also be subject
to review by the Trust's legal counsel.
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I. Prepare for review and approval by the Trust's officers
financial information for the Trust's semi-annual and annual
reports, proxy statements and other communications required
or otherwise sent to the Trust's shareholders (and their
contractowners) and arrange, if requested, for the printing
and dissemination of such reports and communications.
J. Provide financial information for Trust proxies and
prospectuses including expense table.
K. File copies of financial reports to shareholders with the
SEC under Rule 30b2-1.
L. Notify the separate accounts as to what portion, if any, of
the distributions made by the Trust' during the prior fiscal
year were exempt-interest dividends under Section
852(b)(5)(A) of the Code.
M. Provide Form 1099-MISC to persons other than corporations
(i.e., Trustees) to whom the Trust paid more than $600
during the year.
II. PORTFOLIO COMPLIANCE
Chase shall provide the following compliance services in conjunction
with each Adviser's obligations pursuant to its Investment Advisory Agreement
with the Trust and all applicable laws.
A. Monitor and periodically test each Portfolio's compliance
with investment restrictions (e.g., issuer or industry
diversification, etc.) listed in the current prospectus(es)
and Statement(s) of Additional Information.
B. Monitor and periodically test each Portfolio's compliance
with the requirements of Section 851 of the Code for
qualification as a RIC.
C. Monitor and periodically test each Portfolio's compliance
with the requirements of Section 817(h) of the Code.
D. Monitor each investment adviser's compliance with Board
directives such as "Approved Issuers Listings for Repurchase
Agreements", Rule 17a-7, Rule 17e-1 and Rule 12d-3
procedures.
E. Mail quarterly requests for "Securities Transaction Reports"
to the Trust's Trustees and Officers and "access persons"
under the terms of the Trust's Code of Ethics and SEC
regulations.
14
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F. Prepare, distribute, and utilize in compliance training
sessions, comprehensive compliance materials, including
compliance manuals and checklists, subject to review and
comment by the Trust's legal counsel and develop or assist
in developing guidelines and procedures to improve overall
compliance by the Trust and its various agents.
III. REGULATORY AFFAIRS AND CORPORATE GOVERNANCE
A. Prepare and file post-effective amendments to the Trust's
registration statement and supplements as needed with
respect to the currently existing Portfolios only.
B. Prepare and file proxy materials and administer
shareholder meetings.
C. Prepare agenda, collect background information and prepare
all Board materials for Board meetings and distribute such
materials to all necessary parties.
D. Prepare minutes, and follow up on matters related to Chase's
responsibilities under this Agreement that are raised at all
Board meetings.
E. In coordination with the Manager, make reports and
recommendations to the Board concerning the performance of
each of the investment advisers and other service providers
for the Trust, as the Board may reasonably request.
F. Prepare and file with the SEC Rule 24f-2 Notices (and all
similar state filings, if required by the states). Chase
shall not be responsible for preparing any legal opinions
required in connection with Rule 24f-2 Motices.
G. Assist with the review and monitoring of fidelity bond and
errors and omissions insurance coverage and the submission
of any related regulatory filings.
H. Prepare and update documents, such as charter document,
by-laws, and foreign qualification filings.
I. Provide support and counsel with respect to routine
regulatory examinations or investigations of the Trust and
work closely with the Trust's legal counsel in response to
any non-routing regulatory matters. Also, coordinate all
communications and data collection with regard to any
regulatory examinations and yearly audits by independent
accountants.
J. Maintain general corporate calendar.
15
<PAGE>
K. Assist with preparations for attend and prepare minutes of
shareholder meetings.
L. When requested provide consultation on regulatory matters
relating to portfolio management, Trust operations and any
potential changes in each Portfolio's investment policies,
operations or structure.
M. Maintain continuing awareness of significant emerging
regulatory and legislative developments which may affect
each Portfolio; update the Board and the Manager on those
developments and provide related planning assistance where
reasonably requested or appropriate.
IV. GENERAL ADMINISTRATION
A. Furnish appropriate officers for the Trust, subject to
Board approval.
B. Prepare Trust, portfolio or class expense projections,
establish accruals and review on a periodic basis, including
expenses based on a percentage of average daily net assets
(e.g., management, advisory and administrative fees) and
expenses based on actual charges annualized and accrued
daily (audit fees, registration fees, directors' fees,
etc.).
C. For new Portfolios and classes, obtain Employer or Taxpayer
Identification Number and CUSIP numbers, as necessary.
Estimate organizational costs and expenses and monitor
against actual disbursements.
D. Arrange if directed by the appropriate Trust officers, for
the payment of the Trust's and each Portfolio's or class'
expenses.
16
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MUTUAL FUNDS SERVICE AGREEMENT
SCHEDULE C
DESCRIPTION OF FUND ACCOUNTING SERVICES
I. GENERAL DESCRIPTION
Chase shall provide the following accounting services to the Trust:
A. Maintenance of the. books and records for the Trust's
assets, including records of all securities transactions.
B. Calculation of each Portfolio's or class' net asset value in
accordance with the Trust's prospectus, and after the
Portfolio or class meets eligibility requirements,
transmission to NASDAQ and to such other entities as
directed by the Trust.
C. Accounting for dividends and interest received and
distributions made by the Trust.
D. Coordinate with the Trust's independent auditors with respect
to the annual audit, and as otherwise requested by the
Trust.
E. Consult with the Trust's officers, independent public
accountants and other appropriate persons in establishing
the accounting policies of the Trust.
F. As mutually agreed upon, Chase will provide domestic and/or
international reports.
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EXHIBIT 9(b)
FORM OF EXPENSE LIMITATION AGREEMENT
EQ ADVISORS TRUST
EXPENSE LIMITATION AGREEMENT, effective as of ________ __, 1997, by
and between EQ Financial Consultants, Inc. (the "Manager") and EQ Advisors
Trust (the "Trust"), on behalf of each series of the Trust set forth in
Schedule A (each a "Portfolio," and collectively, the "Portfolios").
WHEREAS, the Trust is a Delaware business trust organized under the
Amended and Restated Agreement and Declaration of Trust ("Declaration of
Trust"), and is registered under the Investment Company Act of 1940, as
amended (the "1940 Act"), as an open-end management company of the series
type, and each Portfolio is a series of the Trust; and
WHEREAS, the Trust and the Manager have entered into an Investment
Management Agreement (the "Management Agreement"), pursuant to which the
Manager will render investment management services to each Portfolio for
compensation based on the value of the average daily net assets of each such
Portfolio; and
WHEREAS, the Trust and the Manager have determined that it is
appropriate and in the best interests of each Portfolio and its shareholders
to maintain the expenses of each Portfolio at a level below the level to which
each such Portfolio would normally be subject during its start-up period.
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 a Portfolio in any fiscal year,
including but not limited to investment management fees of the Manager (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 such
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 Manager.
1.2 Operating Expense Limit. The maximum Operating Expense Limit in
any year with respect to each Portfolio shall be the amount specified in
Schedule A based on a percentage of the average daily net assets of each
Portfolio.
1.3 Method of Computation. To determine the Manager's liability with
respect to the Excess Amount, each month the Portfolio Operating Expenses for
each Portfolio shall be
<PAGE>
annualized as of the last day of the month. If the annualized Portfolio
Operating Expenses for any month of a Portfolio exceed the Operating Expense
Limit of such Portfolio, the Manager shall first waive or reduce its
investment management fee for such month by an amount sufficient to reduce the
annualized Portfolio Operating Expenses to an amount no higher than the
Operating Expense Limit. If the amount of the waived or reduced investment
management fee for any such month is insufficient to pay the Excess Amount,
the Manager may also remit to the appropriate Portfolio or Portfolios an
amount that, together with the waived or reduced investment management fee, is
sufficient to pay such Excess Amount.
1.4 Year-End Adjustment. If necessary, on or before the last day of
the first month of each fiscal year, an adjustment payment shall be made by
the appropriate party in order that the amount of the investment management
fees waived or reduced and other payments remitted by the Manager to the
Portfolio or Portfolios with respect to the previous fiscal year shall equal
the Excess Amount.
2. Reimbursement of Fee Waivers and Expense Reimbursements.
2.1 Reimbursement. If in any year during which the total assets of a
Portfolio are greater than $100 million and in which the Management Agreement
is still in effect, the estimated aggregate Portfolio Operating Expenses of
such Portfolio for the fiscal year are less than the Operating Expense Limit
for that year, subject to quarterly approval by the Trust's Board of Trustees
as provided in Section 2.2 below, the Manager shall be entitled to
reimbursement by such Portfolio, in whole or in part as provided below, of the
investment management fees waived or reduced and other payments remitted by
the Manager to such Portfolio pursuant to Section 1 hereof. The total amount
of reimbursement to which the Manager may be entitled (the "Reimbursement
Amount") shall equal, at any time, the sum of all investment management fees
previously waived or reduced by the Manager and all other payments remitted by
the Manager to the Portfolio, pursuant to Section 1 hereof, during any of the
previous two (2) fiscal years, less any reimbursement previously paid by such
Portfolio to the Manager, pursuant to Sections 2.2 or 2.3 hereof, with respect
to such waivers, reductions, and payments. The Reimbursement Amount shall not
include any additional charges or fees whatsoever, including, e.g., interest
accruable on the Reimbursement Amount.
