<PAGE>
Registration Nos. 333-17217
811-07953
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 15, 1998.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 /x/
Pre-Effective Amendment No. / /
Post-Effective Amendment No. 7 /x/
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 /x/
Amendment No. 9 /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
Dechert Price & Rhoads Vice President & Associate General Counsel
1775 Eye Street N.W. The Equitable Life Assurance Society of the
Washington, D.C. 20006-2401 United States
1290 Avenue of the Americas
New York, New York 10104
It is proposed that this filing will become effective:
____immediately upon filing pursuant to paragraph (b)
____on [date] pursuant to paragraph (b)
____60 days after filing pursuant to paragraph (a)
____on [date] pursuant to paragraph (a) of Rule 485
__X_75 days after filing pursuant to paragraph (a)
<PAGE>
EQ ADVISORS TRUST
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 - Prospectuses
Part B - Statement of Additional Information
Part C - Other Information
Signature Page
Exhibits
<PAGE>
EQ ADVISORS TRUST
CROSS REFERENCE SHEET
POST-EFFECTIVE AMENDMENT NO. [7]
<TABLE>
<CAPTION>
<S> <C>
PART A. ITEM NO. AND CAPTIONS CAPTION IN PROSPECTUS
1. Cover Page Cover Page
2. Synopsis Not Applicable
3. Condensed Financial Information Financial Highlights
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 Performance Not Applicable
6. Capital Stock and Other Securities Description of the Trust and Trust's
Shares--Characteristics of Trust's Shares;
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
PART B. ITEM NO. AND CAPTIONS CAPTION IN STATEMENT OF ADDITIONAL INFORMATION
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History General Information and History
13. Investment Objectives and Policies Description of Certain Securities In Which the
Portfolios May Invest; Investment Restrictions
14. Management of the Fund Management of the Trust
15. Control Persons and Principal Holders of General Information and History
Securities
16. Investment Advisory and Other Services Investment Management and Other Services
17. Brokerage Allocation and Other Practices Brokerage Allocation
18. Capital Stock and Other Securities General Information and History
19. Purchase, Redemption, and Pricing of Securities Purchase and Pricing of Securities; Redemption
Being Offered of Shares
20. Tax Status Certain Tax Considerations
21. Underwriters Investment Management and Other Services
22. Calculation of Performance Data Portfolio Performance
23. Financial Statements Financial Statements
</TABLE>
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.
<PAGE>
EQ ADVISORS TRUST
1290 Avenue of the Americas -- New York, New York 10104
EQ Advisors Trust ("Trust") is an 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 twenty-one (21) Portfolios currently
offered by the Trust.
o T. Rowe Price International Stock Portfolio
o T. Rowe Price Equity Income Portfolio
o EQ/Putnam Growth & Income Value Portfolio
o EQ/Putnam International Equity Portfolio
o EQ/Putnam Investors Growth Portfolio
o EQ/Putnam Balanced Portfolio
o MFS Research Portfolio
o MFS Emerging Growth Companies Portfolio
o MFS Growth with Income Portfolio
o Morgan Stanley Emerging Markets Equity Portfolio
o Warburg Pincus Small Company Value Portfolio
o Merrill Lynch World Strategy Portfolio
o Merrill Lynch Basic Value Equity Portfolio
o Lazard Large Cap Value Portfolio
o Lazard Small Cap Value Portfolio
o JPM Core Bond Portfolio
o BT Small Company Index Portfolio
o BT International Equity Index Portfolio
o BT Equity 500 Index Portfolio
o Evergreen Foundation Portfolio
o Evergreen Portfolio
The Trust is authorized to offer two classes of shares on behalf of each
Portfolio: Class IA shares offered hereby and Class IB shares offered pursuant
to another prospectus.
This Prospectus sets forth concisely the information about the Trust and the
Portfolios that a prospective investor should know before investing. Please
read the Prospectus and retain it for future reference. Additional information
contained in a Statement of Additional Information dated May 1, 1998 as
supplemented on January 1, 1999 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. California residents can obtain a copy of the
Statement of Additional Information by calling 1-800-999-3527. 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.
PROSPECTUS DATED MAY 1, 1998 AS SUPPLEMENTED ON JANUARY 1, 1999
<PAGE>
FINANCIAL HIGHLIGHTS
The financial information in the table below for the period May 1, 1997* to
December 31, 1997 relates only to the Class 1B shares and has been derived from
the audited financial statements of the Trust. The financial information in the
table below for the period January 1, 1997 ** to June 30, 1998 has been derived
from unaudited financial statements of the Trust and also relates only to the
Class IA shares. The report on the Trust's financial statements as of December
31, 1997 by PricewaterhouseCoopers LLP, the Trust's independent public
accountants, appears in the Trust's Annual Report. The Trust's financial
statements as of June 30, 1998 appear in the Trust's Semi-Annual Report. The
information listed below should be read in conjunction with the financial
statements contained in each such report which is incorporated by reference
into the Trust's Statement of Additional Information. The Annual Report and
Semi-Annual Report include more information about the Trust's performance and
are available without charge upon request.
<TABLE>
<CAPTION>
NET REALIZED EXCESS
GAIN (LOSS) ON
NET ASSET INVESTMENTS AND DIVIDENDS DIVIDENDS IN
VALUE, NET FOREIGN TOTAL FROM FROM NET EXCESS OF NET DISTRIBUTIONS
BEGINNING OF INVESTMENT CURRENCY INVESTMENT INVESTMENT INVESTMENT FROM REALIZED
PERIOD INCOME TRANSACTIONS OPERATIONS INCOME INCOME GAINS
------------ ----------- --------------- ------------ ------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
T. Rowe Price
International
Stock Portfolio
JUNE 30, 1998 $9.85 $0.06 $1.19 $1.25 -- -- --
DEC. 31, 1997 $10.00 $0.02 $(0.17) $(0.15) -- -- --
T. Rowe Price
Equity Income
Portfolio
JUNE 30, 1998 $12.08 $0.11 $0.65 $0.76 -- -- --
DEC. 31, 1997 $10.00 $0.10 $2.11 $2.21 $(0.09) -- $(0.04)
EQ/Putnam
Growth &
Income Value
Portfolio
JUNE 30, 1998 $11.52 $0.06 $0.89 $0.95 -- -- --
DEC. 31, 1997 $10.00 $0.06 $1.56 $1.62 $(0.06) -- $(0.01)
EQ/Putnam
Balanced
Portfolio
JUNE 30, 1998 $11.21 $0.13 $0.77 $0.90 -- -- --
DEC. 31, 1997 $10.00 $0.14 $1.30 $1.44 $(0.13) $(0.01) $(0.09)
EQ/Putnam
International
Equity Portfolio
JUNE 30, 1998 $10.89 $0.08 $2.10 $2.18 -- -- --
DEC. 31, 1997 $10.00 $0.03 $0.93 $0.96 $(0.02) -- $(0.01)
EQ/Putnam
Investors Growth
Portfolio
JUNE 30, 1998 $12.33 $0.01 $2.77 $2.78 -- -- --
DEC. 31, 1997 $10.00 $0.02 $2.45 $2.47 $(0.03) -- $(0.04)
MFS Research
Portfolio
JUNE 30, 1998 $11.48 $0.02 $2.19 $2.21 -- -- --
DEC. 31, 1997 $10.00 $0.02 $1.58 $1.60 $(0.02) -- $(0.01)
MFS Emerging
Growth
Companies
Portfolio
JUNE 30, 1998 $11.92 $(0.01) $2.59 $2.58 -- -- --
DEC. 31, 1997 $10.00 $0.02 $2.23 $2.23 $(0.02) -- $(0.18)
Warburg Pincus
Small Company
Value Portfolio
JUNE 30, 1998 $11.85 $0.02 $0.77 $0.79 -- -- --
DEC. 31, 1997 $10.00 $0.01 $1.90 $1.91 $(0.01) -- --
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
NET REALIZED EXCESS
GAIN (LOSS) ON
NET ASSET INVESTMENTS AND DIVIDENDS DIVIDENDS IN
VALUE, NET FOREIGN TOTAL FROM FROM NET EXCESS OF NET DISTRIBUTIONS
BEGINNING OF INVESTMENT CURRENCY INVESTMENT INVESTMENT INVESTMENT FROM REALIZED
PERIOD INCOME TRANSACTIONS OPERATIONS INCOME INCOME GAINS
------------ ----------- --------------- ------------ ------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Merrill Lynch
World Strategy
Portfolio
JUNE 30, 1998 $10.31 $0.09 $0.81 $0.90 -- -- --
DEC. 31, 1997 $10.00 $0.08 $0.39 $0.47 $(0.05) -- --
Merrill Lynch
Basic Value
Equity Portfolio
JUNE 30, 1998 $11.58 $0.06 $1.55 $1.61 -- -- --
DEC. 31, 1997 $10.00 $0.06 $1.64 $1.70 $(0.06) -- $(0.05)
Morgan Stanley
Emerging
Markets Equity
Portfolio
JUNE 30, 1998 $7.96 $0.02 $(1.51) $(1.49) -- -- --
DEC. 31, 1997 $10.00 $0.04 $(2.06) $(2.02) $(0.02) -- --
BT Equity 500
Index Portfolio
JUNE 30, 1998 $10.00 $0.04 $1.43 $1.47 -- -- --
DEC. 31, 1997 -- -- -- -- -- -- --
BT International
Equity Index
Portfolio
JUNE 30, 1998 $10.00 $0.09 $1.49 $1.58 -- -- --
DEC. 31, 1997 -- -- -- -- -- -- --
BT Small
Company Index
Portfolio
JUNE 30, 1998 $10.00 $0.04 $0.41 $0.45 -- -- --
DEC. 31, 1997 -- -- -- -- -- -- --
JPM Core Bond
Portfolio
JUNE 30, 1998 $10.00 $0.13 $0.26 $0.39 -- -- --
DEC. 31, 1997 -- -- -- -- -- --
Lazard Large
Cap Value
Portfolio
JUNE 30, 1998 $10.00 $0.03 $1.21 $1.24 -- -- --
DEC. 31, 1997 -- -- -- -- -- -- --
Lazard Small
Cap Value
Value Portfolio
JUNE 30, 1998 $10.00 $0.01 $0.04 $0.05 -- -- --
DEC. 31, 1997 -- -- -- -- -- -- --
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
RATIO OF
EXPENSES TO
DISTRIBUTIONS TOTAL NET ASSET NET ASSETS, AVERAGE NET
IN EXCESS OF DIVIDENDS AND VALUE, END TOTAL END OF ASSETS AFTER
REALIZED GAINS DISTRIBUTIONS OF PERIOD RETURN(B) PERIOD(000'S) WAIVERS(A)(C)
---------------- --------------- ------------ ----------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
T. Rowe Price
International Stock Portfolio
JUNE 30, 1998 -- -- $ 11.10 12.69% $115,053 1.20%
DEC. 31, 1997 -- -- $ 9.85 (1.49)% $ 69,572 1.20%
T. Rowe Price
Equity Income Portfolio
JUNE 30, 1998 -- -- $ 12.84 6.29% $199,678 0.85%
DEC. 31, 1997 -- $ (0.13) $ 12.08 22.11% $ 99,947 0.85%
EQ/Putnam
Growth & Income Value Portfolio
JUNE 30, 1998 -- -- $ 12.47 8.25% $321,485 0.85%
DEC. 31, 1997 $ (0.03) $ (0.10) $ 11.52 16.23% $150,260 0.85%
EQ/Putnam
Balanced Portfolio
JUNE 30, 1998 -- -- $ 12.11 8.03% $ 51,895 0.90%
DEC. 31, 1997 -- $ (0.23) $ 11.21 14.38% $ 25,854 0.90%
EQ/Putnam
International Equity Portfolio
JUNE 30, 1998 -- -- $ 13.07 20.02% $103,448 1.20%
DEC. 31, 1997 $ (0.04) $ (0.07) $ 10.89 9.58% $ 55,178 1.20%
EQ/Putnam
Investors Growth Portfolio
JUNE 30, 1998 -- -- $ 15.11 22.55% $ 95,503 0.85%
DEC. 31, 1997 $ (0.07) $ (0.14) $ 12.33 24.70% $ 39,695 0.85%
MFS Research Portfolio
JUNE 30, 1998 -- -- $ 13.69 19.25% $255,909 0.85%
DEC. 31, 1997 $ (0.09) $ (0.12) $ 11.48 16.07% $114,754 0.85%
MFS Emerging
Growth Companies Portfolio
JUNE 30, 1998 -- -- $ 14.50 21.64% $259,338 0.85%
DEC. 31, 1997 $ (0.11) $ (0.31) $ 11.92 22.42% $ 99,317 0.85%
Warbug Pincus
Small Company Value Portfolio
JUNE 30, 1998 -- -- $ 12.64 6.67% $181,001 1.00%
DEC. 31, 1997 $ (0.05) $ (0.06) $ 11.85 19.15% $120,880 1.00%
Merrill Lynch
World Strategy Portfolio
JUNE 30, 1998 -- -- $ 11.21 8.73% $ 28,526 1.20%
DEC. 31, 1997 $ (0.11) $ (0.16) $ 10.31 4.70% $ 18,210 1.20%
Merrill Lynch
Basic Value Equity Portfolio
JUNE 30, 1998 -- -- $ 13.19 13.90% $125,706 0.85%
DEC. 31, 1997 $ (0.01) $ (0.12) $ 11.58 16.99% $ 49,495 0.85%
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
RATIO OF
EXPENSES TO
DISTRIBUTIONS TOTAL NET ASSET NET ASSETS, AVERAGE NET
IN EXCESS OF DIVIDENDS AND VALUE, END TOTAL END OF ASSETS AFTER
REALIZED GAINS DISTRIBUTIONS OF PERIOD RETURN(B) PERIOD(000'S) WAIVERS(A)(C)
---------------- --------------- ------------ -------------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Morgan Stanley
Emerging Markets Equity Portfolio
JUNE 30, 1998 -- -- $ 6.47 (18.72)% $33,982 1.75%
DEC. 31, 1997 -- $ (0.02) $ 7.96 (20.16)% $21,433 1.75%
BT Equity 500
Index Portfolio
JUNE 30, 1998 -- -- $ 11.47 14.70% $83,185 0.55%
DEC. 31, 1997 -- -- -- -- -- --
BT International
Equity Index Portfolio
JUNE 30, 1998 -- -- $ 11.58 15.80% $29,098 0.80%
DEC. 31, 1997 -- -- -- -- -- --
BT Small Company
Index Portfolio
JUNE 30, 1998 -- -- $ 10.45 4.50% $19,826 0.60%
DEC. 31, 1997 -- -- -- -- -- --
JPM Core Bond Portfolio
JUNE 30, 1998 -- -- $ 10.39 3.90% $29,128 0.80%
DEC. 31, 1997 -- -- -- -- -- --
Lazard Large Cap
Value Portfolio
JUNE 30, 1998 -- -- -- -- -- --
DEC. 31, 1997 -- -- $ 11.24 12.40% $28,073 0.90%
Lazard Small Cap
Value Portfolio
JUNE 30, 1998 -- -- -- -- -- --
DEC. 31, 1997 -- -- $ 10.05 0.50% $26,828 1.20%
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
RATIO OF NET RATIO OF NET
RATIO OF INVESTMENT INVESTMENT PER SHARE
EXPENSES TO INCOME TO INCOME TO BENEFIT TO
AVERAGE NET AVERAGE NET AVERAGE NET PORTFOLIO AVERAGE NET
ASSETS BEFORE ASSETS AFTER ASSETS BEFORE TURNOVER COMMISSION INVESTMENT
WAIVERS(A)(C) WAIVERS(A)(C) WAIVERS(A)(C) RATE RATE PAID INCOME(C)
--------------- --------------- --------------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
T. Rowe Price
International Stock Portfolio
JUNE 30, 1998 1.41% 1.43% 1.22% 13% $ 0.0115 $ 0.01
DEC. 31, 1997 2.56% 0.45% (0.91)% 17% $ 0.0034 $ 0.05
T. Rowe Price
Equity Income Portfolio
JUNE 30, 1998 1.04% 2.20% 2.01% 9% $ 0.0304 $ 0.01
DEC. 31, 1997 1.74% 2.49% 1.60% 9% $ 0.0293 $ 0.03
EQ/Putnam
Growth & Income Value Portfolio
JUNE 30, 1998 1.05% 1.27% 1.07% 41% $ 0.0398 $ 0.01
DEC. 31, 1997 1.75% 1.67% 0.77% 61% $ 0.0376 $ 0.03
EQ/Putnam
Balanced Portfolio
JUNE 30, 1998 1.24% 2.97% 2.63% 65% $ 0.0397 $ 0.02
DEC. 31, 1997 2.55% 3.19% 1.54% 117% $ 0.0346 $ 0.07
EQ/Putnam
International Equity Portfolio
JUNE 30, 1998 1.43% 1.71% 1.48% 48% $ 0.0193 $ 0.01
DEC. 31, 1997 2.53% 0.74% (0.59)% 43% $ 0.0153 $ 0.05
EQ/Putnam
Investors Growth Portfolio
JUNE 30, 1998 1.08% 0.20% (0.03)% 22% $ 0.0388 $ 0.01
DEC. 31, 1997 2.13% 0.58% (0.70)% 47% $ 0.0338 $ 0.05
MFS Research Portfolio
JUNE 30, 1998 1.04% 0.47% 0.28% 31% $ 0.0541 $ 0.01
DEC. 31, 1997 1.78% 0.65% (0.28)% 51% $ 0.0471 $ 0.03
MFS Emerging
Growth Companies Portfolio
JUNE 30, 1998 1.04% (0.26)% (0.45)% 28% $ 0.0518 $ 0.01
DEC. 31, 1997 1.82% 0.61% (0.36)% 116% $ 0.0422 $ 0.04
Warbug Pincus
Small Company Value Portfolio
JUNE 30, 1998 1.12% 0.33% 0.21% 49% $ 0.0552 $ 0.01
DEC. 31, 1997 1.70% 0.26% (0.44)% 44% $ 0.0545 $ 0.03
Merrill Lynch
World Strategy Portfolio
JUNE 30, 1998 1.53% 2.06% 1.73% 45% $ 0.0481 $ 0.01
DEC. 31, 1997 3.05% 1.89% 0.04% 58% $ 0.0299 $ 0.08
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
RATIO OF NET RATIO OF NET
RATIO OF INVESTMENT INVESTMENT PER SHARE
EXPENSES TO INCOME TO INCOME TO BENEFIT TO
AVERAGE NET AVERAGE NET AVERAGE NET PORTFOLIO AVERAGE NET
ASSETS BEFORE ASSETS AFTER ASSETS BEFORE TURNOVER COMMISSION INVESTMENT
WAIVERS(A)(C) WAIVERS(A)(C) WAIVERS(A)(C) RATE RATE PAID INCOME(C)
--------------- --------------- --------------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Merrill Lynch
Basic Value Equity Portfolio
JUNE 30, 1998 1.05% 1.37% 1.17% 40% $ 0.0582 $ 0.01
DEC. 31, 1997 1.89% 1.91% 0.87% 25% $ 0.0566 $ 0.03
Morgan Stanley
Emerging Markets Equity Portfolio
JUNE 30, 1998 2.32% 1.00% 0.43% 33% $ 0.0012 $ 0.01
DEC. 31, 1997 2.61% 1.96% 1.10% 25% $ 0.0011 $ 0.02
BT Equity 500
Index Portfolio
JUNE 30, 1998 .89% 1.49% 1.15% 0% $ 0.0311 $ 0.01
DEC. 31, 1997 -- -- -- -- -- --
BT International
Equity Index Portfolio
JUNE 30, 1998 1.27% 2.18% 1.71% 1% $ 0.0171 $ 0.02
DEC. 31, 1997 -- -- -- -- -- --
BT Small Company
Index Portfolio
JUNE 30, 1998 1.72% 1.16% 0.04% 28% $ 0.0211 $ 0.04
DEC. 31, 1997 -- -- -- -- -- --
JPM Core Bond Portfolio
JUNE 30, 1998 1.18% 5.02% 4.64% 309% $ 0.0011 $ 0.01
DEC. 31, 1997 -- -- -- -- -- --
Lazard Large Cap
Value Portfolio
JUNE 30, 1998 -- -- -- -- -- --
DEC. 31, 1997 1.45% 1.55% 1.00% 18% $ 0.0326 $ 0.01
Lazard Small Cap
Value Portfolio
JUNE 30, 1998 -- -- -- -- -- --
DEC. 31, 1997 1.63% 0.49% 0.06% 7% $ 0.0358 $ 0.01
</TABLE>
- --------------------------
* Commencement of Operations. The Morgan Stanley Emerging Markets Equity
Portfolio commenced operations on August 20, 1997.
** Commencement of Operations for the Lazard Large Cap Value Portfolio, Lazard
Small Cap Value Portfolio, JPM Core Bond Portfolio, BT Small Company Index
Portfolio, BT International Equity Index Portfolio and BT Equity 500 Index
Portfolio. No financial highlights are presented for Evergreen Foundation
Portfolio, Evergreen Portfolio, and MFS Growth with Income Portfolio, each
of which received initial capital on December 31, 1998.
(a) Annualized.
(b) Total return calculated for a period of less than one year is not
annualized.
(c) For further information concerning fee waivers, see the section entitled
"Expense Limitation Agreement" in the Prospectus.
7
<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 twenty-one Portfolios. Each Portfolio is a separate series of the
Trust with its own objective and policies. Each of the Portfolios set forth
below, except for the Morgan Stanley Emerging Markets Equity Portfolio, the
Merrill Lynch World Strategy Portfolio and the Lazard Small Cap Value
Portfolio, are diversified for 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 Asset Management, Inc., Merrill Lynch
Asset Management, L.P., Lazard Asset Management, a division of Lazard Freres &
Co. LLC, J.P. Morgan Investment Management Inc., Bankers Trust Company, and
Evergreen Asset Management Corp., serve as the advisers (each an "Adviser" and,
together, the "Advisers") to one or more of the Portfolios, as detailed in the
table below.
<TABLE>
<CAPTION>
PORTFOLIO ADVISER
<S> <C>
T. Rowe Price International Stock Portfolio Rowe Price-Fleming International, Inc.
T. Rowe Price Equity Income Portfolio T. Rowe Price Associates, Inc.
EQ/Putnam Growth & Income Value Portfolio Putnam Investment Management, Inc.
EQ/Putnam International Equity Portfolio Putnam Investment Management, Inc.
EQ/Putnam Investors Growth Portfolio Putnam Investment Management, Inc.
EQ/Putnam Balanced Portfolio Putnam Investment Management, Inc.
MFS Research Portfolio Massachusetts Financial Services Company
MFS Emerging Growth Companies Portfolio Massachusetts Financial Services Company
MFS Growth with Income Portfolio Massachusetts Financial Services Company
Morgan Stanley Emerging Markets Equity Portfolio Morgan Stanley Asset Management Inc.
Warburg Pincus Small Company Value Portfolio Warburg Pincus Asset Management, Inc.
Merrill Lynch World Strategy Portfolio Merrill Lynch Asset Management, L.P.
Merrill Lynch Basic Value Equity Portfolio Merrill Lynch Asset Management, L.P.
Lazard Large Cap Value Portfolio Lazard Asset Management
Lazard Small Cap Value Portfolio Lazard Asset Management
JPM Core Bond Portfolio J.P. Morgan Investment Management Inc.
BT Small Company Index Portfolio Bankers Trust Company
BT International Equity Index Portfolio Bankers Trust Company
BT Equity 500 Index Portfolio Bankers Trust Company
Evergreen Foundation Portfolio Evergreen Asset Management Corp.
Evergreen Portfolio Evergreen Asset Management Corp.
</TABLE>
The Manager has the ultimate responsibility to oversee each of the Advisers and
to recommend their hiring, termination and replacement. The Trust and the
Manager have received exemptive relief from the Securities and Exchange
Commission that permits the Manager, subject to approval by the Board of
Trustees, to (i) select Advisers for each of the Trust's Portfolios and (ii)
materially modify existing investment advisory agreements without obtaining
shareholder approval.
The Trust is authorized to offer two classes of shares on behalf of each
Portfolio: Class IA shares and Class IB shares. The Trust currently offers
Class IA shares only to the Equitable Investment Plan for Employees, Managers
and Agents, although it may offer such shares to insurance company separate
accounts in connection with variable life insurance contracts and variable
annuity
8
<PAGE>
certificates and contracts (collectively, the "Contracts") issued by
The Equitable Life Assurance Society of the United States ("Equitable Life").
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 as well as one of the distributors for the Class IB shares.
Equitable Distributors, Inc. ("EDI") serves as the other distributor for the
Class IA shares of the Trust as well as the Class IB shares. (EQ Financial and
EDI are collectively referred to as the "Distributors"). Both classes of shares
are offered and redeemed at their net asset value without of any sales load.
Class IB shares are offered pursuant to another prospectus and are currently
sold only to insurance company separate accounts in connection with Contracts
issued by Equitable Life. Class IB shares 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 ("Distribution Plan")
adopted pursuant to Rule 12b-1 under the 1940 Act. Inquiries regarding the
Class IB shares should be addressed to Equitable Life, at 1290 Avenue of the
Americas, New York, NY 10104 or by calling (212) 314-4300.
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 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%
for each of those countries). 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.
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In analyzing companies for investment, the Adviser uses a "bottom up" approach.
A company's prospects for achieving and sustaining above-average, long-term
earnings growth is generally the Adviser's primary focus. However the Adviser
also considers certain other factors in making its investment decisions,
including: above-average earnings growth per share; high return on invested
capital; healthy balance sheet; sound financial and accounting policies and
overall financial strength; strong competitive advantages; effective research,
product development and marketing; efficient service; pricing flexibility;
strength of management; and general operating characteristics that should
enable the companies to compete successfully in their market place. While
current dividend income is not a prerequisite in the selection of portfolio
companies, the companies in which the Portfolio invests normally will have a
record of paying dividends, and will generally be expected to increase the
amounts of such dividends in future years as earnings increase. It is expected
that the Portfolio's investments will ordinarily be made on exchanges located
at least in the respective countries in which the various issuers of such
securities are principally based.
Certain investment strategies and instruments which may be employed by the
Portfolio (such as the purchase and sale of options, futures contracts, hybrid
instruments, foreign securities, foreign currency transactions, passive foreign
investment companies, 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 the 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 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.
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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.
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.
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Certain investment strategies and instruments which may be employed by the
Portfolio (such as the purchase and sale of options, futures contracts, foreign
securities, 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 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.
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
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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 appears 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.
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.
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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, 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,
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.
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
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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.
MFS GROWTH WITH INCOME PORTFOLIO
The investment objectives of the MFS Growth with Income Portfolio are to
provide reasonable current income and long-term growth of capital and income.
The Portfolio is designed to constitute a conservative means to invest that
portion of an investor's capital that an investor wishes to have in securities
that are considered by the Adviser to be of high or improving investment
quality. In seeking to achieve its objectives, the Adviser attempts to exercise
prudence, discretion and intelligence in the selection of investments with due
regard for both probable income and probable safety of capital. For purposes of
this Portfolio, the words "high investment quality" reflect the Adviser's
intention to avoid the acquisition of speculative securities or those of
doubtful character even if immediate prospects are tempting.
The Portfolio's assets are normally invested in equity securities, including
common stocks, preferred stocks and preference stock, convertible securities,
warrants and depositary receipts for those securities. These equity securities
may be listed on securities exchanges, traded in various over-the-counter
markets or have no organized markets. However, the Portfolio may hold its
assets in cash or invest in commercial paper, repurchase agreements or other
forms
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of debt securities either to provide reserves for future purchase of
securities or as a temporary defensive measure in certain economic environments.
Certain investment strategies and instruments which may be employed by the
Portfolio (such as the purchase and sale of options and futures, warrants,
repurchase agreements, forward commitments, depositary receipts, foreign
securities, foreign currency transactions, securities loans, illiquid
securities, and zero coupon bonds) 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 market
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, Bulgaria, Chile, China
(mainland and Hong Kong), Colombia, Egypt, Ghana, Greece, Hungary, India,
Indonesia, Israel, Jamaica, Jordan, Kenya, Malaysia, Mexico, Morocco, Nigeria,
Pakistan, Peru, Philippines, Poland, Portugal, Russia, Singapore, 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.
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 20% 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.
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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 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.
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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 A2 by Standard & Poor's Rating Services ("S&P") or Prime2 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, securities loans, small company securities, derivatives, 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 United
States 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 rated
BBB or better by S&P or Baa or better by Moody's or of comparable quality. The
Portfolio 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
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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 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, 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 ratios
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.
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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.
LAZARD LARGE CAP VALUE PORTFOLIO
The investment objective of the Lazard Large Cap Value Portfolio is to seek
capital appreciation by investing primarily in equity securities of companies
with relatively large capitalizations (i.e., companies having market
capitalizations of at least $1 billion at the time of initial purchase) that
appear to the Adviser to be inexpensively priced relative to the return on
total capital or equity. In managing the Portfolio, the Adviser engages in a
value-oriented search for equity securities. The Adviser attempts to identify
inexpensive securities through traditional measures of value, including low
price to earnings ratio, high yield, unrecognized assets, potential for
management change, and/or the potential to improve profitability. The Adviser
focuses on individual stock selection (a "bottom-up" approach) rather than on
forecasting stock market trends (a "top-down" approach).
Risk is tempered by diversification of investments.
Under normal market conditions, the Portfolio will invest at least 80% of its
total assets in equity securities, including common stocks, preferred stocks
and securities convertible into or exchangeable for common stocks. In addition,
at times judged by the Adviser to be appropriate, the Portfolio may hold up to
20% of its total assets in United States Government securities and investment
grade debt obligations of domestic corporations rated BBB or better by S&P or
Baa or better by Moody's. The Portfolio may also invest without limitation in
high-quality short-term money market instruments, including United States
Government securities, repurchase agreements, certificates of deposits, time
deposits and other short-term obligations issued by banks, commercial paper and
loan participations. In addition, the Portfolio may invest up to 10% of its
total assets at the time of purchase in foreign equity or debt securities
trading in United States markets or listed on a domestic securities exchange or
represented by ADRs or Global Depositary Receipts ("GDRs"). The Portfolio may
also engage in various investment techniques, such as options transactions and,
although it has no present intention to do so, leveraging and lending portfolio
securities.
Securities owned by the Portfolio are kept under continuing supervision, and
changes may be made whenever such securities no longer seem to meet the
Portfolio's objective. Changes in the securities owned by the Portfolio also
may be made to increase or decrease investments in anticipation of changes in
security prices in general or to provide funds required for redemptions,
distributions to shareholders or other corporate purposes.
Certain investment strategies and instruments which may be employed by the
Portfolio (such as securities loans, borrowing, loan participations,
derivatives, options, mortgage-related securities, forward commitments,
convertible securities, floaters, illiquid securities, foreign securities,
investment grade fixed income securities, United States Government securities,
and repurchase agreements) are discussed under the caption "Investment
Strategies" below and in the Statement of Additional Information.
LAZARD SMALL CAP VALUE PORTFOLIO
The investment objective of the Lazard Small Cap Value Portfolio is to seek
capital appreciation by investing primarily in equity securities of United
States companies with small market capitalizations (i.e., companies in the
range of companies represented in the Russell 2000 Index) that the Adviser
considers inexpensively priced relative to the return on total capital or
equity. The Russell 2000 Index is composed of selected common stocks of small,
generally unseasoned United States companies with market capitalizations
ranging between $100 million and $1 billion. The equity securities in which the
Portfolio may invest include: common stocks, preferred stocks, securities
convertible into or exchangeable for common stocks, rights and warrants.
Investments are generally made in equity securities of companies that in the
Adviser's opinion have one or more of the following characteristics: (i) are
undervalued relative to their earnings power, cash flow, and/or asset values;
(ii) have an attractive price/value relationship (i.e., have high returns on
equity and/or assets with correspondingly low price-to-book and/or
price-to-asset value as compared to the market generally or the companies'
industry groups in particular) with the expectation that some catalyst will
cause the perception of value to change within a 24-month time horizon; (iii)
have
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experienced significant relative underperformance and are out of favor due
to a set of circumstances that are unlikely to harm a company's franchise or
earnings power over the longer term; (iv) have low projected price-to-earnings
or price-to-cash-flow multiples relative to their industry peer group and/or
the market in general; (v) have the prospect, or the industry in which the
company operates has the prospect, to allow it to become a larger factor in the
business and receive a higher valuation as such; (vi) have significant
financial leverage but have high levels of free cash flow that may be used to
reduce leverage and enhance shareholder value; and (vii) have a relatively
short corporate history with the expectation that the business may grow to
generate meaningful cash flow and earnings over a reasonable investment
horizon.
Under normal market conditions, the Portfolio will invest at least 80% of the
value of its total assets in the small capitalization equity securities
described above. Assets not invested in such small capitalization equity
securities generally will be invested in larger capitalization equity
securities or debt securities, including cash equivalents.
The Adviser believes that issuers of small capitalization stocks often have
sales and earnings growth rates that exceed those of larger companies, and that
such growth rates may, in turn, be reflected in more rapid share price
appreciation. However, investing in smaller capitalization stocks can involve
greater risk than is customarily associated with larger, more established
companies. (Such risks are discussed under the caption "Investment Strategies
- -- Small Company Securities" below).
The Portfolio is non-diversified for 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.
The Adviser continually evaluates the securities owned by the Portfolio, and
changes may be made whenever the Adviser determines such securities no longer
meet the Portfolio's objective. Changes in Portfolio holdings may also be made
to increase or decrease investments in anticipation of changes in security
prices in general or to provide funds required for redemptions, distributions
to shareholders or other corporate purposes.
When, in the judgment of the Adviser, business or financial conditions warrant,
the Portfolio may assume a temporary defensive position and invest without
limitation in large capitalization companies or short-term money market
instruments, or hold its assets in cash.
Certain investment strategies and investments which may be employed by the
Portfolio (such as securities loans, borrowings, loan participations,
derivatives, mortgage-related securities, convertible securities, floaters,
illiquid securities, investment grade fixed income securities, forward
commitments, United States Government securities, repurchase agreements, and
small company securities) are discussed under the caption "Investment
Strategies" below and in the Statement of Additional Information.
JPM CORE BOND PORTFOLIO
The investment objective of the JPM Core Bond Portfolio is to provide a high
total return consistent with moderate risk of capital and maintenance of
liquidity. Total return will consist of income plus realized and unrealized
capital gains and losses. Although the net asset value of the Portfolio will
fluctuate, the Portfolio attempts to preserve the value of its investments to
the extent consistent with its objective.
It is the current policy of the Portfolio that, under normal circumstances, all
of the Portfolio's assets will, at the time of purchase, consist of investment
grade securities rated BBB or better by S&P or Baa or better by Moody's or
unrated securities of comparable quality. If the quality of the investment
later declines, the Portfolio may continue to hold the investment.
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The Adviser actively manages the Portfolio's duration, the allocation of
securities across market sectors, and the selection of specific securities
within market sectors. Based on fundamental, economic and capital markets
research, the Adviser adjusts the duration of the Portfolio in light of market
conditions and the Adviser's interest rate outlook. For example, if interest
rates are expected to fall, the duration may be lengthened to take advantage of
the expected increase in bond prices. The Adviser also actively allocates the
Portfolio's assets among the broad sectors of the fixed income market
including, but not limited to, United States Government and agency securities,
corporate securities, private placements, asset-backed securities,
mortgage-related securities, and direct mortgage obligations. The Portfolio may
also invest up to 25% of its assets in securities of foreign issuers, including
up to 20% of its assets in debt securities denominated in foreign currencies of
developed countries. In addition, the Portfolio may invest in municipal
obligations provided such securities are issued on a taxable basis or have an
attractive yield excluding tax considerations. Specific securities that the
Adviser believes are undervalued are selected for purchase within the sectors
using advanced quantitative tools, analysis of credit risk, the expertise of a
dedicated trading desk, and the judgment of fixed income portfolio managers and
analysts. Under normal circumstances, the Adviser intends to have the Portfolio
invest at least 65% of its assets in bonds. The Portfolio may to a limited
extent invest in convertible securities, including convertible debt securities
and preferred stock.
Duration is a measure of the weighted average maturity of bonds and can be used
by the Adviser as a measure of the sensitivity of the market value of the
Portfolio's bond holdings to changes in interest rates. Generally, the longer
the duration of the Portfolio's bond holdings, the more sensitive their market
value will be to changes in interest rates. Under normal market conditions the
Portfolio's duration will range between one year shorter and one year longer
than the duration of the domestic investment grade fixed income universe, as
represented by Salomon Brothers Broad Investment Grade Bond Index. Currently,
the duration of that index is approximately 4.5 years. The maturities of the
individual securities in the Portfolio may vary widely, however.
The Adviser intends to actively manage the Portfolio in pursuit of its
investment objective. Portfolio transactions are undertaken principally to
accomplish the Portfolio's objective in relation to expected movements in the
general level of interest rates. However, the Portfolio may also engage in
short-term trading consistent with its objective. To the extent the Portfolio
engages in short-term trading, it may incur increased transaction costs. The
Portfolio may purchase high-quality money market instruments to invest
temporary cash balances or to maintain liquidity to meet withdrawals. When
market or financial conditions warrant, the Portfolio may invest as a temporary
defensive measure up to 100% of its assets in money market instruments.