2.2 Board Approval. No reimbursement shall be paid to the Manager
with respect to any Portfolio pursuant to this provision in any fiscal
quarter, unless the Trust's Board of Trustees has determined that the payment
of such reimbursement is in the best interests of such Portfolio and its
shareholders. The Trust's Board of Trustees shall determine quarterly in
advance whether any reimbursement may be paid to the Manager with respect to
any Portfolio in such quarter.
2.3 Method of Computation. To determine each Portfolio's payments, if
any, to reimburse the Manager for the Reimbursement Amount, each month the
Portfolio Operating Expenses of each Portfolio shall be annualized as of the
last day of the month. If the annualized Portfolio Operating Expenses of a
Portfolio for any month are less than the Operating Expense
2
<PAGE>
Limit of such Portfolio, such Portfolio, only with the prior approval of the
Board, shall pay to the Manager an amount sufficient to increase the
annualized Portfolio Operating Expenses of that Portfolio to an amount no
greater than the Operating Expense Limit of that Portfolio, provided that such
amount paid to the Manager will in no event exceed the total Reimbursement
Amount.
2.4 Year-End Adjustment. If necessary, on or before the last day of
the first month of each fiscal year, an adjustment payment shall be made by
the appropriate party in order that the actual Portfolio Operating Expenses of
a Portfolio for the prior fiscal year (including any reimbursement payments
hereunder with respect to such fiscal year) do not exceed the Operating
Expense Limit.
3. Term and 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 (i) are not "interested persons" of the Trust or any other party to
this Agreement, as defined in the 1940 Act, and (ii) have no direct or
indirect financial interest in the operation of this Agreement
("Non-Interested Trustees"). Nevertheless, this Agreement may be terminated by
either party hereto, without payment of any penalty, upon 90 days' prior
written notice to the other party at its principal place of business; provided
that, in the case of termination by the Trust, such action shall be authorized
by resolution of a majority of the Non-Interested Trustees of the Trust or by
a vote of a majority of the outstanding voting securities of the Trust.
4. Miscellaneous.
4.1 Captions. The captions in this Agreement are included for
convenience of reference only and in no other way define or delineate any of
the provisions hereof or otherwise affect their construction or effect.
4.2 Interpretation. Nothing herein contained shall be deemed to
require the Trust or the Portfolios to take any action contrary to the Trust's
Declaration of Trust or By-Laws, or any applicable statutory or regulatory
requirement to which it is subject or by which it is bound, or to relieve or
deprive the Trust's Board of Trustees of its responsibility for and control of
the conduct of the affairs of the Trust or the Portfolios.
4.3 Definitions. Any question of interpretation of any term or
provision of this Agreement, including but not limited to the investment
management fee, the computations of net asset values, and the allocation of
expenses, having a counterpart in or otherwise derived from the terms and
provisions of the Management Agreement or the 1940 Act, shall have the same
meaning as and be resolved by reference to such Management Agreement or the
1940 Act.
3
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
signed by their respective officers thereunto duly authorized and their
respective corporate seals to be hereunto affixed, as of the day and year
first above written.
ATTEST: EQ ADVISORS TRUST
ON BEHALF OF
EACH OF ITS SERIES
__________________________ By:__________________________
Secretary
ATTEST: EQ FINANCIAL CONSULTANTS, INC.
__________________________ By:__________________________
Secretary
4
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SCHEDULE A
EXPENSE LIMITATION AMOUNTS
This Agreement relates to the following Portfolios of the Trust:
Maximum Expense
Name of Portfolio Limitation Amount
- ----------------- -----------------
T. Rowe Price International Stock Portfolio 1.20%
T. Rowe Price Equity Income Portfolio 0.85%
EQ/Putnam Growth & Income Value Portfolio 0.85%
EQ/Putnam International Equity Portfolio 1.20%
EQ/Putnam Investors Growth Portfolio 0.85%
EQ/Putnam Balanced Portfolio 0.90%
MFS Research Portfolio 0.85%
MFS Emerging Growth Companies Portfolio 0.85%
Morgan Stanley Emerging Markets Equity Portfolio 1.75%
Warburg Pincus Small Company Value Portfolio 1.00%
Merrill Lynch World Strategy Portfolio 1.20%
Merrill Lynch Basic Value Equity Portfolio 0.85%
5
<PAGE>
EXHIBIT 9(c)
EQ ADVISORS TRUST
FORM OF
ORGANIZATIONAL EXPENSE
REIMBURSEMENT AGREEMENT
This Agreement is made this ___ day of __________ 1997, by and
between EQ Financial Consultants, Inc. (the "Manager") and EQ Advisors Trust
(the "Trust"), on behalf of each series of the Trust set forth in Schedule A
(each a "Portfolio," and collectively, the "Portfolios").
WHEREAS, the Trust is registered as an open-end diversified
management investment company under the Investment Company Act of 1940, as
amended; and
WHEREAS, there have been certain necessary organizational expenses
incurred as a part of such process, which are proper expenses of the
Portfolios, that have been and will in the future be paid by the Manager and
affiliated companies of the Manager, by reason of the fact that each Portfolio
was not capitalized when such expenses were incurred (such expenses
hereinafter referred to as "Organizational Expenses");
NOW THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed as follows:
1. Effective as of the initial public offering of shares of
each Portfolio, the Trust shall be obligated to reimburse
and pay to the Manager, or such affiliated companies of the
Manager as the Manager may designate, the amounts expended
and to be expended by the Manager and its affiliates for
Organizational Expenses.
2. Such reimbursements shall be paid by the Trust promptly upon
the demand of the Manager. Upon demand for payment, the
Manager shall present copies of invoices of receipts, copies
of canceled checks or other evidence of payment of the
Organizational Expenses for which it is demanding
reimbursement from the Trust.
ATTEST: EQ ADVISORS TRUST
ON BEHALF OF
EACH OF ITS SERIES
______________________ By:______________________
Secretary
ATTEST: EQ FINANCIAL CONSULTANTS, INC.
______________________ By:______________________
Secretary
<PAGE>
SCHEDULE A
This Agreement relates to the following Portfolios of the Trust:
T. Rowe Price International Stock Portfolio
T. Rowe Price Equity Income Portfolio
EQ/Putnam Growth & Income Value Portfolio
EQ/Putnam International Equity Portfolio
EQ/Putnam Investors Growth Portfolio
EQ/Putnam Balanced Portfolio
MFS Research Portfolio
MFS Emerging Growth Companies Portfolio
Morgan Stanley Emerging Markets Equity Portfolio
Warburg Pincus Small Company Value Portfolio
Merrill Lynch World Strategy Portfolio
Merrill Lynch Basic Value Equity Portfolio
<PAGE>
EXHIBIT 9(d)
Form of
PARTICIPATION AGREEMENT
Among
EQ ADVISORS TRUST,
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
EQUITABLE DISTRIBUTORS, INC.,
and
EQ FINANCIAL CONSULTANTS, INC.
THIS AGREEMENT, made and entered into as of the _____ day of
__________, 1997 by and among THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE
UNITED STATES, a New York stock life insurance company ("Equitable"), on its
own behalf and on behalf of each of its separate accounts set forth on
Schedule A hereto, as amended from time to time (each referred to as the
"Account"), EQ Advisors Trust, a business trust organized under the laws of
the State of Delaware (the "Trust"), and EQUITABLE DISTRIBUTORS, INC., a
Delaware corporation, and EQ FINANCIAL CONSULTANTS, INC., a Delaware
corporation (collectively, the "Distributors").
WHEREAS, the Trust engages in business as an open-end management
investment company and is available to act as the investment vehicle for
separate accounts of insurance companies that issue variable life insurance
policies, variable annuity contracts and certificates relating to such
policies or contracts (collectively, the "Variable Contracts") and which have
entered into participation agreements with the Trust and its Distributors (the
"Participating Insurance Companies"); and
WHEREAS, the beneficial interests in the Trust are divided into
several series of shares, (each a "Portfolio"), each representing the interest
in a particular managed portfolio of securities and other assets, and each
Portfolio is divided or may be divided into one or more classes of shares,
i.e., currently the Class IA shares and the Class IB shares, or such other
classes of shares as may be created in the future (the "Classes"); and
WHEREAS, one or more Portfolios or Classes thereof may be made
available by the Trust to serve as funding vehicles for Participating
Insurance Companies and their separate accounts funding Variable Contracts;
and
WHEREAS, the Trust intends to file an application to obtain an order
from the Securities and Exchange Commission (the "Commission" or the "SEC")
granting Participating Insurance
-1-
<PAGE>
Companies and their separate accounts funding Variable Contracts exemptions
from the provisions of Sections 9(a), 13(a), 15(a), and 15(b) of the
Investment Company Act of 1940, as amended (the "1940 Act") and Rules
6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent necessary to permit
shares of the Trust and each of its Portfolios or Classes to be sold to and
held by insurance company separate accounts funding Variable Contracts of both
affiliated and unaffiliated life insurance companies (the "Shared Funding
Exemptive Order"); and
WHEREAS, the Trust is registered as an open-end management investment
company under the 1940 Act, and shares of its Portfolios are registered under
the Securities Act of 1933, as amended (the "1933 Act"); and
WHEREAS, EQ Financial Consultants, Inc., in addition to being one of
the Distributors, is also the investment manager to the Trust (the "Manager")
and is duly registered with the SEC as an investment adviser under the
Investment Advisers Act of 1940, as amended, and is registered or exempt from
registration under all applicable state securities laws; and
WHEREAS, Equitable has registered or will register each of its
Accounts as a unit investment trust under the 1940 Act and has registered or
will register interests in each Account under the 1933 Act, other than those
exempt from such registration under applicable statutory provisions or
regulations;
WHEREAS, each Account is a duly organized, validly existing
segregated asset account, established by resolution of the Board of Directors
of Equitable or through properly delegated authority, and divided into
subaccounts, to set aside and invest assets attributable to the Variable
Contracts; and
WHEREAS, each of the Distributors is registered as a broker-dealer
with the SEC under the Securities Exchange Act of 1934, as amended (the "1934
Act"), and is a member in good standing of the National Association of
Securities Dealers, Inc. (the "NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, Equitable intends to purchase shares in the Portfolios and one or
more Classes thereof, listed on Schedule B hereto as amended from time to time
(the "Designated Portfolios and Classes") on behalf of each Account, in order
to fund certain of the Variable Contracts, and each of the Distributors is
authorized to sell such shares to each Account at the net asset value
applicable to such Portfolios and the Classes thereof.
NOW, THEREFORE, in consideration of their mutual promises, Equitable,
the Trust and each of the Distributors agree as follows:
ARTICLE I. Sale of Trust Shares
1.1. Each of the Distributors agrees to sell to each Account those
shares of the Designated Portfolios and Classes for which it serves as the
Trust's principal underwriter and which each Account orders, executing such
orders on a daily basis at the net asset value per share next computed after
receipt by the Trust or its designee of the order for the shares of the
Designated Portfolios and Classes. For purposes of this Section 1.1, neither
Equitable nor any
-2-
<PAGE>
Account shall be considered the designee of the Trust for receipt of such
purchase orders and receipt by Equitable or any Account shall not constitute
receipt by the Trust for purposes of calculating each Portfolio's net asset
value per share.
1.2. The Trust agrees to make its shares of the Designated Portfolios
and Classes available for purchase by each Account at the applicable net asset
value per share on those days on which the Trust calculates the net asset
value per share of the Designated Portfolios and Classes pursuant to rules of
the SEC. The Trust shall use reasonable efforts to calculate the net asset
value per share of the Designated Portfolios and Classes on each day on which
the New York Stock Exchange is open for trading. Notwithstanding the
foregoing, the Board of Trustees of the Trust (the "Board") may refuse to sell
shares of any Designated Portfolio or Class to any person, or suspend or
terminate the offering of shares of any Portfolio or Class thereof, if such
action is required by law or by regulatory authorities having jurisdiction or
is, in the sole discretion of the Board acting in good faith and in light of
its fiduciary duties under federal and any applicable state laws, necessary in
the best interests of the shareholders of such Portfolio or Class thereof.
1.3. The Trust and each of the Distributors agree that shares of the
Designated Portfolios and Classes will be sold only to Participating Insurance
Companies and/or their separate accounts funding Variable Contracts or to
other persons or entities permitted under Section 817 of the Internal Revenue
Code of 1986, as amended (the "Code") or regulations promulgated thereunder.
No shares of any Portfolio will be sold to the general public, except to the
extent permitted under the Code.
1.4. The Trust and each of the Distributors will not sell Trust
shares to any Participating Insurance Company or separate account funding
Variable Contracts unless an agreement containing provisions substantially the
same as Articles I, III, V, VII and Section 2.5 of Article II of this
Agreement is in effect to govern such sales.
1.5. The Trust agrees to redeem for cash or in-kind, at the request
of any Account or Equitable, any full or fractional shares of the Trust held
by the Account or Equitable. The Trust will execute such requests on a daily
basis at the net asset value per share of the Designated Portfolios and
Classes next computed after receipt by the Trust or its designee of the
request for redemption. For purposes of this Section 1.5, neither Equitable
nor any Account shall be considered the designee of the Trust for receipt of
requests for redemption, and receipt by Equitable or any Account shall not
constitute receipt by the Trust for purposes of calculating each Portfolio's
net asset value per share.
1.6. Equitable agrees that purchases and redemptions of shares of the
Designated Portfolios and Classes offered by a then-current prospectus of the
Trust shall be made in accordance with the provisions of such prospectus.
Equitable agrees that all net amounts available under the Variable Contracts
listed on Schedule A attached hereto and incorporated herein by this
reference, as such Schedule A may be amended from time to time hereafter by
mutual written agreement of all the parties hereto (the "Equitable
Contracts"), shall be invested in the Trust and in such other investment
companies or other investment vehicles advised by the Manager as may be
mutually agreed to in writing by the parties hereto, or in Equitable's general
account. In addition, amounts also may be invested in investment companies
other than the
-3-
<PAGE>
Trust if: (a) any such other investment company, or series thereof, has
investment objectives or policies that are, in the opinion of the Manager,
substantially different from the investment objectives and policies of the
Portfolios of the Trust in which the Accounts invest; or (b) Equitable gives
the Trust and the Distributors forty-five (45) days written notice of its
intention to make such other investment companies available as a funding
vehicle for the Equitable Contracts, and no written objection is received by
Equitable; or (c) any such other investment companies were available as a
funding vehicle for the Equitable Contracts prior to the date of this
Agreement and Equitable so informs the Trust and Distributors prior to their
signing this Agreement (a list of such other investment companies appears on
Schedule C to this Agreement); or (d) the Trust and the Distributors consent
to the use of any such other investment company.
1.7. Equitable shall pay for shares of Designated Portfolios and
Classes thereof purchased for the Accounts or its general account on the
business day on which an order to purchase Trust shares is made in accordance
with the provisions of Section 1.1 hereof. "Business Day" shall mean any day
on which the New York Stock Exchange is open for trading and on which the
Trust calculates its net asset value pursuant to the rules of the SEC. Payment
shall be in federal funds transmitted by wire. For purposes of Section 2.9 and
2.10, upon receipt by the Trust of the federal funds so wired, such funds
shall cease to be the responsibility of Equitable and shall become the
responsibility of the Trust.
1.8. Issuance and transfer of the shares of the Designated Portfolios
and Classes thereof will be by book entry only. Stock certificates will not be
issued to Equitable or any Account. Shares ordered from the Trust will be
recorded in an appropriate title for each Account or the appropriate
subaccount of each Account.
1.9. The Trust shall furnish same day notice (by wire or telephone,
followed by written confirmation) of any income dividends or capital gain
distributions payable on the shares of the Designated Portfolios and Classes
thereof. Equitable and each Account hereby elect to receive all such income
dividends and capital gain distributions as are payable on the shares of the
Designated Portfolios and Classes thereof in additional shares of the relevant
Designated Portfolios and Classes. (Equitable and each Account reserve the
right to revoke this election and to receive all such income dividends and
capital gain distributions in cash.) The Trust shall provide notification by
the end of the next Business Day of the number of shares so issued as payment
of such dividends and distributions. The Trust shall provide advance notice to
Equitable and each Account of any date on which the Trust reasonably expects
to make a dividend distribution; normally this notice will be given at least
ten (10) days in advance of the ex-dividend date.
1.10. The Trust shall make the net asset value per share for each
Designated Portfolio and Class thereof available to Equitable and each Account
or their designee on a daily basis as soon as reasonably practical after the
net asset value per share is calculated (normally by 6:30 p.m. New York time)
and shall use its best efforts to make such net asset value per share
available by 7 p.m. New York time.
ARTICLE II. Representations and Warranties
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<PAGE>
2.1. Equitable represents and warrants that: (a) the Equitable
Contracts will be issued and sold in compliance, in all material respects,
with all applicable federal and state laws; and (b) it requires each
Distributor to comply, in all material respects, with state insurance
suitability requirements. Equitable further represents and warrants that: (a)
it is an insurance company duly organized and in good standing under
applicable law; and (b) it has legally and validly established each Account,
prior to any issuance or sale of interests therein, as a segregated asset
account under applicable insurance laws; and (c) it has registered or, prior
to any issuance or sale of the Equitable Contracts, will register each Account
as a unit investment trust in accordance with the provisions of the 1940 Act
to serve as a segregated investment account for the Equitable Contracts,
unless such Accounts are exempt from such registration under applicable
statutory provisions or regulations; and (d) it has registered or, prior to
the issuance or sale of the Equitable Contracts, will register interests in
the Accounts under the 1933 Act, unless interests in such Accounts are exempt
from such registration under applicable statutory provisions or regulations.
2.2. The Trust, to the best of its knowledge, represents and warrants
that Trust shares sold pursuant to this Agreement shall be: (a) registered
under the 1933 Act; and (b) duly authorized for issuance; and (c) sold in
compliance with and all applicable federal securities laws. The Trust further
represents and warrants that it is and shall remain registered under the 1940
Act. The Trust shall amend the registration statement for its shares (the
"Registration Statement") under the 1933 Act and the 1940 Act from time to
time as required in order to effect the continuous offering of shares of the
Designated Portfolios and Classes. This requirement shall not, however, in any
manner limit the Trust's ability to cease offering shares in one or more of
the Designated Portfolios or Classes, provided such action complies with
applicable laws and regulations.
2.3. Equitable represents that the Equitable Contracts are currently
treated as annuity, endowment or life insurance contracts under applicable
provisions of the Code and that it will make every effort to maintain such
treatment and that it will notify the Trust and the Distributors immediately
upon having a reasonable basis for believing that the Equitable Contracts have
ceased to be so treated or that they might not be so treated in the future.