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 fixed income securities, payment-in-kind bonds, derivatives,
foreign currency transactions, repurchase agreements, reverse repurchase
agreements, forward commitments, United States Government securities,
borrowings, asset-backed securities, convertible securities, mortgage-related
securities, and swaps) are discussed under the caption "Investment Strategies"
below and in the Statement of Additional Information.
BT SMALL COMPANY INDEX PORTFOLIO
The investment objective of the BT Small Company Index Portfolio is to
replicate as closely as possible (before deduction of Portfolio expenses) the
total return of the Russell 2000 Index ("Russell 2000"). The Russell 2000 is
composed of selected common stocks of small, generally unseasoned United States
companies with market capitalizations ranging between $100 million and $1
billion. A company's stock market capitalization is the total market value of
its floating outstanding shares. The Portfolio is neither sponsored by nor
affiliated with the Frank Russell Company, which is the owner of the trademarks
and copyrights relating to the Russell indices.
The Portfolio invests in a statistically selected sample of the 2,000 stocks
included in the Russell 2000. The stocks of the Russell 2000 to be included in
the Portfolio will be selected utilizing a statistical sampling technique known
as "optimization." This process selects stocks for the Portfolio so that
various industry weightings, market capitalizations and fundamental
characteristics (e.g., price-to-book, price-to-earnings and debt-to-asset
ratios and dividend yields) closely approximate those of the Russell 2000. For
instance, if 10% of the capitalization of the Russell 2000 consists of utility
companies with relatively small capitalizations, then the Portfolio is
constructed so that approximately 10% of the
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Portfolio's assets are invested in the stocks of utility companies with
relatively small capitalizations. The stocks held by the Portfolio are weighted
to make the Portfolio's aggregate investment characteristics similar to those of
the Russell 2000 as a whole.
Over time, the correlation between the performance of the Portfolio and the
Russell 2000 is expected to be 0.95 or higher before deduction of Portfolio
expenses. A correlation of 1.00 would indicate perfect correlation, which would
be achieved when the net asset value of the Portfolio, including the value of
its dividend and any capital gain distributions, increases or decreases in
exact proportion to changes in the Russell 2000. The Portfolio's ability to
track the Russell 2000 may be affected by, among other things, transaction
costs, administration and other expenses incurred by the Portfolio, changes in
either the composition of the Russell 2000 or the assets of the Portfolio, and
the timing and amount of Portfolio investor contributions and withdrawals, if
any. Because the Portfolio seeks to track the Russell 2000, the Adviser
generally will not attempt to judge the merits of any particular stock as an
investment. Under normal circumstances, the Portfolio will invest at least 80%
of its assets in the securities of the Russell 2000. The Portfolio is a
diversified fund and will not concentrate more than 25% of its assets in the
securities of issuers in the same industry. In the event that the Russell 2000
should concentrate to an extent greater than 25% in the securities of issuers
in the same industry, the Portfolio's ability to achieve its objective may be
impaired since the Portfolio is not permitted to so invest.
The Portfolio may maintain up to 20% of its assets in short-term debt
securities and money market instruments to meet redemption requests or to
facilitate investment in the securities of the Russell 2000. Securities index
futures contracts and related options, warrants and convertible securities may
be used for several reasons: to simulate full investment in the Russell 2000
while retaining a cash balance for portfolio management purposes; to facilitate
trading; to reduce transaction costs; or to seek higher investment returns when
a futures contract, option, warrant or convertible security is priced more
attractively than the underlying equity security or the Russell 2000. These
instruments may be considered derivatives. The use of derivatives for
non-hedging purposes may be considered speculative. While each of these
instruments can be used as leveraged investments, the Portfolio will not use
them to leverage its net assets. The Portfolio will not invest in derivative
instruments as part of a temporary defensive strategy (in anticipation of
declining stock prices) to protect the Portfolio against potential market
declines.
Certain investment strategies and instruments which may be employed by the
Portfolio (such as the purchase and sale of options, futures contracts,
securities loans, small company securities, illiquid securities, investment
grade fixed income securities, derivatives, repurchase agreements, reverse
repurchase agreements, forward commitments, United States Government
securities, borrowings, asset-backed securities, and convertible securities)
are discussed under the caption "Investment Strategies" below and in the
Statement of Additional Information.
BT INTERNATIONAL EQUITY INDEX PORTFOLIO
The investment objective of The BT International Equity Index Portfolio is to
replicate as closely as possible (before deduction of Portfolio expenses) the
total return of the Morgan Stanley Capital International Europe, Australia, Far
East Index ("EAFE Index"). The EAFE Index is a capitalization-weighted index
containing approximately 1,100 equity securities of companies located in
countries outside the United States. The countries currently included in the
EAFE Index are Australia, Austria, Belgium, Denmark, Finland, France, Germany,
Hong Kong, Ireland, Italy, Japan, Malaysia, The Netherlands, New Zealand,
Norway, Singapore, Spain, Sweden, Switzerland and The United Kingdom. The EAFE
Index is the exclusive property of Morgan Stanley. The Portfolio is not
sponsored, endorsed, sold or promoted by Morgan Stanley and Morgan Stanley
makes no guarantee as to the accuracy or completeness of the EAFE Index or any
data included therein.
The Portfolio is constructed to have aggregate investment characteristics
similar to those of the EAFE Index. The Portfolio invests in a statistically
selected sample of the securities of companies included in the EAFE Index,
although not all companies within a country will be represented in the
Portfolio at the same time. Stocks are selected for inclusion in the Portfolio
based on country of origin, market capitalization, yield, volatility and
industry sector. The Adviser will manage the Portfolio using advanced
statistical techniques to determine which stocks should be purchased or sold to
replicate the EAFE Index. From time to time, adjustments may be made in the
Portfolio because of changes in the composition of the EAFE Index, but such
changes are expected to be infrequent.
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Over time, the correlation between the performance of the Portfolio and the
EAFE Index is expected to be 0.95 or higher before deduction of Portfolio
expenses. A correlation of 1.00 would indicate perfect correlation, which would
be achieved when the net asset value of the Portfolio, including the value of
its dividend and any capital gain distributions, increases or decreases in
exact proportion to changes in the EAFE Index. The Portfolio's ability to track
the EAFE Index may be affected by, among other things, transaction costs,
administration and other expenses incurred by the Portfolio, changes in either
the composition of the EAFE Index or the assets of the Portfolio, and the
timing and amount of Portfolio investor contributions and withdrawals, if any.
Because the Portfolio seeks to track the EAFE Index, the Adviser generally will
not attempt to judge the merits of any particular stock as an investment. Under
normal circumstances, the Portfolio will invest at least 80% of its assets in
the securities of the EAFE Index.
The Portfolio is a diversified fund and will not concentrate more than 25% of
its assets in the securities of issuers in the same industry. In the event that
the EAFE Index should concentrate to an extent greater than 25% in the
securities of issuers in the same industry, the Portfolio's ability to achieve
its objective may be impaired since the Portfolio may not so invest.
The Portfolio may maintain up to 20% of its assets in short-term debt
securities and money market instruments to meet redemption requests or to
facilitate investment in the securities of the EAFE Index. Securities index
futures contracts and related options, warrants and convertible securities may
be used for several reasons: to simulate full investment in the EAFE Index
while retaining a cash balance for fund management purposes; to facilitate
trading; to reduce transaction costs; or to seek higher investment returns when
a futures contract, option, warrant or convertible security is priced more
attractively than the underlying equity security or EAFE Index. These
instruments may be considered derivatives. The use of derivatives for
non-hedging purposes may be considered speculative. While each of these
instruments can be used as leveraged investments, the Portfolio will not use
them to leverage its net assets. The Portfolio will not invest in such
instruments as part of a temporary defensive strategy (in anticipation of
declining stock prices) to protect the Portfolio against potential market
declines.
Certain investment strategies and instruments which may be employed by the
Portfolio (such as the purchase and sale of options, futures contracts, foreign
securities, foreign currency transactions, securities loans, illiquid
securities, investment grade fixed income securities, derivatives, swaps,
repurchase agreements, reverse repurchase agreements, forward commitments,
United States Government securities, borrowings, asset-backed securities, and
convertible securities) are discussed under the caption "Investment Strategies"
below and in the Statement of Additional Information.
BT EQUITY 500 INDEX PORTFOLIO
The investment objective of The BT Equity 500 Index Portfolio is to replicate
as closely as possible (before deduction of Portfolio expenses) the total
return of the S&P 500. The S&P 500 is an index of 500 common stocks of
companies from many industrial sectors representing a significant portion of
the market value of all common stocks publicly traded in the United States,
most of which trade on the New York Stock Exchange Inc. (the "NYSE"). The
Adviser believes that the performance of the S&P 500 is representative of the
performance of publicly-traded common stocks in the United States in general.
The composition of the S&P 500 is determined by Standard & Poor's and is based
on such factors as the market capitalization and trading activity on each stock
and its adequacy as a representation of stocks in a particular industry, and
may be changed from time to time. The Portfolio is not sponsored, endorsed,
sold or promoted by Standard & Poor's and Standard & Poor's makes no guarantee
as to the accuracy and/or completeness of the S&P 500 or any data included
therein. In seeking to replicate the performance of the S&P 500, before
deduction of Portfolio expenses, the Adviser will attempt over time to allocate
the Portfolio's investment among common stocks included in the S&P 500 in
approximately the same proportions as they are represented in the S&P 500,
beginning with the heaviest weighted stocks that make up a larger portion of
the index's value. The Adviser utilizes a two-stage sampling approach in
seeking to achieve its objective. Stage one, which encompasses large
capitalization stocks, maintains the stock holdings at or near their benchmark
weights. Large capitalization stocks are defined as those securities which
represent 0.10% or more of the S&P 500. In stage two, smaller stocks are
analyzed and selected using risk characteristics and industry weights in
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order to match the sector and risk characteristics of the smaller companies
in the S&P 500. This approach helps to increase the Portfolio's liquidity while
reducing costs.
The Adviser generally will seek to match the composition of the S&P 500 but
usually will not invest the Portfolio's stock portfolio to mirror the S&P 500
exactly. Because of the difficulty and cost of executing relatively small stock
transactions, the Portfolio may not always be invested in the less heavily
weighted S&P 500 stocks, and may at times have its portfolio weighted
differently than the S&P 500, particularly if the Portfolio has a low level of
assets. In addition, the Portfolio may omit or remove any S&P 500 stock from
the Portfolio if, following objective criteria, the Adviser judges the stock to
be insufficiently liquid or believes the merit of the investment has been
substantially impaired by extraordinary events or financial conditions. The
Portfolio will not purchase the stock of Bankers Trust New York Corporation,
which is included in the S&P 500, and instead will overweight its holdings of
companies engaged in similar businesses.
Over time, the correlation between the performance of the Portfolio and the S&P
500 is expected to be 0.95 or higher before deduction of Portfolio expenses. A
correlation of 1.00 would indicate perfect correlation, which would be achieved
when the net asset value of the Portfolio, including the value of its dividend
and any capital gain distributions, increases or decreases in exact proportion
to changes in the S&P 500. The Portfolio's ability to track the S&P 500 may be
affected by, among other things, transaction costs, administration and other
expenses incurred by the Portfolio, changes in either the composition of the
S&P 500 or the assets of the Portfolio, and the timing and amount of Portfolio
investor contributions and withdrawals, if any. Because the Portfolio seeks to
track the S&P 500, the Adviser generally will not attempt to judge the merits
of any particular stock as an investment. Under normal circumstances, the
Portfolio will invest at least 80% of its assets in the securities of the S&P
500.
The Portfolio is a diversified fund and will not concentrate more than 25% of
its assets in the securities of issuers in the same industry. In the unlikely
event that the S&P 500 should concentrate to an extent greater than 25% in the
securities of issuers in the same industry, the Portfolio's ability to achieve
its objective may be impaired since the Portfolio may not so invest.
The Portfolio may maintain up to 20% of its assets in short-term debt
securities and money market instruments to meet redemption requests or to
facilitate investment in the securities of the S&P 500. Securities index
futures contracts and related options, warrants and convertible securities may
be used for several reasons: to simulate full investment in the S&P 500 while
retaining a cash balance for fund management purposes; to facilitate trading;
to reduce transaction costs; or to seek higher investment returns when a
futures contract, option, warrant or convertible security is priced more
attractively than the underlying equity security or S&P 500. These instruments
may be considered derivatives. The use of derivatives for non-hedging purposes
may be considered speculative. While each of these instruments can be used as
leveraged investments, the Portfolio may not use them to leverage its net
assets. The Portfolio may not invest in such instruments as part of a temporary
defensive strategy (in anticipation of declining stock prices) to protect the
Portfolio against potential market declines.
Certain investment strategies and instruments which may be employed by the
Portfolio (such as the purchase and sale of options, futures contracts,
securities loans, illiquid securities, investment grade fixed income
securities, derivatives, repurchase agreements, reverse repurchase agreements,
forward commitments, United States Government securities, borrowings,
asset-backed securities, and convertible securities) are discussed under the
caption "Investment Strategies" below and in the Statement of Additional
Information.
EVERGREEN FOUNDATION PORTFOLIO
The investment objectives of the Portfolio, in order of priority, are
reasonable income, conservation of capital and capital appreciation. The
Portfolio seeks to achieve these objectives by investing in a combination of
common stocks, preferred stocks, securities convertible into or exchangeable
for common stocks, corporate debt obligations and United States Government
securities, and short-term debt instruments, such as commercial paper. The
Portfolio's common stock investments will include those which at the time of
purchase pay dividends and in the view of the Adviser have potential for
capital enhancement.
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The Portfolio's asset allocation will vary from time to time in accordance with
changing economic and market conditions, including: inflation rates, business
cycle trends, business regulations and tax law impacts on the investment
markets. The composition of the Portfolio will be largely unrestricted and
subject to the discretion of the Adviser, although it intends at all times to
be diversified for 1940 Act purposes. Under normal circumstances, the Adviser
anticipates that at least 25% of the Portfolio's net assets will consist of
fixed income securities. The balance will be invested in equity securities
(including common stocks, preferred stocks and convertible securities).
In selecting fixed income securities for the Portfolio, emphasis will be placed
on those securities that the Adviser expects will fluctuate little in value,
other than as a result of changes in prevailing interest rates. The market
values of the debt obligations in the Portfolio are expected to vary inversely
to any changes in prevailing interest rates. The Portfolio may, at times,
emphasize the generation of interest income by investing in high-yielding debt
securities, with short, medium or long-term maturities. While the Portfolio's
fixed income investments will generally be made for the purpose of generating
interest income, investments in medium to long-term debt securities (i.e.,
those with maturities from five to ten years and those with maturities over ten
years, respectively) may be made with a view to realizing capital appreciation
when the Adviser believes changes in interest rates will lead to an increase in
the value of such securities.
The fixed income portion of the Portfolio's portfolio may include: (i)
marketable obligations of, or guaranteed by, the United States Government, its
agencies or instrumentalities, including issues of the United States Treasury,
such as bills, certificates of indebtedness, notes and bonds, and issues of
agencies and instrumentalities established under the authority of an act of
Congress; (ii) corporate debt obligations rated no lower than A by Moody's, or
A-2 by S&P; (iii) obligations of banks or banking institutions having total
assets of more than $2 billion that are members of the Federal Deposit
Insurance Corporation; and (iv) commercial paper of high-quality (rated no
lower than A-2 by S&P or Prime-2 by Moody's or, if not rated, issued by
companies which have an outstanding long-term debt issue rated AAA or AA by S&P
or Aaa or Aa by Moody's).
Certain debt obligations of the Portfolio may be entitled to the benefit of
standby letters of credit or similar commitments issued by banks and, in such
instances, the Adviser will take into account the obligation of the bank in
assessing the credit quality of such security.
Certain investment strategies and instruments which may be employed by the
Portfolio (such as the purchase and sale of options, futures contracts,
illiquid securities, borrowings, repurchase agreements, reverse repurchase
agreements, forward commitments, real estate investment trusts, foreign
securities, foreign currency transactions, depositary receipts, convertible
securities, securities loans, forward commitments, mortgages and
mortgage-related securities and United States Government securities) are
discussed under the caption "Investment Strategies" below and in the Statement
of Additional Information.
EVERGREEN PORTFOLIO
The investment objective of the Evergreen Portfolio is to seek to achieve
capital appreciation. The Portfolio seeks to achieve its investment objective
principally through investment in common stocks and convertible securities of
companies that are little-known, relatively small or represent special
situations which, in the opinion of the Adviser, offer potential for capital
appreciation. For these purposes, a "little-known" company is one whose
business is limited to a regional market or whose securities are closely held
with only a small proportion traded publicly. A "relatively small" company is
one that has a small share of the market for its products or services in
comparison with other companies in its field, or that provides goods or
services for a limited market. For these purposes, a "special situation"
company is one that offers potential for capital appreciation because of a
recent or anticipated change in structure, management, products or services.
In addition to securities described above, the Portfolio may invest in
securities of relatively well-known and large companies with potential for
capital appreciation. Investments may also be made, to a limited degree, in
debt securities and preferred stocks that offer an opportunity for capital
appreciation. Short-term investments may also be made if the Adviser believes
that such action will benefit the Portfolio. The Portfolio may invest for
temporary defensive purposes up to 100% of its assets in short-term
obligations.
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Certain investment strategies and instruments which may be employed by the
Portfolio (such as the purchase and sale of options, futures contracts,
borrowings, repurchase agreements, reverse repurchase agreements, forward
commitments, illiquid securities, small company securities, derivatives,
securities loans, investment in securities of other investment companies, and
United States Government 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 and below, each of the Portfolios, for example, may purchase
and sell call and put options (except for MFS Research Portfolio and Lazard
Small Cap Value Portfolio); engage in transactions in futures contracts and
related options (except for Lazard Large Cap Value Portfolio and Lazard Small
Cap Value Portfolio); and engage in forward foreign currency exchange
transactions (except for MFS Research Portfolio, Lazard Large Cap Value
Portfolio, Lazard Small Cap Value Portfolio, BT Small Company Index Portfolio,
BT Equity 500 Index Portfolio, and Evergreen Portfolio). They may also enter
into repurchase agreements, 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 instrument 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, Morgan Stanley Emerging Markets Equity Portfolio, JPM Core
Bond Portfolio, BT Small Company Index Portfolio, BT International Equity Index
Portfolio, and BT Equity 500 Index 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.
BORROWINGS. The Portfolios may borrow money from banks or other lenders as a
temporary measure for emergency purposes, such as to facilitate redemption
requests, or (except for Evergreen Foundation Portfolio and Evergreen
Portfolio) for other purposes consistent with each Portfolio's investment
objective and program. The Lazard Large Cap Value Portfolio may borrow for
leveraging purposes (in order to increase its investment in portfolio
securities) to the extent that the amount so borrowed does not exceed 33 1/3%
of the Portfolio's total assets. Leveraging exaggerates the effect on net asset
value of any increase or decrease in market value of the Lazard Large Cap Value
Portfolio's investment. In addition, such borrowings would be subject to
interest costs which may or may not be recovered by appreciation of securities
purchased. The Lazard Large Cap Value Portfolio may also borrow up to 10% of
its total assets for temporary or emergency purposes. 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 Portfolio, Merrill Lynch World Strategy
Portfolio, Merrill Lynch Basic Value Equity Portfolio, JPM Core Bond Portfolio,
BT Small Company Index Portfolio, BT International Equity Index Portfolio, BT
Equity 500 Index Portfolio, Evergreen Foundation Portfolio, and Evergreen
Portfolio may not exceed 33 1/3% of each Portfolio's total assets. The
Evergreen Foundation Portfolio and Evergreen Portfolio may also borrow up to an
additional 5% of its total assets from banks or other lenders. Borrowings for
the Warburg Pincus Small Company Value Portfolio may not exceed 30% of the
Portfolio's total assets. Borrowings for the Lazard Small Cap Value Portfolio
may not exceed 15% of its total assets for temporary or emergency purposes,
including to meet redemptions (otherwise such borrowings may not exceed 5% of
the value of the Portfolio's total assets). Borrowings for the EQ/Putnam Growth
& Income Value Portfolio, EQ/Putnam International Equity Portfolio, EQ/Putnam
Investors Growth Portfolio, EQ/Putnam Balanced Portfolio, and MFS Growth with
Income Portfolio may not exceed 10% of each Portfolio's total assets. Each
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Portfolio may pledge its assets to secure these permissible borrowings. No
Portfolio, except the Lazard Large Cap Value 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
nonconvertible securities of similar quality. Like bonds, the value of
convertible securities fluctuates in relation to changes in interest rates and,
in addition, fluctuates in relation to the underlying common stock. Subsequent
to purchase by a Portfolio, convertible securities may cease to be rated or a
rating may be reduced below the minimum required for purchase by that
Portfolio. Neither event will require sale of such securities, although each
Adviser will consider such event in its determination of whether a Portfolio
should continue to hold the securities.
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, floaters and inverse floaters,
hybrid instruments, mortgage-backed securities, options, futures contracts,
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, Morgan Stanley
Emerging Markets Equity Portfolio, Lazard Large Cap Value Portfolio, and the
Lazard Small Cap Value 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 Securities ".
In addition, the Morgan Stanley Emerging Markets Equity Portfolio may invest in
inverse floating rate obligations which are fixed income securities that have
coupon rates that vary inversely at a multiple of a designated floating rate,
such as London Inter-Bank Offered Rate ("LIBOR"). Any rise in the reference
rate of an inverse floater (as a consequence of an increase in interest rates)
causes a drop in the coupon rate while any drop in the reference rate of an
inverse floater causes an increase in the coupon rate. Inverse floaters may
exhibit substantially greater price volatility than fixed rate obligations
having similar credit quality, redemption provisions and maturity, and inverse
floater collateralized mortgage obligations ("CMOs") exhibit greater price
volatility than the majority of mortgage-related securities. In addition, some
inverse floater CMOs exhibit extreme sensitivity to changes in prepayments. As
a result, the yield to maturity of an inverse floater CMO is sensitive not only
to changes in interest rates but also to changes in prepayment rates on the
related underlying mortgage assets.
FOREIGN SECURITIES. Foreign investments involve certain risks that are not
present in domestic securities. Each of the Portfolios (except the Lazard Small
Cap Value Portfolio, BT Small Company Index Portfolio, BT Equity 500 Index
Portfolio, and Evergreen Portfolio) may purchase securities denominated in
foreign currencies, and, therefore, a change in the value of any such currency
against the United States dollar will result in a change in the United States
dollar value of a Portfolio's assets and income. In addition, although a
portion of a Portfolio's investment income may be received or realized in such
currencies, the Portfolio will be required to compute and distribute its income
in United States dollars. Therefore, if the exchange rate for any such currency
declines after a Portfolio's income has been earned and computed in United
States dollars but before conversion and payment, the Portfolio could be
required to liquidate portfolio securities to make such distributions.
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Currency exchange rates may be affected unpredictably by intervention (or the
failure to intervene) by United States or foreign governments or central banks,
by currency controls or political developments in the United States or abroad.
For example, significant uncertainty surrounds the proposed introduction of the
Euro (a common currency for the European Union) in January 1999 and its effect
on the value of securities denominated in local European currencies. These and
other currencies in which a Portfolio's assets are denominated may be devalued
against the United States dollar, resulting in a loss to the Portfolio.
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 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 Eastern European, Southeast
Asian, and Latin American countries, volatility may be heightened by actions of
a few major investors. For example, substantial increases or decreases in cash
flows of mutual funds investing in these markets could significantly affect
stock prices and, therefore, share prices.
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
emerging market countries in which the Portfolios can invest do not compare
favorably with the United States and other mature economies in terms of wealth
and stability. Therefore, investments in these countries may be riskier, and
will be subject to erratic and abrupt price movements. Some economies are less
well developed and less diverse (for example, Latin America, Eastern Europe and
certain Asian countries), and more vulnerable to the ebb and flow of
international trade, trade barriers and other protectionist or retaliatory
measures (for example, Southeast Asia and Latin America). Some countries,
particularly in Southeast Asia, Latin America, and Eastern Europe are grappling
with severe inflation or recession, high levels of national debt, currency
exchange problems and government instability. Investments in countries that
have recently begun moving away from central planning and state-owned
industries toward free markets, such as the Eastern European or Chinese
economies, should be regarded as speculative.
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 or
willing to repay the principal and/or interest when due in accordance with the
terms of such debt. A debtor's willingness or ability to repay principal and
interest due in a timely manner may be affected by, among other factors, its
cash flow situation, and, in the case of a government debtor, the extent of its
foreign reserves, the availability of sufficient foreign exchange on the date a
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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, Morgan Stanley Emerging Markets Equity Portfolio, and the JPM Core
Bond 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
secondary market. Each Portfolio will invest in Brady Bonds only if they are
consistent with quality specifications established from time to time by the
Adviser to that Portfolio.
DEPOSITARY RECEIPTS. Each of the Portfolios (except the Lazard Small Cap Value
Portfolio, BT Small Company Index Portfolio, BT Equity 500 Index Portfolio, and
Evergreen Portfolio) 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 GDRs and other types of
depository 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 Lazard Small
Cap Value Portfolio, BT Small Company Index Portfolio, BT Equity 500 Index
Portfolio, and Evergreen Portfolio) may purchase foreign currency on a spot (or
cash) basis. In addition, each of the Portfolios (except the MFS Research
Portfolio, Lazard Large Cap Value Portfolio, Lazard Small Cap Value Portfolio,
BT Small Company Index Portfolio, BT Equity 500 Index Portfolio, and Evergreen
Portfolio) may enter into contracts to purchase or sell foreign currencies at a
future date ("forward contracts"). Each of the Portfolios (except the MFS
Research Portfolio, Lazard Large Cap Value Portfolio, Lazard Small Cap Value
Portfolio, BT Small Company Index Portfolio, BT Equity 500 Index Portfolio, and
Evergreen Portfolio) may also purchase and sell foreign currency futures
contracts and may purchase and write exchange-traded call and put options on
foreign currency futures contracts and on foreign currencies. 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, Merrill Lynch World Strategy Portfolio, JPM Core Bond Portfolio, BT
International Equity Index Portfolio, Evergreen Portfolio, and MFS Growth with
Income Portfolio may engage in over-the-counter options on foreign currency
transactions. The Merrill Lynch World Strategy Portfolio will engage in
over-the-counter options on foreign currency transactions only with financial
institutions that have capital of at least $50 million or whose obligations are
guaranteed by an entity having capital of at least $50 million. The MFS
Emerging Growth Companies Portfolio may only enter into forward contracts on
currencies in the over-the-counter market. The Advisers may engage in these
transactions to protect against uncertainty in the level of future exchange
rates in connection with the purchase and sale of portfolio securities
("transaction hedging") and to protect the value of specific portfolio
positions ("position hedging").
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Hedging transactions involve costs and may result in losses. Each of the
Portfolios (except the MFS Research Portfolio, Lazard Small Cap Value
Portfolio, BT Small Company Index Portfolio, and BT Equity 500 Index 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.
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 contracts or options with
those of debt, preferred equity or a depositary 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, Lazard
Large Cap Value Portfolio and Lazard Small Cap Value Portfolio each may invest
up to 10% of its assets and each of the other Portfolios may invest up to 15%
of its net assets in illiquid securities and other securities which are not
readily marketable, including nonnegotiable 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
(except the Evergreen Foundation Portfolio) may invest in or hold a portion of
its total assets in investment grade or, except as noted below, lower quality
fixed income securities. The T. Rowe Price International Stock Portfolio,
Merrill Lynch Basic Value Equity Portfolio,
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Lazard Large Cap Value Portfolio, Lazard Small Cap Value Portfolio, JPM
Core Bond Portfolio, BT Small Company Index Portfolio, BT Equity 500 Index
Portfolio, BT International Equity Index Portfolio, and Evergreen Portfolio each
may invest in or hold investment grade securities, but not lower quality fixed
income securities. Evergreen Foundation Portfolio may invest in or hold only
securities rated A or higher. Investment grade securities are securities rated
Baa or higher by Moody's or BBB or higher by S&P or comparable quality unrated
securities. Investment grade securities while normally exhibiting adequate
protection parameters, have speculative characteristics, and, consequently,
changes in economic conditions or other circumstances are more likely to lead to
a weakened capacity of such issuers to make principal and interest payments than
is the case for higher grade fixed income securities. Lower quality fixed income
securities are securities that are rated in the lower categories by NRSROs
(i.e., Ba or lower by Moody's and BB or lower by S&P) or comparable quality
unrated securities. Such lower quality securities are known as "junk bonds" and
are regarded as predominantly speculative with respect to the issuer's
continuing ability to meet principal and interest payments. (Each NRSRO's
descriptions of these bond ratings are set forth in the Appendix to 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 an Adviser to value accurately
certain portfolio securities.
LOAN PARTICIPATIONS. The EQ/Putnam Balanced Portfolio, MFS Emerging Growth
Companies Portfolio, Morgan Stanley Emerging Markets Equity Portfolio, Lazard
Large Cap Value Portfolio, Lazard Small Cap Value Portfolio, and JPM Core Bond
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.
MORTGAGES AND MORTGAGE-RELATED SECURITIES. The EQ/Putnam Balanced Portfolio,
Morgan Stanley Emerging Markets Equity Portfolio, Lazard Large Cap Value
Portfolio, Lazard Small Cap Value Portfolio, JPM Core Bond Portfolio, BT Small
Company Index Portfolio, BT International Equity Index Portfolio, BT Equity 500
Index Portfolio, and Evergreen Foundation 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.
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.
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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.
The JPM Core Bond Portfolio may also invest in directly placed mortgages
including residential mortgages, multifamily mortgages, mortgages on
cooperative apartment buildings, commercial mortgages, and sale-leasebacks.
These investments are backed by assets such as office buildings, shopping
centers, retail stores, warehouses, apartment buildings and single-family
dwellings. In the event that the Portfolio forecloses on any non-performing
mortgage, it could end up acquiring a direct interest in the underlying real
property and the Portfolio would then be subject to the risks generally
associated with the ownership of real property. There may be fluctuations in
the market value of the foreclosed property and its occupancy rates, rent
schedules and operating expenses.
MUNICIPAL SECURITIES. The Morgan Stanley Emerging Markets Equity Portfolio and
the JPM Core Bond 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, Lazard Large Cap Value Portfolio and Lazard Small Cap Value
Portfolio) may utilize futures contracts. Futures contracts (a type of
potentially high-risk security) enable the investor to buy or sell an asset in
the future at an agreed upon price. Each Portfolio (except the MFS Research
Portfolio and Lazard Small Cap Value Portfolio) may also write and purchase put
and call options. Options (another type of potentially high-risk security) give
the purchaser of an option the right, but not the obligation, to buy or sell in
the future an asset at a predetermined price during the term of the option.
(The writer of a put or call option would be obligated to buy or sell the
underlying asset at a predetermined price during the term of the option.) Each
Portfolio will write put and call options only if such options are considered
to be "covered". A call option on a security is covered, for example, when the
writer of the call option owns throughout the option period the security on
which the option is written (or a security convertible into such a security
without the payment of additional consideration). A put option on a security is
covered, for example, when the writer of the put has deposited and maintained
in a segregated account throughout the option period sufficient cash or other
liquid assets in an amount equal to or greater than the exercise price of the
put option. Each Portfolio that is permitted to invest in futures contracts and
related options may utilize such transactions 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.
No Portfolio (other than the Warburg Pincus Small Company Value Portfolio,
Evergreen Foundation Portfolio, and Evergreen Portfolio) will commit more than
5% of its total assets to premiums when purchasing call or put options. In
addition, the total market value of securities against which a Portfolio has
written call or put options may not exceed 25% of its total assets. The BT
Small Company Index Portfolio, BT International Equity Index Portfolio and BT
Equity 500 Index Portfolio each may not at any time commit more than 20% of its
assets to options and futures contracts. The Warburg Pincus Small Company Value
Portfolio may commit up to 10% of its total assets to premiums when purchasing
put or call options. The Merrill Lynch Basic Value Equity Portfolio will not
write covered call options on underlying securities exceeding 15% of the value
of its total assets. The 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 over-the-counter put and call options on stock indexes. The
EQ/Putnam Growth & Income Portfolio, EQ/Putnam International Equity
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Portfolio, EQ/Putnam Investors Growth Portfolio, EQ/Putnam Balanced Portfolio,
MFS Emerging Growth Companies Portfolio, Merrill Lynch World Strategy
Portfolio, Morgan Stanley Emerging Markets Equity Portfolio, JPM Core Bond
Portfolio, Evergreen Foundation Portfolio, Evergreen Portfolio, and MFS Growth
with Income Portfolio may engage in over-the-counter put and call option
transactions. Options traded in the over-the-counter market may not be as
actively traded as those on an exchange, so it may be more difficult to value
such options. In addition, it may be difficult to enter into closing
transactions with respect to such options. Such over-the-counter options, and
the securities used as "cover" for such options, may be considered illiquid
securities.
Each Portfolio may buy and sell futures and options contracts for any number of
reasons, including: to manage its exposure to changes in securities prices and
foreign currencies; as an efficient means of adjusting its overall exposure to
certain markets; in an effort to enhance income; to protect the value of
portfolio securities and to adjust the duration of fixed income investments.
Each Portfolio may purchase, sell, or write call and put options and futures
contracts on securities, financial indices, and foreign currencies and options
on futures contracts.
The risk of loss in trading futures contracts can be substantial because of the
low margin deposits required and the extremely high degree of leveraging
involved in futures pricing. As a result, a relatively small price movement in
a futures contract may cause an immediate and substantial loss or gain. The
primary risks associated with the use of futures contracts and options are: (i)
imperfect correlation between the change in market value of the stocks held by
a Portfolio and the prices of futures contracts and options; and (ii) possible
lack of a liquid secondary market for a futures contract or an over-the-counter
option and the resulting inability to close a futures position or
over-the-counter option prior to its maturity date.
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 a Portfolio's expenses
(management fees and operating expenses), shareholders will also indirectly
bear similar expenses of such entities. Like other foreign securities,
interests in passive foreign investment companies also involve the risk of
foreign securities, as described above.
PAYMENT-IN-KIND BONDS. The EQ/Putnam Growth & Income Value Portfolio, EQ/Putnam
Balanced Portfolio, Morgan Stanley Emerging Markets Equity Portfolio, and JPM
Core Bond 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.
REAL ESTATE INVESTMENT TRUSTS. The EQ/Putnam Balanced Portfolio, [Morgan
Stanley Emerging Markets Equity Portfolio, Lazard Large Cap Value Portfolio,
Lazard Small Cap Value Portfolio,] JPM Core Bond Portfolio, BT Small
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Company Index Portfolio, BT International Equity Index Portfolio, BT Equity 500
Index Portfolio, and Evergreen Foundation Portfolio may each invest up to 15%
of its respective net assets in investments related to real estate, including
real estate investment trusts ("REITS"). Risks associated with investments in
securities of companies in the real estate industry include: decline in the
value of real estate; risks related to general and local economic conditions;
overbuilding and increased competition; increases in property taxes and
operating expenses; changes in zoning laws; casualty or condemnation losses;
variations in rental income; changes in neighborhood values; the appeal of
properties to tenants; and increases in interest rates. In addition, equity
REITS may be affected by changes in the values of the underlying property owned
by the trusts, while mortgage real estate investment trusts may be affected by
the quality of credit extended. REITS are dependent upon management skills, may
not be diversified and are subject to the risks of financing projects. Such
REITS are also subject to heavy cash flow dependency, defaults by borrowers,
self liquidation and the possibility of failing to qualify for tax-free
pass-through of income under the Code and to maintain exemption from the 1940
Act. In the event an issuer of debt securities collateralized by real estate
defaults, it is conceivable that the REITS could end up holding the underlying
real estate.
REVERSE REPURCHASE AGREEMENTS. The Morgan Stanley Emerging Markets Equity
Portfolio, Lazard Large Cap Value Portfolio, JPM Core Bond Portfolio, BT Small
Company Index Portfolio, BT International Equity Index Portfolio, BT Equity 500
Index Portfolio, Evergreen Foundation Portfolio, and Evergreen Portfolio may
each enter into reverse repurchase agreements with brokers, dealers, domestic
and foreign banks or other financial institutions. In a reverse repurchase
agreement, the Portfolio sells a security and agrees to repurchase it at a
mutually agreed upon date and price, reflecting the interest rate effective for
the term of the agreement. It may also be viewed as the borrowing of money by
the Portfolio. The Portfolio's investment of the proceeds of a reverse
repurchase agreement is the speculative factor known as leverage. The Portfolio
may enter into a reverse repurchase agreement only if the interest income from
investment of the proceeds is greater than the interest expense of the
transaction and the proceeds are invested for a period no longer than the term
of the agreement. 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, Morgan Stanley Emerging
Markets Equity Portfolio, JPM Core Bond Portfolio, Evergreen Foundation
Portfolio, and Evergreen Portfolio may each seek to earn additional income by
making secured loans of portfolio securities with a value up to 33 1/3% of
their respective total assets. The MFS Emerging Growth Companies Portfolio, BT
Small Company Index Portfolio, BT International Equity Index Portfolio and BT
Equity 500 Index Portfolio may lend portfolio securities in an amount up to 30%
of their respective total assets. The EQ/Putnam Growth & Income Value
Portfolio, EQ/Putnam International Equity Portfolio, EQ/Putnam Investors Growth
Portfolio, EQ/Putnam Balanced Portfolio, and MFS Growth with Income Portfolio
may each 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. The Lazard Large Cap Value Portfolio and Lazard Small Cap Value
Portfolio may each lend portfolio securities in an amount up to 10% 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,
Morgan Stanley Emerging Markets Equity Portfolio, and Evergreen 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.
Each Portfolio will deposit, in a segregated account with its custodian or a
qualified subcustodian, the securities sold short or convertible
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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,
Warburg Pincus Small Company Value Portfolio, Lazard Small Cap Value Portfolio,
BT Small Company Index Portfolio, and Evergreen 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 a Portfolio to buy or sell significant amounts of shares
without an unfavorable impact on prevailing prices. In addition, small
companies often have limited product lines, markets or financial resources and
are typically subject to greater changes in earnings and business prospects
than are larger, more established companies. There is typically less publicly
available information concerning smaller companies than for larger, more
established ones and smaller companies may be dependent for management on one
or a few key persons. Therefore, an investment in these Portfolios may involve
a greater degree of risk than an investment in other Portfolios that seek
capital appreciation by investing in better known, larger companies.
STRUCTURED NOTES. The 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, JPM Core Bond
Portfolio, and BT International Equity Index Portfolio may each invest in swap
contracts, which are derivatives in the form of a contract or other similar
instrument which is an agreement to exchange the return generated by one
instrument for the return generated by another instrument. The payment streams
are calculated by reference to a specified index and agreed upon notional
amount. The term "specified index" includes, but is not limited to, currencies,
fixed interest rates, prices and total return on interest rate indices, fixed
income indices, stock indices and commodity indices (as well as amounts derived
from arithmetic operations on these indices). For example, a Portfolio may
agree to swap the return generated by a fixed income index for the return
generated by a second fixed income index. The Portfolio will usually enter into
swaps on a net basis, i.e., the two return streams are netted out in a cash
settlement on the payment date or dates specified in the instrument, with the
Portfolio receiving or paying, as the case may be, only the net amount of the
two returns. The Portfolio's obligations under a swap agreement will be accrued
daily (offset against any amounts owing to the Portfolio) and any accrued but
unpaid net amounts owed to a swap counterparty will be covered by the
maintenance of a segregated account consisting of cash, United States
Government securities, or high grade debt obligations. No Portfolio will enter
into any swap agreement unless the counterparty meets the rating requirements
set forth in guidelines established by the Trust's Board of Trustees. The swap
market has grown substantially in recent years with a large number of banks and
investment banking firms acting both as principals and as agents utilizing
standardized swap documentation. As a result, the swap market has become
relatively liquid. Swaps that include more recent innovations for which
standardized documentation has not yet been fully developed are less liquid
than "traditional" swaps. The use of swaps is a highly specialized activity
that involves investment techniques and risks different from those associated
with ordinary portfolio securities transactions. If an Adviser is incorrect in
its forecasts of market values, interest rates, and currency exchange rates,
the investment performance of the Portfolio would be less favorable than it
would have been if this investment technique were not used.
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
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agencies that are supported by the full faith and credit of the United States
(e.g., securities issued by the Federal Housing Administration, Export-Import
Bank of the United States, Small Business Administration, and Government
National Mortgage Association); securities issued or guaranteed by government
agencies that are supported by the ability to borrow from the United States
Treasury (e.g., securities issued by the Federal National Mortgage
Association); and securities issued or guaranteed by government agencies that
are only supported by the credit of the particular agency (e.g., Interamerican
Development Bank, the International Bank for Reconstruction and Development,
and the Tennessee Valley Authority).
WARRANTS. Warrants are securities that give the holder the right, but not the
obligation to purchase equity issues of the company issuing the warrants, or a
related company, at a fixed price either on a date certain or during a set
period. At the time of issue, the cost of a warrant is substantially less than
the cost of the underlying security itself, and price movements in the
underlying security are generally magnified in the price movements of the
warrant. This effect enables the investor to gain exposure to the underlying
security with a relatively low capital investment but increases an investor's
risk in the event of a decline in the value of the underlying security and can
result in a complete loss of the amount invested in the warrant. In addition,
the price of a warrant tends to be more volatile than, and may not correlate
exactly to, the price of the underlying security. If the market price of the
underlying security is below the exercise price of the warrant on its
expiration date, the warrant will generally expire without value.
ZERO-COUPON BONDS. The EQ/Putnam Growth & Income Value Portfolio, EQ/Putnam
Balanced Portfolio, Morgan Stanley Emerging Markets Equity Portfolio, JPM Core
Bond Portfolio, and MFS Growth with Income Portfolio may invest in zero-coupon
bonds. Zero-coupon bonds are issued at a significant discount from their
principal amount and pay interest only at maturity rather than at intervals
during the life of the security. The value of zero-coupon bonds is subject to
greater fluctuation in response to changes in market interest rates than bonds
which pay interest in cash currently. Zero-coupon bonds allow an issuer to
avoid the need to generate cash to meet current interest payments. Accordingly,
such bonds may involve greater credit risks than bonds paying interest
currently. Even though such bonds do not pay current interest in cash, a
Portfolio is nonetheless required to accrue interest income on such investments
and to distribute such amounts at least annually to investors in such
instruments. Thus, each Portfolio could be required, at times, to liquidate
other investments in order to satisfy its distribution requirements.
PORTFOLIO TURNOVER. The length of time a Portfolio has held a particular
security is not generally a consideration in investment decisions. A change in
the securities held by a Portfolio is known as "portfolio turnover." Each new
Portfolio's turnover rate is not expected to exceed 100% during its first year
of operation. A high turnover rate (100% or more) increases transaction costs
(e.g., brokerage commissions) which must be born by the Portfolio and its
shareholders and increases realized gains and losses. See "Financial
Highlights" above for the actual portfolio turnover rates of the Portfolios
through December 31, 1997 and June 30, 1998 and also see "Dividends,
Distributions and Taxes" below.
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 1290 Avenue of
the Americas, New York, New York 10104. Besides its activities with respect to
the Trust, 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
Life, a New York stock life insurance company.
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The Manager is responsible for providing general management 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 the Trust's business, and also supervises the
provision of services by third parties such as the Trust's custodian and
administrator.
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, MFS Growth with Income Portfolio, Merrill Lynch
Basic Value Equity Portfolio and Lazard Large Cap Value 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 the 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 the 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 the annual rate of .65% of the Portfolio's average daily net
assets. As compensation for managing the Lazard Small Cap Value Portfolio, the
Trust pays the Manager a monthly fee at the annual rate of .80% of the
Portfolio's average daily net assets. As compensation for managing the JPM Core
Bond Portfolio, the Trust pays the Manager a monthly fee at the annual rate of
.45% of the Portfolio's average daily net assets. As compensation for managing
the BT Small Company Index Portfolio and the BT Equity 500 Index Portfolio, the
Trust pays the Manager a monthly fee at the annual rate of .25% of the
respective Portfolio's average daily net assets. As compensation for managing
the BT International Equity Index Portfolio, the Trust pays the Manager a
monthly fee at the annual rate of .35% of the Portfolio's average daily net
assets. As compensation for managing the Evergreen Foundation Portfolio, the
Trust pays the Manager a monthly fee at the annual rate of .63% of the
Portfolio's average daily net assets. As compensation for managing the
Evergreen Portfolio, the Trust pays the Manager a monthly fee at the annual
rate of .75% 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 accountants and of its legal counsel; the costs of printing and
mailing annual and semi-annual reports to shareholders, proxy statements,
prospectuses, prospectus supplements and statements of additional information,
all to the extent they are sent to existing Contract owners; the costs of
printing registration statements; bank transaction charges and custodian's
fees; any proxy solicitors' fees and expenses; filing fees; any federal, state
or local income or other taxes; any interest; any membership fees of the
Investment Company Institute and similar organizations; fidelity bond and
Trustees' liability insurance premiums; and any extraordinary expenses, such as
indemnification payments or damages awarded in litigation or settlements made.
All general Trust expenses are allocated among and charged to the assets of the
Portfolios of the Trust on a basis that the Trustees deem fair and 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, which are offered through means of another prospectus, may
pay for certain distribution related expenses in connection with activities
primarily intended to result in the sale of its shares, pursuant to Rule 12b-1
under the 1940 Act. The Class IA shares offered pursuant to this prospectus
have not adopted a Rule 12b-1 Plan.
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
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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 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 received an exemptive order from the Securities and Exchange
Commission ("SEC") that permits 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.
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 an annual rate equal to .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, 1997, T. Rowe Price and its affiliates managed more
than $126 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, 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 since the Portfolio commenced its operations. As
compensation for services as the Portfolio's Adviser, the Manager pays
Price-Fleming a monthly fee at an 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.
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, 1997, Price-Fleming managed the United States dollar equivalent of
approximately $30 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, Mark B. Smith, Mark J. T. Edwards, John R. Ford, James
B. M. Seddon and David J. L. Warren. Martin Wade joined Price-Fleming in 1979
and has 27 years of experience with
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the Fleming Group in research, client service and investment management.
(Fleming Group includes Flemings and/or Jardine Fleming.) Mark Edwards joined
Price-Fleming in 1986 and has 16 years of experience in financial analysis.
John Ford joined Price-Fleming in 1982 and has 18 years of experience with the
Fleming Group in research and portfolio management. James Seddon joined
Price-Fleming in 1987 and has 11 years of experience in investment management.
David Warren joined Price-Fleming in 1984 and has 17 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 Value 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 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 an 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,
1997, Putnam Management and its affiliates managed more than $235 billion of
assets. Putnam Management is a subsidiary of Putnam Investments, Inc. which,
other than a minority of shares owned by employees, 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, David L. Waldman, James M. Prusko and Jeffrey J. Kobylarz 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. Waldman has been employed by
Putnam Management as an investment professional since 1997. Mr. Prusko has been
employed by Putnam Management as an investment professional since 1992. Mr.
Kobylarz has been employed by Putnam Management as an investment professional
since 1993.
Massachusetts Financial Services Company ("MFS") has been the Adviser to the
MFS Research Portfolio, the MFS Emerging Growth Companies Portfolio and the MFS
Growth with Income Portfolio since each Portfolio commenced operations. As
compensation for services as the Adviser to the MFS Research Portfolio, the MFS
Emerging Growth Companies Portfolio, and the MFS Growth with Income Portfolio,
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 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
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mutual fund in the United States, Massachusetts Investors Trust. As of December
31, 1997, MFS managed more than $70.2 billion on behalf of over 2.7 million
investors accounts. MFS is a subsidiary of Sun Life of Canada (United States)
Financial Services Holdings Inc., which, in turn, is an indirect wholly-owned
subsidiary of Sun Life Assurance Company of Canada. The portfolio 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, an Executive 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. Kevin R. Parke, John D.
Laupheimer, Jr. and Mitchell D. Dynan are the portfolio managers for the MFS
Growth with Income Portfolio. Mr. Parke, an Executive Vice President of MFS,
and Mr. Laupheimer, Jr., a Senior Vice President of MFS, have been employed as
portfolio managers by MFS since 1985 and 1986, respectively. Mr. Dynan, a Vice
President of MFS, has been employed as a portfolio manager by MFS since 1981.
Morgan Stanley Asset Management Inc. ("MSAM") has been the Adviser to the
Morgan Stanley Emerging Markets Equity Portfolio since the 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 serves as an investment adviser to numerous open-end and
closed-end investment companies. As of December 31, 1997, MSAM, together with
its affiliated institutional investment management companies, had approximately
$146 billion in assets under management and fiduciary care. In 1997, Morgan
Stanley Group Inc. and Dean Witter, Discover & Co. completed a merger to form
Morgan Stanley, Dean Witter & Co., a preeminent financial services company that
maintains leading market positions in each of its three primary businesses --
securities, asset management and credit services.
Madhav Dhar has 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"), Mr. Dhar joined MSAM in 1984. Mr. Robert Meyer is also
responsible for the day to day management of the Morgan Stanley Emerging
Markets Equity Portfolio. Mr. Meyer joined MSAM in 1989, is a Managing Director
of MSAM and Morgan Stanley and has primary responsibility for MSAM's equity
investments in Latin America. Prior to joining MSAM's Latin American Group, Mr.
Meyer worked in MSAM's U.S. Equity Group.
Warburg Pincus Asset Management, Inc. ("WPAM") has been the Adviser to the
Warburg Pincus Small Company Value Portfolio since the Portfolio commenced
operations. WPAM is located at 466 Lexington Avenue, New York, New York
10017-3147. As compensation for services as the Portfolio's Adviser, the
Manager pays WPAM a monthly fee at an annual rate equal to .50% of the
Portfolio's average daily net assets.
WPAM is a professional investment advisory firm that provides investment
services to investment companies, employee benefit plans, endowment funds,
foundations and other institutions and individuals. As of December 31, 1997,
WPAM managed approximately $19.7 billion in assets. WPAM, incorporated in 1970,
is indirectly controlled by Warburg, Pincus & Co. ("WP&Co."), a New York
partnership which has no business other than being a holding company of WPAM
and its affiliates. Lionel Pincus, the managing partner of WP&Co., may be
deemed to control both WP&Co.
and WPAM.
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Kyle F. Frey, a senior vice president of WPAM, has been responsible for the day
to day management of Warburg Pincus Small Company Value Portfolio's securities
portfolio since the Portfolio commenced operations. Mr. Frey has been with WPAM
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 100 registered investment
companies. MLAM also offers portfolio management and portfolio analysis
services to individuals and institutions. As of December 31, 1997, the Adviser
and its affiliates had a total of approximately $278 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.
Lazard Asset Management ("LAM") has been the Adviser to the Lazard Large Cap
Value Portfolio and Lazard Small Cap Value Portfolio since each Portfolio
commenced operations. As compensation for services as the Adviser to the Lazard
Large Cap Value Portfolio, the Manager pays LAM a monthly fee at an annual rate
equal to: .425% of the Portfolio's average daily net assets up to and including
$50 million; .40% of the Portfolio's average daily net assets over $50 million
and up to and including $250 million; .375% of the Portfolio's average daily
net assets over $250 million and up to and including $400 million; and .35% of
the Portfolio's average daily net assets in excess of $400 million. As
compensation for services as the Adviser to the Lazard Small Cap Value
Portfolio, the Manager pays LAM a monthly fee at an annual rate equal to: .65%
of the Portfolio's average daily net assets up to and including $250 million;
.55% of the Portfolio's average daily net assets over $250 million and up to
and including $500 million; and .50% of the Portfolio's average daily net
assets in excess of $500 million.
LAM is a division of Lazard Freres & Co. LLC ("Lazard Freres"), a New York
limited liability company, which is registered as an investment adviser with
the SEC and is a member of the New York, American and Midwest Stock Exchanges.
Lazard Freres, 30 Rockefeller Plaza, New York, New York 10112, provides its
clients with a wide variety of investment banking and related services,
including investment management. It is a major underwriter of corporate
securities, conducts a broad range of trading and brokerage activities in
corporate and governmental bonds and stocks and acts as a financial adviser to
utilities. LAM and its affiliates provide investment management services to
client discretionary accounts with assets as of December 31, 1997 totaling
approximately $53.0 billion. Its clients are both individuals and institutions,
some of whose accounts have investment policies similar to the Portfolios.
Herbert W. Gullquist and Michael S. Rome have been responsible for the day to
day management of the Lazard Large Cap Value Portfolio, which includes
investment decisions made on behalf of the Portfolio, since the Portfolio
commenced operations. Eileen Alexanderson, Herbert W. Gullquist, Bradley
Purcell, Michael S. Rome and Leonard M. Wilson have been responsible for the
day to day management of the Lazard Small Cap Value Portfolio, which includes
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investment decisions made on behalf of the Portfolio, since the Portfolio
commenced operations. Ms. Alexanderson is a Managing Director of the Adviser
and has been with the Adviser since 1979. Mr. Gullquist is a Managing Director
of the Adviser and has been with the Adviser since 1982. Mr. Purcell is a Vice
President of the Adviser and has been with the Adviser since 1991. Mr. Rome is
also a Managing Director of the Adviser and has been with the Adviser since
1991. Mr. Wilson is a Director of the Adviser and has been with the Adviser
since 1988.
J.P. Morgan Investment Management Inc. ("J.P. Morgan") has been the Adviser to
the JPM Core Bond Portfolio since the Portfolio commenced operations. As
compensation for services as the Adviser to the JPM Core Bond Portfolio, the
Manager pays J.P. Morgan a monthly fee at an annual rate equal to: .30% of the
Portfolio's average daily net assets up to and including $125 million; .25% of
the Portfolio's average daily net assets over $125 million and up to and
including $200 million; .22% of the Portfolio's average daily net assets over
$200 million and up to and including $350 million; and .15% of the Portfolio's
average daily net assets in excess of $350 million.
J.P. Morgan is a Delaware corporation and a registered investment adviser. It
is a wholly owned subsidiary of J.P. Morgan & Co. Incorporated ("JPM & Co."), a
bank holding company organized under the laws of the state of Delaware. JPM &
Co. through J.P. Morgan and other subsidiaries, offers a wide range of services
to governmental, institutional, corporate and individual customers and acts as
investment adviser to individual and institutional clients with combined assets
under management as of December 31, 1997 of over $255 billion. In particular,
J.P. Morgan, 522 Fifth Avenue, New York, New York 10036, provides investment
management services to public, corporate and union employee benefit plans, as
well as foundations, endowments, insurance companies, state and local
governments and their agencies, and affiliates of J.P. Morgan.
J.P. Morgan uses a sophisticated, disciplined, collaborative process for
managing all asset classes. For fixed income portfolios, this process focuses
on the systematic analysis of real interest rates, sector diversification and
quantitative and credit analysis. The portfolio managers making investments
work in conjunction with fixed income, credit, capital markets and economic
research analysts, as well as traders and administrative officers. The
following persons have been primarily responsible for the day to day management
and implementation of J.P. Morgan's process for the Portfolio, since the
Portfolio commenced operations: Paul L. Zemsky and Robert J. Teatom. Mr. Zemsky
is a Managing Director of J.P. Morgan and a portfolio manager specializing in
quantitative techniques. Mr. Zemsky joined J.P. Morgan in 1985. Robert J.
Teatom is a Managing Director of J.P. Morgan and Co-head of its U.S. Fixed
Income Group. Mr. Teatom joined J.P. Morgan in 1975.
Bankers Trust Company ("Bankers Trust") has been the Adviser to the BT Small
Company Index Portfolio, BT International Equity Index Portfolio and BT Equity
500 Index Portfolio since each Portfolio commenced operations. As compensation
for services as the Adviser to the BT Small Company Index Portfolio and BT
Equity 500 Index Portfolio, the Manager pays Bankers Trust a monthly fee at an
annual rate equal to .05% of the respective Portfolio's average daily net
assets. As compensation for services as the Adviser to the BT International
Equity Index Portfolio, the Manager pays Bankers Trust a monthly fee at an
annual rate equal to .15% of the Portfolio's average daily net assets.
Bankers Trust is a New York banking corporation with executive offices at 130
Liberty Street (One Bankers Trust Plaza), New York, New York 10006. Bankers
Trust is a wholly-owned subsidiary of Bankers Trust New York Corporation.
Bankers Trust conducts a variety of general banking and trust activities and is
a major wholesale supplier of financial services to the international and
domestic institutional markets. Investment management is a core business of
Bankers Trust built on a tradition of excellence from its roots as a trust bank
founded in 1903. The scope of Bankers Trust's management capability is unique
due to its leadership positions in both active and passive quantitative
management and its presence in major equity and fixed income markets around the
world. Bankers Trust is one of the nation's largest and most experienced
investment managers with approximately $317.8 billion in assets under
management as of December 31, 1997.
Evergreen Asset Management Corp. ("Evergreen") has been the adviser to the
Evergreen Foundation Portfolio and Evergreen Portfolio since each Portfolio
commenced operations. As compensation for services as the Adviser to the
Evergreen Foundation Portfolio, the Manager pays Evergreen a monthly fee at an
annual rate equal to .425% of the Portfolio's average daily net assets.
As compensation for services as the Adviser to the Evergreen Portfolio, the
Manager pays Evergreen a monthly fee at an annual rate equal to .55% of the
Portfolio's average daily assets.
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Evergreen, which is located at 2500 Westchester Avenue, Purchase, New York
10577, is a registered investment adviser. It is a wholly-owned subsidiary of
First Union Corporation ("First Union"), a bank holding company. First Union,
through Evergreen and other subsidiaries, offers a broad range of financial
services to individuals and businesses throughout the United States.
Stephen A. Lieber is the portfolio manager responsible for the day-to-day
management of the Evergreen Foundation Portfolio since its inception. Mr.
Lieber and Nola Maddox Falcone, C.F.A., have been responsible for the
day-to-day management of the Evergreen Portfolio since its inception. Mr.
Lieber, Chairman and Co-Chief Executive Officer of Evergreen, has been
associated with Evergreen and its predecessor since 1971. Ms. Falcone,
President and Co-Chief Executive Officer of Evergreen, joined Lieber & Company,
an indirect wholly-owned subsidary of First Union, as a Senior Portfolio
Manager in 1974, and was a General Partner from January 1981 to June 1994.
Evergreen has entered into a sub-advisory agreement with Lieber & Company which
provides that Lieber & Company's research department and staff will furnish
Evergreen with information, investment recommendations, advice and assistance,
and will generally be available for consultation on Evergreen Portfolio. Lieber
& Company will be reimbursed by Evergreen in connection with rendering such
services. There is no additional charge to the Evergreen Portfolio for the
services provided by Lieber & Company.
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 next $0.5 billion of the total
Trust assets; .035 of 1% of the next $2.0 billion of the total Trust assets;
.025 of 1% of the next $1.0 billion of the total Trust assets; .015 of 1% of
the next $2.5 billion of the total Trust assets; .01 of 1% of the total Trust
assets in excess of $8.0 billion; provided, however, that the annual fee
payable to Chase with respect to any Portfolio which commences operations after
July 1, 1997 and whose assets do not exceed $200 million shall be computed at
the annual rate of .0525% of 1% of the Portfolio's total assets plus $25,000.
THE TRANSFER AGENT
Equitable Life serves as the transfer agent and dividend disbursing agent of
the Trust and receives no compensation for serving in such capacity.
EXPENSE LIMITATION AGREEMENT
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 Agreement"), pursuant to which the Manager has
agreed to waive or limit its fees and to assume other expenses so that the
total annual operating expenses of each Portfolio other than interest, taxes,
brokerage commissions, other expenditures which are capitalized in accordance
with generally accepted accounting principles, other extraordinary expenses not
incurred in the ordinary course of each Portfolio's business and amounts
payable pursuant to a plan adopted in accordance with Rule 12b-1 under the 1940
Act, are limited to: .60% 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, MFS Growth with Income
Portfolio, and Merrill Lynch Basic Value Equity Portfolios; .65% of the
respective average daily net assets of the EQ/Putnam Balanced and Lazard Large
Cap Value Portfolios; .75% of the Warburg Pincus Small Company Value
Portfolio's average daily net assets; .95% of the respective average daily net
assets of the T. Rowe Price International Stock, EQ/Putnam International
Equity, Merrill Lynch World Strategy and Lazard Small Cap Value Portfolios;
1.50% of the Morgan Stanley Emerging Markets Equity Portfolio's average daily
net assets; .55% of the respective average daily net assets of the JPM Core
Bond and BT International Equity Index Portfolios; .35% of the average daily
net assets of the BT Small Company Index Portfolio; and .30% of the average
daily net assets of the BT Equity 500 Index
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<PAGE>
Portfolio; .70% of the average daily net assets of the Evergreen Foundation
Portfolio; and .80% of the average daily net assets of the Evergreen Portfolio.
Each Portfolio may at a later date reimburse to the Manager the management fees
waived or limited and other expenses assumed and paid by the Manager pursuant
to the Expense Limitation Agreement provided such Portfolio has reached a
sufficient asset size to permit such reimbursement to be made without causing
the total annual expense ratio of each Portfolio to exceed the percentage
limits stated above. Consequently, no reimbursement by a Portfolio will be made
unless: (i) the Portfolio's assets exceed $100 million; (ii) the Portfolio's
total annual expense ratio is less than the respective percentages stated
above; and (iii) the payment of such reimbursement has been approved by the
Trust's Board of Trustees on a quarterly basis.
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 Life 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.
T. Rowe Price and Price-Fleming, the Advisers to the T. Rowe Price
International Stock and T. Rowe Price Equity Income Portfolios, may execute
portfolio transactions through certain affiliates of Fleming and Jardine
Fleming, which are persons indirectly related to the Advisers, acting as an
agent in accordance with procedures established by the Trust's Board of
Trustees. MLAM, the Adviser to the Merrill Lynch World Strategy Portfolio and
Merrill Lynch Basic Value Equity Portfolio, may execute portfolio transactions
through certain affiliates of MLAM. MSAM, the Adviser to the Morgan Stanley
Emerging Markets Equity Portfolio, may execute portfolio transactions through
certain affiliates of MSAM. LAM, the Adviser to the Lazard Large Cap Value
Portfolio, and Lazard Small Cap Value Portfolio, may execute portfolio
transactions through certain affiliates of LAM. J.P. Morgan, the Adviser to the
JPM Core Bond Portfolio, may execute portfolio transactions through certain
affiliates of J.P. Morgan. Bankers Trust, the Adviser to BT Small Company Index
Portfolio, BT International Equity Index Portfolio and BT Equity 500 Index
Portfolio, may execute portfolio transactions through certain affiliates of
Bankers Trust. Evergreen, the Adviser to the Evergreen Foundation Portfolio and
Evergreen Portfolio, may execute portfolio transactions through certain
affiliates of Evergreen and First Union, including Lieber & Company.
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 does not consider broker-dealer affiliates of an
Adviser to one Portfolio to be an affiliate of the Advisers to other Portfolios
for which such Adviser does not provide investment advice. 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.
45
<PAGE>
YEAR 2000
Like other mutual funds, the Trust and the service providers for the Trust and
each of its Portfolios rely heavily on the reasonably consistent operation of
their computer systems. Many software programs and certain computer hardware in
use today, cannot properly process information after December 31, 1999 because
of the method by which dates are encoded and calculated in such programs and
hardware. This problem, commonly referred to as the "Year 2000 Issue," could,
among other things, negatively impact the processing of trades, the
distribution of securities, the pricing of securities and other
investment-related and settlement activities. The Trust is currently obtaining
information with respect to the actions that have been taken and the actions
that are planned to be taken by each of its service providers to prepare their
computer systems for the Year 2000. While the Trust expects that each of the
Trust's service providers will have adapted their computer systems to address
the Year 2000 Issue, there can be no assurance that this will be the case or
that the steps taken by the Trust will be sufficient to avoid any adverse
impact to the Trust and each of its Portfolios.
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. The Trust currently
is divided into twenty-one 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. As of March
31, 1998, Equitable Life owned 100% of the outstanding shares of the Trust.
PURCHASE AND REDEMPTION OF SHARES
EQ Financial, 1290 Avenue of the Americas, New York, New York, 10104, formerly
Equico Securities, Inc., a wholly-owned subsidiary of Equitable Life, 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, a Delaware corporation and an indirect wholly-owned
subsidiary of Equitable Life 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
46
<PAGE>
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 also has distribution agreements for its Class IB shares with EQ
Financial and EDI pursuant to which each of them acts as the Distributor for
the Class IB shares of the Trust.
All shares are purchased and redeemed in accordance with the Trust's Amended
and Restated Declaration of Trust and By-Laws. Sales and redemptions of shares
of the same class by the same shareholder on the same day will be netted for
each Portfolio. All redemption requests will be processed and payment with
respect thereto will normally be made within seven days after tenders. The
Trust may suspend redemption, if permitted by the 1940 Act, for any period
during which the New York Stock Exchange is closed or during which trading is
restricted by the SEC or the SEC declares that an emergency exists. Redemption
may also be suspended during other periods permitted by the SEC for the
protection of the Trust's shareholders. If the Board of Trustees determines
that it would be detrimental to the best interest of the Trust's remaining
shareholders to make payment in cash, the Trust may pay redemption proceeds in
whole or in part by a distribution-in-kind of readily marketable securities.
47
<PAGE>
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.
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 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 RICs under Subchapter M of the Code, each Portfolio will also comply with
the investment diversification requirements of Subchapter L of the Code. Should
any Portfolio 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 with those
diversification requirements under Subchapter M and Subchapter L 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
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
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<PAGE>
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 average annual total return on Class IB shares of each Portfolio for the
one year period from September 30, 1997 to September 30, 1998 (unless otherwise
noted) and from inception to September 30, 1998 was as follows:
<TABLE>
<CAPTION>
PORTFOLIO ONE YEAR SINCE INCEPTION
<S> <C> <C>
T. Rowe Price International Stock Portfolio..... (9.16)% (2.96)%
T. Rowe Price Equity Income Portfolio........... 2.18% 13.61%
EQ/Putnam Growth & Income Value Portfolio....... (3.44)% 8.65%
EQ/Putnam International Equity Portfolio........ (6.86)% 5.03%
EQ/Putnam Investors Growth Portfolio............ 12.09% 23.95%
EQ/Putnam Balanced Portfolio.................... 4.18% 11.76%
MFS Research Portfolio.......................... 0.51% 12.84%
MFS Emerging Growth Companies Portfolio......... 2.62% 20.32%
Morgan Stanley Emerging Markets Equity Portfolio (47.41)% (45.51)%
Warburg Pincus Small Company Value Portfolio.... (21.85)% 0.96%
Merrill Lynch World Strategy Portfolio.......... (9.29)% 0.80%
Merrill Lynch Basic Value Equity Portfolio...... (2.77)% 12.85%
Lazard Large Cap Value Portfolio*............... - - (2.70)%
Lazard Small Cap Value Portfolio*............... - - (19.70)%
JPM Core Bond Portfolio*........................ - - 8.80%
BT Small Company Index Portfolio*............... - - (15.90)%
BT International Equity Index Portfolio*........ - - (0.30)%
BT Equity 500 Index Portfolio*.................. - - 3.20%
</TABLE>
- ---------------
* The total return is not annualized.
Total return information is not provided for the Evergreen Foundation
Portfolio, Evergreen Portfolio, and MFS Growth with Income Portfolio because
they had no operations as of December 31, 1997. The total return on Class IA
shares of each Portfolio would be higher than the total return on Class IB
shares because Class IB shares are subject to distribution related expenses to
which Class IA shares are not subject.
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 tables provide information concerning the historical performance
of another registered investment company (or series) or other institutional
private account managed by each Adviser, that has investment objectives,
policies, strategies and risks substantially similar to those of the respective
Portfolio(s) of the Trust for which it serves as Adviser. The data is provided
to illustrate the past performance of each Adviser in managing a substantially
similar investment vehicle as measured against 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 with respect to each
Adviser as an indication of the future performance of any Portfolio of the
Trust or of its Adviser. Such performance data, as shown below, for each
Adviser's substantially similar investment companies or institutional
accounts is not the performance data of any Portfolio of the Trust and
should not be confused with the performance data for each of the
Trust's Portfolios, which is shown directly above under the caption
"Performance Information."
Each Adviser's performance data shown below for other registered investment
companies or series thereof was calculated in accordance with standards
prescribed by the SEC for the calculation of average annual total return
information for registered investment companies. Share prices and investment
returns will fluctuate reflecting market conditions as well as changes in
company-specific fundamentals of portfolio securities. Composite performance
data relating to the historical performance of institutional private accounts
managed by the relevant Adviser was calculated in accordance with recommended
standards of the Association for Investment Management and Research ("AIMR")
retroactively applied to all time periods. All returns present were calculated
on a total return basis and include all losses. All returns reflect the
deduction of investment advisory fees, brokerage commissions and execution
costs paid by the relevant Adviser's institutional private accounts, without
provision for federal or state income taxes. Custodial fees, if any, were not
included in the calculation. The Composite includes all actual, fee-paying,
discretionary institutional private accounts managed by the relevant Adviser
that have investment objectives, policies, strategies and risks substantially
similar to those of the relevant Portfolio. Securities transactions are
accounted for on the trade date and accrual accounting is utilized. Cash and
equivalents are included in performance returns.
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<PAGE>
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 Rowe Price-Fleming International, Inc., and whose investment
policies are substantially similar to the T. Rowe Price International Stock
Portfolio. However, the T. Rowe Price International Stock Fund will be subject
to different expenses than the T. Rowe Price International Stock Portfolio. In
addition, holders of variable insurance contracts representing interests in the
T. Rowe Price International Stock Portfolio will be subject to charges and
expenses relating to such insurance contracts. The performance results
presented below do not reflect any insurance related expense.
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.
<TABLE>
<CAPTION>
T. ROWE PRICE
INTERNATIONAL STOCK MSCI EAFE
YEAR ENDED 9/30/98 FUND1 INDEX2
------------------ ---- -----
<S> <C> <C>
One Year3................................. (9.21)% (8.08)%
Five Years3............................... 7.70% 5.65%
Ten Years3................................ 9.68% 5.41%
</TABLE>
- --------------
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 EAFE Index ("MSCI EAFE") is an
unmanaged capitalization-weighted measure of stock markets in Europe,
Australia and the Far East. MSCI EAFE returns assume dividends reinvested
net of withholding tax and do not reflect any fees or expenses.
3 Annualized performance for the shares of the T. Rowe Price International
Stock Fund.
50
<PAGE>
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
T. Rowe Price Associates, Inc., and whose investment policies are substantially
similar to the T. Rowe Price Equity Income Portfolio. However, the T. Rowe
Price Equity Income Fund will be subject to different expenses than the T. Rowe
Price Equity Income Portfolio. In addition, holders of variable insurance
contracts representing interests in the T. Rowe Equity Income Portfolio will be
subject to charges and expenses relating to such insurance contracts. The
performance results presented below do not reflect any insurance related
expenses.
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.
<TABLE>
<CAPTION>
T. ROWE PRICE S&P 500
YEAR ENDED 9/30/98 EQUITY INCOME FUND1 INDEX2
------------------ ------------------ -----
<S> <C> <C>
One Year3................................. 2.38% 9.05%
Five Years3............................... 16.99% 19.91%
Ten Years3................................ 14.23% 17.29%
</TABLE>
- -------------
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 ("S & P 500") 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 S & P 500 reflects the reinvestment of income dividends and capital
gain distributions, if any, but does not reflect fees, brokerage
commissions, or other expenses of investing.
3 Annualized performance for the shares of the T. Rowe Price Equity Income
Fund. The investment advisory fee applicable to the T. Rowe Price Equity
Income Fund was capped at the maximum state-allowed fee in 1987.
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<PAGE>
EQ/PUTNAM GROWTH & INCOME VALUE PORTFOLIO
The table below sets forth performance history for another registered
investment company, i.e., the Putnam Growth & Income Fund II, which is managed
by Putnam Investment Management, Inc., and whose investment policies are
substantially similar to those of EQ/Putnam Growth & Income Value Portfolio.
Putnam Growth & Income Fund II will be subject to different expenses than the
EQ/Putnam Growth & Income Value Portfolio. In addition, holders of variable
insurance contracts representing interests in EQ/Putnam Growth & Income Value
Portfolio will be subject to charges and expenses relating to such insurance
contracts. The performance results presented below do not reflect any insurance
related expenses.
The investment results of Putnam Growth & Income Fund II 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.
<TABLE>
<CAPTION>
S&P 500
YEAR ENDED 9/30/98 PUTNAM GROWTH & INCOME FUND II1 INDEX2
------------------ ------------------------------ -----
<S> <C> <C>
One Year3................................. ____% ____%
Since inception3.......................... ____% ____%
</TABLE>
- -----------------
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 ("S & P 500") 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 S & P 500 reflects the reinvestment of income dividends and capital
gain distributions, if any, but does not reflect fees, brokerage
commissions, or other expenses of investing.
3 Annualized performance for the Class A shares of the Putnam Growth &
Income Fund II. The inception date for the Putnam Growth & Income Fund II
was January 5, 1995. The Class A shares are subject to a front-end sales
charge of up to 5.75%. Other share classes have different expenses and
their performance will vary.
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<PAGE>
EQ/PUTNAM INTERNATIONAL EQUITY PORTFOLIO
The table below sets forth performance history for another registered
investment company, i.e., the Putnam International Growth Fund, which is
managed by Putnam Investment Management, Inc., and whose investment policies
are substantially similar to those of EQ/Putnam International Equity Portfolio.
Putnam International Growth Fund will be subject to different expenses than the
EQ/Putnam International Equity Portfolio. In addition, holders of variable
insurance contracts representing interests in EQ/Putnam International Equity
Portfolio will be subject to charges and expenses relating to such insurance
contracts. The performance results presented below do not reflect any insurance
related expenses.