2.4. The Trust currently intends for one or more Classes,
particularly Class IB, to make payments to finance its distribution expenses
pursuant to a Plan adopted under Rule 12b-1 under the 1940 Act, although it
may determine to discontinue such practice in the future. To the extent that
any Class of the Trust finances its distribution expenses pursuant to a Plan
adopted under Rule 12b-1, the Trust undertakes to have a Board, a majority of
whose members are not interested persons of the Trust or its Distributors or
Manager, and to otherwise comply with any then current SEC and SEC staff
interpretations concerning Rule 12b-1 or any successor provision.
2.5. The Trust makes no representation as to whether any aspect of
its operations (including, but not limited to, fees and expenses and
investment policies) complies with the insurance laws or regulations of the
various states, except that the Trust represents that the investment
objectives, policies, fees and expenses of each of the Designated Portfolios
and Classes thereof are and shall at all times remain in compliance with the
insurance laws of the State of New York, and the Trust and the Distributors
severally represent that their respective
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operations are and shall at all times remain in compliance, in all material
respects, with the insurance laws of the State of New York to the extent
required to perform their respective obligations under this Agreement.
2.6. Each of the Distributors represents and warrants that: (a) it is
a member in good standing of the NASD; and (b) it is registered as a
broker-dealer with the SEC and all necessary states. Each Distributor further
represents that it will sell and distribute the Trust's shares in accordance
with the laws of the State of New York and all applicable federal and state
securities laws, including without limitation the 1933 Act, the 1934 Act, the
1940 Act, and all applicable Rules of the NASD.
2.7. The Trust represents that it is lawfully organized and validly
existing under the laws of the State of Delaware and that it does and will
comply, in all material respects, with the 1940 Act.
2.8. EQ Financial Consultants, Inc. represents and warrants that it,
in its capacity as the Manager, is and shall remain duly registered under all
applicable federal and state securities laws and that it, in its capacity as
the Manager shall perform its obligations for the Trust in compliance, in all
material respects, with any and all applicable federal and state securities
laws.
2.9. The Trust and each of the Distributors severally represent and
warrant that all of their trustees, directors, officers, employees, investment
managers and investment advisers, and other individuals/entities dealing with
the money and/or securities of the Trust are and shall continue to be at all
times covered by a blanket fidelity bond or similar coverage for the benefit
of the Trust in an amount not less than the minimal coverage required by Rule
17g-(1) of the 1940 Act or such related provisions as may be promulgated from
time to time. The aforesaid fidelity bond shall include coverage for larceny
and embezzlement and shall be issued by a reputable bonding company.
2.10. Equitable represents and warrants that all of its directors,
officers, employees, and other individuals/entities dealing with the money
and/or securities of the Trust are covered by a blanket fidelity bond or
similar coverage for the benefit of the Trust. Equitable further represents
and warrants that said fidelity bond is issued by a reputable bonding company,
includes coverage for larceny and embezzlement, and is in an amount not less
than $5 million. Equitable agrees to make all reasonable efforts to see that
this fidelity bond or another bond containing these provisions is continuously
in effect and agrees to notify the Trust and the Distributors in the event
that such coverage no longer applies.
ARTICLE III. Prospectuses and Proxy Statements; Voting
3.1. The Trust or its Distributors shall provide Equitable with as
many printed copies of the Trust's current prospectus and Statement of
Additional Information and any supplements thereto for the Designated
Portfolios and Classes thereof as Equitable may reasonably request. If
requested by Equitable in lieu thereof, the Trust or its Distributors shall
provide camera-ready film containing the Trust's prospectus and Statement of
Additional Information and any supplements thereto for the Designated
Portfolios and Classes thereof, and such other assistance as is reasonably
necessary in order for Equitable once each year (or more frequently if the
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prospectus and/or Statement of Additional Information for the Designated
Portfolios and Classes thereof is amended during the year) to have the
prospectus for the Account, with respect to the Equitable Contracts, and the
Trust's prospectus printed together in one document, and to have the Statement
of Additional Information for the Trust and the Statement of Additional
Information for the Account, with respect to the Equitable Contracts, printed
together in one document. Alternatively, Equitable may print the prospectus
and/or Statement of Additional Information for the Designated Portfolios and
Classes thereof in combination within the prospectuses and Statements of
Additional Information for other investment companies. To the extent that the
foregoing Trust prospectuses, Statements of Additional Information and any
supplements thereto are with respect to Class IB shares, or other Classes of
shares subject to a Plan adopted under Rule 12b-1 under the 1940 Act, the cost
of preparing, printing, and distributing such documents will be at the expense
of such Class or Classes of shares, with respect to prospective owners of
Equitable Contracts. In addition, with respect to prospectuses and Statements
of Additional Information for the Designated Portfolios and Classes thereof
provided by Equitable to its existing owners of Equitable Contracts
("Contractowners") in order to update disclosure as required by the 1933 Act
and/or the 1940 Act, the cost of preparing, printing, mailing and otherwise
distributing such prospectuses and Statements of Additional Information and
any supplements thereto shall be borne by the Trust. Furthermore, if in such
case Equitable or the Distributors are provided with camera-ready film of such
documents in lieu of printed documents, Equitable or the Distributors shall
request reimbursement from the Trust for their printing, mailing and other
costs associated with such distribution.
Equitable and the Distributors each agree to provide the Trust or its
designee with such information as may be reasonably requested by the Trust to
assure that the Trust's expenses or the expenses of any Class do not include
the cost of printing, mailing and otherwise distributing any prospectuses,
Statements of Additional Information or supplements thereto for the Designated
Portfolios and Classes thereof other than those actually distributed (a) to
existing Contractowners; or (b) under a Rule 12b-1 Plan for a particular Class
of shares to prospective Contractowners.
3.2 Equitable may alter the form of the Trust's prospectus, Statement
of Additional Information, Annual and Semi-Annual Reports to shareholders,
proxy statements, and other Trust documents with the prior approval of the
Trust. Equitable shall bear all costs associated with such alteration of form.
3.3. The Trust's prospectus for the Designated Portfolios and Classes
thereof shall state that the Statement of Additional Information for the
Designated Portfolios and Classes thereof is available from the Distributors
or Equitable (or in the Trust's discretion, the prospectus shall state that
such Statement of Additional Information is available from the Trust).
3.4. The Trust, at its expense, shall provide Equitable with copies
of its proxy statements, Annual and Semi-Annual Reports to shareholders, and
other communications to shareholders in such quantities as Equitable shall
reasonably require for mailing or otherwise distributing such materials to
Contractowners and shall assume all expenses associated with mailing or
otherwise distributing those materials. In the alternative, the Trust shall
reimburse Equitable for its costs in printing, mailing and distributing such
materials to Contractowners.
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3.5. If and to the extent required by law, Equitable shall:
(a) solicit voting instructions from Contractowners; and
(b) vote the Trust shares for the Designated Portfolios and
Classes in accordance with instructions received from Contractowners;
and
(c) vote Trust shares for the Designated Portfolios and
Classes for which no instructions have been received in a particular
Account in the same proportion as Trust shares for the Designated
Portfolios and Classes for which instructions have been received so
long as and to the extent that the SEC continues to interpret the
1940 Act to require pass-through voting privileges for
Contractowners. Equitable reserves the right to vote Trust shares
held in any Account in its own right, to the extent permitted by law.
Participating Insurance Companies shall be responsible for assuring
that each of their separate accounts participating in the Trust
calculates voting privileges in a manner consistent with the
standards adopted by the Board, which standards will be provided to
all other Participating Insurance Companies.
3.6. The Trust will comply with all provisions of the 1940 Act
requiring voting by shareholders, and in particular the Trust will comply with
Section 16(c) of the 1940 Act as well as with Sections 16(a) and, if and when
applicable, Section 16(b). Further, the Trust will act in accordance with the
SEC or SEC staff's written interpretation concerning the requirements of
Section 16(a) with respect to periodic elections of trustees and with whatever
rules the SEC may promulgate with respect thereto.
ARTICLE IV. Sales Material and Information
4.1. The Distributors shall furnish, or shall cause to be furnished,
to the Trust or its designee, the form of each piece of sales literature or
other promotional material in which the Trust, the Manager or the Distributors
are named prior to its first use. No such material shall be used if the Trust
or its designee reasonably objects to its use after the Trust's receipt of
such material.
4.2. Equitable shall not give any information or make any
representations or statements on behalf of the Trust or concerning the Trust
in connection with the sale of the Equitable Contracts other than the
information or representations contained in or accurately derived from the
Registration Statements, prospectus or Statement of Additional Information for
the Trust, as such Registration Statements, prospectus or Statement of
Additional Information may be amended or supplemented from time to time, or in
reports or proxy statements for the Trust, or in sales literature or other
promotional material approved by the Trust or its designee, except with the
permission of the Trust or its designees.
4.3. The Trust or the Distributors, or their respective designees,
shall furnish, or shall cause to be furnished, to Equitable or its designees,
the form of each piece of sales literature or other promotional material in
which Equitable is named prior to its use. No such material shall be used if
Equitable or its designees reasonably object to its use after receipt of such
material.
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4.4. The Trust and the Distributors shall not give any information or
make any representations on behalf of Equitable or concerning Equitable, each
Account, or the Equitable Contracts other than the information or
representations contained in or accurately derived from a registration
statement, prospectus or Statement of Additional Information for the Accounts
with respect to the Equitable Contracts, as such registration statement,
prospectus or Statement of Additional Information may be amended or
supplemented from time to time, or in published reports for each Account which
are in the public domain or approved by Equitable for distribution to
Contractowners, or in sales literature or other promotional material approved
by Equitable or its designees, except with the permission of Equitable.