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.
<TABLE>
<CAPTION>
PUTNAM INTERNATIONAL GROWTH MSCI EAFE
YEAR ENDED 9/30/98 FUND1 INDEX2
------------------ ---- -----
<S> <C> <C>
One Year3................................. ____% ____%
Five Years3............................... ____% ____%
Since inception3.......................... ____% ____%
</TABLE>
- -----------------
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 EAFE Index ("MSCI EAFE") is an
unmanaged capitalization-weighted measure of stock markets in Europe,
Australia and the Far East. MSCI EAFE returns assume dividends reinvested
net of withholding tax and do not reflect any fees or expenses.
3 Annualized performance 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 March, 1991. The Class A shares are subject
to a front-end sales charge of up to 5.75%.
53
<PAGE>
EQ/PUTNAM INVESTORS GROWTH PORTFOLIO
The table below sets forth performance history for another registered
investment company, i.e., the Putnam Investors Fund, which is managed by Putnam
Investment Management, Inc., and whose investment policies are substantially
similar to those of EQ/Putnam Investors Growth Portfolio. Putnam Investors Fund
will be subject to different expenses than the EQ/Putnam Investors Growth
Portfolio. In addition, holders of the variable insurance contracts
representing interests in EQ/Putnam Investors Growth Portfolio will be subject
to charges and expenses relating to such insurance contracts. The performance
results presented below do not reflect any insurance related expenses.
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.
<TABLE>
<CAPTION>
PUTNAM INVESTORS FUND1 S&P 500
YEAR ENDED 9/30/98 --------------------- INDEX2
------------------ -----
<S> <C> <C>
One Year3................................. ____% ____%
Five Years3............................... ____% ____%
Ten Years3................................ ____% ____%
</TABLE>
- -----------------
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 ("S & P 500") 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 S & P 500 reflects the reinvestment of income dividends and capital
gain distributions, if any, but does not reflect fees, brokerage
commissions, or other expenses of investing.
3 Annualized performance for the Class A shares of the Putnam Investors
Fund. The Class A shares are subject to a front-end sales charge of up to
5.75%. Other share classes have different expenses and their performance
will vary.
54
<PAGE>
EQ/PUTNAM BALANCED PORTFOLIO
The table below sets forth performance history for another registered
investment company, i.e., The George Putnam Fund of Boston, which is managed by
Putnam Investment Management, Inc., and whose investment policies are
substantially similar to those of EQ/Putnam Balanced Portfolio. The George
Putnam Fund of Boston will be subject to different expenses than the EQ/Putnam
Balanced Portfolio. In addition, holders of variable insurance contracts
representing interests in EQ/Putnam Balanced Portfolio will be subject to
charges and expenses relating to such insurance contracts. The performance
results presented below do not reflect any insurance related expenses.
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.
<TABLE>
<CAPTION>
THE GEORGE PUTNAM S&P 500
YEAR ENDED 9/30/98 FUND OF BOSTON1 INDEX2
------------------ ----------------- ------
<S> <C> <C>
One Year3................................. ____% ____%
Five Years3............................... ____% ____%
Ten Years3................................ ____% ____%
</TABLE>
- --------------
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 ("S & P 500") 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 S & P 500 reflects the reinvestment of income dividends and capital
gain distributions, if any, but does not reflect fees, brokerage
commissions, or other expenses of investing.
3 Annualized performance 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 up
to 5.75%. Other share classes have different expenses and their
performance will vary.
55
<PAGE>
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 Massachusetts
Financial Services Company, and whose investment policies are substantially
similar to MFS Research Portfolio. However, MFS Research Fund will be subject
to different expenses than the MFS Research Portfolio. In addition, holders of
variable insurance contracts representing interests in the MFS Research
Portfolio will be subject to charges and expenses relating to such insurance
contracts. The performance results presented below do not reflect any insurance
related expenses.
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.
<TABLE>
<CAPTION>
S&P 500
YEAR ENDED 9/30/98 MFS RESEARCH FUND1 INDEX2
------------------ ----------------- -----
<S> <C> <C>
One Year3................................. (0.89)% 9.05%
Five Years3............................... 16.71% 19.91%
Ten Years3................................ 16.09% 17.29%
</TABLE>
- --------------
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 ("S & P 500") 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 S & P 500 reflects the reinvestment of income dividends and capital
gain distributions, if any, but does not reflect fees, brokerage
commissions, or other expenses of investing.
3 Annualized performance for the Class A shares of the MFS Research Fund.
The results for the MFS Research Fund do not reflect any sales charge that
may be imposed on the Class A shares of the MFS Research Fund, nor any
charges that would be imposed at the insurance company separate account
level.
56
<PAGE>
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
Massachusetts Financial Services Company, and whose investment policies are
substantially similar to MFS Emerging Growth Companies Portfolio. However, MFS
Emerging Growth Fund will be subject to different expenses than the MFS
Emerging Growth Companies Portfolio. In addition, holders of variable insurance
contracts representing interests in the MFS Emerging Growth Companies Portfolio
will be subject to charges and expenses relating to such insurance contracts.
The performance results presented below do not reflect any insurance related
expenses.
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.
<TABLE>
<CAPTION>
RUSSELL 2000
YEAR ENDED 9/30/98 MFS EMERGING GROWTH FUND1 INDEX2
------------------ ------------------------ -----
<S> <C> <C>
One Year3................................. (9.85)% (19.02)%
Five Years3............................... 15.48% 9.09%
Ten Years3................................ 20.06% 11.16%
</TABLE>
- ---------------
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 Annualized performance for the Class B shares of the MFS Emerging Growth
Fund. The results for the MFS Emerging Growth Fund do not reflect sales
charges that may be imposed on the Class B shares of the MFS Emerging
Growth Fund, nor any charges that would be imposed at the insurance
company separate account level.
57
<PAGE>
MFS GROWTH WITH INCOME PORTFOLIO
In the table below, the only account which is included is another registered
investment company, i.e., Massachusetts Investors Trust, which is managed by
Massachusetts Financial Services Company, and whose investment policies are
substantially similar to the MFS Growth with Income Portfolio. However, the
Massachusetts Investors Trust will be subject to different expenses than the
MFS Growth with Income Portfolio. In addition, holders of variable insurance
contracts representing interests in the MFS Growth with Income Portfolio will
be subject to charges and expenses relating to such insurance contracts. The
performance results presented below do not reflect any insurance related
expense.
The investment results of Massachusetts Investors Trust presented below are
unaudited and are not intended to predict or suggest the returns that might be
experienced by the MFS Growth with Income Portfolio or an individual investor
investing in the MFS Growth with Income Portfolio.
<TABLE>
<CAPTION>
MASSACHUSETTS
INVESTORS S&P 500
YEAR ENDED 9/30/98 TRUST1 INDEX2
------------------ ----- -----
<S> <C> <C>
One Year3................................. 8.14% 9.05%
Five Years3............................... 19.23% 19.91%
Ten Years3................................ 17.33% 17.29%
</TABLE>
- --------------
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 ("S & P 500") 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 S & P 500 reflects the reinvestment of income dividends and capital
gain distributions, if any, but does not reflect fees, brokerage
commissions, or other expenses of investing.
3 Annualized performance for the Class A shares of the Massachusetts
Investors Trust.
58
<PAGE>
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 Institutional Fund, Inc. --
Emerging Markets Portfolio ("MSIF Emerging Markets Portfolio"), which is
managed by Morgan Stanley Asset Management Inc., and whose investment policies
are substantially similar to the Morgan Stanley Emerging Markets Equity
Portfolio. Operating expenses of the MSIF Emerging Markets Portfolio will be
different from the operating expenses of the Morgan Stanley Emerging Markets
Equity Portfolio. In addition, holders of variable insurance contracts
representing interests in the Morgan Stanley Emerging Markets Equity Portfolio
will be subject to charges and expenses relating to such insurance contracts.
The performance results presented below do not reflect any insurance related
expenses.
The investment results of MSIF Emerging Markets Portfolio presented below,
which represent a Class A share outstanding for the period, 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.
<TABLE>
<CAPTION>
MSIF EMERGING IFC GLOBAL TOTAL
YEAR ENDED 9/30/98 MARKETS PORTFOLIO1,2 RETURN COMPOSITE
------------------ -------------------- INDEX2
-------
<S> <C> <C>
One Year4................................. ____% ____%
Five Years4............................... ____% ____%
Since inception4.......................... ____% ____%
</TABLE>
- ------------------
1 In accordance with SEC regulations, the performance shown assumes that all
recurring fees (including management fees) were deducted and all dividends
and distributions were reinvested. 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 MSIF Emerging Markets Portfolio has been capped at
1.75% since inception.
3 The IFC Global Total Return Composite Index is an unmanaged index of
common stocks and includes developing countries in Latin America, East and
South Asia, Europe, the Middle East and Africa. The Index assumes
dividends are reinvested.
4 Annualized performance for the Class A shares of the MSIF Emerging Markets
Portfolio. The Class B shares of the MSIF Emerging Markets Portfolio are
subject to a Rule 12b-1 fee equal to 0.25% of the Portfolio's assets. The
inception date for the MSIF Emerging Markets Portfolio was September 25,
1992.
59
<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 Warburg Pincus Asset Management, Inc. and whose investment policies
are substantially similar to the Warburg Pincus Small Company Value Portfolio.
However, the Warburg Pincus Small Company Value Fund will be subject to
different expenses than the Warburg Pincus Small Company Value Portfolio. In
addition, holders of variable insurance contracts representing interests in the
Warburg Pincus Small Company Value Portfolio will be subject to charges and
expenses relating to such insurance contracts. The performance results
presented below do not reflect any insurance related expenses.
The investment results of Warburg Pincus Small Company Value Fund 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.
<TABLE>
<CAPTION>
WARBURG PINCUS SMALL COMPANY RUSSELL 2000
YEAR ENDED 9/30/98 VALUE FUND1,2 INDEX2
------------------ ------------- -----
<S> <C> <C>
One Year4................................. (22.65)% (19.02)%
Since inception4.......................... 17.35% 6.68%
</TABLE>
- ------------------
1 Average annual total return reflects changes in share prices and
reinvestment of dividends and distributions and is net of fund expenses.
2 Absent the waiver of fees by the Warburg Pincus Small Company Value Fund's
investment adviser and co-administrator, management fees of the Warburg
Pincus Small Company Value Fund would equal 1.00%, other expenses would
equal 0.94% and total operating expenses would equal 2.19%. The investment
adviser and co-administrator of the Warburg Pincus Small Company Value
Fund are under no obligation to continue these waivers.
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 annualized performance for shares of the Warburg Pincus Small Company
Value Fund. The inception date for the Warburg Pincus Small Company Value
Fund was December 29, 1995.
60
<PAGE>
MERRILL LYNCH WORLD STRATEGY PORTFOLIO
In the table below, the only account which is included 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., and whose investment policies are
substantially similar to the Merrill Lynch World Strategy Portfolio. However,
the Merrill Lynch Global Strategy Focus Fund will be subject to different
expenses than the Merrill Lynch World Strategy Portfolio. In addition, holders
of variable insurance contracts representing interests in the Merrill Lynch
World Strategy Portfolio will be subject to charges and expenses relating to
such insurance contracts. The performance results presented below do not
reflect any insurance related expenses.
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.
<TABLE>
<CAPTION>
MERRILL LYNCH VARIABLE
SERIES FUNDS, INC. - MERRILL MSCI EAFE
YEAR ENDED 9/30/98 LYNCH GLOBAL STRATEGY FOCUS FUND1 INDEX2
------------------ ---------------------------------- ----------
<S> <C> <C>
One Year3................................. (8.52)% (9.71)%
Five Years3............................... 6.89% 3.75%
Since inception3.......................... 8.07% 5.57%
</TABLE>
- ----------------
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 EAFE Index ("MSCI EAFE") is an
unmanaged capitalization-weighted measure of stock markets in Europe,
Australia and the Far East. MSCI EAFE returns assume dividends reinvested
net of withholding tax and do not reflect any fees or expenses.
3 Annualized performance for shares of the Merrill Lynch Global Strategy
Focus Fund. The inception date for the Merrill Lynch Global Strategy Focus
Fund was February 28, 1992.
61
<PAGE>
MERRILL LYNCH BASIC VALUE EQUITY PORTFOLIO
In the table below, the only account which is included 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., and whose investment policies are substantially similar
to the Merrill Lynch Basic Value Equity Portfolio. However, the Merrill Lynch
Basic Value Focus Fund will be subject to different expenses than the Merrill
Lynch Basic Value Equity Portfolio. In addition, holders of variable insurance
contracts representing interests in the Merrill Lynch Basic Value Equity
Portfolio will be subject to charges and expenses relating to such insurance
contracts. The performance results presented below do not reflect any insurance
related expenses.
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.
<TABLE>
<CAPTION>
MERRILL LYNCH VARIABLE
SERIES FUNDS, INC. - MERRILL S&P 500
YEAR ENDED 9/30/98 LYNCH BASIC VALUE FOCUS FUND1 INDEX2
------------------ ----------------------------- --------
<S> <C> <C>
One Year3................................. (6.03)% 9.05%
Since inception3.......................... 14.49% 19.45%
</TABLE>
- ------------------
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 ("S & P 500") 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 S & P 500 reflects the reinvestment of income dividends and capital
gain distributions, if any, but does not reflect fees, brokerage
commissions, or other expenses of investing.
3 Annualized performance for shares of the Merrill Lynch Basic Value Focus
Fund. The inception date for the Merrill Lynch Basic Value Focus Fund was
July 1, 1993.
62
<PAGE>
LAZARD LARGE CAP VALUE PORTFOLIO
In the table below, the only account which is included is a series of another
registered investment company, i.e. the Lazard Equity Portfolio, a series of
The Lazard Funds, Inc., which is managed by Lazard Asset Management, and whose
investment policies are substantially similar to the Lazard Large Cap Value
Portfolio. However, the Lazard Equity Portfolio will be subject to different
expenses than the Lazard Large Cap Value Portfolio. In addition, holders of
variable insurance contracts representing interests in the Lazard Large Cap
Value Portfolio will be subject to charges and expenses relating to such
insurance contracts. The performance results presented below do not reflect any
insurance related expenses.
The investment results of the Lazard Equity Portfolio presented below are
unaudited and are not intended to predict or suggest the future returns that
might be experienced by the Lazard Large Cap Value Portfolio or an individual
investor investing in the Lazard Large Cap Value Portfolio.
<TABLE>
<CAPTION>
LAZARD EQUITY S&P 500
YEAR ENDED 9/30/98 PORTFOLIO1 INDEX2
------------------ ---------- -----
<S> <C> <C>
One Year3................................. (4.34)% 9.05%
Five Years3............................... 16.84% 19.91%
Ten years3................................ 15.08% 17.29%
</TABLE>
- ------------------
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 ("S & P 500") 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 S & P 500 reflects the reinvestment of income dividends and capital
gain distributions, if any, but does not reflect fees, brokerage
commissions, or other expenses of investing.
3 Annualized performance for shares of the Lazard Equity Portfolio.
63
<PAGE>
LAZARD SMALL CAP VALUE PORTFOLIO
In the table below, the only account which is included is a series of another
registered investment company, i.e., Lazard Small Cap Portfolio, a series of
The Lazard Funds, Inc., which is managed by Lazard Asset Management, and whose
investment policies are substantially similar to the Lazard Small Cap Value
Portfolio. However, the Lazard Small Cap Portfolio will be subject to different
expenses than the Lazard Small Cap Value Portfolio. In addition, holders of
variable insurance contracts representing interests in the Lazard Small Cap
Value Portfolio will be subject to charges and expenses relating to such
insurance contracts. The performance results presented below do not reflect any
insurance related expenses.
The investment results of the Lazard Small Cap Portfolio presented below are
unaudited and are not intended to predict or suggest the future returns that
might be experienced by the Lazard Small Cap Value Portfolio or an individual
investor investing in the Lazard Small Cap Value portfolio.
<TABLE>
<CAPTION>
LAZARD SMALL CAP RUSSELL 2000
YEAR ENDED 9/30/98 PORTFOLIO1 INDEX2
------------------ ---------- -----
<S> <C> <C>
One Year3................................. (24.26)% (19.02)%
Five Years3............................... 9.74% 9.09%
Since inception3.......................... 14.70% 11.96%
</TABLE>
- ------------------
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 2,000 small-cap stocks, and includes reinvestment of
dividends. It is compiled by the Frank Russell Company.
3 Annualized performance for shares of the Lazard Small Cap Portfolio. The
inception date for Lazard Small Cap Portfolio was October 1, 1991.
64
<PAGE>
JPM CORE BOND PORTFOLIO
In the table below, the institutional private accounts that are included in the
Adviser's composite are not subject to the same types of expenses to which the
JPM Core Bond Portfolio is subject or to the diversification requirements,
specific tax restrictions and investment limitations imposed on the JPM Core
Bond Portfolio by the 1940 Act or Subchapter M of the Internal Revenue Code.
Consequently, the performance results for the composite could have been
adversely affected if the institutional private accounts included in the
composite had been regulated as investment companies under the federal
securities laws. Moreover, holders of variable insurance contracts representing
interests in the JPM Core Bond Portfolio will be subject to charges and
expenses relating to such insurance contracts. The performance results
presented below do not reflect any insurance related charges.
The investment results presented below are not intended to predict or suggest
the returns that might be experienced by the JPM Core Bond Portfolio or an
individual investing in such Portfolio. Investors should also be aware that the
use of a methodology different from that used below to calculate performance
could result in different performance data.
<TABLE>
<CAPTION>
SALOMON BROTHERS
J.P. MORGAN ACTIVE FIXED BROAD INVESTMENT
YEAR ENDED 9/30/98 INCOME COMPOSITE1 GRADE BOND INDEX2
------------------ ----------------- ----------------
<S> <C> <C>
One Year3................................. ____% ____%
Five Years3............................... ____% ____%
Ten years3................................ ____% ____%
</TABLE>
- -------------------
1 Through December 31, 1997. The inception date for the J.P. Morgan Active
Fixed Income Composite was May 31, 1977.
2 The Salomon Brothers Broad Investment Grade Bond Index is an unmanaged,
market-weighted index which contains approximately 4,700 individually
priced investment grade bonds. The index does not include fees or
operating expenses and is not available for actual investment.
65
<PAGE>
BT EQUITY 500 INDEX PORTFOLIO
In the table below, the only account which is included is a series of another
registered investment company, i.e., Equity 500 Index Fund, a series of BT
Institutional Funds, which is managed by Bankers Trust Company, and whose
investment policies are substantially similar to the BT Equity 500 Index
Portfolio. However, the BT Equity 500 Index Portfolio will be subject to higher
expenses than the Equity 500 Index Fund. In addition, holders of variable
insurance contracts representing interests in the BT Equity 500 Index Portfolio
will be subject to charges and expenses relating to such insurance contracts.
The performance results presented below do not reflect any insurance related
expenses.
The investment results of the Equity 500 Index Fund presented below are
unaudited and are not intended to predict or suggest the returns that might be
experienced by the BT Equity 500 Index Portfolio or an individual investor
investing in the BT Equity 500 Index Portfolio.
<TABLE>
<CAPTION>
EQUITY 500 INDEX FUND
YEAR ENDED 9/30/98 INSTITUTIONAL CLASS1 S&P 500 INDEX
------------------ -------------------- -------------
<S> <C> <C>
One Year3................................. 9.06% 9.05%
Since inception3.......................... 18.54% ____%
</TABLE>
- ------------------
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 ("S & P 500") 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 S & P 500 reflects the reinvestment of income dividends and capital
gain distributions, if any, but does not reflect fees, brokerage
commissions, or other expenses of investing.
3 Annualized performance for shares of the Equity 500 Index Fund of the BT
Institutional Funds. The inception date for the Equity 500 Index Fund --
Institutional Class was December 31, 1992.
66
<PAGE>
BT SMALL COMPANY INDEX PORTFOLIO
In the table below, the only account which is included is a series of another
registered investment company, i.e., Small Cap Index Fund -- Institutional
Class, a series of BT Advisors Funds, which is managed by Bankers Trust
Company, and whose investment policies are substantially similar to the BT
Small Company Index Portfolio. However, the BT Small Company Index Portfolio
will be subject to higher expenses than the Small Cap Index Fund --
Institutional Class. In addition, holders of variable insurance contracts
representing interests in the BT Small Company Index Portfolio will be subject
to charges and expenses relating to such insurance contracts. The performance
results presented below do not reflect any insurance related expenses.
The investment results of the Small Cap Index Fund -- Institutional Class
presented below are unaudited and are not intended to predict or suggest the
returns that might be experienced by the BT Small Company Index Portfolio or an
individual investor investing in the BT Small Company Index Portfolio.
<TABLE>
<CAPTION>
SMALL CAP INDEX FUND - RUSSELL 2000
YEAR ENDED 9/30/98 INSTITUTIONAL CLASS1 INDEX2
------------------ -------------------- -----
<S> <C> <C>
One Year3................................. (19.01)% (19.02)%
Since inception3.......................... 5.55% ____%
</TABLE>
- -----------------
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 composed of approximately
2,000 small-capitalization stocks and includes reinvestments of dividends.
The index does not include fees or operating expenses and is not available
for actual investment. It is compiled by the Frank Russell Company.
3 Annualized performance for shares of the Small Cap Index Fund. The
inception date for the Small Cap Index Fund -- Institutional Class was
July 10, 1996.
67
<PAGE>
BT INTERNATIONAL EQUITY INDEX PORTFOLIO
In the table below, the only account which is included is a series of another
registered investment company, i.e., EAFE Equity Index Fund -- Institutional
Class, a series of BT Advisor Funds, which is managed by Bankers Trust Company,
and whose investment policies are substantially similar to the BT International
Equity Index Portfolio. However, the BT International Equity Index Portfolio
will be subject to higher expenses than the EAFE Equity Index Fund --
Institutional Class. In addition, holders of variable insurance contracts
representing interests in the BT International Equity Index Portfolio will be
subject to charges and expenses relating to such insurance contracts. The
performance results presented below do not reflect any insurance related
expenses.
The investment results of the EAFE Equity Index Fund -- Institutional Class
presented below are unaudited and are not intended to predict or suggest the
returns that might be experienced by the BT International Equity Index
Portfolio or an individual investor investing in the BT International Equity
Index Portfolio.
<TABLE>
<CAPTION>
EAFE EQUITY INDEX
YEAR ENDED 9/30/98 FUND - INSTITUTIONAL CLASS1 MSCI EAFE INDEX2
------------------ --------------------------- ---------------
<S> <C> <C>
One Year3................................. (8.16)% (9.71)%
Since inception3.......................... 3.36% ____%
</TABLE>
- -----------------
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 EAFE Index ("MSCI EAFE Index") is
an unmanaged capitalization-weighted measure of stock markets in Europe,
Australia and the Far East. MSCI EAFE returns assume dividends reinvested
net of withholding tax and do not reflect any fees or operating expenses.
The index does not include fees or operating expenses and is not available
for actual investment.
3 Annualized performance for shares of the EAFE Equity Index Fund. The
inception date for the EAFE Equity Index Fund -- Institutional Class was
January 24, 1996.
68
<PAGE>
EVERGREEN FOUNDATION PORTFOLIO
In the table below, the only account which is included is another registered
investment company, i.e., Evergreen Foundation Fund, which is managed by
Evergreen, and whose investment policies are substantially similar to the
Evergreen Foundation Portfolio. However, the Evergreen Foundation Portfolio
will be subject to different expenses than the Evergreen Foundation Fund. In
addition, holders of variable insurance contracts representing interests in the
Evergreen Foundation Portfolio will be subject to charges and expenses relating
to such insurance contracts. The performance results presented below do not
reflect any insurance related expense.
The investment results of Evergreen Foundation Fund presented below are
unaudited and are not intended to predict or suggest the returns that might be
experienced by the Evergreen Foundation Portfolio or an individual investor
investing in the Evergreen Foundation Portfolio.
<TABLE>
<CAPTION>
EVERGREEN
FOUNDATION S&P 500
YEAR ENDED 9/30/98 FUND1 INDEX2
------------------ ---- -----
<S> <C> <C>
One Year3................................. 2.20% 9.05%
Since inception3.......................... 15.74% 21.80%
</TABLE>
- --------------
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 ("S & P 500") 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 S & P 500 reflects the reinvestment of income dividends and capital
gain distributions, if any, but does not reflect fees, brokerage
commissions, or other expenses of investing.
3 Annualized performance for the Class A shares of the Evergreen Foundation
Fund. The inception date for the Evergreen Foundation Fund was January 3,
1995.
69
<PAGE>
EVERGREEN PORTFOLIO
In the table below, the only account which is included is another registered
investment company, i.e., Evergreen Fund, which is managed by Evergreen and
whose investment policies are substantially similar to the Evergreen Portfolio.
However, the Evergreen Portfolio will be subject to different expenses than the
Evergreen Fund. In addition, holders of variable insurance contracts
representing interests in the Evergreen Portfolio will be subject to charges
and expenses relating to such insurance contracts. The performance results
presented below do not reflect any insurance related expense.
The investment results of Evergreen Fund presented below are unaudited and are
not intended to predict or suggest the returns that might be experienced by the
Evergreen Portfolio or an individual investor investing in the Evergreen
Portfolio.
<TABLE>
<CAPTION>
EVERGEEN RUSSELL 2000
YEAR ENDED 9/30/98 FUND1 INDEX2
------------------ ---- -----
<S> <C> <C>
One Year3................................. (5.25)% (19.02)%
Five Years3............................... 102.50% --
</TABLE>
- --------------
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 2,000 small-cap stocks, and includes reinvestment of
dividends. It is compiled by the Frank Russell Company.
3 Annualized performance for the Class A shares of the Evergreen Fund.
The inception date for the Evergreen Fund was September 30, 1995.
70
<PAGE>
APPENDIX A
The following table summarizes the historical performance information of
certain other registered investment companies or accounts that appears on pages
__ through __ of this Prospectus. Each other registered investment company or
account is managed by an Adviser and has investment objectives, policies,
strategies and risks substantially similar to the Portfolio managed by that
Adviser. 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 with respect to each Adviser as an indication of the future performance of
any Portfolio of the Trust or of its Adviser. Such performance data, as shown
below, for each Adviser's substantially similar investment companies or
institutional accounts is not the performance data of any Portfolio of the
Trust and should not be confused with the performance data for each of the
Trust's Portfolios, which is shown directly above under the caption
"Performance Information."
For further information regarding each of the registered investment companies
and the indexes presented below, please refer to pages __ through __ of this
Prospectus.
ANNUALIZED RATES OF RETURN
PERIOD ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
-------------------------------------------------- -------------- ------------- ------------- ------------------
SINCE
FUND NAME 1 YEAR 5 YEAR 10 YEAR INCEPTION
-------------------------------------------------- -------------- ------------- ------------- ------------------
<S> <C> <C> <C> <C>
EAFE Equity Index Fund -- __% -- -- __%
Institutional Class
-------------------------------------------------- -------------- ------------- ------------- ------------------
-------------------------------------------------- -------------- ------------- ------------- ------------------
MSCI EAFE Index __% -- -- __%
-------------------------------------------------- -------------- ------------- ------------- ------------------
-------------------------------------------------- -------------- ------------- ------------- ------------------
Equity 500 Index Fund __% -- -- __%
-------------------------------------------------- -------------- ------------- ------------- ------------------
-------------------------------------------------- -------------- ------------- ------------- ------------------
S&P 500 Index __% -- -- __%
-------------------------------------------------- -------------- ------------- ------------- ------------------
-------------------------------------------------- -------------- ------------- ------------- ------------------
Small Cap Index Fund Institutional Class __% -- -- __%
-------------------------------------------------- -------------- ------------- ------------- ------------------
-------------------------------------------------- -------------- ------------- ------------- ------------------
Russell 2000 Index __% -- -- __%
-------------------------------------------------- -------------- ------------- ------------- ------------------
-------------------------------------------------- -------------- ------------- ------------- ------------------
J.P. Morgan Active Fixed Income Composite __% __% __% --
-------------------------------------------------- -------------- ------------- ------------- ------------------
-------------------------------------------------- -------------- ------------- ------------- ------------------
Salomon Brothers Broad Investment Grade Bond __% __% __% --
Index
-------------------------------------------------- -------------- ------------- ------------- ------------------
-------------------------------------------------- -------------- ------------- ------------- ------------------
Lazard Portfolio __% __% __% --
-------------------------------------------------- -------------- ------------- ------------- ------------------
-------------------------------------------------- -------------- ------------- ------------- ------------------
S&P 500 Index __% __% __% --
-------------------------------------------------- -------------- ------------- ------------- ------------------
-------------------------------------------------- -------------- ------------- ------------- ------------------
Lazard Portfolio __% __% -- __%
-------------------------------------------------- -------------- ------------- ------------- ------------------
-------------------------------------------------- -------------- ------------- ------------- ------------------
Russell 2000 Index __% __% -- __%
-------------------------------------------------- -------------- ------------- ------------- ------------------
-------------------------------------------------- -------------- ------------- ------------- ------------------
Merrill Lynch Basic Value Focus Fund __% -- -- __%
-------------------------------------------------- -------------- ------------- ------------- ------------------
-------------------------------------------------- -------------- ------------- ------------- ------------------
S&P 500 Index __% -- -- __%
-------------------------------------------------- -------------- ------------- ------------- ------------------
-------------------------------------------------- -------------- ------------- ------------- ------------------
Merrill Lynch Global Strategy __% __% -- __%
-------------------------------------------------- -------------- ------------- ------------- ------------------
-------------------------------------------------- -------------- ------------- ------------- ------------------
MSCI EAFE Index __% __% -- __%
-------------------------------------------------- -------------- ------------- ------------- ------------------
-------------------------------------------------- -------------- ------------- ------------- ------------------
MFS Emerging Growth Fund __% __% __% --
-------------------------------------------------- -------------- ------------- ------------- ------------------
-------------------------------------------------- -------------- ------------- ------------- ------------------
Russell 2000 Index __% __% __% --
-------------------------------------------------- -------------- ------------- ------------- ------------------
-------------------------------------------------- -------------- ------------- ------------- ------------------
MSF Research Fund __% __% __% --
-------------------------------------------------- -------------- ------------- ------------- ------------------
-------------------------------------------------- -------------- ------------- ------------- ------------------
S&P 500 Index __% __% __% --
-------------------------------------------------- -------------- ------------- ------------- ------------------
-------------------------------------------------- -------------- ------------- ------------- ------------------
MSIF Emerging Markets Portfolio __% __% -- __%
-------------------------------------------------- -------------- ------------- ------------- ------------------
-------------------------------------------------- -------------- ------------- ------------- ------------------
IFC Global Total Return Composite Index __% __% -- __%
-------------------------------------------------- -------------- ------------- ------------- ------------------
-------------------------------------------------- -------------- ------------- ------------- ------------------
The George Putnam Fund of Boston __% __% __% --
-------------------------------------------------- -------------- ------------- ------------- ------------------
-------------------------------------------------- -------------- ------------- ------------- ------------------
S&P 500 Index __% __% __% --
-------------------------------------------------- -------------- ------------- ------------- ------------------
-------------------------------------------------- -------------- ------------- ------------- ------------------
Putnam Growth & Income Fund II __% -- -- __%
-------------------------------------------------- -------------- ------------- ------------- ------------------
-------------------------------------------------- -------------- ------------- ------------- ------------------
S&P 500 Index __% -- -- __%
-------------------------------------------------- -------------- ------------- ------------- ------------------
-------------------------------------------------- -------------- ------------- ------------- ------------------
Putnam International Growth Fund __% __% -- __%
-------------------------------------------------- -------------- ------------- ------------- ------------------
-------------------------------------------------- -------------- ------------- ------------- ------------------
MSCI EAFE Index __% __% -- __%
-------------------------------------------------- -------------- ------------- ------------- ------------------
-------------------------------------------------- -------------- ------------- ------------- ------------------
Putnam Investors Fund __% __% __% --
-------------------------------------------------- -------------- ------------- ------------- ------------------
-------------------------------------------------- -------------- ------------- ------------- ------------------
S&P 500 Index __% __% __% --
-------------------------------------------------- -------------- ------------- ------------- ------------------
-------------------------------------------------- -------------- ------------- ------------- ------------------
T. Rowe Price Equity Income Fund __% __% __% --
-------------------------------------------------- -------------- ------------- ------------- ------------------
-------------------------------------------------- -------------- ------------- ------------- ------------------
S&P 500 Index __% __% __% --
-------------------------------------------------- -------------- ------------- ------------- ------------------
-------------------------------------------------- -------------- ------------- ------------- ------------------
T. Rowe Price International Stock Fund __% __% __% --
-------------------------------------------------- -------------- ------------- ------------- ------------------
-------------------------------------------------- -------------- ------------- ------------- ------------------
MSCI EAFE Index __% __% __% --
-------------------------------------------------- -------------- ------------- ------------- ------------------
-------------------------------------------------- -------------- ------------- ------------- ------------------
Warburg Pincus Small Company Value Fund __% -- -- __%
-------------------------------------------------- -------------- ------------- ------------- ------------------
-------------------------------------------------- -------------- ------------- ------------- ------------------
Russell 2000 Index __% -- -- __%
-------------------------------------------------- -------------- ------------- ------------- ------------------
-------------------------------------------------- -------------- ------------- ------------- ------------------
Evergreen Fund __% __% __% __%
-------------------------------------------------- -------------- ------------- ------------- ------------------
-------------------------------------------------- -------------- ------------- ------------- ------------------
Russell 2000 Index __% __% __% __%
-------------------------------------------------- -------------- ------------- ------------- ------------------
-------------------------------------------------- -------------- ------------- ------------- ------------------
Evergreen Foundation Fund __% __% __% __%
-------------------------------------------------- -------------- ------------- ------------- ------------------
-------------------------------------------------- -------------- ------------- ------------- ------------------
S&P 500 Index __% __% __% __%
-------------------------------------------------- -------------- ------------- ------------- ------------------
-------------------------------------------------- -------------- ------------- ------------- ------------------
Massachusetts Investors Trust __% __% __% __%
-------------------------------------------------- -------------- ------------- ------------- ------------------
-------------------------------------------------- -------------- ------------- ------------- ------------------
S&P 500 Index __% __% __% __%
-------------------------------------------------- -------------- ------------- ------------- ------------------
</TABLE>
<PAGE>
EQ ADVISORS TRUST
1290 Avenue of the Americas -- New York, New York 10104
EQ Advisors Trust ("Trust") is an 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 twenty-one (21) Portfolios currently
offered by the Trust.
o T. Rowe Price International Stock Portfolio
o T. Rowe Price Equity Income Portfolio
o EQ/Putnam Growth & Income Value Portfolio
o EQ/Putnam International Equity Portfolio
o EQ/Putnam Investors Growth Portfolio
o EQ/Putnam Balanced Portfolio
o MFS Research Portfolio
o MFS Emerging Growth Companies Portfolio
o MFS Growth with Income Portfolio
o Morgan Stanley Emerging Markets Equity Portfolio
o Warburg Pincus Small Company Value Portfolio
o Merrill Lynch World Strategy Portfolio
o Merrill Lynch Basic Value Equity Portfolio
o Lazard Large Cap Value Portfolio
o Lazard Small Cap Value Portfolio
o JPM Core Bond Portfolio
o BT Small Company Index Portfolio
o BT International Equity Index Portfolio
o BT Equity 500 Index Portfolio
o Evergreen Foundation Portfolio
o Evergreen Portfolio
The Trust offers two classes of shares on behalf of each Portfolio: Class IA
shares offered pursuant to another prospectus and Class IB shares offered
hereby.
This Prospectus sets forth concisely the information about the Trust and the
Portfolios that a prospective investor should know before investing. Please
read the Prospectus and retain it for future reference. Additional information
contained in a Statement of Additional Information dated May 1, 1998 as
supplemented on January 1, 1999 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. California residents can obtain a copy of the
Statement of Additional Information by calling 1-800-999-3527. 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.
PROSPECTUS DATED MAY 1, 1998 AS SUPPLEMENTED ON JANUARY 1, 1999
<PAGE>
FINANCIAL HIGHLIGHTS
The financial information in the table below for the period May 1, 1997* to
December 31, 1997 has been derived from the audited financial statements of the
Trust. The financial information in the table below for the period January 1,
1997 ** to June 30, 1998 has been derived from unaudited financial statements
of the Trust. The report on the Trust's financial statements as of December 31,
1997 by PricewaterhouseCoopers LLP, the Trust's independent public accountants,
appears in the Trust's Annual Report. The Trust's financial statements as of
June 30, 1998 appear in the Trust's Semi-Annual Report. The information listed
below should be read in conjunction with the financial statements contained in
each such report which is incorporated by reference into the Trust's Statement
of Additional Information. The Annual Report and Semi-Annual Report include
more information about the Trust's performance and are available without charge
upon request.
<TABLE>
<CAPTION>
NET REALIZED AND
UNREALIZED GAIN
(LOSS) ON
INVESTMENTS DIVIDENDS DIVIDENDS
NET ASSET VALUE, AND FOREIGN TOTAL FROM FROM NET IN EXCESS OF
BEGINNING OF NET INVESTMENT CURRENCY INVESTMENT INVESTMENT NET INVESTMENT DISTRIBUTIONS FROM
PERIOD INCOME TRANSACTIONS OPERATIONS INCOME INCOME REALIZED GAINS
---------------- -------------- ---------------- ---------- ---------- -------------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C>
T. Rowe Price
International
Stock Portfolio
JUNE 30, 1998 $9.85 $0.06 $1.19 $1.25 -- -- --
DEC. 31, 1997 $10.00 $0.02 $(0.17) $(0.15) -- -- --
T. Rowe Price
Equity Income
Portfolio
JUNE 30, 1998 $12.08 $0.11 $0.65 $0.76 -- -- --
DEC. 31, 1997 $10.00 $0.10 $2.11 $2.21 ($0.09) -- $(0.04)
EQ/Putnam
Growth &
Income Value
Portfolio
JUNE 30, 1998 $11.52 $0.06 $0.89 $0.95 -- -- --
DEC. 31, 1997 $10.00 $0.06 $1.56 $1.62 $(0.06) -- $(0.01)
EQ/Putnam
Balanced
Portfolio
JUNE 30, 1998 $11.21 $0.13 $0.77 $0.90 -- -- --
DEC. 31, 1997 $10.00 $0.14 $1.30 $1.44 $(0.13) $(0.01) $(0.09)
EQ/Putnam
International
Equity
Portfolio
JUNE 30, 1998 $10.89 $0.08 $2.10 $2.18 -- -- --
DEC. 31, 1997 $10.00 $0.03 $0.93 $0.96 $(0.02) -- $(0.01)
EQ/Putnam
Investors Growth
Portfolio $12.33 $0.01 $2.77 $2.78 -- -- --
JUNE 30, 1998 $10.00 $0.02 $2.45 $2.47 $(0.03) -- $(0.04)
DEC. 31, 1997
MFS Research
Portfolio
JUNE 30, 1998 $11.48 $0.02 $2.19 $2.21 -- -- --
DEC. 31, 1997 $10.00 $0.02 $1.58 $1.60 $(0.02) -- $(0.01)
MFS Emerging
Growth Companies
Portfolio
JUNE 30, 1998 $11.92 $(0.01) $2.59 $2.58 -- -- --
DEC. 31, 1997 $10.00 $0.02 $2.21 $2.23 $(0.02) -- $(0.18)
Warbug Pincus
Small Company
Value Portfolio
JUNE 30, 1998 $11.85 $0.02 $0.77 $0.79 -- -- --
DEC. 31, 1997 $10.00 $0.01 $1.90 $1.91 $(0.01) -- --
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
NET REALIZED AND
UNREALIZED GAIN
(LOSS) ON
INVESTMENTS DIVIDENDS DIVIDENDS
NET ASSET VALUE, AND FOREIGN TOTAL FROM FROM NET IN EXCESS OF
BEGINNING OF NET INVESTMENT CURRENCY INVESTMENT INVESTMENT NET INVESTMENT DISTRIBUTIONS FROM
PERIOD INCOME TRANSACTIONS OPERATIONS INCOME INCOME REALIZED GAINS
---------------- -------------- ---------------- ---------- ---------- -------------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Merrill Lynch
World Strategy
Portfolio
JUNE 30, 1998 $10.31 $0.09 $0.81 $0.90 -- -- --
DEC. 31, 1997 $10.00 $0.08 $0.39 $0.47 $(0.05) -- --
Merrill Lynch
Basic Value
Equity Portfolio
JUNE 31, 1998 $11.58 $0.06 $1.55 $1.61 -- -- --
DEC. 31, 1997 $10.00 $0.06 $1.64 $1.70 $(0.06) -- $(0.05)
Morgan Stanley
Emerging
Markets Equity
Portfolio
JUNE 30, 1998 $7.96 $0.02 $(1.51) $(1.49) -- -- --
DEC. 31, 1997 $10.00 $0.04 $(2.06) $(2.02) $(0.02) -- --
BT Equity 500
Index Portfolio
JUNE 30, 1998 $10.00 $0.04 $1.43 $1.47 -- -- --
DEC. 31, 1997 -- -- -- -- -- -- --
BT International
Equity Index
Portfolio
JUNE 30, 1998 $10.00 $0.09 $1.49 $1.58 -- -- --
DEC. 31, 1997 -- -- -- -- -- -- --
BT Small
Company Index
Portfolio
JUNE 30, 1998 $10.00 $0.04 $0.41 $0.45 -- -- --
DEC. 31, 1997 -- -- -- -- -- -- --
JPM Core Bond
Portfolio
JUNE 30, 1998 $10.00 $0.13 $0.26 $0.39 -- -- --
DEC. 31, 1997 -- -- -- -- -- -- --
Lazard Large
Cap Value
Portfolio
JUNE 30, 1998 $10.00 $0.03 $1.21 $1.24 -- -- --
DEC. 31, 1997 -- -- -- -- -- -- --
Lazard Small
Cap Value
Portfolio
JUNE 30, 1998 $10.00 $0.01 $0.04 $0.05 -- -- --
DEC. 31, 1997 -- -- -- -- -- -- --
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
DISTRIBUTIONS NET ASSETS, RATIO OF EXPENSES
IN EXCESS TOTAL NET ASSET END OF TO AVERAGE NET
OF REALIZED DIVIDENDS AND VALUE, END TOTAL RETURN PERIOD ASSETS AFTER
GAINS DISTRIBUTIONS OF PERIOD (B) (000'S) WAIVERS (A)(C)
------------- ------------- ---------- ------------ ----------- -----------------
<S> <C> <C> <C> <C> <C> <C>
T. Rowe Price
International Stock
Portfolio
JUNE 30, 1998 -- -- $11.10 12.69% $115,053 1.20%
DEC. 31, 1997 -- -- $9.85 (1.49)% $69,572 1.20%
T. Rowe Price
Equity Income
Portfolio
JUNE 30, 1998 -- -- $12.84 6.29% $199,678 0.85%
DEC. 31, 1997 -- $(0.13) $12.08 22.11% $99,947 0.85%
EQ/Putnam Growth &
Income Value
Portfolio
JUNE 30, 1998 -- -- $12.47 8.25% $321,485 0.85%
DEC. 31, 1997 $(0.03) $(0.10) $11.52 16.23% $150,260 0.85%
EQ/Putnam Balanced
Portfolio
JUNE 30, 1998 -- -- $12.11 8.03% $51,895 0.90%
DEC. 31, 1997 -- $(0.23) $11.21 14.38% $25,854 0.90%
EQ/Putnam
International Equity
Portfolio
JUNE 30, 1998 -- -- $13.07 20.02% $103,448 1.20%
DEC. 31, 1997 $(0.04) $(0.07) $10.89 9.58% $55,178 1.20%
EQ/Putnam
Investors Growth
Portfolio
JUNE 30, 1998 -- -- $15.11 22.55% $95,503 0.85%
DEC. 31, 1997 $(0.07) $(0.14) $12.33 24.70% $39,695 0.85%
MFS Research
Portfolio
JUNE 30, 1998 -- -- $13.69 19.25% $255,909 0.85%
DEC. 31, 1997 $(0.09) $(0.12) $11.48 16.07% $114,754 0.85%
MFS Emerging Growth
Companies
Portfolio
JUNE 30, 1998
DEC. 31, 1997 -- -- $14.50 21.64% $259,338 0.85%
$(0.11) $(0.31) $11.92 22.42% $99,317 0.85%
Warbug Pincus Small
Company Value
Portfolio
JUNE 30, 1998 -- -- $12.64 6.67% $181,001 1.00%
DEC. 31, 1997 $(0.05) $(0.06) $11.85 19.15% $120,880 1.00%
Merrill Lynch
World Strategy
Portfolio
JUNE 30, 1998 -- -- $11.21 8.73% $28,526 1.20%
DEC. 31, 1997 $(0.11) $(0.16) $10.31 4.70% $18,210 1.20%
Merrill Lynch
Basic Value Equity
Portfolio
JUNE 30,1998 -- -- $13.19 13.90% $125,706 0.85%
DEC. 31, 1997 $(0.01) $(0.12) $11.58 16.99% $49,495 0.85%
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
DISTRIBUTIONS NET ASSETS, RATIO OF EXPENSES
IN EXCESS TOTAL NET ASSET END OF TO AVERAGE NET
OF REALIZED DIVIDENDS AND VALUE, END TOTAL RETURN PERIOD ASSETS AFTER
GAINS DISTRIBUTIONS OF PERIOD (B) (000'S) WAIVERS (A)(C)
------------- ------------- ---------- ------------ ----------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Morgan Stanley
Emerging Markets
Equity Portfolio
JUNE 30, 1998 -- -- $6.47 (18.72)% $33,982 1.75%
DEC. 31, 1997 -- $(0.02) $7.96 (20.16)% $21,433 1.75%
BT Equity 500 Index
Portfolio
JUNE 30, 1998 -- -- $11.47 14.70% $83,185 0.55%
DEC. 31, 1997 -- -- -- -- -- --
BT International
Equity Index
Portfolio
JUNE 30, 1998 -- -- $11.58 15.80% $29,098 0.80%
DEC. 31, 1997 -- -- -- -- -- --
BT Small Company
Index Portfolio
JUNE 30, 1998
DEC. 31, 1997 -- -- $10.45 4.50% $19,826 0.60%
-- -- -- -- -- --
JPM Core Bond
Portfolio
JUNE 30, 1998 -- -- $10.39 3.90% $29,128 0.80%
DEC. 31, 1997 -- -- -- -- -- --
Lazard Large Cap
Value Portfolio
JUNE 30, 1998 -- -- -- -- -- --
DEC. 31, 1997 -- -- $11.24 12.40% $28,073 0.90%
Lazard Small Cap
Value Portfolio
JUNE 30, 1998 -- -- -- -- -- --
DEC. 31, 1997 -- -- $10.05 0.50% $26,828 1.20%
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
RATIO OF NET RATIO OF NET
RATIO OF INVESTMENT INVESTMENT PER SHARE
EXPENSES TO INCOME TO INCOME TO BENEFIT
AVERAGE NET AVERAGE NET AVERAGE NET PORTFOLIO AVERAGE TO NET
ASSETS BEFORE ASSETS AFTER ASSETS BEFORE TURNOVER COMMISSION INVESTMENT
WAIVERS (A)(C) WAIVERS(A)(C) WAIVERS(A)(C) RATE RATE PAID INCOME (C)
-------------- ------------- ------------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
T. Rowe Price
International Stock
Portfolio
JUNE 30, 1998 1.41% 1.43% 1.22% 13% $0.0115 $0.01
DEC. 31, 1997 2.56% 0.45% (0.91)% 17% $0.0034 $0.05
T. Rowe Price
Equity Income
Portfolio
JUNE 30, 1998 1.04% 2.20% 2.01% 9% $0.0304 $0.01
DEC. 31, 1997 1.74% 2.49% 1.60% 9% $0.0293 $0.03
EQ/Putnam Growth &
Income Value
Portfolio
JUNE 30, 1998 1.05% 1.27% 1.07% 41% $0.0398 $0.01
DEC. 31, 1997 1.75% 1.67% 0.77% 61% $0.0376 $0.03
EQ/Putnam Balanced
Portfolio
JUNE 30, 1998 1.24% 2.97% 2.63% 65% $0.0397 $0.02
DEC. 31, 1997 2.55% 3.19% 1.54% 117% $0.0346 $0.07
EQ/Putnam
International Equity
Portfolio
JUNE 30, 1998 1.43% 1.71% 1.48% 48% $0.0193 $0.01
DEC. 31, 1997 2.53% 0.74% (0.59)% 43% $0.0153 $0.05
EQ/Putnam
Investors Growth
Portfolio
JUNE 30, 1998 1.08% 0.20% (0.03)% 22% $0.0388 $0.01
DEC. 31, 1997 2.13% 0.58% (0.70)% 47% $0.0338 $0.05
MFS Research
Portfolio
JUNE 30, 1998 1.04% 0.47% 0.28% 31% $0.0541 $0.01
DEC. 31, 1997 1.78% 0.65% (0.28)% 51% $0.0471 $0.03
MFS Emerging Growth
Companies
Portfolio
JUNE 30, 1998 1.04% (0.26)% (0.45)% 28% $0.0518 $0.01
DEC. 31, 1997 1.82% 0.61% (0.36)% 116% $0.0422 $0.04
Warbug Pincus Small
Company Value
Portfolio
JUNE 30, 1998 1.12% 0.33% 0.21% 49% $0.0552 $0.01
DEC. 31, 1997 1.70% 0.26% (0.44)% 44% $0.0545 $0.03
Merrill Lynch
World Strategy
Portfolio
JUNE 30, 1998 1.53% 2.06% 1.73% 45% $0.0481 $0.01
DEC. 31, 1997 3.05% 1.89% 0.04% 58% $0.0299 $0.08
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
RATIO OF NET RATIO OF NET
RATIO OF INVESTMENT INVESTMENT PER SHARE
EXPENSES TO INCOME TO INCOME TO BENEFIT
AVERAGE NET AVERAGE NET AVERAGE NET PORTFOLIO AVERAGE TO NET
ASSETS BEFORE ASSETS AFTER ASSETS BEFORE TURNOVER COMMISSION INVESTMENT
WAIVERS (A)(C) WAIVERS(A)(C) WAIVERS(A)(C) RATE RATE PAID INCOME (C)
-------------- ------------- ------------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Merrill Lynch
Basic Value Equity
Portfolio
JUNE 30,1998 1.05% 1.37% 1.17% 40% $0.0582 $0.01
DEC. 31, 1997 1.89% 1.91% 0.87% 25% $0.0566 $0.03
Morgan Stanley
Emerging Markets
Equity Portfolio
JUNE 30, 1998 2.32% 1.00% 0.43% 33% $0.0012 $0.01
DEC. 31, 1997 2.61% 1.96% 1.10% 25% $0.0011 $0.02
BT Equity 500 Index
Portfolio
JUNE 30, 1998 .89% 1.49% 1.15% 0% $0.0311 $0.01
DEC. 31, 1997 -- -- -- -- -- --
BT International
Equity Index
Portfolio
JUNE 30, 1998 1.27% 2.18% 1.71% 1% $0.0171 $0.02
DEC. 31, 1997 -- -- -- -- -- --
BT Small Company
Index Portfolio
JUNE 30, 1998
DEC. 31, 1997 1.72% 1.16% 0.04% 28% $0.0211 $0.04
-- -- -- -- -- --
JPM Core Bond
Portfolio
JUNE 30, 1998 1.18% 5.02% 4.64% 309% $0.0011 $0.01
DEC. 31, 1997 -- -- -- -- -- --
Lazard Large Cap
Value Portfolio
JUNE 30, 1998 -- -- -- -- -- --
DEC. 31, 1997 1.45% 1.55% 1.00% 18% $0.0326 $0.01
Lazard Small Cap
Value Portfolio
JUNE 30, 1998 -- -- -- -- -- --
DEC. 31, 1997 1.63% 0.49% 0.06% 7% $0.0358 $0.01
</TABLE>
- ------------------
* Commencement of Operations. The Morgan Stanley Emerging Markets Equity
Portfolio commenced operations on August 20, 1997.
** Commencement of Operations for the Lazard Large Cap Value Portfolio, Lazard
Small Cap Value Portfolio, JPM Core Bond Portfolio, BT Small Company Index
Portfolio, BT International Equity Index Portfolio and BT Equity 500 Index
Portfolio. No financial highlights are presented for Evergreen Foundation
Portfolio, Evergreen Portfolio, and MFS Growth with Income Portfolio, each
of which received initial capital on December 31, 1998.
(a) Annualized.
(b) Total return calculated for a period of less than one year is not
annualized.
(c) For further information concerning fee waivers, see the section entitled
"Expense Limitation Agreement" in the Prospectus.
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<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 twenty-one Portfolios. Each Portfolio is a separate series of the
Trust with its own objective and policies. Each of the Portfolios set forth
below, except for the Morgan Stanley Emerging Markets Equity Portfolio, the
Merrill Lynch World Strategy Portfolio and the Lazard Small Cap Value
Portfolio, are diversified for 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 Asset Management, Inc., Merrill Lynch
Asset Management, L.P., Lazard Asset Management, a division of Lazard Freres &
Co. LLC, J.P. Morgan Investment Management Inc., Bankers Trust Company, and
Evergreen Asset Management Corp., serve as the advisers (each an "Adviser" and,
together, the "Advisers") to one or more of the Portfolios, as detailed in the
table below.
<TABLE>
<CAPTION>
PORTFOLIO ADVISER
- --------- -------
<S> <C>
T. Rowe Price International Stock Portfolio Rowe Price-Fleming International, Inc.
T. Rowe Price Equity Income Portfolio T. Rowe Price Associates, Inc.
EQ/Putnam Growth & Income Value Portfolio Putnam Investment Management, Inc.
EQ/Putnam International Equity Portfolio Putnam Investment Management, Inc.
EQ/Putnam Investors Growth Portfolio Putnam Investment Management, Inc.
EQ/Putnam Balanced Portfolio Putnam Investment Management, Inc.
MFS Research Portfolio Massachusetts Financial Services Company
MFS Emerging Growth Companies Portfolio Massachusetts Financial Services Company
MFS Growth with Income Portfolio Massachusetts Financial Services Company
Morgan Stanley Emerging Markets Equity Portfolio Morgan Stanley Asset Management Inc.
Warburg Pincus Small Company Value Portfolio Warburg Pincus Asset Management, Inc.
Merrill Lynch World Strategy Portfolio Merrill Lynch Asset Management, L.P.
Merrill Lynch Basic Value Equity Portfolio Merrill Lynch Asset Management, L.P.
Lazard Large Cap Value Portfolio Lazard Asset Management
Lazard Small Cap Value Portfolio Lazard Asset Management
JPM Core Bond Portfolio J.P. Morgan Investment Management Inc.
BT Small Company Index Portfolio Bankers Trust Company
BT International Equity Index Portfolio Bankers Trust Company
BT Equity 500 Index Portfolio Bankers Trust Company
Evergreen Foundation Portfolio Evergreen Asset Management Corp.
Evergreen Portfolio Evergreen Asset Management Corp.
</TABLE>
The Manager has the ultimate responsibility to oversee each of the Advisers and
to recommend their hiring, termination and replacement. The Trust and the
Manager have received exemptive relief from the Securities and Exchange
Commission that permits the Manager, subject to approval by the Board of
Trustees, to (i) select Advisers for each of the Trust's Portfolios and (ii)
materially modify existing investment advisory agreements without obtaining
shareholder approval.
The Trust is authorized to offer 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 as well as one of
the distributors for the Class IA shares. Equitable Distributors, Inc. ("EDI")
serves as the other distributor for the Class IB shares of the Trust as well as
the Class IA shares. (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
8
<PAGE>
certificates and contracts (collectively, the "Contracts") issued by The
Equitable Life Assurance Society of the United States ("Equitable Life") and to
The Equitable Investment Plan for Employees, Managers and Agents. Both classes
of shares are offered and redeemed at their net asset value without 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.
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 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%
for each of those countries). 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.
9
<PAGE>
In analyzing companies for investment, the Adviser uses a "bottom up" approach.
A company's prospects for achieving and sustaining above-average, long-term
earnings growth is generally the Adviser's primary focus. However the Adviser
also considers certain other factors in making its investment decisions,
including: above-average earnings growth per share; high return on invested
capital; healthy balance sheet; sound financial and accounting policies and
overall financial strength; strong competitive advantages; effective research,
product development and marketing; efficient service; pricing flexibility;
strength of management; and general operating characteristics that should
enable the companies to compete successfully in their market place. While
current dividend income is not a prerequisite in the selection of portfolio
companies, the companies in which the Portfolio invests normally will have a
record of paying dividends, and will generally be expected to increase the
amounts of such dividends in future years as earnings increase. It is expected
that the Portfolio's investments will ordinarily be made on exchanges located
at least in the respective countries in which the various issuers of such
securities are principally based.
Certain investment strategies and instruments which may be employed by the
Portfolio (such as the purchase and sale of options, futures contracts, hybrid
instruments, foreign securities, foreign currency transactions, passive foreign
investment companies, 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 the 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 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.
10
<PAGE>
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.
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.
11
<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, 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 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.
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
12
<PAGE>
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 appears 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.
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.
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<PAGE>
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,
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.
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
14
<PAGE>
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.
MFS GROWTH WITH INCOME PORTFOLIO
The investment objectives of the MFS Growth with Income Portfolio are to
provide reasonable current income and long-term growth of capital and income.
The Portfolio is designed to constitute a conservative means to invest that
portion of an investor's capital that an investor wishes to have in securities
that are considered by the Adviser to be of high or improving investment
quality. In seeking to achieve its objectives, the Adviser attempts to exercise
prudence, discretion and intelligence in the selection of investments with due
regard for both probable income and probable safety of capital. For purposes of
this Portfolio, the words "high investment quality" reflect the Adviser's
intention to avoid the acquisition of speculative securities or those of
doubtful character even if immediate prospects are tempting.
The Portfolio's assets are normally invested in equity securities, including
common stocks, preferred stocks and preference stock, convertible securities,
warrants and depositary receipts for those securities. These equity securities
may be listed on securities exchanges, traded in various over-the-counter
markets or have no organized markets. However, the Portfolio may hold its
assets in cash or invest in commercial paper, repurchase agreements or other
forms
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of debt securities either to provide reserves for future purchase of securities
or as a temporary defensive measure in certain economic environments.
Certain investment strategies and instruments which may be employed by the
Portfolio (such as the purchase and sale of options and futures, warrants,
repurchase agreements, forward commitments, depositary receipts, foreign
securities, foreign currency transactions, securities loans, illiquid
securities, and zero coupon bonds) 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 market
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, Bulgaria, Chile, China
(mainland and Hong Kong), Colombia, Egypt, Ghana, Greece, Hungary, India,
Indonesia, Israel, Jamaica, Jordan, Kenya, Malaysia, Mexico, Morocco, Nigeria,
Pakistan, Peru, Philippines, Poland, Portugal, Russia, Singapore, 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.
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 20% 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.
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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 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.
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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 A2 by Standard & Poor's Rating Services ("S&P") or Prime2 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, securities loans, small company securities, derivatives, 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 United
States 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 rated
BBB or better by S&P or Baa or better by Moody's or of comparable quality. The
Portfolio 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
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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 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, 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 ratios
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.
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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.
LAZARD LARGE CAP VALUE PORTFOLIO
The investment objective of the Lazard Large Cap Value Portfolio is to seek
capital appreciation by investing primarily in equity securities of companies
with relatively large capitalizations (i.e., companies having market
capitalizations of at least $1 billion at the time of initial purchase) that
appear to the Adviser to be inexpensively priced relative to the return on
total capital or equity. In managing the Portfolio, the Adviser engages in a
value-oriented search for equity securities. The Adviser attempts to identify
inexpensive securities through traditional measures of value, including low
price to earnings ratio, high yield, unrecognized assets, potential for
management change, and/or the potential to improve profitability. The Adviser
focuses on individual stock selection (a "bottom-up" approach) rather than on
forecasting stock market trends (a "top-down" approach). Risk is tempered by
diversification of investments.
Under normal market conditions, the Portfolio will invest at least 80% of its
total assets in equity securities, including common stocks, preferred stocks
and securities convertible into or exchangeable for common stocks. In addition,
at times judged by the Adviser to be appropriate, the Portfolio may hold up to
20% of its total assets in United States Government securities and investment
grade debt obligations of domestic corporations rated BBB or better by S&P or
Baa or better by Moody's. The Portfolio may also invest without limitation in
high-quality short-term money market instruments, including United States
Government securities, repurchase agreements, certificates of deposits, time
deposits and other short-term obligations issued by banks, commercial paper and
loan participations. In addition, the Portfolio may invest up to 10% of its
total assets at the time of purchase in foreign equity or debt securities
trading in United States markets or listed on a domestic securities exchange or
represented by ADRs or Global Depositary Receipts ("GDRs"). The Portfolio may
also engage in various investment techniques, such as options transactions and,
although it has no present intention to do so, leveraging and lending portfolio
securities.
Securities owned by the Portfolio are kept under continuing supervision, and
changes may be made whenever such securities no longer seem to meet the
Portfolio's objective. Changes in the securities owned by the Portfolio also
may be made to increase or decrease investments in anticipation of changes in
security prices in general or to provide funds required for redemptions,
distributions to shareholders or other corporate purposes.
Certain investment strategies and instruments which may be employed by the
Portfolio (such as securities loans, borrowing, loan participations,
derivatives, options, mortgage-related securities, forward commitments,
convertible securities, floaters, illiquid securities, foreign securities,
investment grade fixed income securities, United States Government securities,
and repurchase agreements) are discussed under the caption "Investment
Strategies" below and in the Statement of Additional Information.
LAZARD SMALL CAP VALUE PORTFOLIO
The investment objective of the Lazard Small Cap Value Portfolio is to seek
capital appreciation by investing primarily in equity securities of United
States companies with small market capitalizations (i.e., companies in the
range of companies represented in the Russell 2000 Index) that the Adviser
considers inexpensively priced relative to the return on total capital or
equity. The Russell 2000 Index is composed of selected common stocks of small,
generally unseasoned United States companies with market capitalizations
ranging between $100 million and $1 billion. The equity securities in which the
Portfolio may invest include: common stocks, preferred stocks, securities
convertible into or exchangeable for common stocks, rights and warrants.
Investments are generally made in equity securities of companies that in the
Adviser's opinion have one or more of the following characteristics: (i) are
undervalued relative to their earnings power, cash flow, and/or asset values;
(ii) have an attractive price/value relationship (i.e., have high returns on
equity and/or assets with correspondingly low price-to-book and/or
price-to-asset value as compared to the market generally or the companies'
industry groups in particular) with the expectation that some catalyst will
cause the perception of value to change within a 24-month time horizon; (iii)
have
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experienced significant relative underperformance and are out of favor due to a
set of circumstances that are unlikely to harm a company's franchise or
earnings power over the longer term; (iv) have low projected price-to-earnings
or price-to-cash-flow multiples relative to their industry peer group and/or
the market in general; (v) have the prospect, or the industry in which the
company operates has the prospect, to allow it to become a larger factor in the
business and receive a higher valuation as such; (vi) have significant
financial leverage but have high levels of free cash flow that may be used to
reduce leverage and enhance shareholder value; and (vii) have a relatively
short corporate history with the expectation that the business may grow to
generate meaningful cash flow and earnings over a reasonable investment
horizon.
Under normal market conditions, the Portfolio will invest at least 80% of the
value of its total assets in the small capitalization equity securities
described above. Assets not invested in such small capitalization equity
securities generally will be invested in larger capitalization equity
securities or debt securities, including cash equivalents.
The Adviser believes that issuers of small capitalization stocks often have
sales and earnings growth rates that exceed those of larger companies, and that
such growth rates may, in turn, be reflected in more rapid share price
appreciation. However, investing in smaller capitalization stocks can involve
greater risk than is customarily associated with larger, more established
companies. (Such risks are discussed under the caption "Investment Strategies
- -- Small Company Securities" below).
The Portfolio is non-diversified for 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.
The Adviser continually evaluates the securities owned by the Portfolio, and
changes may be made whenever the Adviser determines such securities no longer
meet the Portfolio's objective. Changes in Portfolio holdings may also be made
to increase or decrease investments in anticipation of changes in security
prices in general or to provide funds required for redemptions, distributions
to shareholders or other corporate purposes.
When, in the judgment of the Adviser, business or financial conditions warrant,
the Portfolio may assume a temporary defensive position and invest without
limitation in large capitalization companies or short-term money market
instruments, or hold its assets in cash.
Certain investment strategies and investments which may be employed by the
Portfolio (such as securities loans, borrowings, loan participations,
derivatives, mortgage-related securities, convertible securities, floaters,
illiquid securities, investment grade fixed income securities, forward
commitments, United States Government securities, repurchase agreements, and
small company securities) are discussed under the caption "Investment
Strategies" below and in the Statement of Additional Information.
JPM CORE BOND PORTFOLIO
The investment objective of the JPM Core Bond Portfolio is to provide a high
total return consistent with moderate risk of capital and maintenance of
liquidity. Total return will consist of income plus realized and unrealized
capital gains and losses. Although the net asset value of the Portfolio will
fluctuate, the Portfolio attempts to preserve the value of its investments to
the extent consistent with its objective.
It is the current policy of the Portfolio that, under normal circumstances, all
of the Portfolio's assets will, at the time of purchase, consist of investment
grade securities rated BBB or better by S&P or Baa or better by Moody's or
unrated securities of comparable quality. If the quality of the investment
later declines, the Portfolio may continue to hold the investment.
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The Adviser actively manages the Portfolio's duration, the allocation of
securities across market sectors, and the selection of specific securities
within market sectors. Based on fundamental, economic and capital markets
research, the Adviser adjusts the duration of the Portfolio in light of market
conditions and the Adviser's interest rate outlook. For example, if interest
rates are expected to fall, the duration may be lengthened to take advantage of
the expected increase in bond prices. The Adviser also actively allocates the
Portfolio's assets among the broad sectors of the fixed income market
including, but not limited to, United States Government and agency securities,
corporate securities, private placements, asset-backed securities,
mortgage-related securities, and direct mortgage obligations. The Portfolio may
also invest up to 25% of its assets in securities of foreign issuers, including
up to 20% of its assets in debt securities denominated in foreign currencies of
developed countries. In addition, the Portfolio may invest in municipal
obligations provided such securities are issued on a taxable basis or have an
attractive yield excluding tax considerations. Specific securities that the
Adviser believes are undervalued are selected for purchase within the sectors
using advanced quantitative tools, analysis of credit risk, the expertise of a
dedicated trading desk, and the judgment of fixed income portfolio managers and
analysts. Under normal circumstances, the Adviser intends to have the Portfolio
invest at least 65% of its assets in bonds. The Portfolio may to a limited
extent invest in convertible securities, including convertible debt securities
and preferred stock.
Duration is a measure of the weighted average maturity of bonds and can be used
by the Adviser as a measure of the sensitivity of the market value of the
Portfolio's bond holdings to changes in interest rates. Generally, the longer
the duration of the Portfolio's bond holdings, the more sensitive their market
value will be to changes in interest rates. Under normal market conditions the
Portfolio's duration will range between one year shorter and one year longer
than the duration of the domestic investment grade fixed income universe, as
represented by Salomon Brothers Broad Investment Grade Bond Index. Currently,
the duration of that index is approximately 4.5 years. The maturities of the
individual securities in the Portfolio may vary widely, however.
The Adviser intends to actively manage the Portfolio in pursuit of its
investment objective. Portfolio transactions are undertaken principally to
accomplish the Portfolio's objective in relation to expected movements in the
general level of interest rates. However, the Portfolio may also engage in
short-term trading consistent with its objective. To the extent the Portfolio
engages in short-term trading, it may incur increased transaction costs. The
Portfolio may purchase high-quality money market instruments to invest
temporary cash balances or to maintain liquidity to meet withdrawals. When
market or financial conditions warrant, the Portfolio may invest as a temporary
defensive measure up to 100% of its assets in money market instruments.
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 fixed income securities, payment-in-kind bonds, derivatives,
foreign currency transactions, repurchase agreements, reverse repurchase
agreements, forward commitments, United States Government securities,
borrowings, asset-backed securities, convertible securities, mortgage-related
securities, and swaps) are discussed under the caption "Investment Strategies"
below and in the Statement of Additional Information.
BT SMALL COMPANY INDEX PORTFOLIO
The investment objective of the BT Small Company Index Portfolio is to
replicate as closely as possible (before deduction of Portfolio expenses) the
total return of the Russell 2000 Index ("Russell 2000"). The Russell 2000 is
composed of selected common stocks of small, generally unseasoned United States
companies with market capitalizations ranging between $100 million and $1
billion. A company's stock market capitalization is the total market value of
its floating outstanding shares. The Portfolio is neither sponsored by nor
affiliated with the Frank Russell Company, which is the owner of the trademarks
and copyrights relating to the Russell indices.
The Portfolio invests in a statistically selected sample of the 2,000 stocks
included in the Russell 2000. The stocks of the Russell 2000 to be included in
the Portfolio will be selected utilizing a statistical sampling technique known
as "optimization." This process selects stocks for the Portfolio so that
various industry weightings, market capitalizations and fundamental
characteristics (e.g., price-to-book, price-to-earnings and debt-to-asset
ratios and dividend yields) closely approximate those of the Russell 2000. For
instance, if 10% of the capitalization of the Russell 2000 consists of utility
companies with relatively small capitalizations, then the Portfolio is
constructed so that approximately 10% of the
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Portfolio's assets are invested in the stocks of utility companies with
relatively small capitalizations. The stocks held by the Portfolio are weighted
to make the Portfolio's aggregate investment characteristics similar to those
of the Russell 2000 as a whole.
Over time, the correlation between the performance of the Portfolio and the
Russell 2000 is expected to be 0.95 or higher before deduction of Portfolio
expenses. A correlation of 1.00 would indicate perfect correlation, which would
be achieved when the net asset value of the Portfolio, including the value of
its dividend and any capital gain distributions, increases or decreases in
exact proportion to changes in the Russell 2000. The Portfolio's ability to
track the Russell 2000 may be affected by, among other things, transaction
costs, administration and other expenses incurred by the Portfolio, changes in
either the composition of the Russell 2000 or the assets of the Portfolio, and
the timing and amount of Portfolio investor contributions and withdrawals, if
any. Because the Portfolio seeks to track the Russell 2000, the Adviser
generally will not attempt to judge the merits of any particular stock as an
investment. Under normal circumstances, the Portfolio will invest at least 80%
of its assets in the securities of the Russell 2000. The Portfolio is a
diversified fund and will not concentrate more than 25% of its assets in the
securities of issuers in the same industry. In the event that the Russell 2000
should concentrate to an extent greater than 25% in the securities of issuers
in the same industry, the Portfolio's ability to achieve its objective may be
impaired since the Portfolio is not permitted to so invest.
The Portfolio may maintain up to 20% of its assets in short-term debt
securities and money market instruments to meet redemption requests or to
facilitate investment in the securities of the Russell 2000. Securities index
futures contracts and related options, warrants and convertible securities may
be used for several reasons: to simulate full investment in the Russell 2000
while retaining a cash balance for portfolio management purposes; to facilitate
trading; to reduce transaction costs; or to seek higher investment returns when
a futures contract, option, warrant or convertible security is priced more
attractively than the underlying equity security or the Russell 2000. These
instruments may be considered derivatives. The use of derivatives for
non-hedging purposes may be considered speculative. While each of these
instruments can be used as leveraged investments, the Portfolio will not use
them to leverage its net assets. The Portfolio will not invest in derivative
instruments as part of a temporary defensive strategy (in anticipation of
declining stock prices) to protect the Portfolio against potential market
declines.
Certain investment strategies and instruments which may be employed by the
Portfolio (such as the purchase and sale of options, futures contracts,
securities loans, small company securities, illiquid securities, investment
grade fixed income securities, derivatives, repurchase agreements, reverse
repurchase agreements, forward commitments, United States Government
securities, borrowings, asset-backed securities, and convertible securities)
are discussed under the caption "Investment Strategies" below and in the
Statement of Additional Information.
BT INTERNATIONAL EQUITY INDEX PORTFOLIO
The investment objective of The BT International Equity Index Portfolio is to
replicate as closely as possible (before deduction of Portfolio expenses) the
total return of the Morgan Stanley Capital International Europe, Australia, Far
East Index ("EAFE Index"). The EAFE Index is a capitalization-weighted index
containing approximately 1,100 equity securities of companies located in
countries outside the United States. The countries currently included in the
EAFE Index are Australia, Austria, Belgium, Denmark, Finland, France, Germany,
Hong Kong, Ireland, Italy, Japan, Malaysia, The Netherlands, New Zealand,
Norway, Singapore, Spain, Sweden, Switzerland and The United Kingdom. The EAFE
Index is the exclusive property of Morgan Stanley. The Portfolio is not
sponsored, endorsed, sold or promoted by Morgan Stanley and Morgan Stanley
makes no guarantee as to the accuracy or completeness of the EAFE Index or any
data included therein.
The Portfolio is constructed to have aggregate investment characteristics
similar to those of the EAFE Index. The Portfolio invests in a statistically
selected sample of the securities of companies included in the EAFE Index,
although not all companies within a country will be represented in the
Portfolio at the same time. Stocks are selected for inclusion in the Portfolio
based on country of origin, market capitalization, yield, volatility and
industry sector. The Adviser will manage the Portfolio using advanced
statistical techniques to determine which stocks should be purchased or sold to
replicate the EAFE Index. From time to time, adjustments may be made in the
Portfolio because of changes in the composition of the EAFE Index, but such
changes are expected to be infrequent.