4.5. The Trust shall provide to Equitable at least one complete copy
of all Registration Statements, prospectuses, Statements of Additional
Information, reports, proxy statements, sales literature and other promotional
materials, applications for exemptions, requests for no-action letters, and
all amendments to any of the above, that relate to the Trust or its shares,
contemporaneously with the filing of such document with the SEC, the NASD, or
other regulatory authorities.
4.6. Equitable shall provide to the Trust at least one complete copy
of all registration statements, prospectuses, Statements of Additional
Information, reports, solicitations for voting instructions, sales literature
and other promotional materials, applications for exemptions, requests for
no-action letters, and all amendments to any of the above, that relate to the
Equitable Contracts or any Account if such document also relates to the Trust,
contemporaneously with the filing of such document with the SEC, the NASD, or
other regulatory authorities.
4.7. For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to, any of the
following that refer to the Trust or any affiliate of the Trust:
advertisements (including materials published or designed for use in a
newspaper, magazine, or other periodical, radio, television, telephone or tape
recording, videotape display, signs or billboards, motion pictures, electronic
messages or communications or other public media), sales literature (i.e., any
written communication distributed or made generally available to customers or
the public, including brochures, circulars, research reports, market letters,
form letters, seminar texts, reprints or excerpts of any other advertisement,
sales literature, or published article), educational or training materials or
other communications distributed or made generally available to some or all
agents or employees, and registration statements, prospectuses, Statements of
Additional Information, shareholder reports, and proxy materials. However, it
is anticipated that materials provided solely: (a) internally to Equitable or
the Distributors' own employees or counsel; or (b) to certain designated third
parties and that are not designed to be provided or communicated in any manner
to the general public (e.g., training materials provided to distributors or
agents) will not be filed with the SEC, the NASD, or any state securities or
insurance regulatory authorities, although such materials will be prepared in
accordance with applicable laws.
ARTICLE V. Fees and Expenses
5.1. The Trust and the Distributors shall pay no fee or other
compensation to Equitable under this Agreement except for: (a) items covered
in Article III; or (b) pursuant to a Plan
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adopted by the Trust in accordance with Rule 12b-1 under the 1940 Act to
finance the distribution expenses of any Class. Nevertheless, the Distributors
may make payments to Equitable or to any distributor for the Equitable
Contracts in amounts agreed to by the Distributors in any writing, and such
payments by the Distributors (other than pursuant to a Rule 12b-1 Plan) may be
made out of existing fees otherwise payable to the Distributors, past profits
of the Distributors, or other resources available to the Distributors.
5.2. All expenses incident to performance by the Trust under this
Agreement shall be paid by the Trust. Without limiting the foregoing, the
Trust shall see to it that all shares are registered and authorized for
issuance prior to their sale in accordance with applicable federal law, and
shall bear all expenses with respect to: registration and qualification of the
Trust's shares; preparation and filing of the Trust's Registration Statement,
prospectus, Statement of Additional Information, proxy materials, and reports;
setting the prospectus and Statement of Additional Information in type;
setting in type, printing, mailing or otherwise distributing proxy materials
and Semi-Annual and Annual Reports sent to Contractowners (including the costs
of setting in type, printing, mailing or otherwise distributing a prospectus
that constitutes an Annual Report) and if certain Classes of the Trust so
elect and the Rule 12b-1 Plan so provides, the preparation, printing, mailing
or otherwise distributing of such materials to prospective owners of Equitable
Contracts; the preparation of all statements and notices required by any
federal or state law; and all taxes on the issuance or transfer of the Trust's
shares.
ARTICLE VI. Diversification
6.1. The Trust represents that: (a) it currently has elected to
qualify as a regulated investment company under Subchapter M of the Code; and
(b) it will make every effort to maintain such qualification (under Subchapter
M or any successor or similar provision); (c) it will notify Equitable
immediately upon having a reasonable basis for believing that it has ceased to
so qualify or that it might not so qualify in the future; and (d) it will seek
to minimize any damages and to rectify its failure to so qualify promptly. The
Trust acknowledges that any failure to qualify as a regulated investment
company will eliminate the ability of the Accounts to avail themselves of the
"look through" provisions of Section 817(h) of the Code and that, as a result,
the Equitable Contracts will almost certainly fail to qualify as life
insurance and annuity contracts under Section 817(h) of the Code.
6.2. The Trust further represents that it will at all times invest
money from the Accounts in such a manner as to assure that the Equitable
Contracts will be treated as variable annuity or variable life insurance
contracts under the Code and the regulations issued thereunder. Without
limiting the scope of the foregoing, the Trust represents that it will at all
times comply with Section 817(h) of the Code and Treasury Regulation 1.817-5,
relating to the diversification requirements for variable annuity, endowment,
or life insurance contracts, and any amendments or other modifications to such
Section or Regulations. In the event of a breach of this Article VI by the
Trust, the Trust warrants that it will take all reasonable steps: (a) to
immediately notify Equitable of such breach; and (b) to adequately diversify
the Trust's assets so as to achieve compliance within the grace period
afforded by Regulation 1.817-5.
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ARTICLE VII. Potential Conflicts
7.1. The Board will monitor the Trust for the existence of any
material irreconcilable conflict between the interests of the contractowners
of all variable annuity and variable life insurance separate accounts
investing in the Trust. A material irreconcilable conflict may arise for a
variety of reasons, including: (a) an action by any state insurance regulatory
authority; or (b) a change in applicable federal or state insurance, tax, or
securities laws or regulations, or a public ruling, private letter ruling,
no-action or interpretative letter, or any similar action by insurance, tax,
or securities regulatory authorities; or (c) an administrative or judicial
decision in any relevant proceeding; or (d) the manner in which the
investments of any Designated Portfolio are being managed; or (e) a difference
in voting instructions given by owners of Variable Contracts; or (f) a
decision by an insurer to disregard the voting instructions of owners of
Variable Contracts. The Board shall promptly inform Equitable if it determines
that a material irreconcilable conflict exists and the implications thereof.
7.2. Equitable will report any potential or existing conflicts, of
which it is aware, to the Board. Equitable will assist the Board in carrying
out its responsibilities under any Shared Funding Exemptive Order, by
providing the Board with all information reasonably necessary for the Board to
consider any issues raised. This includes, but is not limited to, an
obligation by Equitable to inform the Board whenever the voting instructions
of owners of Variable Contracts are disregarded. Equitable's responsibilities
under this Section 7.2 will be carried out with a view only to the interests
of its Contractowners.
7.3. If it is determined by a majority of the Board, or a majority of
its disinterested Trustees, that a material irreconcilable conflict exists,
Equitable and other Participating Insurance Companies shall, at their expense
and to the extent reasonably practicable (as determined by a majority of the
disinterested Trustees), take whatever steps are necessary to remedy or
eliminate the material irreconcilable conflict, up to and including: (a)
withdrawing the assets allocable to some or all of the variable annuity and
variable life insurance separate accounts from the Trust or any Portfolio and
reinvesting such assets in a different investment medium, including (but not
limited to) another Portfolio of the Trust, or submitting the question of
whether such withdrawal should be implemented to a vote of all affected owners
of Variable Contracts and, as appropriate, withdrawing the assets of any
appropriate group (i.e., owners of variable annuity contracts or owners of
variable life insurance contracts of one or more Participating Insurance
Companies) that votes in favor of such withdrawal, or offering to the affected
owners of Variable Contracts the option of making such a change; and (b)
establishing a new registered management investment company or managed
separate account. Equitable's responsibilities under this Section 7.3 will be
carried out with a view only to the interests of Contractowners.
7.4. If a material irreconcilable conflict were ever to arise because
of a decision by Equitable to disregard Contractowner voting instructions and
that decision represents a minority position or would preclude a majority
vote, Equitable may be required, at the Trust's election, to withdraw the
affected Account's (or subaccount's) investment in the Trust and terminate
this Agreement with respect to such Account (or subaccount); provided,
however, that such withdrawal and termination shall be limited to the extent
required by the foregoing material irreconcilable conflict as determined by a
majority of the disinterested members of the Board.
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No charge or penalty shall be imposed as a result of such withdrawal. Any such
withdrawal and termination must take place within six (6) months after the
Trust gives written notice that this provision is being implemented and, until
the end of that six (6) month period, the Distributors and Trust shall
continue to accept and implement orders by Equitable for the purchase (and
redemption) of shares of the Trust.
7.5. If a material irreconcilable conflict were ever to arise because
a particular state insurance regulator's decision applicable to Equitable
conflicts with the majority of other state regulators, then Equitable shall
withdraw the affected Account's (or subaccount's) investment in the Trust and
terminate this Agreement with respect to such Account (or subaccount) within
six (6) months after the Board informs Equitable in writing that it has
determined that such decision has created a material irreconcilable conflict;
provided, however, that such withdrawal and termination shall be limited to
the extent required by the foregoing material irreconcilable conflict as
determined by a majority of the disinterested members of the Board. Until the
end of the foregoing six (6) month period, the Distributors and Trust shall
continue to accept and implement orders by Equitable for the purchase (and
redemption) of shares of the Trust.
7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a
majority of the disinterested members of the Board shall determine whether any
proposed action adequately remedies any material irreconcilable conflict, but
in no event will the Trust be required to establish a new funding medium for
the Equitable Contracts. Equitable shall not be required by Section 7.3 to
establish a new funding medium for the Equitable Contracts if an offer to do
so has been declined by vote of a majority of Contractowners materially
adversely affected by the material irreconcilable conflict. In the event that
the Board determines that any proposed action does not adequately remedy any
material irreconcilable conflict, then Equitable will withdraw the Account's
(or subaccount's) investment in the Trust and terminate this Agreement within
six (6) months after the Board informs Equitable in writing of the foregoing
determination; provided, however, that such withdrawal and termination shall
be limited to the extent required by any such material irreconcilable conflict
as determined by a majority of the disinterested members of the Board.