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Over time, the correlation between the performance of the Portfolio and the
EAFE Index is expected to be 0.95 or higher before deduction of Portfolio
expenses. A correlation of 1.00 would indicate perfect correlation, which would
be achieved when the net asset value of the Portfolio, including the value of
its dividend and any capital gain distributions, increases or decreases in
exact proportion to changes in the EAFE Index. The Portfolio's ability to track
the EAFE Index may be affected by, among other things, transaction costs,
administration and other expenses incurred by the Portfolio, changes in either
the composition of the EAFE Index or the assets of the Portfolio, and the
timing and amount of Portfolio investor contributions and withdrawals, if any.
Because the Portfolio seeks to track the EAFE Index, the Adviser generally will
not attempt to judge the merits of any particular stock as an investment. Under
normal circumstances, the Portfolio will invest at least 80% of its assets in
the securities of the EAFE Index.
The Portfolio is a diversified fund and will not concentrate more than 25% of
its assets in the securities of issuers in the same industry. In the event that
the EAFE Index should concentrate to an extent greater than 25% in the
securities of issuers in the same industry, the Portfolio's ability to achieve
its objective may be impaired since the Portfolio may not so invest.
The Portfolio may maintain up to 20% of its assets in short-term debt
securities and money market instruments to meet redemption requests or to
facilitate investment in the securities of the EAFE Index. Securities index
futures contracts and related options, warrants and convertible securities may
be used for several reasons: to simulate full investment in the EAFE Index
while retaining a cash balance for fund management purposes; to facilitate
trading; to reduce transaction costs; or to seek higher investment returns when
a futures contract, option, warrant or convertible security is priced more
attractively than the underlying equity security or EAFE Index. These
instruments may be considered derivatives. The use of derivatives for
non-hedging purposes may be considered speculative. While each of these
instruments can be used as leveraged investments, the Portfolio will not use
them to leverage its net assets. The Portfolio will not invest in such
instruments as part of a temporary defensive strategy (in anticipation of
declining stock prices) to protect the Portfolio against potential market
declines.
Certain investment strategies and instruments which may be employed by the
Portfolio (such as the purchase and sale of options, futures contracts, foreign
securities, foreign currency transactions, securities loans, illiquid
securities, investment grade fixed income securities, derivatives, swaps,
repurchase agreements, reverse repurchase agreements, forward commitments,
United States Government securities, borrowings, asset-backed securities, and
convertible securities) are discussed under the caption "Investment Strategies"
below and in the Statement of Additional Information.
BT EQUITY 500 INDEX PORTFOLIO
The investment objective of The BT Equity 500 Index Portfolio is to replicate
as closely as possible (before deduction of Portfolio expenses) the total
return of the S&P 500. The S&P 500 is an index of 500 common stocks of
companies from many industrial sectors representing a significant portion of
the market value of all common stocks publicly traded in the United States,
most of which trade on the New York Stock Exchange Inc. (the "NYSE"). The
Adviser believes that the performance of the S&P 500 is representative of the
performance of publicly-traded common stocks in the United States in general.
The composition of the S&P 500 is determined by Standard & Poor's and is based
on such factors as the market capitalization and trading activity on each stock
and its adequacy as a representation of stocks in a particular industry, and
may be changed from time to time. The Portfolio is not sponsored, endorsed,
sold or promoted by Standard & Poor's and Standard & Poor's makes no guarantee
as to the accuracy and/or completeness of the S&P 500 or any data included
therein. In seeking to replicate the performance of the S&P 500, before
deduction of Portfolio expenses, the Adviser will attempt over time to allocate
the Portfolio's investment among common stocks included in the S&P 500 in
approximately the same proportions as they are represented in the S&P 500,
beginning with the heaviest weighted stocks that make up a larger portion of
the index's value. The Adviser utilizes a two-stage sampling approach in
seeking to achieve its objective. Stage one, which encompasses large
capitalization stocks, maintains the stock holdings at or near their benchmark
weights. Large capitalization stocks are defined as those securities which
represent 0.10% or more of the S&P 500. In stage two, smaller stocks are
analyzed and selected using risk characteristics and industry weights in
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order to match the sector and risk characteristics of the smaller companies in
the S&P 500. This approach helps to increase the Portfolio's liquidity while
reducing costs.
The Adviser generally will seek to match the composition of the S&P 500 but
usually will not invest the Portfolio's stock portfolio to mirror the S&P 500
exactly. Because of the difficulty and cost of executing relatively small stock
transactions, the Portfolio may not always be invested in the less heavily
weighted S&P 500 stocks, and may at times have its portfolio weighted
differently than the S&P 500, particularly if the Portfolio has a low level of
assets. In addition, the Portfolio may omit or remove any S&P 500 stock from
the Portfolio if, following objective criteria, the Adviser judges the stock to
be insufficiently liquid or believes the merit of the investment has been
substantially impaired by extraordinary events or financial conditions. The
Portfolio will not purchase the stock of Bankers Trust New York Corporation,
which is included in the S&P 500, and instead will overweight its holdings of
companies engaged in similar businesses.
Over time, the correlation between the performance of the Portfolio and the S&P
500 is expected to be 0.95 or higher before deduction of Portfolio expenses. A
correlation of 1.00 would indicate perfect correlation, which would be achieved
when the net asset value of the Portfolio, including the value of its dividend
and any capital gain distributions, increases or decreases in exact proportion
to changes in the S&P 500. The Portfolio's ability to track the S&P 500 may be
affected by, among other things, transaction costs, administration and other
expenses incurred by the Portfolio, changes in either the composition of the
S&P 500 or the assets of the Portfolio, and the timing and amount of Portfolio
investor contributions and withdrawals, if any. Because the Portfolio seeks to
track the S&P 500, the Adviser generally will not attempt to judge the merits
of any particular stock as an investment. Under normal circumstances, the
Portfolio will invest at least 80% of its assets in the securities of the S&P
500.
The Portfolio is a diversified fund and will not concentrate more than 25% of
its assets in the securities of issuers in the same industry. In the unlikely
event that the S&P 500 should concentrate to an extent greater than 25% in the
securities of issuers in the same industry, the Portfolio's ability to achieve
its objective may be impaired since the Portfolio may not so invest.
The Portfolio may maintain up to 20% of its assets in short-term debt
securities and money market instruments to meet redemption requests or to
facilitate investment in the securities of the S&P 500. Securities index
futures contracts and related options, warrants and convertible securities may
be used for several reasons: to simulate full investment in the S&P 500 while
retaining a cash balance for fund management purposes; to facilitate trading;
to reduce transaction costs; or to seek higher investment returns when a
futures contract, option, warrant or convertible security is priced more
attractively than the underlying equity security or S&P 500. These instruments
may be considered derivatives. The use of derivatives for non-hedging purposes
may be considered speculative. While each of these instruments can be used as
leveraged investments, the Portfolio may not use them to leverage its net
assets. The Portfolio may not invest in such instruments as part of a temporary
defensive strategy (in anticipation of declining stock prices) to protect the
Portfolio against potential market declines.
Certain investment strategies and instruments which may be employed by the
Portfolio (such as the purchase and sale of options, futures contracts,
securities loans, illiquid securities, investment grade fixed income
securities, derivatives, repurchase agreements, reverse repurchase agreements,
forward commitments, United States Government securities, borrowings,
asset-backed securities, and convertible securities) are discussed under the
caption "Investment Strategies" below and in the Statement of Additional
Information.
EVERGREEN FOUNDATION PORTFOLIO
The investment objectives of the Portfolio, in order of priority, are
reasonable income, conservation of capital and capital appreciation. The
Portfolio seeks to achieve these objectives by investing in a combination of
common stocks, preferred stocks, securities convertible into or exchangeable
for common stocks, corporate debt obligations and United States Government
securities, and short-term debt instruments, such as commercial paper. The
Portfolio's common stock investments will include those which at the time of
purchase pay dividends and in the view of the Adviser have potential for
capital enhancement.
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The Portfolio's asset allocation will vary from time to time in accordance with
changing economic and market conditions, including: inflation rates, business
cycle trends, business regulations and tax law impacts on the investment
markets. The composition of the Portfolio will be largely unrestricted and
subject to the discretion of the Adviser, although it intends at all times to
be diversified for 1940 Act purposes. Under normal circumstances, the Adviser
anticipates that at least 25% of the Portfolio's net assets will consist of
fixed income securities. The balance will be invested in equity securities
(including common stocks, preferred stocks and convertible securities).
In selecting fixed income securities for the Portfolio, emphasis will be placed
on those securities that the Adviser expects will fluctuate little in value,
other than as a result of changes in prevailing interest rates. The market
values of the debt obligations in the Portfolio are expected to vary inversely
to any changes in prevailing interest rates. The Portfolio may, at times,
emphasize the generation of interest income by investing in high-yielding debt
securities, with short, medium or long-term maturities. While the Portfolio's
fixed income investments will generally be made for the purpose of generating
interest income, investments in medium to long-term debt securities (i.e.,
those with maturities from five to ten years and those with maturities over ten
years, respectively) may be made with a view to realizing capital appreciation
when the Adviser believes changes in interest rates will lead to an increase in
the value of such securities.
The fixed income portion of the Portfolio's portfolio may include: (i)
marketable obligations of, or guaranteed by, the United States Government, its
agencies or instrumentalities, including issues of the United States Treasury,
such as bills, certificates of indebtedness, notes and bonds, and issues of
agencies and instrumentalities established under the authority of an act of
Congress; (ii) corporate debt obligations rated no lower than A by Moody's, or
A-2 by S&P; (iii) obligations of banks or banking institutions having total
assets of more than $2 billion that are members of the Federal Deposit
Insurance Corporation; and (iv) commercial paper of high-quality (rated no
lower than A-2 by S&P or Prime-2 by Moody's or, if not rated, issued by
companies which have an outstanding long-term debt issue rated AAA or AA by S&P
or Aaa or Aa by Moody's).
Certain debt obligations of the Portfolio may be entitled to the benefit of
standby letters of credit or similar commitments issued by banks and, in such
instances, the Adviser will take into account the obligation of the bank in
assessing the credit quality of such security.
Certain investment strategies and instruments which may be employed by the
Portfolio (such as the purchase and sale of options, futures contracts,
illiquid securities, borrowings, repurchase agreements, reverse repurchase
agreements, forward commitments, real estate investment trusts, foreign
securities, foreign currency transactions, depositary receipts, convertible
securities, securities loans, forward commitments, mortgages and
mortgage-related securities and United States Government securities) are
discussed under the caption "Investment Strategies" below and in the Statement
of Additional Information.
EVERGREEN PORTFOLIO
The investment objective of the Evergreen Portfolio is to seek to achieve
capital appreciation. The Portfolio seeks to achieve its investment objective
principally through investment in common stocks and convertible securities of
companies that are little-known, relatively small or represent special
situations which, in the opinion of the Adviser, offer potential for capital
appreciation. For these purposes, a "little-known" company is one whose
business is limited to a regional market or whose securities are closely held
with only a small proportion traded publicly. A "relatively small" company is
one that has a small share of the market for its products or services in
comparison with other companies in its field, or that provides goods or
services for a limited market. For these purposes, a "special situation"
company is one that offers potential for capital appreciation because of a
recent or anticipated change in structure, management, products or services.
In addition to securities described above, the Portfolio may invest in
securities of relatively well-known and large companies with potential for
capital appreciation. Investments may also be made, to a limited degree, in
debt securities and preferred stocks that offer an opportunity for capital
appreciation. Short-term investments may also be made if the Adviser believes
that such action will benefit the Portfolio. The Portfolio may invest for
temporary defensive purposes up to 100% of its assets in short-term
obligations.
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Certain investment strategies and instruments which may be employed by the
Portfolio (such as the purchase and sale of options, futures contracts,
borrowings, repurchase agreements, reverse repurchase agreements, forward
commitments, illiquid securities, small company securities, derivatives,
securities loans, investment in securities of other investment companies, and
United States Government 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 and below, each of the Portfolios, for example, may purchase
and sell call and put options (except for MFS Research Portfolio and Lazard
Small Cap Value Portfolio); engage in transactions in futures contracts and
related options (except for Lazard Large Cap Value Portfolio and Lazard Small
Cap Value Portfolio); and engage in forward foreign currency exchange
transactions (except for MFS Research Portfolio, Lazard Large Cap Value
Portfolio, Lazard Small Cap Value Portfolio, BT Small Company Index Portfolio,
BT Equity 500 Index Portfolio, and Evergreen Portfolio). They may also enter
into repurchase agreements, 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 instrument 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, Morgan Stanley Emerging Markets Equity Portfolio, JPM Core
Bond Portfolio, BT Small Company Index Portfolio, BT International Equity Index
Portfolio, and BT Equity 500 Index 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.
BORROWINGS. The Portfolios may borrow money from banks or other lenders as a
temporary measure for emergency purposes, such as to facilitate redemption
requests, or (except for Evergreen Foundation Portfolio and Evergreen
Portfolio) for other purposes consistent with each Portfolio's investment
objective and program. The Lazard Large Cap Value Portfolio may borrow for
leveraging purposes (in order to increase its investment in portfolio
securities) to the extent that the amount so borrowed does not exceed 33 1/3%
of the Portfolio's total assets. Leveraging exaggerates the effect on net asset
value of any increase or decrease in market value of the Lazard Large Cap Value
Portfolio's investment. In addition, such borrowings would be subject to
interest costs which may or may not be recovered by appreciation of securities
purchased. The Lazard Large Cap Value Portfolio may also borrow up to 10% of
its total assets for temporary or emergency purposes. 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 Portfolio, Merrill Lynch World Strategy
Portfolio, Merrill Lynch Basic Value Equity Portfolio, JPM Core Bond Portfolio,
BT Small Company Index Portfolio, BT International Equity Index Portfolio, BT
Equity 500 Index Portfolio, Evergreen Foundation Portfolio, and Evergreen
Portfolio may not exceed 33 1/3% of each Portfolio's total assets. The
Evergreen Foundation Portfolio and Evergreen Portfolio may also borrow up to an
additional 5% of its total assets from banks or other lenders. Borrowings for
the Warburg Pincus Small Company Value Portfolio may not exceed 30% of the
Portfolio's total assets. Borrowings for the Lazard Small Cap Value Portfolio
may not exceed 15% of its total assets for temporary or emergency purposes,
including to meet redemptions (otherwise such borrowings may not exceed 5% of
the value of the Portfolio's total assets). Borrowings for the EQ/Putnam Growth
& Income Value Portfolio, EQ/Putnam International Equity Portfolio, EQ/Putnam
Investors Growth Portfolio, EQ/Putnam Balanced Portfolio, and MFS Growth with
Income Portfolio may not exceed 10% of each Portfolio's total assets. Each
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Portfolio may pledge its assets to secure these permissible borrowings. No
Portfolio, except the Lazard Large Cap Value 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
nonconvertible securities of similar quality. Like bonds, the value of
convertible securities fluctuates in relation to changes in interest rates and,
in addition, fluctuates in relation to the underlying common stock. Subsequent
to purchase by a Portfolio, convertible securities may cease to be rated or a
rating may be reduced below the minimum required for purchase by that
Portfolio. Neither event will require sale of such securities, although each
Adviser will consider such event in its determination of whether a Portfolio
should continue to hold the securities.
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, floaters and inverse floaters,
hybrid instruments, mortgage-backed securities, options, futures contracts,
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, Morgan Stanley
Emerging Markets Equity Portfolio, Lazard Large Cap Value Portfolio, and the
Lazard Small Cap Value 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 Securities ".
In addition, the Morgan Stanley Emerging Markets Equity Portfolio may invest in
inverse floating rate obligations which are fixed income securities that have
coupon rates that vary inversely at a multiple of a designated floating rate,
such as London Inter-Bank Offered Rate ("LIBOR"). Any rise in the reference
rate of an inverse floater (as a consequence of an increase in interest rates)
causes a drop in the coupon rate while any drop in the reference rate of an
inverse floater causes an increase in the coupon rate. Inverse floaters may
exhibit substantially greater price volatility than fixed rate obligations
having similar credit quality, redemption provisions and maturity, and inverse
floater collateralized mortgage obligations ("CMOs") exhibit greater price
volatility than the majority of mortgage-related securities. In addition, some
inverse floater CMOs exhibit extreme sensitivity to changes in prepayments. As
a result, the yield to maturity of an inverse floater CMO is sensitive not only
to changes in interest rates but also to changes in prepayment rates on the
related underlying mortgage assets.
FOREIGN SECURITIES. Foreign investments involve certain risks that are not
present in domestic securities. Each of the Portfolios (except the Lazard Small
Cap Value Portfolio, BT Small Company Index Portfolio, BT Equity 500 Index
Portfolio, and Evergreen Portfolio) may purchase securities denominated in
foreign currencies, and, therefore, a change in the value of any such currency
against the United States dollar will result in a change in the United States
dollar value of a Portfolio's assets and income. In addition, although a
portion of a Portfolio's investment income may be received or realized in such
currencies, the Portfolio will be required to compute and distribute its income
in United States dollars. Therefore, if the exchange rate for any such currency
declines after a Portfolio's income has been earned and computed in United
States dollars but before conversion and payment, the Portfolio could be
required to liquidate portfolio securities to make such distributions.
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Currency exchange rates may be affected unpredictably by intervention (or the
failure to intervene) by United States or foreign governments or central banks,
by currency controls or political developments in the United States or abroad.
For example, significant uncertainty surrounds the proposed introduction of the
Euro (a common currency for the European Union) in January 1999 and its effect
on the value of securities denominated in local European currencies. These and
other currencies in which a Portfolio's assets are denominated may be devalued
against the United States dollar, resulting in a loss to the Portfolio.
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 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 Eastern European, Southeast
Asian, and Latin American countries, volatility may be heightened by actions of
a few major investors. For example, substantial increases or decreases in cash
flows of mutual funds investing in these markets could significantly affect
stock prices and, therefore, share prices.
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
emerging market countries in which the Portfolios can invest do not compare
favorably with the United States and other mature economies in terms of wealth
and stability. Therefore, investments in these countries may be riskier, and
will be subject to erratic and abrupt price movements. Some economies are less
well developed and less diverse (for example, Latin America, Eastern Europe and
certain Asian countries), and more vulnerable to the ebb and flow of
international trade, trade barriers and other protectionist or retaliatory
measures (for example, Southeast Asia and Latin America). Some countries,
particularly in Southeast Asia, Latin America, and Eastern Europe are grappling
with severe inflation or recession, high levels of national debt, currency
exchange problems and government instability. Investments in countries that
have recently begun moving away from central planning and state-owned
industries toward free markets, such as the Eastern European or Chinese
economies, should be regarded as speculative.
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 or
willing to repay the principal and/or interest when due in accordance with the
terms of such debt. A debtor's willingness or ability to repay principal and
interest due in a timely manner may be affected by, among other factors, its
cash flow situation, and, in the case of a government debtor, the extent of its
foreign reserves, the availability of sufficient foreign exchange on the date a
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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, Morgan Stanley Emerging Markets Equity Portfolio, and the JPM Core
Bond 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
secondary market. Each Portfolio will invest in Brady Bonds only if they are
consistent with quality specifications established from time to time by the
Adviser to that Portfolio.
DEPOSITARY RECEIPTS. Each of the Portfolios (except the Lazard Small Cap Value
Portfolio, BT Small Company Index Portfolio, BT Equity 500 Index Portfolio, and
Evergreen Portfolio) 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 GDRs and other types of
depository 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 Lazard Small
Cap Value Portfolio, BT Small Company Index Portfolio, BT Equity 500 Index
Portfolio, and Evergreen Portfolio) may purchase foreign currency on a spot (or
cash) basis. In addition, each of the Portfolios (except the MFS Research
Portfolio, Lazard Large Cap Value Portfolio, Lazard Small Cap Value Portfolio,
BT Small Company Index Portfolio, BT Equity 500 Index Portfolio, and Evergreen
Portfolio) may enter into contracts to purchase or sell foreign currencies at a
future date ("forward contracts"). Each of the Portfolios (except the MFS
Research Portfolio, Lazard Large Cap Value Portfolio, Lazard Small Cap Value
Portfolio, BT Small Company Index Portfolio, BT Equity 500 Index Portfolio, and
Evergreen Portfolio) may also purchase and sell foreign currency futures
contracts and may purchase and write exchange-traded call and put options on
foreign currency futures contracts and on foreign currencies. 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, Merrill Lynch World Strategy Portfolio, JPM Core Bond Portfolio, BT
International Equity Index Portfolio, Evergreen Portfolio, and MFS Growth with
Income Portfolio may engage in over-the-counter options on foreign currency
transactions. The Merrill Lynch World Strategy Portfolio will engage in
over-the-counter options on foreign currency transactions only with financial
institutions that have capital of at least $50 million or whose obligations are
guaranteed by an entity having capital of at least $50 million. The MFS
Emerging Growth Companies Portfolio may only enter into forward contracts on
currencies in the over-the-counter market. The Advisers may engage in these
transactions to protect against uncertainty in the level of future exchange
rates in connection with the purchase and sale of portfolio securities
("transaction hedging") and to protect the value of specific portfolio
positions ("position hedging").
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Hedging transactions involve costs and may result in losses. Each of the
Portfolios (except the MFS Research Portfolio, Lazard Small Cap Value
Portfolio, BT Small Company Index Portfolio, and BT Equity 500 Index 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.
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 contracts or options with
those of debt, preferred equity or a depositary 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, Lazard
Large Cap Value Portfolio and Lazard Small Cap Value Portfolio each may invest
up to 10% of its assets and each of the other Portfolios may invest up to 15%
of its net assets in illiquid securities and other securities which are not
readily marketable, including nonnegotiable 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
(except the Evergreen Foundation Portfolio) may invest in or hold a portion of
its total assets in investment grade or, except as noted below, lower quality
fixed income securities. The T. Rowe Price International Stock Portfolio,
Merrill Lynch Basic Value Equity Portfolio,
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Lazard Large Cap Value Portfolio, Lazard Small Cap Value Portfolio, JPM Core
Bond Portfolio, BT Small Company Index Portfolio, BT Equity 500 Index
Portfolio, BT International Equity Index Portfolio, and Evergreen Portfolio
each may invest in or hold investment grade securities, but not lower quality
fixed income securities. Evergreen Foundation Portfolio may invest in or hold
only securities rated A or higher. Investment grade securities are securities
rated Baa or higher by Moody's or BBB or higher by S&P or comparable quality
unrated securities. Investment grade securities while normally exhibiting
adequate protection parameters, have speculative characteristics, and,
consequently, changes in economic conditions or other circumstances are more
likely to lead to a weakened capacity of such issuers to make principal and
interest payments than is the case for higher grade fixed income securities.
Lower quality fixed income securities are securities that are rated in the
lower categories by NRSROs (i.e., Ba or lower by Moody's and BB or lower by
S&P) or comparable quality unrated securities. Such lower quality securities
are known as "junk bonds" and are regarded as predominantly speculative with
respect to the issuer's continuing ability to meet principal and interest
payments. (Each NRSRO's descriptions of these bond ratings are set forth in the
Appendix to 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 an
Adviser to value accurately certain portfolio securities.
LOAN PARTICIPATIONS. The EQ/Putnam Balanced Portfolio, MFS Emerging Growth
Companies Portfolio, Morgan Stanley Emerging Markets Equity Portfolio, Lazard
Large Cap Value Portfolio, Lazard Small Cap Value Portfolio, and JPM Core Bond
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.
MORTGAGES AND MORTGAGE-RELATED SECURITIES. The EQ/Putnam Balanced Portfolio,
Morgan Stanley Emerging Markets Equity Portfolio, Lazard Large Cap Value
Portfolio, Lazard Small Cap Value Portfolio, JPM Core Bond Portfolio, BT Small
Company Index Portfolio, BT International Equity Index Portfolio, BT Equity 500
Index Portfolio, and Evergreen Foundation 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.
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.
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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.
The JPM Core Bond Portfolio may also invest in directly placed mortgages
including residential mortgages, multifamily mortgages, mortgages on
cooperative apartment buildings, commercial mortgages, and sale-leasebacks.
These investments are backed by assets such as office buildings, shopping
centers, retail stores, warehouses, apartment buildings and single-family
dwellings. In the event that the Portfolio forecloses on any non-performing
mortgage, it could end up acquiring a direct interest in the underlying real
property and the Portfolio would then be subject to the risks generally
associated with the ownership of real property. There may be fluctuations in
the market value of the foreclosed property and its occupancy rates, rent
schedules and operating expenses.
MUNICIPAL SECURITIES. The Morgan Stanley Emerging Markets Equity Portfolio and
the JPM Core Bond 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, Lazard Large Cap Value Portfolio and Lazard Small Cap Value
Portfolio) may utilize futures contracts. Futures contracts (a type of
potentially high-risk security) enable the investor to buy or sell an asset in
the future at an agreed upon price. Each Portfolio (except the MFS Research
Portfolio and Lazard Small Cap Value Portfolio) may also write and purchase put
and call options. Options (another type of potentially high-risk security) give
the purchaser of an option the right, but not the obligation, to buy or sell in
the future an asset at a predetermined price during the term of the option.
(The writer of a put or call option would be obligated to buy or sell the
underlying asset at a predetermined price during the term of the option.) Each
Portfolio will write put and call options only if such options are considered
to be "covered". A call option on a security is covered, for example, when the
writer of the call option owns throughout the option period the security on
which the option is written (or a security convertible into such a security
without the payment of additional consideration). A put option on a security is
covered, for example, when the writer of the put has deposited and maintained
in a segregated account throughout the option period sufficient cash or other
liquid assets in an amount equal to or greater than the exercise price of the
put option. Each Portfolio that is permitted to invest in futures contracts and
related options may utilize such transactions 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.
No Portfolio (other than the Warburg Pincus Small Company Value Portfolio,
Evergreen Foundation Portfolio, and Evergreen Portfolio) will commit more than
5% of its total assets to premiums when purchasing call or put options. In
addition, the total market value of securities against which a Portfolio has
written call or put options may not exceed 25% of its total assets. The BT
Small Company Index Portfolio, BT International Equity Index Portfolio and BT
Equity 500 Index Portfolio each may not at any time commit more than 20% of its
assets to options and futures contracts. The Warburg Pincus Small Company Value
Portfolio may commit up to 10% of its total assets to premiums when purchasing
put or call options. The Merrill Lynch Basic Value Equity Portfolio will not
write covered call options on underlying securities exceeding 15% of the value
of its total assets. The 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 over-the-counter put and call options on stock indexes. The
EQ/Putnam Growth & Income Portfolio, EQ/Putnam International Equity
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Portfolio, EQ/Putnam Investors Growth Portfolio, EQ/Putnam Balanced Portfolio,
MFS Emerging Growth Companies Portfolio, Merrill Lynch World Strategy
Portfolio, Morgan Stanley Emerging Markets Equity Portfolio, JPM Core Bond
Portfolio, Evergreen Foundation Portfolio, Evergreen Portfolio, and MFS Growth
with Income Portfolio may engage in over-the-counter put and call option
transactions. Options traded in the over-the-counter market may not be as
actively traded as those on an exchange, so it may be more difficult to value
such options. In addition, it may be difficult to enter into closing
transactions with respect to such options. Such over-the-counter options, and
the securities used as "cover" for such options, may be considered illiquid
securities.
Each Portfolio may buy and sell futures and options contracts for any number of
reasons, including: to manage its exposure to changes in securities prices and
foreign currencies; as an efficient means of adjusting its overall exposure to
certain markets; in an effort to enhance income; to protect the value of
portfolio securities and to adjust the duration of fixed income investments.
Each Portfolio may purchase, sell, or write call and put options and futures
contracts on securities, financial indices, and foreign currencies and options
on futures contracts.
The risk of loss in trading futures contracts can be substantial because of the
low margin deposits required and the extremely high degree of leveraging
involved in futures pricing. As a result, a relatively small price movement in
a futures contract may cause an immediate and substantial loss or gain. The
primary risks associated with the use of futures contracts and options are: (i)
imperfect correlation between the change in market value of the stocks held by
a Portfolio and the prices of futures contracts and options; and (ii) possible
lack of a liquid secondary market for a futures contract or an over-the-counter
option and the resulting inability to close a futures position or
over-the-counter option prior to its maturity date.
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 a Portfolio's expenses
(management fees and operating expenses), shareholders will also indirectly
bear similar expenses of such entities. Like other foreign securities,
interests in passive foreign investment companies also involve the risk of
foreign securities, as described above.
PAYMENT-IN-KIND BONDS. The EQ/Putnam Growth & Income Value Portfolio, EQ/Putnam
Balanced Portfolio, Morgan Stanley Emerging Markets Equity Portfolio, and JPM
Core Bond 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.
REAL ESTATE INVESTMENT TRUSTS. The EQ/Putnam Balanced Portfolio, [Morgan
Stanley Emerging Markets Equity Portfolio, Lazard Large Cap Value Portfolio,
Lazard Small Cap Value Portfolio,] JPM Core Bond Portfolio, BT Small
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Company Index Portfolio, BT International Equity Index Portfolio, BT Equity 500
Index Portfolio, and Evergreen Foundation Portfolio may each invest up to 15%
of its respective net assets in investments related to real estate, including
real estate investment trusts ("REITS"). Risks associated with investments in
securities of companies in the real estate industry include: decline in the
value of real estate; risks related to general and local economic conditions;
overbuilding and increased competition; increases in property taxes and
operating expenses; changes in zoning laws; casualty or condemnation losses;
variations in rental income; changes in neighborhood values; the appeal of
properties to tenants; and increases in interest rates. In addition, equity
REITS may be affected by changes in the values of the underlying property owned
by the trusts, while mortgage real estate investment trusts may be affected by
the quality of credit extended. REITS are dependent upon management skills, may
not be diversified and are subject to the risks of financing projects. Such
REITS are also subject to heavy cash flow dependency, defaults by borrowers,
self liquidation and the possibility of failing to qualify for tax-free
pass-through of income under the Code and to maintain exemption from the 1940
Act. In the event an issuer of debt securities collateralized by real estate
defaults, it is conceivable that the REITS could end up holding the underlying
real estate.
REVERSE REPURCHASE AGREEMENTS. The Morgan Stanley Emerging Markets Equity
Portfolio, Lazard Large Cap Value Portfolio, JPM Core Bond Portfolio, BT Small
Company Index Portfolio, BT International Equity Index Portfolio, BT Equity 500
Index Portfolio, Evergreen Foundation Portfolio, and Evergreen Portfolio may
each enter into reverse repurchase agreements with brokers, dealers, domestic
and foreign banks or other financial institutions. In a reverse repurchase
agreement, the Portfolio sells a security and agrees to repurchase it at a
mutually agreed upon date and price, reflecting the interest rate effective for
the term of the agreement. It may also be viewed as the borrowing of money by
the Portfolio. The Portfolio's investment of the proceeds of a reverse
repurchase agreement is the speculative factor known as leverage. The Portfolio
may enter into a reverse repurchase agreement only if the interest income from
investment of the proceeds is greater than the interest expense of the
transaction and the proceeds are invested for a period no longer than the term
of the agreement. 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, Morgan Stanley Emerging
Markets Equity Portfolio, JPM Core Bond Portfolio, Evergreen Foundation
Portfolio, and Evergreen Portfolio may each seek to earn additional income by
making secured loans of portfolio securities with a value up to 33 1/3% of
their respective total assets. The MFS Emerging Growth Companies Portfolio, BT
Small Company Index Portfolio, BT International Equity Index Portfolio and BT
Equity 500 Index Portfolio may lend portfolio securities in an amount up to 30%
of their respective total assets. The EQ/Putnam Growth & Income Value
Portfolio, EQ/Putnam International Equity Portfolio, EQ/Putnam Investors Growth
Portfolio, EQ/Putnam Balanced Portfolio, and MFS Growth with Income Portfolio
may each 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. The Lazard Large Cap Value Portfolio and Lazard Small Cap Value
Portfolio may each lend portfolio securities in an amount up to 10% 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,
Morgan Stanley Emerging Markets Equity Portfolio, and Evergreen 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.
Each Portfolio will deposit, in a segregated account with its custodian or a
qualified subcustodian, the securities sold short or
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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,
Warburg Pincus Small Company Value Portfolio, Lazard Small Cap Value Portfolio,
BT Small Company Index Portfolio, and Evergreen 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 a Portfolio to buy or sell significant amounts of shares
without an unfavorable impact on prevailing prices. In addition, small
companies often have limited product lines, markets or financial resources and
are typically subject to greater changes in earnings and business prospects
than are larger, more established companies. There is typically less publicly
available information concerning smaller companies than for larger, more
established ones and smaller companies may be dependent for management on one
or a few key persons. Therefore, an investment in these Portfolios may involve
a greater degree of risk than an investment in other Portfolios that seek
capital appreciation by investing in better known, larger companies.
STRUCTURED NOTES. The 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, JPM Core Bond
Portfolio, and BT International Equity Index Portfolio may each invest in swap
contracts, which are derivatives in the form of a contract or other similar
instrument which is an agreement to exchange the return generated by one
instrument for the return generated by another instrument. The payment streams
are calculated by reference to a specified index and agreed upon notional
amount. The term "specified index" includes, but is not limited to, currencies,
fixed interest rates, prices and total return on interest rate indices, fixed
income indices, stock indices and commodity indices (as well as amounts derived
from arithmetic operations on these indices). For example, a Portfolio may
agree to swap the return generated by a fixed income index for the return
generated by a second fixed income index. The Portfolio will usually enter into
swaps on a net basis, i.e., the two return streams are netted out in a cash
settlement on the payment date or dates specified in the instrument, with the
Portfolio receiving or paying, as the case may be, only the net amount of the
two returns. The Portfolio's obligations under a swap agreement will be accrued
daily (offset against any amounts owing to the Portfolio) and any accrued but
unpaid net amounts owed to a swap counterparty will be covered by the
maintenance of a segregated account consisting of cash, United States
Government securities, or high grade debt obligations. No Portfolio will enter
into any swap agreement unless the counterparty meets the rating requirements
set forth in guidelines established by the Trust's Board of Trustees. The swap
market has grown substantially in recent years with a large number of banks and
investment banking firms acting both as principals and as agents utilizing
standardized swap documentation. As a result, the swap market has become
relatively liquid. Swaps that include more recent innovations for which
standardized documentation has not yet been fully developed are less liquid
than "traditional" swaps. The use of swaps is a highly specialized activity
that involves investment techniques and risks different from those associated
with ordinary portfolio securities transactions. If an Adviser is incorrect in
its forecasts of market values, interest rates, and currency exchange rates,
the investment performance of the Portfolio would be less favorable than it
would have been if this investment technique were not used.
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
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agencies that are supported by the full faith and credit of the United States
(e.g., securities issued by the Federal Housing Administration, Export-Import
Bank of the United States, Small Business Administration, and Government
National Mortgage Association); securities issued or guaranteed by government
agencies that are supported by the ability to borrow from the United States
Treasury (e.g., securities issued by the Federal National Mortgage
Association); and securities issued or guaranteed by government agencies that
are only supported by the credit of the particular agency (e.g., Interamerican
Development Bank, the International Bank for Reconstruction and Development,
and the Tennessee Valley Authority).
WARRANTS. Warrants are securities that give the holder the right, but not the
obligation to purchase equity issues of the company issuing the warrants, or a
related company, at a fixed price either on a date certain or during a set
period. At the time of issue, the cost of a warrant is substantially less than
the cost of the underlying security itself, and price movements in the
underlying security are generally magnified in the price movements of the
warrant. This effect enables the investor to gain exposure to the underlying
security with a relatively low capital investment but increases an investor's
risk in the event of a decline in the value of the underlying security and can
result in a complete loss of the amount invested in the warrant. In addition,
the price of a warrant tends to be more volatile than, and may not correlate
exactly to, the price of the underlying security. If the market price of the
underlying security is below the exercise price of the warrant on its
expiration date, the warrant will generally expire without value.
ZERO-COUPON BONDS. The EQ/Putnam Growth & Income Value Portfolio, EQ/Putnam
Balanced Portfolio, Morgan Stanley Emerging Markets Equity Portfolio, JPM Core
Bond Portfolio, and MFS Growth with Income Portfolio may invest in zero-coupon
bonds. Zero-coupon bonds are issued at a significant discount from their
principal amount and pay interest only at maturity rather than at intervals
during the life of the security. The value of zero-coupon bonds is subject to
greater fluctuation in response to changes in market interest rates than bonds
which pay interest in cash currently. Zero-coupon bonds allow an issuer to
avoid the need to generate cash to meet current interest payments. Accordingly,
such bonds may involve greater credit risks than bonds paying interest
currently. Even though such bonds do not pay current interest in cash, a
Portfolio is nonetheless required to accrue interest income on such investments
and to distribute such amounts at least annually to investors in such
instruments. Thus, each Portfolio could be required, at times, to liquidate
other investments in order to satisfy its distribution requirements.
PORTFOLIO TURNOVER. The length of time a Portfolio has held a particular
security is not generally a consideration in investment decisions. A change in
the securities held by a Portfolio is known as "portfolio turnover." Each new
Portfolio's turnover rate is not expected to exceed 100% during its first year
of operation. A high turnover rate (100% or more) increases transaction costs
(e.g., brokerage commissions) which must be born by the Portfolio and its
shareholders and increases realized gains and losses. See "Financial
Highlights" above for the actual portfolio turnover rates of the Portfolios
through December 31, 1997 and June 30, 1998 and also see "Dividends,
Distributions and Taxes" below.
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 1290 Avenue of
the Americas, New York, New York 10104. Besides its activities with respect to
the Trust, 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
Life, a New York stock life insurance company.
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The Manager is responsible for providing general management 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 the Trust's business, and also supervises the
provision of services by third parties such as the Trust's custodian and
administrator.
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, MFS Growth with Income Portfolio, Merrill Lynch
Basic Value Equity Portfolio and Lazard Large Cap Value 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 the 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 the 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 the annual rate of .65% of the Portfolio's average daily net
assets. As compensation for managing the Lazard Small Cap Value Portfolio, the
Trust pays the Manager a monthly fee at the annual rate of .80% of the
Portfolio's average daily net assets. As compensation for managing the JPM Core
Bond Portfolio, the Trust pays the Manager a monthly fee at the annual rate of
.45% of the Portfolio's average daily net assets. As compensation for managing
the BT Small Company Index Portfolio and the BT Equity 500 Index Portfolio, the
Trust pays the Manager a monthly fee at the annual rate of .25% of the
respective Portfolio's average daily net assets. As compensation for managing
the BT International Equity Index Portfolio, the Trust pays the Manager a
monthly fee at the annual rate of .35% of the Portfolio's average daily net
assets. As compensation for managing the Evergreen Foundation Portfolio, the
Trust pays the Manager a monthly fee at the annual rate of .63% of the
Portfolio's average daily net assets. As compensation for managing the
Evergreen Portfolio, the Trust pays the Manager a monthly fee at the annual
rate of .75% 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 accountants and of its legal counsel; the costs of printing and
mailing annual and semi-annual reports to shareholders, proxy statements,
prospectuses, prospectus supplements and statements of additional information,
all to the extent they are sent to existing Contract owners; the costs of
printing registration statements; bank transaction charges and custodian's
fees; any proxy solicitors' fees and expenses; filing fees; any federal, state
or local income or other taxes; any interest; any membership fees of the
Investment Company Institute and similar organizations; fidelity bond and
Trustees' liability insurance premiums; and any extraordinary expenses, such as
indemnification payments or damages awarded in litigation or settlements made.
All general Trust expenses are allocated among and charged to the assets of the
Portfolios of the Trust on a basis that the Trustees deem fair and 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
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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 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 received an exemptive order from the Securities and Exchange
Commission ("SEC") that permits 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.
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 an annual rate equal to .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, 1997, T. Rowe Price and its affiliates managed more
than $126 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, 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 since the Portfolio commenced its operations. As
compensation for services as the Portfolio's Adviser, the Manager pays
Price-Fleming a monthly fee at an 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.
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, 1997, Price-Fleming managed the United States dollar equivalent of
approximately $30 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, Mark B. Smith, Mark J. T. Edwards, John R. Ford, James
B. M. Seddon and David J. L. Warren. Martin Wade joined Price-Fleming in 1979
and has 27 years of experience with
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the Fleming Group in research, client service and investment management.
(Fleming Group includes Flemings and/or Jardine Fleming.) Mark Edwards joined
Price-Fleming in 1986 and has 16 years of experience in financial analysis.
John Ford joined Price-Fleming in 1982 and has 18 years of experience with the
Fleming Group in research and portfolio management. James Seddon joined
Price-Fleming in 1987 and has 11 years of experience in investment management.
David Warren joined Price-Fleming in 1984 and has 17 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 Value 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 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 an 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,
1997, Putnam Management and its affiliates managed more than $235 billion of
assets. Putnam Management is a subsidiary of Putnam Investments, Inc. which,
other than a minority of shares owned by employees, 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, David L. Waldman, James M. Prusko and Jeffrey J. Kobylarz 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. Waldman has been employed by
Putnam Management as an investment professional since 1997. Mr. Prusko has been
employed by Putnam Management as an investment professional since 1992. Mr.
Kobylarz has been employed by Putnam Management as an investment professional
since 1993.
Massachusetts Financial Services Company ("MFS") has been the Adviser to the
MFS Research Portfolio, the MFS Emerging Growth Companies Portfolio and the MFS
Growth with Income Portfolio since each Portfolio commenced operations. As
compensation for services as the Adviser to the MFS Research Portfolio, the MFS
Emerging Growth Companies Portfolio, and the MFS Growth with Income Portfolio,
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 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
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mutual fund in the United States, Massachusetts Investors Trust. As of December
31, 1997, MFS managed more than $70.2 billion on behalf of over 2.7 million
investors accounts. MFS is a subsidiary of Sun Life of Canada (United States)
Financial Services Holdings Inc., which, in turn, is an indirect wholly-owned
subsidiary of Sun Life Assurance Company of Canada. The portfolio 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, an Executive 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. Kevin R. Parke, John D.
Laupheimer, Jr. and Mitchell D. Dynan are the portfolio managers for the MFS
Growth with Income Portfolio. Mr. Parke, an Executive Vice President of MFS,
and Mr. Laupheimer, Jr., a Senior Vice President of MFS, have been employed as
portfolio managers by MFS since 1985 and 1986, respectively. Mr. Dynan, a Vice
President of MFS, has been employed as a portfolio manager by MFS since 1981.
Morgan Stanley Asset Management Inc. ("MSAM") has been the Adviser to the
Morgan Stanley Emerging Markets Equity Portfolio since the 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 serves as an investment adviser to numerous open-end and
closed-end investment companies. As of December 31, 1997, MSAM, together with
its affiliated institutional investment management companies, had approximately
$146 billion in assets under management and fiduciary care. In 1997, Morgan
Stanley Group Inc. and Dean Witter, Discover & Co. completed a merger to form
Morgan Stanley, Dean Witter & Co., a preeminent financial services company that
maintains leading market positions in each of its three primary businesses --
securities, asset management and credit services.
Madhav Dhar has 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"), Mr. Dhar joined MSAM in 1984. Mr. Robert Meyer is also
responsible for the day to day management of the Morgan Stanley Emerging
Markets Equity Portfolio. Mr. Meyer joined MSAM in 1989, is a Managing Director
of MSAM and Morgan Stanley and has primary responsibility for MSAM's equity
investments in Latin America. Prior to joining MSAM's Latin American Group, Mr.
Meyer worked in MSAM's U.S. Equity Group.
Warburg Pincus Asset Management, Inc. ("WPAM") has been the Adviser to the
Warburg Pincus Small Company Value Portfolio since the Portfolio commenced
operations. WPAM is located at 466 Lexington Avenue, New York, New York
10017-3147. As compensation for services as the Portfolio's Adviser, the
Manager pays WPAM a monthly fee at an annual rate equal to .50% of the
Portfolio's average daily net assets.
WPAM is a professional investment advisory firm that provides investment
services to investment companies, employee benefit plans, endowment funds,
foundations and other institutions and individuals. As of December 31, 1997,
WPAM managed approximately $19.7 billion in assets. WPAM, incorporated in 1970,
is indirectly controlled by Warburg, Pincus & Co. ("WP&Co."), a New York
partnership which has no business other than being a holding company of WPAM
and its affiliates. Lionel Pincus, the managing partner of WP&Co., may be
deemed to control both WP&Co. and WPAM.
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Kyle F. Frey, a senior vice president of WPAM, has been responsible for the day
to day management of Warburg Pincus Small Company Value Portfolio's securities
portfolio since the Portfolio commenced operations. Mr. Frey has been with WPAM
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 100 registered investment
companies. MLAM also offers portfolio management and portfolio analysis
services to individuals and institutions. As of December 31, 1997, the Adviser
and its affiliates had a total of approximately $278 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.
Lazard Asset Management ("LAM") has been the Adviser to the Lazard Large Cap
Value Portfolio and Lazard Small Cap Value Portfolio since each Portfolio
commenced operations. As compensation for services as the Adviser to the Lazard
Large Cap Value Portfolio, the Manager pays LAM a monthly fee at an annual rate
equal to: .425% of the Portfolio's average daily net assets up to and including
$50 million; .40% of the Portfolio's average daily net assets over $50 million
and up to and including $250 million; .375% of the Portfolio's average daily
net assets over $250 million and up to and including $400 million; and .35% of
the Portfolio's average daily net assets in excess of $400 million. As
compensation for services as the Adviser to the Lazard Small Cap Value
Portfolio, the Manager pays LAM a monthly fee at an annual rate equal to: .65%
of the Portfolio's average daily net assets up to and including $250 million;
.55% of the Portfolio's average daily net assets over $250 million and up to
and including $500 million; and .50% of the Portfolio's average daily net
assets in excess of $500 million.
LAM is a division of Lazard Freres & Co. LLC ("Lazard Freres"), a New York
limited liability company, which is registered as an investment adviser with
the SEC and is a member of the New York, American and Midwest Stock Exchanges.
Lazard Freres, 30 Rockefeller Plaza, New York, New York 10112, provides its
clients with a wide variety of investment banking and related services,
including investment management. It is a major underwriter of corporate
securities, conducts a broad range of trading and brokerage activities in
corporate and governmental bonds and stocks and acts as a financial adviser to
utilities. LAM and its affiliates provide investment management services to
client discretionary accounts with assets as of December 31, 1997 totaling
approximately $53.0 billion. Its clients are both individuals and institutions,
some of whose accounts have investment policies similar to the Portfolios.
Herbert W. Gullquist and Michael S. Rome have been responsible for the day to
day management of the Lazard Large Cap Value Portfolio, which includes
investment decisions made on behalf of the Portfolio, since the Portfolio
commenced operations. Eileen Alexanderson, Herbert W. Gullquist, Bradley
Purcell, Michael S. Rome and Leonard M. Wilson have been responsible for the
day to day management of the Lazard Small Cap Value Portfolio, which includes
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investment decisions made on behalf of the Portfolio, since the Portfolio
commenced operations. Ms. Alexanderson is a Managing Director of the Adviser
and has been with the Adviser since 1979. Mr. Gullquist is a Managing Director
of the Adviser and has been with the Adviser since 1982. Mr. Purcell is a Vice
President of the Adviser and has been with the Adviser since 1991. Mr. Rome is
also a Managing Director of the Adviser and has been with the Adviser since
1991. Mr. Wilson is a Director of the Adviser and has been with the Adviser
since 1988.
J.P. Morgan Investment Management Inc. ("J.P. Morgan") has been the Adviser to
the JPM Core Bond Portfolio since the Portfolio commenced operations. As
compensation for services as the Adviser to the JPM Core Bond Portfolio, the
Manager pays J.P. Morgan a monthly fee at an annual rate equal to: .30% of the
Portfolio's average daily net assets up to and including $125 million; .25% of
the Portfolio's average daily net assets over $125 million and up to and
including $200 million; .22% of the Portfolio's average daily net assets over
$200 million and up to and including $350 million; and .15% of the Portfolio's
average daily net assets in excess of $350 million.
J.P. Morgan is a Delaware corporation and a registered investment adviser. It
is a wholly owned subsidiary of J.P. Morgan & Co. Incorporated ("JPM & Co."), a
bank holding company organized under the laws of the state of Delaware. JPM &
Co. through J.P. Morgan and other subsidiaries, offers a wide range of services
to governmental, institutional, corporate and individual customers and acts as
investment adviser to individual and institutional clients with combined assets
under management as of December 31, 1997 of over $255 billion. In particular,
J.P. Morgan, 522 Fifth Avenue, New York, New York 10036, provides investment
management services to public, corporate and union employee benefit plans, as
well as foundations, endowments, insurance companies, state and local
governments and their agencies, and affiliates of J.P. Morgan.
J.P. Morgan uses a sophisticated, disciplined, collaborative process for
managing all asset classes. For fixed income portfolios, this process focuses
on the systematic analysis of real interest rates, sector diversification and
quantitative and credit analysis. The portfolio managers making investments
work in conjunction with fixed income, credit, capital markets and economic
research analysts, as well as traders and administrative officers. The
following persons have been primarily responsible for the day to day management
and implementation of J.P. Morgan's process for the Portfolio, since the
Portfolio commenced operations: Paul L. Zemsky and Robert J. Teatom. Mr. Zemsky
is a Managing Director of J.P. Morgan and a portfolio manager specializing in
quantitative techniques. Mr. Zemsky joined J.P. Morgan in 1985. Robert J.
Teatom is a Managing Director of J.P. Morgan and Co-head of its U.S. Fixed
Income Group. Mr. Teatom joined J.P. Morgan in 1975.
Bankers Trust Company ("Bankers Trust") has been the Adviser to the BT Small
Company Index Portfolio, BT International Equity Index Portfolio and BT Equity
500 Index Portfolio since each Portfolio commenced operations. As compensation
for services as the Adviser to the BT Small Company Index Portfolio and BT
Equity 500 Index Portfolio, the Manager pays Bankers Trust a monthly fee at an
annual rate equal to .05% of the respective Portfolio's average daily net
assets. As compensation for services as the Adviser to the BT International
Equity Index Portfolio, the Manager pays Bankers Trust a monthly fee at an
annual rate equal to .15% of the Portfolio's average daily net assets.
Bankers Trust is a New York banking corporation with executive offices at 130
Liberty Street (One Bankers Trust Plaza), New York, New York 10006. Bankers
Trust is a wholly-owned subsidiary of Bankers Trust New York Corporation.
Bankers Trust conducts a variety of general banking and trust activities and is
a major wholesale supplier of financial services to the international and
domestic institutional markets. Investment management is a core business of
Bankers Trust built on a tradition of excellence from its roots as a trust bank
founded in 1903. The scope of Bankers Trust's management capability is unique
due to its leadership positions in both active and passive quantitative
management and its presence in major equity and fixed income markets around the
world. Bankers Trust is one of the nation's largest and most experienced
investment managers with approximately $317.8 billion in assets under
management as of December 31, 1997.
Evergreen Asset Management Corp. ("Evergreen") has been the adviser to the
Evergreen Foundation Portfolio and Evergreen Portfolio since each Portfolio
commenced operations. As compensation for services as the Adviser to the
Evergreen Foundation Portfolio, the Manager pays Evergreen a monthly fee at an
annual rate equal to .425% of the Portfolio's average daily net assets. As
compensation for services as the Adviser to the Evergreen Portfolio, the
Manager pays Evergreen a monthly fee at an annual rate equal to .55% of the
Portfolio's average daily assets.
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Evergreen, which is located at 2500 Westchester Avenue, Purchase, New York
10577, is a registered investment adviser. It is a wholly-owned subsidiary of
First Union Corporation ("First Union"), a bank holding company. First Union,
through Evergreen and other subsidiaries, offers a broad range of financial
services to individuals and businesses throughout the United States.
Stephen A. Lieber is the portfolio manager responsible for the day-to-day
management of the Evergreen Foundation Portfolio since its inception. Mr.
Lieber and Nola Maddox Falcone, C.F.A., have been responsible for the
day-to-day management of the Evergreen Portfolio since its inception. Mr.
Lieber, Chairman and Co-Chief Executive Officer of Evergreen, has been
associated with Evergreen and its predecessor since 1971. Ms. Falcone,
President and Co-Chief Executive Officer of Evergreen, joined Lieber & Company,
an indirect wholly-owned subsidary of First Union, as a Senior Portfolio
Manager in 1974, and was a General Partner from January 1981 to June 1994.
Evergreen has entered into a sub-advisory agreement with Lieber & Company which
provides that Lieber & Company's research department and staff will furnish
Evergreen with information, investment recommendations, advice and assistance,
and will generally be available for consultation on Evergreen Portfolio. Lieber
& Company will be reimbursed by Evergreen in connection with rendering such
services. There is no additional charge to the Evergreen Portfolio for the
services provided by Lieber & Company.
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 next $0.5 billion of the total
Trust assets; .035 of 1% of the next $2.0 billion of the total Trust assets;
.025 of 1% of the next $1.0 billion of the total Trust assets; .015 of 1% of
the next $2.5 billion of the total Trust assets; .01 of 1% of the total Trust
assets in excess of $8.0 billion; provided, however, that the annual fee
payable to Chase with respect to any Portfolio which commences operations after
July 1, 1997 and whose assets do not exceed $200 million shall be computed at
the annual rate of .0525% of 1% of the Portfolio's total assets plus $25,000.
THE TRANSFER AGENT
Equitable Life serves as the transfer agent and dividend disbursing agent of
the Trust and receives no compensation for serving in such capacity.
EXPENSE LIMITATION AGREEMENT
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 Agreement"), pursuant to which the Manager has
agreed to waive or limit its fees and to assume other expenses so that the
total annual operating expenses of each Portfolio other than interest, taxes,
brokerage commissions, other expenditures which are capitalized in accordance
with generally accepted accounting principles, other extradorinary expenses not
incurred in the ordinary course of each Portfolio's business and amounts
payable pursuant to a plan adopted in accordance with Rule 12b-1 under the 1940
Act, are limited to: .60% 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, MFS Growth with Income
Portfolio, and Merrill Lynch Basic Value Equity Portfolios; .65% of the
respective average daily net assets of the EQ/Putnam Balanced and Lazard Large
Cap Value Portfolios; .75% of the Warburg Pincus Small Company Value
Portfolio's average daily net assets; .95% of the respective average daily net
assets of the T. Rowe Price International Stock, EQ/Putnam International
Equity, Merrill Lynch World Strategy and Lazard Small Cap Value Portfolios;
1.50% of the Morgan Stanley Emerging Markets Equity Portfolio's average daily
net assets; .55% of the respective average daily net assets of the JPM Core
Bond and BT International Equity Index Portfolios; .35% of the average daily
net assets of the BT Small Company Index Portfolio; and .30% of the average
daily net assets of the BT Equity 500 Index
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Portfolio; .70% of the average daily net assets of the Evergreen Foundation
Portfolio; and .80% of the average daily net assets of the Evergreen Portfolio.
Each Portfolio may at a later date reimburse to the Manager the management fees
waived or limited and other expenses assumed and paid by the Manager pursuant
to the Expense Limitation Agreement provided such Portfolio has reached a
sufficient asset size to permit such reimbursement to be made without causing
the total annual expense ratio of each Portfolio to exceed the percentage
limits stated above. Consequently, no reimbursement by a Portfolio will be made
unless: (i) the Portfolio's assets exceed $100 million; (ii) the Portfolio's
total annual expense ratio is less than the respective percentages stated
above; and (iii) the payment of such reimbursement has been approved by the
Trust's Board of Trustees on a quarterly basis.
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 Life 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.
T. Rowe Price and Price-Fleming, the Advisers to the T. Rowe Price
International Stock and T. Rowe Price Equity Income Portfolios, may execute
portfolio transactions through certain affiliates of Fleming and Jardine
Fleming, which are persons indirectly related to the Advisers, acting as an
agent in accordance with procedures established by the Trust's Board of
Trustees. MLAM, the Adviser to the Merrill Lynch World Strategy Portfolio and
Merrill Lynch Basic Value Equity Portfolio, may execute portfolio transactions
through certain affiliates of MLAM. MSAM, the Adviser to the Morgan Stanley
Emerging Markets Equity Portfolio, may execute portfolio transactions through
certain affiliates of MSAM. LAM, the Adviser to the Lazard Large Cap Value
Portfolio, and Lazard Small Cap Value Portfolio, may execute portfolio
transactions through certain affiliates of LAM. J.P. Morgan, the Adviser to the
JPM Core Bond Portfolio, may execute portfolio transactions through certain
affiliates of J.P. Morgan. Bankers Trust, the Adviser to BT Small Company Index
Portfolio, BT International Equity Index Portfolio and BT Equity 500 Index
Portfolio, may execute portfolio transactions through certain affiliates of
Bankers Trust. Evergreen, the Adviser to the Evergreen Foundation Portfolio and
Evergreen Portfolio, may execute portfolio transactions through certain
affiliates of Evergreen and First Union, including Lieber & Company.
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 does not consider broker-dealer affiliates of an
Adviser to one Portfolio to be an affiliate of the Advisers to other Portfolios
for which such Adviser does not provide investment advice. 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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YEAR 2000
Like other mutual funds, the Trust and the service providers for the Trust and
each of its Portfolios rely heavily on the reasonably consistent operation of
their computer systems. Many software programs and certain computer hardware in
use today, cannot properly process information after December 31, 1999 because
of the method by which dates are encoded and calculated in such programs and
hardware. This problem, commonly referred to as the "Year 2000 Issue," could,
among other things, negatively impact the processing of trades, the
distribution of securities, the pricing of securities and other
investment-related and settlement activities. The Trust is currently obtaining
information with respect to the actions that have been taken and the actions
that are planned to be taken by each of its service providers to prepare their
computer systems for the Year 2000. While the Trust expects that each of the
Trust's service providers will have adapted their computer systems to address
the Year 2000 Issue, there can be no assurance that this will be the case or
that the steps taken by the Trust will be sufficient to avoid any adverse
impact to the Trust and each of its Portfolios.
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. The Trust currently
is divided into twenty-one 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. As of March
31, 1998, Equitable Life owned 100% of the outstanding shares of the Trust.
PURCHASE AND REDEMPTION OF SHARES
EQ Financial, 1290 Avenue of the Americas, New York, New York, 10104, formerly
Equico Securities, Inc., a wholly-owned subsidiary of Equitable Life, 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, a Delaware corporation and an indirect wholly-owned
subsidiary of Equitable Life 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
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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 also has distribution agreements for its Class IA shares with EQ
Financial and EDI pursuant to which each of them acts as the Distributor for
the Class IA 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 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 determine 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 normally be made within seven days after tenders. The
Trust may suspend redemption, if permitted by the 1940 Act, for any period
during which the New York Stock Exchange is closed or during which trading is
restricted by the SEC or the SEC declares that an emergency exists. Redemption
may also be suspended during other periods permitted by the SEC for the
protection of the Trust's shareholders. If the Board of Trustees determines
that it would be detrimental to the best interest of the Trust's remaining
shareholders to make payment in cash, the Trust may pay redemption proceeds in
whole or in part by a distribution-in-kind of readily marketable securities.
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HOW ASSETS ARE VALUED
Values are determined according to accepted accounting practices and all laws
and regulations that apply. The assets of each Portfolio are generally valued
as follows:
o Stocks and debt securities which mature in more than 60 days are valued
on the basis of market quotations.
o Foreign securities not traded directly in the 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 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 RICs under Subchapter M of the Code, each Portfolio will also comply with
the investment diversification requirements of Subchapter L of the Code. Should
any Portfolio 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 with those
diversification requirements under Subchapter M and Subchapter L 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
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
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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 average annual total return on Class IB shares of each Portfolio for the
one year period from September 30, 1997 to September 30, 1998 (unless otherwise
noted) and from inception to September 30, 1998 was as follows:
PORTFOLIO ONE YEAR SINCE INCEPTION
T. Rowe Price International Stock Portfolio....... (9.16)% (2.96)%
T. Rowe Price Equity Income Portfolio............. 2.18% 13.61%
EQ/Putnam Growth & Income Value Portfolio......... (3.44)% 8.65%
EQ/Putnam International Equity Portfolio.......... (6.86)% 5.03%
EQ/Putnam Investors Growth Portfolio.............. 12.09% 23.95%
EQ/Putnam Balanced Portfolio...................... 4.18% 11.76%
MFS Research Portfolio............................ 0.51% 12.84%
MFS Emerging Growth Companies Portfolio........... 2.62% 20.32%
Morgan Stanley Emerging Markets Equity Portfolio.. (47.41)% (45.51)%
Warburg Pincus Small Company Value Portfolio...... (21.85)% 0.96%
Merrill Lynch World Strategy Portfolio............ (9.29)% 0.80%
Merrill Lynch Basic Value Equity Portfolio........ (2.77)% 12.85%
Lazard Large Cap Value Portfolio*................. - - (2.70)%
Lazard Small Cap Value Portfolio*................. - - (19.70)%
JPM Core Bond Portfolio*.......................... - - 8.80%
BT Small Company Index Portfolio*................. - - (15.90)%
BT International Equity Index Portfolio*.......... - - (0.30)%
BT Equity 500 Index Portfolio*.................... - - 3.20%
- ---------------
* The total return is not annualized.
Total return information is not provided for the Evergreen Foundation
Portfolio, Evergreen Portfolio, and MFS Growth with Income Portfolio because
they had no operations as of December 31, 1997.
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 tables provide information concerning the historical performance
of another registered investment company (or series) or other institutional
private account managed by each Adviser, that has investment objectives,
policies, strategies and risks substantially similar to those of the respective
Portfolio(s) of the Trust for which it serves as Adviser. The data is provided
to illustrate the past performance of each Adviser in managing a substantially
similar investment vehicle as measured against specified market indices and
does not represent the past performance of any of
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the Portfolios or the future performance of any Portfolio or its Adviser.
Consequently, potential investors should not consider this performance data
with respect to each Adviser as an indication of the future performance of any
Portfolio of the Trust or of its Adviser. Such performance data, as shown
below, for each Adviser's substantially similar investment companies or
institutional accounts is not the performance data of any Portfolio of the
Trust and should not be confused with the performance data for each of the
Trust's Portfolios, which is shown directly above under the caption
"Performance Information."
Each Adviser's performance data shown below for other registered investment
companies or series thereof was calculated in accordance with standards
prescribed by the SEC for the calculation of average annual total return
information for registered investment companies. Share prices and investment
returns will fluctuate reflecting market conditions as well as changes in
company-specific fundamentals of portfolio securities. Composite performance
data relating to the historical performance of institutional private accounts
managed by the relevant Adviser was calculated in accordance with recommended
standards of the Association for Investment Management and Research ("AIMR")
retroactively applied to all time periods. All returns present were calculated
on a total return basis and include all losses. All returns reflect the
deduction of investment advisory fees, brokerage commissions and execution
costs paid by the relevant Adviser's institutional private accounts, without
provision for federal or state income taxes. Custodial fees, if any, were not
included in the calculation. The Composite includes all actual, fee-paying,
discretionary institutional private accounts managed by the relevant Adviser
that have investment objectives, policies, strategies and risks substantially
similar to those of the relevant Portfolio. Securities transactions are
accounted for on the trade date and accrual accounting is utilized. Cash and
equivalents are included in performance returns.
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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 Rowe Price-Fleming International, Inc., and whose investment
policies are substantially similar to the T. Rowe Price International Stock
Portfolio. However, the T. Rowe Price International Stock Fund will be subject
to different expenses than the T. Rowe Price International Stock Portfolio. In
addition, holders of variable insurance contracts representing interests in the
T. Rowe Price International Stock Portfolio will be subject to charges and
expenses relating to such insurance contracts. The performance results
presented below do not reflect any insurance related expense.
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
INTERNATIONAL
STOCK MSCI EAFE
YEAR ENDED 9/30/98 FUND1 INDEX2
------------------ ---- -----
One Year3.............. (9.21)% (8.08)%
Five Years3............ 7.70% 5.65%
Ten Years3............. 9.68% 5.41%
- --------------
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 EAFE Index ("MSCI EAFE") is an
unmanaged capitalization-weighted measure of stock markets in Europe,
Australia and the Far East. MSCI EAFE returns assume dividends reinvested
net of withholding tax and do not reflect any fees or expenses.
3 Annualized performance for the shares of the T. Rowe Price International
Stock Fund.
51
<PAGE>
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
T. Rowe Price Associates, Inc., and whose investment policies are substantially
similar to the T. Rowe Price Equity Income Portfolio. However, the T. Rowe
Price Equity Income Fund will be subject to different expenses than the T. Rowe
Price Equity Income Portfolio. In addition, holders of variable insurance
contracts representing interests in the T. Rowe Equity Income Portfolio will be
subject to charges and expenses relating to such insurance contracts. The
performance results presented below do not reflect any insurance related
expenses.
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.
T. ROWE PRICE S&P 500
YEAR ENDED 9/30/98 EQUITY INCOME FUND1 INDEX2
------------------ ------------------ -----
One Year3................... 2.38% 9.05%
Five Years3................. 16.99% 19.91%
Ten Years3.................. 14.23% 17.29%
- -------------
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 ("S & P 500") 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 S & P 500 reflects the reinvestment of income dividends
and capital gain distributions, if any, but does not reflect fees,
brokerage commissions, or other expenses of investing.
3 Annualized performance for the shares of the T. Rowe Price Equity Income
Fund. The investment advisory fee applicable to the T. Rowe Price Equity
Income Fund was capped at the maximum state-allowed fee in 1987.
52
<PAGE>
EQ/PUTNAM GROWTH & INCOME VALUE PORTFOLIO
The table below sets forth performance history for another registered
investment company, i.e., the Putnam Growth & Income Fund II, which is managed
by Putnam Investment Management, Inc., and whose investment policies are
substantially similar to those of EQ/Putnam Growth & Income Value Portfolio.
Putnam Growth & Income Fund II will be subject to different expenses than the
EQ/Putnam Growth & Income Value Portfolio. In addition, holders of variable
insurance contracts representing interests in EQ/Putnam Growth & Income Value
Portfolio will be subject to charges and expenses relating to such insurance
contracts. The performance results presented below do not reflect any insurance
related expenses.
The investment results of Putnam Growth & Income Fund II 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 ENDED 9/30/98 PUTNAM GROWTH & INCOME FUND II1 INDEX2
------------------ ------------------------------ -----
One Year3................. ____% ____%
Since inception3.......... ____% ____%
- -----------------
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 ("S & P 500") 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 S & P 500 reflects the reinvestment of income dividends
and capital gain distributions, if any, but does not reflect fees,
brokerage commissions, or other expenses of investing.
3 Annualized performance for the Class A shares of the Putnam Growth &
Income Fund II. The inception date for the Putnam Growth & Income Fund II
was January 5, 1995. The Class A shares are subject to a front-end sales
charge of up to 5.75%. Other share classes have different expenses and
their performance will vary.
53
<PAGE>
EQ/PUTNAM INTERNATIONAL EQUITY PORTFOLIO
The table below sets forth performance history for another registered
investment company, i.e., the Putnam International Growth Fund, which is
managed by Putnam Investment Management, Inc., and whose investment policies
are substantially similar to those of EQ/Putnam International Equity Portfolio.
Putnam International Growth Fund will be subject to different expenses than the
EQ/Putnam International Equity Portfolio. In addition, holders of variable
insurance contracts representing interests in EQ/Putnam International Equity
Portfolio will be subject to charges and expenses relating to such insurance
contracts. The performance results presented below do not reflect any insurance
related expenses.
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 ENDED 9/30/98 PUTNAM INTERNATIONAL GROWTH FUND1 INDEX2
------------------ --------------------------------- -----
One Year3............ ____% ____%
Five Years3.......... ____% ____%
Since inception3..... ____% ____%
- -----------------
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 EAFE Index ("MSCI EAFE") is an
unmanaged capitalization-weighted measure of stock markets in Europe,
Australia and the Far East. MSCI EAFE returns assume dividends reinvested
net of withholding tax and do not reflect any fees or expenses.
3 Annualized performance 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 March, 1991. The Class A shares are subject
to a front-end sales charge of up to 5.75%.
54
<PAGE>
EQ/PUTNAM INVESTORS GROWTH PORTFOLIO
The table below sets forth performance history for another registered
investment company, i.e., the Putnam Investors Fund, which is managed by Putnam
Investment Management, Inc., and whose investment policies are substantially
similar to those of EQ/Putnam Investors Growth Portfolio. Putnam Investors Fund
will be subject to different expenses than the EQ/Putnam Investors Growth
Portfolio. In addition, holders of the variable insurance contracts
representing interests in EQ/Putnam Investors Growth Portfolio will be subject
to charges and expenses relating to such insurance contracts. The performance
results presented below do not reflect any insurance related expenses.
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 ENDED 9/30/98 PUTNAM INVESTORS FUND1 INDEX2
------------------ --------------------- -----
One Year3................ ____% ____%
Five Years3.............. ____% ____%
Ten Years3............... ____% ____%
- -----------------
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 ("S & P 500") 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 S & P 500 reflects the reinvestment of income dividends
and capital gain distributions, if any, but does not reflect fees,
brokerage commissions, or other expenses of investing.
3 Annualized performance for the Class A shares of the Putnam Investors
Fund. The Class A shares are subject to a front-end sales charge of up to
5.75%. Other share classes have different expenses and their performance
will vary.
55
<PAGE>
EQ/PUTNAM BALANCED PORTFOLIO
The table below sets forth performance history for another registered
investment company, i.e., The George Putnam Fund of Boston, which is managed by
Putnam Investment Management, Inc., and whose investment policies are
substantially similar to those of EQ/Putnam Balanced Portfolio. The George
Putnam Fund of Boston will be subject to different expenses than the EQ/Putnam
Balanced Portfolio. In addition, holders of variable insurance contracts
representing interests in EQ/Putnam Balanced Portfolio will be subject to
charges and expenses relating to such insurance contracts. The performance
results presented below do not reflect any insurance related expenses.
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.
THE GEORGE PUTNAM S&P 500
YEAR ENDED 9/30/98 FUND OF BOSTON1 INDEX2
------------------ ----------------- -----
One Year3.............. ____% ____%
Five Years3............ ____% ____%
Ten Years3............. ____% ____%
- --------------
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 ("S & P 500") 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 S & P 500 reflects the reinvestment of income dividends
and capital gain distributions, if any, but does not reflect fees,
brokerage commissions, or other expenses of investing.
3 Annualized performance 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
up to 5.75%. Other share classes have different expenses and their
performance will vary.
56
<PAGE>
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 Massachusetts
Financial Services Company, and whose investment policies are substantially
similar to MFS Research Portfolio. However, MFS Research Fund will be subject
to different expenses than the MFS Research Portfolio. In addition, holders of
variable insurance contracts representing interests in the MFS Research
Portfolio will be subject to charges and expenses relating to such insurance
contracts. The performance results presented below do not reflect any insurance
related expenses.
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 ENDED 9/30/98 MFS RESEARCH FUND1 INDEX2
------------------ ----------------- -----
One Year3............. (0.89)% 9.05%
Five Years3........... 16.71% 19.91%
Ten Years3............ 16.09% 17.29%
- --------------
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 ("S & P 500") 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 S & P 500 reflects the reinvestment of income dividends
and capital gain distributions, if any, but does not reflect fees,
brokerage commissions, or other expenses of investing.
3 Annualized performance for the Class A shares of the MFS Research Fund.
The results for the MFS Research Fund do not reflect any sales charge
that may be imposed on the Class A shares of the MFS Research Fund, nor
any charges that would be imposed at the insurance company separate
account level.
57
<PAGE>
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
Massachusetts Financial Services Company, and whose investment policies are
substantially similar to MFS Emerging Growth Companies Portfolio. However, MFS
Emerging Growth Fund will be subject to different expenses than the MFS
Emerging Growth Companies Portfolio. In addition, holders of variable insurance
contracts representing interests in the MFS Emerging Growth Companies Portfolio
will be subject to charges and expenses relating to such insurance contracts.
The performance results presented below do not reflect any insurance related
expenses.
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 ENDED 9/30/98 MFS EMERGING GROWTH FUND1 INDEX2
------------------ ------------------------ -----
One Year3.............. (9.85)% (19.02)%
Five Years3............ 15.48% 9.09%
Ten Years3............. 20.06% 11.16%
- ---------------
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 Annualized performance for the Class B shares of the MFS Emerging Growth
Fund. The results for the MFS Emerging Growth Fund do not reflect sales
charges that may be imposed on the Class B shares of the MFS Emerging
Growth Fund, nor any charges that would be imposed at the insurance
company separate account level.
58
<PAGE>
MFS GROWTH WITH INCOME PORTFOLIO
In the table below, the only account which is included is another registered
investment company, i.e., Massachusetts Investors Trust, which is managed by
Massachusetts Financial Services Company, and whose investment policies are
substantially similar to the MFS Growth with Income Portfolio. However, the
Massachusetts Investors Trust will be subject to different expenses than the
MFS Growth with Income Portfolio. In addition, holders of variable insurance
contracts representing interests in the MFS Growth with Income Portfolio will
be subject to charges and expenses relating to such insurance contracts. The
performance results presented below do not reflect any insurance related
expense.
The investment results of Massachusetts Investors Trust presented below are
unaudited and are not intended to predict or suggest the returns that might be
experienced by the MFS Growth with Income Portfolio or an individual investor
investing in the MFS Growth with Income Portfolio.
MASSACHUSETTS
INVESTORS S&P 500
YEAR ENDED 9/30/98 TRUST1 INDEX2
------------------ ----- -----
One Year3............. 8.14% 9.05%
Five Years3........... 19.23% 19.91%
Ten Years3............ 17.33% 17.29%
- --------------
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 ("S & P 500") 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 S & P 500 reflects the reinvestment of income dividends
and capital gain distributions, if any, but does not reflect fees,
brokerage commissions, or other expenses of investing.
3 Annualized performance for the Class A shares of the Massachusetts
Investors Trust.