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are
amended, or Rule 6e-3 is adopted, to provide exemptive relief from any
provision of the 1940 Act or the rules promulgated thereunder with respect to
mixed or shared funding (as defined in the Shared Funding Exemptive Order) on
terms and conditions materially different from those contained in the Shared
Funding Exemptive Order, then: (a) the Trust and/or the Participating
Insurance Companies, as appropriate, shall take such steps as may be necessary
to comply with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted,
to the extent such rules are applicable; and (b) Sections 3.4, 3.5, 7.1, 7.2,
7.3, 7.4, and 7.5 of this Agreement shall continue in effect only to the
extent that terms and conditions substantially identical to such Sections are
contained in such Rule(s) as so amended or adopted; and (c) this Agreement
shall be otherwise amended by the Trust, without the need for any consent of
the other parties, as required by such change in law.
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ARTICLE VIII. Indemnification
8.1. Indemnification By Equitable
8.1(a). Equitable agrees to indemnify and hold harmless the Trust,
each member of the Board, the Distributors, and the directors and officers and
each person, if any, who controls any such person within the meaning of
Section 15 of the 1933 Act (collectively, the "Indemnified Parties" for
purposes of this Section 8.1) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the written consent of
Equitable), investigation of claims or litigation (including legal and other
expenses), to which the Indemnified Parties may become subject under any
statute, regulation, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect thereof) or
settlements are related to the sale or acquisition of the Trust's shares or
the Equitable Contracts or interests in the Accounts and:
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in the
registration statement, prospectus, or Statement of Additional
Information for the Equitable Contracts or contained in the Equitable
Contracts or sales literature for the Equitable Contracts (or any
amendment or supplement to any of the foregoing), or arise out of or
are based upon the omission or the alleged omission to state therein
a material fact required to be stated therein or necessary to make
the statements therein not misleading, provided that this agreement
to indemnify shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or omission was made
in reliance upon and in conformity with information furnished to
Equitable by or on behalf of the Trust for use in the registration
statement, prospectus, or Statement of Additional Information for the
Equitable Contracts or in the Equitable Contracts or sales literature
(or any amendment or supplement) or otherwise for use in connection
with the sale of the Equitable Contracts or Trust shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations contained
in the Registration Statement, prospectus or Statement of Additional
Information, or sales literature of the Trust not supplied by
Equitable or persons under its control) or wrongful conduct of
Equitable or persons under its control, with respect to the sale or
distribution of the Equitable Contracts or Trust shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a Registration Statement,
prospectus, or Statement of Additional Information, or sales
literature of the Trust or any amendment thereof or supplement
thereto or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading if such a statement or omission was
made in reliance upon information furnished to the Trust by or on
behalf of Equitable; or
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(iv) arise as a result of any failure by Equitable to
provide the services and furnish the materials required to be
provided or furnished by it under the terms of this Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by Equitable in this Agreement or
arise out of or result from any other material breach of this
Agreement by Equitable;
as limited by and in accordance with the provisions of Sections 8.1(b) and
8.1(c) hereof.
8.1(b). Equitable shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities, or
litigation incurred or assessed against an Indemnified Party as such may arise
from such Indemnified Party's willful misfeasance, bad faith, or gross
negligence in the performance of such Indemnified Party's duties or by reason
of such Indemnified Party's reckless disregard of obligations or duties under
this Agreement or to the Trust, whichever is applicable.
8.1(c). Equitable shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified Equitable in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice
of such service on any designated agent), but failure to notify Equitable of
any such claim shall not relieve Equitable from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise
than on account of this indemnification provision. In case any such action is
brought against the Indemnified Parties, Equitable shall be entitled to
participate, at its own expense, in the defense of such action. Equitable also
shall be entitled to assume the defense thereof, with counsel reasonably
satisfactory to the party named in the action. After notice from Equitable to
such party of Equitable's election to assume the defense thereof, the
Indemnified Party shall bear the fees and expenses of any additional counsel
retained by it, and Equitable will not be liable to such party under this
Agreement for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than reasonable
costs of investigation.
8.1(d). The Indemnified Parties shall promptly notify Equitable of
the commencement of any litigation or proceedings against them in connection
with the issuance or sale of the Trust's shares or the Equitable Contracts or
the operation of the Trust.
8.2. Indemnification by the Distributors
8.2(a). Each of the Distributors agrees to indemnify and hold
harmless Equitable, and the Trust and each of their directors and officers and
each person, if any, who controls Equitable within the meaning of Section 15
of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this
Section 8.2) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of the
Distributors), investigation of claims or litigation (including legal and
other expenses) to which the Indemnified Parties may become subject under any
statute, regulation, at common law or otherwise, insofar as such losses,
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claims, damages, liabilities or expenses (or actions in respect thereof) or
settlements are related to the sale or acquisition of the Trust's shares or
the Equitable Contracts or interests in the Accounts and:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
Registration Statement, prospectus or Statement of Additional
Information, or sales literature of the Trust (or any amendment or
supplement to any of the foregoing), or arise out of or are based
upon the omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the
statements therein not misleading, provided that this agreement to
indemnify shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or omission was made
in reliance upon and in conformity with information furnished to the
Distributors or Trust by or on behalf of Equitable for use in the
Registration Statement, prospectus, or Statement of Additional
Information for the Trust, or in sales literature (or any amendment
or supplement) or otherwise for use in connection with the sale of
the Equitable Contracts or Trust shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations contained
in the registration statement, prospectus or Statement of Additional
Information, or sales literature for the Equitable Contracts not
supplied by the Distributors or persons under their control) or
wrongful conduct of the Distributors or persons under their control,
with respect to the sale or distribution of the Equitable Contracts
or Trust shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration statement,
prospectus, or Statement of Additional Information or sales
literature covering the Equitable Contracts, or any amendment thereof
or supplement thereto, or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statement or statements therein not misleading, if such
statement or omission was made in reliance upon information furnished
to Equitable by or on behalf of the Distributors or the Trust; or
(iv) arise as a result of any failure by the Distributors or
the Trust to provide the services and furnish the materials required
to be provided or furnished by the Distributors or the Trust under
the terms of this Agreement (including a failure, whether
unintentional or in good faith or otherwise, to comply with the
diversification or other qualification requirements specified in
Article VI of this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Distributors in this
Agreement or arise out of or result from any other material breach of
this Agreement by the Distributors;
as limited by and in accordance with the provisions of Sections 8.2(b) and
8.2(c) hereof.
8.2(b). Each of the Distributors shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities, or litigation to which an Indemnified
-15-
<PAGE>
Party would otherwise be subject by reason of such Indemnified Party's willful
misfeasance, bad faith, or gross negligence in the performance of such
Indemnified Party's duties or by reason of such Indemnified Party's reckless
disregard of obligations and duties under this Agreement or to Equitable or
any Account, whichever is applicable.
8.2(c). Each of the Distributors shall not be liable under this
indemnification provision with respect to any claim made against an
Indemnified Party unless such Indemnified Party shall have notified the
Distributors in writing within a reasonable time after the summons or other
first legal process giving information of the nature of the claim shall have
been served upon such Indemnified Party (or after such Indemnified Party shall
have received notice of such service on any designated agent), but failure to
notify the Distributors of any such claim shall not relieve the Distributors
from any liability which they may have to the Indemnified Party against whom
such action is brought otherwise than on account of this indemnification
provision. In case any such action is brought against the Indemnified Parties,
the Distributors will be entitled to participate, at their own expense, in the
defense thereof. Each of the Distributors also shall be entitled to assume the
defense thereof, with counsel reasonably satisfactory to the party named in
the action. After notice from the Distributors to such party of the
Distributors' election to assume the defense thereof, the Indemnified Party
shall bear the fees and expenses of any additional counsel retained by it, and
the Distributors will not be liable to such party under this Agreement for any
legal or other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
8.2(d). Equitable agrees promptly to notify the Distributors of the
commencement of any material litigation or proceedings against it or any of
its officers or directors in connection with the issuance or sale of the
Equitable Contracts or the operation of each Account.
8.3. Indemnification By the Trust
8.3(a). The Trust agrees to indemnify and hold harmless Equitable and
each of its directors and officers and each person, if any, who controls
Equitable within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.3) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement
with the written consent of the Trust), investigation of claims or litigation
(including legal and other expenses) to which the Indemnified Parties may
become subject under any statute, regulation, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or actions
in respect thereof) or settlements result from the gross negligence, bad faith
or willful misconduct of the Board or any member thereof, are related to the
operations of the Trust and:
(i) arise as a result of any failure by the Trust to provide
the services and furnish the materials required to be provided or
furnished by it under the terms of this Agreement (including a
failure to comply with the diversification and other qualification
requirements specified in Article VI of this Agreement); or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Trust in this Agreement or
arise out of or result from any other material breach of this
Agreement by the Trust;
-16-
<PAGE>
as limited by and in accordance with the provisions of Sections 8.3(b) and
8.3(c) hereof.