59
<PAGE>
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 Institutional Fund, Inc. --
Emerging Markets Portfolio ("MSIF Emerging Markets Portfolio"), which is
managed by Morgan Stanley Asset Management Inc., and whose investment policies
are substantially similar to the Morgan Stanley Emerging Markets Equity
Portfolio. Operating expenses of the MSIF Emerging Markets Portfolio will be
different from the operating expenses of the Morgan Stanley Emerging Markets
Equity Portfolio. In addition, holders of variable insurance contracts
representing interests in the Morgan Stanley Emerging Markets Equity Portfolio
will be subject to charges and expenses relating to such insurance contracts.
The performance results presented below do not reflect any insurance related
expenses.
The investment results of MSIF Emerging Markets Portfolio presented below,
which represent a Class A share outstanding for the period, 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 TOTAL RETURN
MSIF EMERGING COMPOSITE
YEAR ENDED 9/30/98 MARKETS PORTFOLIO1,2 INDEX2
------------------ -------------------- ------
One Year4............... ____% ____%
Five Years4............. ____% ____%
Since inception4........ ____% ____%
- ------------------
1 In accordance with SEC regulations, the performance shown assumes that
all recurring fees (including management fees) were deducted and all
dividends and distributions were reinvested. 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 MSIF Emerging Markets Portfolio has been capped at
1.75% since inception.
3 The IFC Global Total Return Composite Index is an unmanaged index of
common stocks and includes developing countries in Latin America, East
and South Asia, Europe, the Middle East and Africa. The Index assumes
dividends are reinvested.
4 Annualized performance for the Class A shares of the MSIF Emerging
Markets Portfolio. The Class B shares of the MSIF Emerging Markets
Portfolio are subject to a Rule 12b-1 fee equal to 0.25% of the
Portfolio's assets. The inception date for the MSIF Emerging Markets
Portfolio was September 25, 1992.
60
<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 Warburg Pincus Asset Management, Inc. and whose investment policies
are substantially similar to the Warburg Pincus Small Company Value Portfolio.
However, the Warburg Pincus Small Company Value Fund will be subject to
different expenses than the Warburg Pincus Small Company Value Portfolio. In
addition, holders of variable insurance contracts representing interests in the
Warburg Pincus Small Company Value Portfolio will be subject to charges and
expenses relating to such insurance contracts. The performance results
presented below do not reflect any insurance related expenses.
The investment results of Warburg Pincus Small Company Value Fund 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.
WARBURG PINCUS SMALL
COMPANY VALUE RUSSELL 2000
YEAR ENDED 9/30/98 Fund1,2 INDEX2
------------------ ------- -----
One Year4................. (22.65)% (19.02)%
Since inception4.......... 17.35% 6.68%
- ------------------
1 Average annual total return reflects changes in share prices and
reinvestment of dividends and distributions and is net of fund expenses.
2 Absent the waiver of fees by the Warburg Pincus Small Company Value
Fund's investment adviser and co-administrator, management fees of the
Warburg Pincus Small Company Value Fund would equal 1.00%, other expenses
would equal 0.94% and total operating expenses would equal 2.19%. The
investment adviser and co-administrator of the Warburg Pincus Small
Company Value Fund are under no obligation to continue these waivers.
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 annualized performance for shares of the Warburg Pincus Small Company
Value Fund. The inception date for the Warburg Pincus Small Company Value
Fund was December 29, 1995.
61
<PAGE>
MERRILL LYNCH WORLD STRATEGY PORTFOLIO
In the table below, the only account which is included 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., and whose investment policies are
substantially similar to the Merrill Lynch World Strategy Portfolio. However,
the Merrill Lynch Global Strategy Focus Fund will be subject to different
expenses than the Merrill Lynch World Strategy Portfolio. In addition, holders
of variable insurance contracts representing interests in the Merrill Lynch
World Strategy Portfolio will be subject to charges and expenses relating to
such insurance contracts. The performance results presented below do not
reflect any insurance related expenses.
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 STRATEGY MSCI EAFE
YEAR ENDED 9/30/98 FOCUS FUND1 INDEX2
------------------ ---------- -----
One Year3............. (8.52)% (9.71)%
Five Years3........... 6.89% 3.75%
Since inception3...... 8.07% 5.57%
- ----------------
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 EAFE Index ("MSCI EAFE") is an
unmanaged capitalization-weighted measure of stock markets in Europe,
Australia and the Far East. MSCI EAFE returns assume dividends reinvested
net of withholding tax and do not reflect any fees or expenses.
3 Annualized performance for shares of the Merrill Lynch Global Strategy
Focus Fund. The inception date for the Merrill Lynch Global Strategy
Focus Fund was February 28, 1992.
62
<PAGE>
MERRILL LYNCH BASIC VALUE EQUITY PORTFOLIO
In the table below, the only account which is included 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., and whose investment policies are substantially similar
to the Merrill Lynch Basic Value Equity Portfolio. However, the Merrill Lynch
Basic Value Focus Fund will be subject to different expenses than the Merrill
Lynch Basic Value Equity Portfolio. In addition, holders of variable insurance
contracts representing interests in the Merrill Lynch Basic Value Equity
Portfolio will be subject to charges and expenses relating to such insurance
contracts. The performance results presented below do not reflect any insurance
related expenses.
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. - MERRILL LYNCH S&P 500
YEAR ENDED 9/30/98 BASIC VALUE FOCUS FUND1 INDEX2
------------------ ---------------------- -----
One Year3............ (6.03)% 9.05%
Since inception3..... 14.49% 19.45%
- ------------------
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 ("S & P 500") 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 S & P 500 reflects the reinvestment of income dividends
and capital gain distributions, if any, but does not reflect fees,
brokerage commissions, or other expenses of investing.
3 Annualized performance for shares of the Merrill Lynch Basic Value Focus
Fund. The inception date for the Merrill Lynch Basic Value Focus Fund was
July 1, 1993.
63
<PAGE>
LAZARD LARGE CAP VALUE PORTFOLIO
In the table below, the only account which is included is a series of another
registered investment company, i.e. the Lazard Equity Portfolio, a series of
The Lazard Funds, Inc., which is managed by Lazard Asset Management, and whose
investment policies are substantially similar to the Lazard Large Cap Value
Portfolio. However, the Lazard Equity Portfolio will be subject to different
expenses than the Lazard Large Cap Value Portfolio. In addition, holders of
variable insurance contracts representing interests in the Lazard Large Cap
Value Portfolio will be subject to charges and expenses relating to such
insurance contracts. The performance results presented below do not reflect any
insurance related expenses.
The investment results of the Lazard Equity Portfolio presented below are
unaudited and are not intended to predict or suggest the future returns that
might be experienced by the Lazard Large Cap Value Portfolio or an individual
investor investing in the Lazard Large Cap Value Portfolio.
LAZARD EQUITY S&P 500
YEAR ENDED 9/30/98 PORTFOLIO1 INDEX2
------------------ ---------- -----
One Year3.................. (4.34)% 9.05%
Five Years3................ 16.84% 19.91%
Ten years3................. 15.08% 17.29%
- ------------------
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 ("S & P 500") 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 S & P 500 reflects the reinvestment of income dividends
and capital gain distributions, if any, but does not reflect fees,
brokerage commissions, or other expenses of investing.
3 Annualized performance for shares of the Lazard Equity Portfolio.
64
<PAGE>
LAZARD SMALL CAP VALUE PORTFOLIO
In the table below, the only account which is included is a series of another
registered investment company, i.e., Lazard Small Cap Portfolio, a series of
The Lazard Funds, Inc., which is managed by Lazard Asset Management, and whose
investment policies are substantially similar to the Lazard Small Cap Value
Portfolio. However, the Lazard Small Cap Portfolio will be subject to different
expenses than the Lazard Small Cap Value Portfolio. In addition, holders of
variable insurance contracts representing interests in the Lazard Small Cap
Value Portfolio will be subject to charges and expenses relating to such
insurance contracts. The performance results presented below do not reflect any
insurance related expenses.
The investment results of the Lazard Small Cap Portfolio presented below are
unaudited and are not intended to predict or suggest the future returns that
might be experienced by the Lazard Small Cap Value Portfolio or an individual
investor investing in the Lazard Small Cap Value portfolio.
LAZARD SMALL CAP RUSSELL 2000
YEAR ENDED 9/30/98 PORTFOLIO1 INDEX2
------------------ ---------- -----
One Year3................ (24.26)% (19.02)%
Five Years3.............. 9.74% 9.09%
Since inception3......... 14.70% 11.96%
- ------------------
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 2,000 small-cap stocks, and includes reinvestment of
dividends. It is compiled by the Frank Russell Company.
3 Annualized performance for shares of the Lazard Small Cap Portfolio. The
inception date for Lazard Small Cap Portfolio was October 1, 1991.
65
<PAGE>
JPM CORE BOND PORTFOLIO
In the table below, the institutional private accounts that are included in the
Adviser's composite are not subject to the same types of expenses to which the
JPM Core Bond Portfolio is subject or to the diversification requirements,
specific tax restrictions and investment limitations imposed on the JPM Core
Bond Portfolio by the 1940 Act or Subchapter M of the Internal Revenue Code.
Consequently, the performance results for the composite could have been
adversely affected if the institutional private accounts included in the
composite had been regulated as investment companies under the federal
securities laws. Moreover, holders of variable insurance contracts representing
interests in the JPM Core Bond Portfolio will be subject to charges and
expenses relating to such insurance contracts. The performance results
presented below do not reflect any insurance related charges.
The investment results presented below are not intended to predict or suggest
the returns that might be experienced by the JPM Core Bond Portfolio or an
individual investing in such Portfolio. Investors should also be aware that the
use of a methodology different from that used below to calculate performance
could result in different performance data.
SALOMON BROTHERS BROAD
J.P. MORGAN ACTIVE FIXED INVESTMENT GRADE BOND
YEAR ENDED 9/30/98 INCOME COMPOSITE1 INDEX2
------------------ ----------------- -----
One Year3............. ____% ____%
Five Years3........... ____% ____%
Ten years3............ ____% ____%
- -------------------
1 Through December 31, 1997. The inception date for the J.P. Morgan Active
Fixed Income Composite was May 31, 1977.
2 The Salomon Brothers Broad Investment Grade Bond Index is an unmanaged,
market-weighted index which contains approximately 4,700 individually
priced investment grade bonds. The index does not include fees or
operating expenses and is not available for actual investment.
66
<PAGE>
BT EQUITY 500 INDEX PORTFOLIO
In the table below, the only account which is included is a series of another
registered investment company, i.e., Equity 500 Index Fund, a series of BT
Institutional Funds, which is managed by Bankers Trust Company, and whose
investment policies are substantially similar to the BT Equity 500 Index
Portfolio. However, the BT Equity 500 Index Portfolio will be subject to higher
expenses than the Equity 500 Index Fund. In addition, holders of variable
insurance contracts representing interests in the BT Equity 500 Index Portfolio
will be subject to charges and expenses relating to such insurance contracts.
The performance results presented below do not reflect any insurance related
expenses.
The investment results of the Equity 500 Index Fund presented below are
unaudited and are not intended to predict or suggest the returns that might be
experienced by the BT Equity 500 Index Portfolio or an individual investor
investing in the BT Equity 500 Index Portfolio.
EQUITY 500 INDEX FUND
YEAR ENDED 9/30/98 INSTITUTIONAL CLASS1 S&P 500 INDEX
------------------ -------------------- -------------
One Year3............. 9.06% 9.05%
Since inception3...... 18.54% ____%
- ------------------
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 ("S & P 500") 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 S & P 500 reflects the reinvestment of income dividends
and capital gain distributions, if any, but does not reflect fees,
brokerage commissions, or other expenses of investing.
3 Annualized performance for shares of the Equity 500 Index Fund of the BT
Institutional Funds. The inception date for the Equity 500 Index Fund --
Institutional Class was December 31, 1992.
67
<PAGE>
BT SMALL COMPANY INDEX PORTFOLIO
In the table below, the only account which is included is a series of another
registered investment company, i.e., Small Cap Index Fund -- Institutional
Class, a series of BT Advisors Funds, which is managed by Bankers Trust
Company, and whose investment policies are substantially similar to the BT
Small Company Index Portfolio. However, the BT Small Company Index Portfolio
will be subject to higher expenses than the Small Cap Index Fund --
Institutional Class. In addition, holders of variable insurance contracts
representing interests in the BT Small Company Index Portfolio will be subject
to charges and expenses relating to such insurance contracts. The performance
results presented below do not reflect any insurance related expenses.
The investment results of the Small Cap Index Fund -- Institutional Class
presented below are unaudited and are not intended to predict or suggest the
returns that might be experienced by the BT Small Company Index Portfolio or an
individual investor investing in the BT Small Company Index Portfolio.
SMALL CAP INDEX FUND - RUSSELL 2000
YEAR ENDED 9/30/98 INSTITUTIONAL CLASS1 INDEX2
------------------ -------------------- -----
One Year3............ (19.01)% (19.02)%
Since inception3..... 5.55% ____%
- -----------------
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 composed of approximately
2,000 small-capitalization stocks and includes reinvestments of
dividends. The index does not include fees or operating expenses and is
not available for actual investment. It is compiled by the Frank Russell
Company.
3 Annualized performance for shares of the Small Cap Index Fund. The
inception date for the Small Cap Index Fund -- Institutional Class was
July 10, 1996.
68
<PAGE>
BT INTERNATIONAL EQUITY INDEX PORTFOLIO
In the table below, the only account which is included is a series of another
registered investment company, i.e., EAFE Equity Index Fund -- Institutional
Class, a series of BT Advisor Funds, which is managed by Bankers Trust Company,
and whose investment policies are substantially similar to the BT International
Equity Index Portfolio. However, the BT International Equity Index Portfolio
will be subject to higher expenses than the EAFE Equity Index Fund --
Institutional Class. In addition, holders of variable insurance contracts
representing interests in the BT International Equity Index Portfolio will be
subject to charges and expenses relating to such insurance contracts. The
performance results presented below do not reflect any insurance related
expenses.
The investment results of the EAFE Equity Index Fund -- Institutional Class
presented below are unaudited and are not intended to predict or suggest the
returns that might be experienced by the BT International Equity Index
Portfolio or an individual investor investing in the BT International Equity
Index Portfolio.
EAFE EQUITY INDEX
YEAR ENDED 9/30/98 FUND - INSTITUTIONAL CLASS1 MSCI EAFE INDEX2
------------------ --------------------------- ---------------
One Year3............ (8.16)% (9.71)%
Since inception3..... 3.36% ____%
- -----------------
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 EAFE Index ("MSCI EAFE Index")
is an unmanaged capitalization-weighted measure of stock markets in
Europe, Australia and the Far East. MSCI EAFE returns assume dividends
reinvested net of withholding tax and do not reflect any fees or
operating expenses. The index does not include fees or operating expenses
and is not available for actual investment.
3 Annualized performance for shares of the EAFE Equity Index Fund. The
inception date for the EAFE Equity Index Fund -- Institutional Class was
January 24, 1996.
69
<PAGE>
EVERGREEN FOUNDATION PORTFOLIO
In the table below, the only account which is included is another registered
investment company, i.e., Evergreen Foundation Fund, which is managed by
Evergreen, and whose investment policies are substantially similar to the
Evergreen Foundation Portfolio. However, the Evergreen Foundation Portfolio
will be subject to different expenses than the Evergreen Foundation Fund. In
addition, holders of variable insurance contracts representing interests in the
Evergreen Foundation Portfolio will be subject to charges and expenses relating
to such insurance contracts. The performance results presented below do not
reflect any insurance related expense.
The investment results of Evergreen Foundation Fund presented below are
unaudited and are not intended to predict or suggest the returns that might be
experienced by the Evergreen Foundation Portfolio or an individual investor
investing in the Evergreen Foundation Portfolio.
EVERGREEN
FOUNDATION S&P 500
YEAR ENDED 9/30/98 FUND1 INDEX2
------------------ ---- -----
One Year3.............. 5.09% 9.05%
Five Years3 82.38% --
Since inception3....... 267.26%% 21.80%
- --------------
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 ("S & P 500") 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 S & P 500 reflects the reinvestment of income dividends
and capital gain distributions, if any, but does not reflect fees,
brokerage commissions, or other expenses of investing.
3 Annualized performance for the Class Y shares of the Evergreen Foundation
Fund. The inception date for the Evergreen Foundation Fund was January 2,
1990.
70
<PAGE>
EVERGREEN PORTFOLIO
In the table below, the only account which is included is another registered
investment company, i.e., Evergreen Fund, which is managed by Evergreen and
whose investment policies are substantially similar to the Evergreen Portfolio.
However, the Evergreen Portfolio will be subject to different expenses than the
Evergreen Fund. In addition, holders of variable insurance contracts
representing interests in the Evergreen Portfolio will be subject to charges
and expenses relating to such insurance contracts. The performance results
presented below do not reflect any insurance related expense.
The investment results of Evergreen Fund presented below are unaudited and are
not intended to predict or suggest the returns that might be experienced by the
Evergreen Portfolio or an individual investor investing in the Evergreen
Portfolio.
EVERGEEN RUSSELL 2000
YEAR ENDED 9/30/98 FUND1 INDEX2
------------------ ---- -----
One Year3............. (5.25)% (19.02)%
Five Years3........... 102.50% --
Ten Years3............ 217.54% --
- --------------
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 2,000 small-cap stocks, and includes reinvestment of
dividends. It is compiled by the Frank Russell Company.
3 Annualized performance for the Class Y shares of the Evergreen Fund.
71
<PAGE>
APPENDIX A
The following table summarizes the historical performance information of
certain other registered investment companies or accounts that appears on pages
__ through __ of this Prospectus. Each other registered investment company or
account is managed by an Adviser and has investment objectives, policies,
strategies and risks substantially similar to the Portfolio managed by that
Adviser. 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 with respect to each Adviser as an indication of the future performance of
any Portfolio of the Trust or of its Adviser. Such performance data, as shown
below, for each Adviser's substantially similar investment companies or
institutional accounts is not the performance data of any Portfolio of the
Trust and should not be confused with the performance data for each of the
Trust's Portfolios, which is shown directly above under the caption
"Performance Information."
For further information regarding each of the registered investment companies
and the indexes presented below, please refer to pages __ through __ of this
Prospectus.
ANNUALIZED RATES OF RETURN
PERIOD ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
- ----------------------------------------------------- ------------------ ------------------- ------------------ ------------------
SINCE
FUND NAME 1 YEAR 5 YEAR 10 YEAR INCEPTION
- ----------------------------------------------------- ------------------ ------------------- ------------------ ------------------
<S> <C> <C> <C> <C>
EAFE Equity Index Fund -- __% -- -- __%
Institutional Class
- ----------------------------------------------------- ------------------ ------------------- ------------------ ------------------
MSCI EAFE Index __% -- -- __%
- ----------------------------------------------------- ------------------ ------------------- ------------------ ------------------
Equity 500 Index Fund __% -- -- __%
- ----------------------------------------------------- ------------------ ------------------- ------------------ ------------------
S&P 500 Index __% -- -- __%
- ----------------------------------------------------- ------------------ ------------------- ------------------ ------------------
Small Cap Index Fund Institutional Class __% -- -- __%
- ----------------------------------------------------- ------------------ ------------------- ------------------ ------------------
Russell 2000 Index __% -- -- __%
- ----------------------------------------------------- ------------------ ------------------- ------------------ ------------------
J.P. Morgan Active Fixed Income Composite __% __% __% --
- ----------------------------------------------------- ------------------ ------------------- ------------------ ------------------
Salomon Brothers Broad Investment Grade Bond Index __% __% __% --
- ----------------------------------------------------- ------------------ ------------------- ------------------ ------------------
Lazard Portfolio __% __% __% --
- ----------------------------------------------------- ------------------ ------------------- ------------------ ------------------
S&P 500 Index __% __% __% --
- ----------------------------------------------------- ------------------ ------------------- ------------------ ------------------
Lazard Portfolio __% __% -- __%
- ----------------------------------------------------- ------------------ ------------------- ------------------ ------------------
Russell 2000 Index __% __% -- __%
- ----------------------------------------------------- ------------------ ------------------- ------------------ ------------------
Merrill Lynch Basic Value Focus Fund __% -- -- __%
- ----------------------------------------------------- ------------------ ------------------- ------------------ ------------------
S&P 500 Index __% -- -- __%
- ----------------------------------------------------- ------------------ ------------------- ------------------ ------------------
Merrill Lynch Global Strategy __% __% -- __%
- ----------------------------------------------------- ------------------ ------------------- ------------------ ------------------
MSCI EAFE Index __% __% -- __%
- ----------------------------------------------------- ------------------ ------------------- ------------------ ------------------
MFS Emerging Growth Fund __% __% __% --
- ----------------------------------------------------- ------------------ ------------------- ------------------ ------------------
Russell 2000 Index __% __% __% --
- ----------------------------------------------------- ------------------ ------------------- ------------------ ------------------
MSF Research Fund __% __% __% --
- ----------------------------------------------------- ------------------ ------------------- ------------------ ------------------
S&P 500 Index __% __% __% --
- ----------------------------------------------------- ------------------ ------------------- ------------------ ------------------
MSIF Emerging Markets Portfolio __% __% -- __%
- ----------------------------------------------------- ------------------ ------------------- ------------------ ------------------
IFC Global Total Return Composite Index __% __% -- __%
- ----------------------------------------------------- ------------------ ------------------- ------------------ ------------------
The George Putnam Fund of Boston __% __% __% --
- ----------------------------------------------------- ------------------ ------------------- ------------------ ------------------
</TABLE>
72
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------- ------------------ ------------------- ------------------ ------------------
SINCE
FUND NAME 1 YEAR 5 YEAR 10 YEAR INCEPTION
- ----------------------------------------------------- ------------------ ------------------- ------------------ ------------------
<S> <C> <C> <C> <C>
S&P 500 Index __% __% __% --
- ----------------------------------------------------- ------------------ ------------------- ------------------ ------------------
Putnam Growth & Income Fund II __% -- -- __%
- ----------------------------------------------------- ------------------ ------------------- ------------------ ------------------
S&P 500 Index __% -- -- __%
- ----------------------------------------------------- ------------------ ------------------- ------------------ ------------------
Putnam International Growth Fund __% __% -- __%
- ----------------------------------------------------- ------------------ ------------------- ------------------ ------------------
MSCI EAFE Index __% __% -- __%
- ----------------------------------------------------- ------------------ ------------------- ------------------ ------------------
Putnam Investors Fund __% __% __% --
- ----------------------------------------------------- ------------------ ------------------- ------------------ ------------------
S&P 500 Index __% __% __% --
- ----------------------------------------------------- ------------------ ------------------- ------------------ ------------------
T. Rowe Price Equity Income Fund __% __% __% --
- ----------------------------------------------------- ------------------ ------------------- ------------------ ------------------
S&P 500 Index __% __% __% --
- ----------------------------------------------------- ------------------ ------------------- ------------------ ------------------
T. Rowe Price International Stock Fund __% __% __% --
- ----------------------------------------------------- ------------------ ------------------- ------------------ ------------------
MSCI EAFE Index __% __% __% --
- ----------------------------------------------------- ------------------ ------------------- ------------------ ------------------
Warburg Pincus Small Company Value Fund __% -- -- __%
- ----------------------------------------------------- ------------------ ------------------- ------------------ ------------------
Russell 2000 Index __% -- -- __%
- ----------------------------------------------------- ------------------ ------------------- ------------------ ------------------
Evergreen Fund 5.25% 15.16% 12.25% 16.03%
- ----------------------------------------------------- ------------------ ------------------- ------------------ ------------------
Russell 2000 Index __% __% __% __%
- ----------------------------------------------------- ------------------ ------------------- ------------------ ------------------
Evergreen Foundation Fund 5.09% 82.38% __% 16.03%
- ----------------------------------------------------- ------------------ ------------------- ------------------ ------------------
S&P 500 Index __% __% __% __%
- ----------------------------------------------------- ------------------ ------------------- ------------------ ------------------
Massachusetts Investors Trust __% __% __% __%
- ----------------------------------------------------- ------------------ ------------------- ------------------ ------------------
S&P 500 Index __% __% __% __%
- ----------------------------------------------------- ------------------ ------------------- ------------------ ------------------
</TABLE>
73
<PAGE>
EQ ADVISORS TRUST
STATEMENT OF ADDITIONAL INFORMATION
May 1, 1998 as supplemented on January 1, 1999
This Statement of Additional Information is not a prospectus. It should be read
in conjunction with the Prospectus for the EQ Advisors Trust ("Trust") dated
May 1, 1998 as supplemented on January 1, 1999, as appropriate, which may be
obtained without charge by writing to the Trust at 1290 Avenue of the Americas,
New York, New York 10104. Unless otherwise defined herein, capitalized terms
have the meanings given to them in the Prospectus.
TABLE OF CONTENTS
PAGE
General Information and History
Investment Restrictions
Description of Certain Securities in which the Portfolios May Invest
Management of the Trust
Investment Management and Other Services
Brokerage Strategy
Purchase and Pricing of Shares
Redemption of Shares
Certain Tax Considerations
Portfolio Performance
Other Services
Financial Statements
Appendix
<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, MFS
Growth with Income Portfolio, Morgan Stanley Emerging Markets Equity Portfolio,
Warburg Pincus Small Company Value Portfolio, Merrill Lynch World Strategy
Portfolio, Merrill Lynch Basic Value Equity Portfolio, Lazard Large Cap Value
Portfolio, Lazard Small Cap Value Portfolio, JPM Core Bond Portfolio, BT Small
Company Index Portfolio, BT International Equity Index Portfolio, BT Equity 500
Index Portfolio, Evergreen Foundation Portfolio, and Evergreen 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 offered under the Trust's multi-class distribution
system, which is designed to allow promotion of insurance products investing in
the Trust through alternative distribution channels. Under the Trust's
multi-class distribution system, shares of each class of a Portfolio represent
an equal pro rata interest in that Portfolio and, generally, will have identical
voting, dividend, liquidation, and other rights, other than the payment of
distribution fees under the Distribution Plan.
The Trust continuously offers its shares to separate accounts of insurance
companies in connection with variable life insurance contracts and variable
annuity certificates and contracts (collectively, the "Contracts") and to
participants in tax-qualified retirement plans. Class IB shares currently are
sold only to separate accounts of The Equitable Life Assurance Society of the
United States ("Equitable Life"). Class IA shares currently are sold only to the
Equitable Investment Plan for Employees, Managers and Agents ("Equitable Plan").
Equitable Life may be deemed to be a control person with respect to the Trust by
virtue of its ownership of 100% of the Trust's shares as of September 30, 1998.
Equitable Life is organized as a New York Stock life insurance company and is a
wholly owned subsidiary of The Equitable Companies, Incorporated, a subsidiary
of AXA, a French insurance holding company.
As a "series" type of mutual fund, the Trust issues separate series of shares
of beneficial interest with respect to each Portfolio. Each Portfolio resembles
a separate fund issuing a separate class of stock. Because of current federal
securities law requirements, the Trust expects that its shareholders will offer
to owners of the Contracts (the "Contract owners") and participants in the
Equitable Plan the opportunity to instruct them as to how shares allocable to
their Contracts or to the Equitable Plan will be voted with respect to certain
matters, such as approval of investment advisory agreements. To the Trust's
knowledge, as of the date of this Statement of Additional Information ("SAI"),
no Contract owners owned Contracts entitling such persons to give voting
instructions regarding more than 5% of the outstanding shares of any Portfolio.
As of the date of this SAI, no participant in the Equitable Plan had interests
in the Equitable Plan entitling such person to give voting instructions
regarding more than 5% of the outstanding shares of any Portfolio.
The Trust may in the future offer its shares to separate accounts of insurance
companies unaffiliated with Equitable Life, as well as to tax-qualified
retirement plans in addition to the Equitable Plan. The Trust does not
currently foresee any disadvantages to Contract owners or participants in the
Equitable Plan arising from offering the Trust's shares to separate accounts of
insurance companies that are unaffiliated with each other or to tax-qualified
retirement plans in addition to the Equitable Plan. However, it is
theoretically possible that, at some time, the interests of various Contract
owners participating in the Trust through their separate accounts and
tax-qualified retirement plans might conflict. In the case of a material
irreconcilable conflict, one or more separate accounts or tax-qualified
retirement plans might withdraw their investments in the Trust, which would
possibly force the Trust to sell portfolio securities at disadvantageous
prices. The Trustees of the Trust intend to monitor events for the existence of
any material irreconcilable conflicts between or
- 2 -
<PAGE>
among such separate accounts and tax-qualified retirement plans and will take
whatever remedial action may be necessary.
EQ Financial Consultants, Inc. ("Manager") is the investment manager for each
Portfolio. T. Rowe Price Associates, Inc. ("T. Rowe Price"), Rowe Price-Fleming
International, Inc. ("Price Fleming"), Putnam Investment Management, Inc.
("Putnam Management"), Massachusetts Financial Services Company ("MFS"), Morgan
Stanley Asset Management Inc. ("MSAM"), Warburg Pincus Asset Management, Inc.
("Warburg"), Merrill Lynch Asset Management, L.P. ("MLAM"), Lazard Asset
Management ("LAM"), a division of Lazard Freres and Company, LLC, J.P. Morgan
Investment Management Inc. ("J.P. Morgan"), Bankers Trust Company ("Bankers
Trust"), and Evergreen Asset Management Corp. ("Evergreen") (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.
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 Equity Portfolio, the Merrill Lynch World Strategy Portfolio and the
Lazard Small Cap Value Portfolio. Certain non-fundamental operating policies are
also described in this section because of their direct relevance to the
fundamental restrictions adopted by the Portfolios.
Each Portfolio, except as described directly above, may not as a matter of
fundamental policy:
(1) Borrow money, except that:
a. each Portfolio may (i) borrow for non-leveraging,
temporary or emergency purposes (except the Lazard
Large Cap Value Portfolio, which may also borrow
for leveraging purposes) and (ii) engage in reverse
repurchase agreements, make other investments or
engage in other transactions, which may involve a
borrowing, in a manner consistent with the
Portfolios' 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'
- 3 -
<PAGE>
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, except the Lazard Large Cap Value
Portfolio, will purchase additional securities
when money borrowed exceeds 5% of its total
assets.
c. the EQ/Putnam Growth & Income Value Portfolio,
EQ/Putnam International Equity Portfolio, EQ/Putnam
Investors Growth Portfolio, EQ/Putnam Balanced
Portfolio, and Lazard Large Cap Value Portfolio
each, as a matter of non-fundamental operating
policy, may borrow only from banks (i) as a
temporary measure to facilitate the meeting of
redemption requests (not for leverage) which might
otherwise require the untimely disposition of
portfolio investments or (ii) for extraordinary or
emergency purposes, provided that the combination
of (i) and (ii) shall not exceed 10% of the
applicable Portfolio's net assets (taken at lower
of cost or current value), not including the amount
borrowed, at the time the borrowing is made. Each
Portfolio will repay borrowings made for the
purposes specified above before any additional
investments are purchased. In addition, the Lazard
Large Cap Value Portfolio may borrow for leveraging
purposes (in order to increase its investment in
portfolio securities) to the extent that the amount
so borrowed does not exceed 33 1/3% of the
Portfolio's total assets (including the amount
borrowed) less liabilities (other than borrowings).
d. the Merrill Lynch World Strategy Portfolio, as a
matter of fundamental policy, and the Merrill Lynch
Basic Value Equity Portfolio, as a matter of
non-fundamental operating policy, may, to the
extent permitted by applicable law, borrow up to an
additional 5% of their respective total assets for
temporary purposes;
e. the Lazard Small Cap Value Portfolio, as a matter
of non-fundamental operating policy, may borrow
only from banks (i) as a temporary measure to
facilitate the meeting of redemption requests (not
for leverage) which might otherwise require the
untimely disposition of portfolio investments or
(ii) for extraordinary or emergency purposes,
provided that the combination of (i) and (ii) shall
not exceed 15% of the Portfolio's net assets, not
including the amount borrowed, at the time the
borrowing is made. The Lazard Small Cap Value
Portfolio will repay borrowings before any
additional investments are purchased.
f. the Warburg Pincus Small Company Value Portfolio
and JPM Core Bond Portfolio, each as a matter of
non-fundamental operating policy, may borrow only
from banks for extraordinary or emergency purposes,
provided such amount shall not exceed 30% of the
respective Portfolio's total assets, not including
the amount borrowed, at the time the borrowing is
made.
<PAGE>
g. Evergreen Portfolio and Evergreen Foundation
Portfolio, each as a matter of non-fundamental
policy, may, in addition to the amount specified
above, also borrow up to an additional 5% of its
total assets from banks or other lenders.
h. the MFS Growth with Income Portfolio, as a
matter of non-fundamental policy, may borrow up
to 10% of its total assets (taken at cost), or
its net assets (taken at market value), whichever
is less, but only as a temporary measure for
extraordinary or emergency purposes;
(2) Purchase or sell physical commodities, except that it may (i) enter into
futures contracts and options thereon in accordance with applicable law and (ii)
purchase or sell physical commodities if acquired as a result of ownership of
securities or other instruments. No Portfolio will consider stock index futures
contracts, currency contracts, hybrid investments, swaps or other similar
instruments to be commodities.
- 4 -
<PAGE>
(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. The
United States, state or local governments, or related agencies or
instrumentalities are not considered an industry. Industries are determined by
reference to the classifications of industries set forth in each Portfolio's
semi-annual and annual reports;
(4) Make loans, except that:
a. 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. For purposes of this
restriction, each Portfolio will treat purchases of
loan participations and other direct indebtedness,
including investments in mortgages, as not subject
to this limitation;
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, BT
Small Company Index Portfolio, BT International
Equity Index Portfolio, and BT Equity 500 Index
Portfolio, as a matter of non-fundamental operating
policy, may each lend its portfolio securities
provided that no such loan may be made if, as a
result, the aggregate of such loans would exceed
30% of such Portfolio's total assets (taken at
market value); and
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 each lend its
portfolio securities provided that no such loan may
be made if, as a result, the aggregate of such
loans would exceed 20% of such Portfolio's total
assets (taken at market value);
e. the Lazard Large Cap Value Portfolio and the Lazard
Small Cap Value Portfolio, as a matter of
non-fundamental policy, may each lend its portfolio
securities provided that no such loan may be made
if, as a result, the aggregate of such loans would
exceed 10% of such Portfolio's total assets (taken
at market value);
f. MFS Growth with Income Portfolio, as a matter of
non-fundamental operating policy, may lend its
portfolio securities provided that no such loan
may be made if, as a result, the aggregate of
such loans would exceed 25% of its net assets
(taken at market value);
(5) Purchase a security if, as a result, with respect to 75% of the value of
its total assets, more than 5% of the value of the Portfolio's total assets
would be invested in the securities of a single issuer, except securities
issued or guaranteed by the United States Government, its agencies or
instrumentalities.*
(6) Purchase a security if, as a result, with respect to 75% of the value of the
Portfolio's total assets, more than 10% of the outstanding voting securities of
any issuer would be held by the Portfolio (other than obligations issued or
guaranteed by the United States Government, its agencies or instrumentalities);*
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* The Morgan Stanley Emerging Markets Equity Portfolio, Merrill Lynch World
Strategy Portfolio and Lazard Small Cap Value Portfolio are classified as
non-diversified investment companies under the 1940 Act and therefore these
restrictions are not applicable to these Portfolios.
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<PAGE>
(7) Purchase or sell real estate, except that:
a. each Portfolio, except the JPM Core Bond Portfolio,
may purchase securities of issuers which deal in
real estate, securities which are directly or
indirectly secured by interests in real estate, and
securities which represent interests in real
estate, and each Portfolio may acquire and dispose
of real estate or interests in real estate acquired
through the exercise of its rights as a holder of
debt obligations secured by real estate or
interests therein;
b. the JPM Core Bond Portfolio may (i) invest in
securities of issuers that invest in real estate or
interests therein, (ii) invest in securities that
are secured by real estate or interests therein
(iii) make direct investments in mortgages, (iv)
purchase and sell mortgage-related securities and
(v) hold and sell real estate acquired by the
Portfolio as a result of the ownership of
securities including mortgages.
(8) Issue senior securities except in compliance with the 1940 Act; or
(9) Underwrite securities issued by other persons, except to the extent that the
Portfolio may be deemed to be an underwriter within the meaning of the
Securities Act of 1933, as amended (the "1933 Act"), in connection with the
purchase and sale of its portfolio securities in the ordinary course of pursuing
its investment objective, policies and program.
NON-FUNDAMENTAL RESTRICTIONS
The following investment restrictions apply to each Portfolio, but are not
fundamental. They may be changed for any Portfolio without a vote of that
Portfolio's shareholders.
Each Portfolio may not:
(1) Purchase a futures contract or an option thereon if, with respect to
positions in futures or options on futures which do not represent bona fide
hedging, the aggregate initial margin and premiums on such options would
exceed 5% of the Portfolio's net asset value;
(2) Purchase: (a) illiquid securities, (b) securities restricted as to resale
(excluding securities determined by the Board of Trustees to be readily
marketable), and (c) repurchase agreements maturing in more than seven days if,
as a result, more than 15% of each Portfolio's net assets (10% for the Warburg
Pincus Small Company Value Portfolio, Lazard Large Cap Value Portfolio and
Lazard