8.3(b). The Trust shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities, or
litigation incurred or assessed against an Indemnified Party as such may arise
from such Indemnified Party's willful misfeasance, bad faith, or gross
negligence in the performance of such Indemnified Party's duties or by reason
of such Indemnified Party's reckless disregard of obligations and duties under
this Agreement or to Equitable, the Trust, the Distributors, or each Account,
whichever is applicable.
8.3(c). The Trust shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Trust in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice
of such service on any designated agent), but failure to notify the Trust of
any such claim shall not relieve the Trust from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise
than on account of this indemnification provision. In case any such action is
brought against the Indemnified Parties, the Trust will be entitled to
participate, at its own expense, in the defense thereof. The Trust also shall
be entitled to assume the defense thereof, with counsel reasonably
satisfactory to the party named in the action. After notice from the Trust to
such party of the Trust's election to assume the defense thereof, the
Indemnified Party shall bear the fees and expenses of any additional counsel
retained by it, and the Trust will not be liable to such party under this
Agreement for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than reasonable
costs of investigation.
8.3(d). Equitable and the Distributors each agree promptly to notify
the Trust of the commencement of any material litigation or proceedings
against it or any of its respective officers or directors in connection with
this Agreement, the issuance or sale of the Equitable Contracts, with respect
to the operation of any Account, or the sale or acquisition of shares of the
Trust.
ARTICLE IX. Applicable Law
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of New York.
9.2. This Agreement shall be subject to the provisions of the 1933,
1934, and 1940 Acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules, and regulations as the
SEC may grant (including, but not limited to, any Shared Funding Exemptive
Order) and the terms hereof shall be interpreted and construed in accordance
therewith.
-17-
<PAGE>
ARTICLE X. Termination
10.1. This Agreement shall continue in full force and effect until
the first to occur of:
(a) termination by any party, with or without cause, upon six
(6) months' advance written notice delivered to the other
parties; or
(b) termination by Equitable upon thirty (30) days' written
notice to the Trust and the Distributors with respect to any
Designated Portfolio or Class thereof based upon Equitable's
determination that shares of such Designated Portfolio or
Class thereof are not reasonably available to meet the
requirements of the Equitable Contracts or are not
consistent with Equitable's obligations to Contractowners;
or
(c) termination by Equitable upon thirty (30) days' written
notice to the Trust and the Distributors with respect to any
Designated Portfolio or Class thereof in the event any of
the Designated Portfolio's shares or any shares with respect
to any Class are not registered, issued or sold in
accordance with applicable federal and/or state law or such
law precludes the use of such shares as the underlying
investment media of the Equitable Contracts issued or to be
issued by Equitable; or
(d) termination by Equitable by written notice to the Trust and
the Distributors with respect to any Designated Portfolio or
Class thereof in the event that such Designated Portfolio or
Class thereof ceases to qualify as a regulated investment
company under Subchapter M of the Code or any other failure
under Section 817 of the Code, or under any successor or
similar provision of either, or if Equitable reasonably
believes that the Trust may fail to so qualify; or
(e) termination by either the Trust or the Distributors by
written notice to Equitable, if the Trust or the
Distributors shall determine, in their sole judgment
exercised in good faith, that Equitable and/or its
affiliated companies have suffered a material adverse change
in their business, operations, financial condition, or
prospects since the date of this Agreement or are the
subject of material adverse publicity; but no termination
shall be effective under this subsection (e) until Equitable
has been afforded a reasonable opportunity to respond to a
statement by the Trust or the Distributors concerning the
reason for notice of termination hereunder; or
(f) termination by Equitable by written notice to the Trust
and the Distributors, if Equitable shall determine, in its
sole judgment exercised in good faith, that either the Trust
or the Distributors has suffered a material adverse change
in its business, operations, financial condition, or
prospects since the date of this Agreement or is the subject
of material adverse publicity; but no termination shall be
effective under this subsection (f) until the Trust or the
Distributors have been afforded a reasonable opportunity to
respond to a statement by Equitable concerning the reason
for notice of termination hereunder.
-18-
<PAGE>
10.2. Notwithstanding any termination of this Agreement, the Trust
and the Distributors shall, at the option of Equitable, continue to make
available additional shares of the Trust pursuant to the terms and conditions
of this Agreement, for all Equitable Contracts in effect on the effective date
of termination of this Agreement (hereinafter referred to as "Existing
Equitable Contracts"). Specifically, without limitation, the owners of the
Existing Equitable Contracts shall be permitted to reallocate investments in
the Trust, redeem investments in the Trust, and/or invest in the Trust upon
the making of additional purchase payments under the Existing Equitable
Contracts. The parties agree that this Section 10.2 shall not apply to any
terminations under Article VII and the effect of such Article VII terminations
shall be governed by Article VII of this Agreement.
10.3. Equitable shall not redeem Trust shares attributable to the
Equitable Contracts (as opposed to Trust shares attributable to Equitable's
assets held in any Account) except: (a) as necessary to implement
Contractowner initiated or approved transactions; or (b) as required by
federal and/or state laws or regulations or judicial or other legal precedent
of general application (hereinafter referred to as a "Legally Required
Redemption"); or (c) as permitted pursuant to Section 26(b) of the 1940 Act or
otherwise pursuant to an order of the SEC that permits Equitable to redeem
Trust shares attributable to Equitable Contracts. Upon request, Equitable
shall promptly furnish to the Trust and the Distributors the opinion of
counsel for Equitable (which counsel shall be reasonably satisfactory to the
Trust and the Distributors) to the effect that any redemption pursuant to
clause (b) above is a Legally Required Redemption or any redemption pursuant
to clause (b) is permitted without first obtaining an order of the SEC
pursuant to Section 26(b) or any other provision of the 1940 Act. Furthermore,
except in cases where permitted under the terms of the Equitable Contracts,
and as may be in the best interests of Contractowners, as determined by
Equitable, Equitable shall not prevent Contractowners from allocating payments
to a Designated Portfolio or Class thereof that was otherwise available under
the Equitable Contracts without first giving the Trust or the Distributors
ninety (90) days' notice of its intention to do so.
10.4. Notwithstanding any termination of this Agreement for any
reason, the terms and conditions of the following provisions of this Agreement
shall remain in effect with respect to any Existing Contract, for so long as
any assets invested in the Trust are attributable to such Existing Contract:
Sections 1.3 to 1.10 of Article I (governing the pricing and redemption of
shares); Article II (Representations and Warranties); Sections 3.1 through 3.4
and 3.6 of Article III (Prospectuses and Proxy Statements, and Voting);
Articles IV through IX (Sales Material and Information; Fees and Expenses;
Diversification; Potential Conflicts; Indemnification; and Applicable Law);
Article XI (Notices); and Sections 12.1, 12.2, and 12.5 through 12.8 of
Article XII (Miscellaneous). Further, notwithstanding any termination of this
Agreement for any reason, the terms and conditions of the following provisions
of this Agreement shall remain in effect with regard to Equitable Contracts
whose assets were previously invested in the Trust: Article II
(Representations and Warranties), Article VI (Diversification) and Article VII
(Indemnification).
-19-
<PAGE>
ARTICLE XI. Notices
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in
writing to the other party.
If to the Trust:
EQ Advisors Trust
1290 Avenue of the Americas
New York, New York 10104
Attention: Peter D. Noris
If to Equitable:
The Equitable Life Assurance Society of the United States
1290 Avenue of the Americas
New York, New York 10104
Attention: Peter D. Noris
If to the Distributors:
Equitable Distributors, Inc.
1290 Avenue of the Americas
New York, New York 10104
Attention: Jerome S. Golden
EQ Financial Consultants, Inc.
1755 Broadway
New York, New York 10019
Attention: Michael F. NcNelis
ARTICLE XII. Miscellaneous
12.1. All persons dealing with the Trust must look solely to the
property of the Trust for the enforcement of any claims against the Trust as
neither the Board (or its members), officers, agents, or shareholders shall
assume any personal liability for obligations entered into on behalf of the
Trust.
12.2. Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and
addresses of the Contractowners and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate, or utilize such names and
addresses and other confidential information until such time as it may come
into the public domain without the express written consent of the affected
party. Without limiting the foregoing, no party hereto shall disclose any
information that such party has been advised is
-20-
<PAGE>
proprietary, except such information that such party is required to disclose
by any appropriate governmental authority (including without limitation the
SEC, the NASD, and state securities or insurance regulators).
12.3. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof
or otherwise affect their construction or effect.
12.4. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule, or otherwise, the remainder of the
Agreement shall not be affected thereby.
12.6. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC,
the NASD, and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any
investigation or inquiry relating to this Agreement or the transactions
contemplated hereby.
12.7. The rights, remedies, and obligations contained in this
Agreement are cumulative and are in addition to any and all rights, remedies,
and obligations, at law or in equity, to which the parties hereto are entitled
under federal and state laws.
12.8. This Agreement or any of the rights and obligations hereunder
may not be assigned by any party without the prior written consent of all
parties hereto; provided, however, that the Distributors may assign this
Agreement or any rights or obligations hereunder to any affiliate of or
company under common control with the Distributors (but in such event the
Distributors shall continue to be liable under Article VIII of this Agreement
for any indemnification due to Equitable, and the assignee shall also be
liable), if such assignee is duly licensed and registered to perform the
obligations of the Distributors under this Agreement.
12.9. Equitable shall furnish, or shall cause to be furnished, to the
Trust or its designee upon request copies of the following reports:
(a) Equitable's annual statements (prepared under statutory
accounting principles) and annual reports (prepared under generally accepted
accounting principles ("GAAP"), if any), as soon as practical and in any event
within ninety (90) days after the end of each fiscal year; and
(b) any material financial statement, proxy statement, notice, or
report of Equitable sent to policyholders, as soon as practical after the
delivery thereof to stockholders; and
(c) any registration statement (without exhibits) and financial
reports of Equitable filed with the SEC or any state insurance regulator, as
soon as practical after the filing thereof; and
-21-
<PAGE>
(d) any other report submitted to Equitable by independent
accountants in connection with any annual, interim, or special audit made by
them of the books of Equitable, as soon as practical after the receipt
thereof; but nothing in this subsection shall require Equitable to disclose
any information that is privileged or which, if disclosed, would put Equitable
at a competitive disadvantage or is both: (a) confidential; and (b) not
material to Equitable's financial condition.
12.10 At the request of any party to this Agreement, each other party
will make available to the requesting party's independent auditors and/or
representatives of the appropriate regulatory agencies, all records, data, and
access to operating procedures that may be reasonably requested in connection
with compliance and regulatory requirements related to this Agreement or any
party's obligations under this Agreement.
12.11 Any controversy or claim arising out of or relating to this
Agreement, or breach thereof, shall be settled by arbitration in a forum
jointly selected by the relevant parties (but if applicable law requires some
other forum, then such other forum) in accordance with the Commercial
Arbitration Rules of the American Arbitration Association, and judgment upon
the award rendered by the arbitrators may be entered in any court having
jurisdiction thereof.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and on its behalf by its duly authorized
representative as of the date specified below.
EQ Advisors Trust
By: ________________________
Name: ______________________
Title: _____________________
Date: ______________________
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
By: ________________________
Name: ______________________
Title: _____________________
Date: ______________________
EQUITABLE DISTRIBUTORS, INC.
By: _______________________
Name: _____________________
Title: ____________________
Date: _____________________
-22-
<PAGE>
EQ FINANCIAL CONSULTANTS, INC.
By: ________________________
Name: ______________________
Title: _____________________
Date: ______________________
-23-
<PAGE>
SCHEDULE A
ACCOUNTS AND ASSOCIATED VARIABLE INSURANCE CONTRACTS
Name of Account
- ---------------
____________________________________
Equitable Contracts
Funded By Account
- -----------------
_____________________________________
<PAGE>
SCHEDULE B
DESIGNATED PORTFOLIOS AND CLASSES
<PAGE>
SCHEDULE C
LIST OF OTHER INVESTMENT COMPANIES
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Pre-Effective Amendment No. 2 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated
April 2, 1997, relating to the statement of assets and liabilities at April 1,
1997 of the portfolios constituting EQ Advisors Trust, which appears in such
Statement of Additional Information. We also consent to the reference to us
under the heading "Other Services-Independent Accountants" in such Statement
of Additional Information.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
April 2, 1997
<PAGE>
EXHIBIT 13
FORM OF STOCK SUBSCRIPTION AGREEMENT
THIS AGREEMENT is by and between Separate Account FP, a separate account of
The Equitable Life Assurance Society of the United States registered as a unit
investment trust with the Securities and Exchange Commission, and EQ Advisors
Trust (the "Trust"), a business trust organized and existing under and by
virtue of the laws of the State of Delaware, on behalf of the T. Rowe Price
Equity Income Portfolio, a series of the Trust.
In consideration of the mutual promises set forth herein, the parties
agree as follows:
1. The Trust agrees to sell to Separate Account FP and Separate
Account FP hereby subscribes to purchase ten thousand (10,000) Class IA shares
of beneficial interest of the T. Rowe Price Equity Income Portfolio (the
"Shares"), with a par value of $.01 per Share, at a price of ten dollars
($10.00) per Share.
2. Separate Account FP agrees to pay one hundred thousand dollars
($100,000) for such Shares at the time of their issuance, which shall occur
upon call of the President of the Trust, at any time on or before the
effective date of the Trust's Registration Statement filed by the Trust on
Form N-1A with the Securities and Exchange Commission ("Registration
Statement") on December 2, 1996 and amended on January 23, 1997 and April 4,
1997.
3. Separate Account FP acknowledges that the Shares have not been,
and will not be, registered under the federal securities laws and that,
therefore, the Trust is relying on certain exemptions from such registration
requirements, including exemptions dependent on the intent of the undersigned
in acquiring the Shares. Separate Account FP also understands that any resale
of the Shares, or any part thereof, may be subject to restrictions under the
federal securities laws, and that Separate Account FP may be required to bear
the economic risk of any investment in the Shares for an indefinite period of
time.
4. Separate Account FP 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.
<PAGE>
5. Separate Account FP 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.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
by their duly authorized representatives this 31st day of March, 1997.
SEPARATE ACCOUNT FP
A Separate Account of
The Equitable Life Assurance Society
of the United States
By: /s/ Peter D. Noris
-------------------------------------
Peter D. Noris
Title: Executive Vice President
and Chief Investment Officer
EQ ADVISORS TRUST
By: /s/ Peter D. Noris
-------------------------------------
Peter D. Noris
Title: President and Trustee
<PAGE>
EXHIBIT 20
POWER OF ATTORNEY
The undersigned Officers and Trustees of the EQ Advisors Trust whose
signatures appear below hereby make, constitute and appoint Peter D. Noris,
Mary Breen and Jane A. Kanter, and each of them acting individually, to be
their true and lawful attorneys and agents, each of them with the power to act
without any other and with full power of substitution, to execute, deliver and
file in the undersigned capacity or capacities as shown below, any and all
instruments that said attorneys and agents may deem necessary or advisable to
enable the EQ Advisors Trust to comply with the Securities Act of 1933, as
amended, including any and all amendments to the EQ Advisors Trust's
registration statement, and any rules, regulations, orders or other
requirements of the Securities and Exchange Commission thereunder in
connection with the registration of shares or additional shares of common
stock of the EQ Advisors Trust or any of its series or classes thereof, and
the registration of the EQ Advisors Trust or any of its series under the
Investment Company Act of 1940, as amended, including any and all amendments
to the EQ Advisors Trust's registration statement; and without limitation of
the foregoing, the power and authority to sign the name of the EQ Advisors
Trust on its behalf, and to sign their names on their behalf, and said
Officers and Trustees hereby grant to said attorney or attorneys, full power
and authority to do and perform each and every act and thing whatsoever as
said attorney or attorneys may deem necessary or advisable to carry out fully
the intent of this Power of Attorney to the same extent and with the same
effect as of said Officers and Trustees might or could do personally in their
capacity or capacities as aforesaid and said Officers and Trustees ratify,
confirm and approve all acts and things which said attorney or attorneys might
do or cause to be done by virtue of this Power of Attorney and their
signatures as the same may be signed by said attorney or attorneys.
Signature Title Date
--------- ----- ----
/s/ Peter D. Noris President, Trustee March 31, 1997
- -------------------------------------
Peter D. Noris
/s/ William McCaffrey Trustee March 31, 1997
- -------------------------------------
William McCaffrey
/s/ Jettie M. Edwards Trustee March 31, 1997
- -------------------------------------
Jettie M. Edwards
/s/ William M. Kearns, Jr. Trustee March 31, 1997
- -------------------------------------
William M. Kearns, Jr.
<PAGE>
/s/ Christopher P.A. Komisarjevsky Trustee March 31, 1997
- -------------------------------------
Christopher P.A. Komisarjevsky
/s/ Harvey Rosenthal Trustee March 31, 1997
- -------------------------------------
Harvey Rosenthal
/s/ Harvey Blitz Chief Financial Officer March 31, 1997
- ------------------------------------- Controller
Harvey Blitz
2
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> T. ROWE PRICE EQUITY INCOME PORTFOLIO
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> APR-01-1997
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 128,750
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 128,750
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 128,750
<TOTAL-LIABILITIES> 128,750
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 10,000
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 100,000
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 10,000
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 100,000
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.00
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> T. ROWE PRICE INTERNATIONAL STOCK PORTFOLIO
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> APR-01-1997
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 28,750
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 28,750
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 28,750
<TOTAL-LIABILITIES> 28,750
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 0
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> EQ/PUTNAM GROWTH & INCOME VALUE PORTFOLIO
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1997
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 4
<NAME> EQ/PUTNAM INTERNATIONAL EQUITY PORTFOLIO
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> APR-01-1997
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 5
<NAME> EQ/PUTNAM INVESTORS GROWTH PORTFOLIO
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> APR-01-1997
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 6
<NAME> EQ/PUTNAM BALANCED PORTFOLIO
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> APR-01-1997
<INVESTMENTS-AT-COST> 0
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 7
<NAME> MFS RESEARCH PORTFOLIO
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> APR-01-1997
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<NET-INVESTMENT-INCOME> 0
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 8
<NAME> MFS EMERGING GROWTH COMPANIES PORTFOLIO
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> APR-01-1997
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<NUMBER-OF-SHARES-SOLD> 0
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<GROSS-EXPENSE> 0
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 9
<NAME> MORGAN STANLEY EMERGING MARKETS EQUITY PORTFOLIO
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> APR-01-1997
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 10
<NAME> WARBURG PINCUS SMALL COMPANY VALUE PORTFOLIO
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> APR-01-1997
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 11
<NAME> MERRILL LYNCH WORLD STRATEGY PORTFOLIO
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> APR-01-1997
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 12
<NAME> MERRILL LYNCH BASIC VALUE EQUITY PORTFOLIO
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> APR-01-1997
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</TABLE>
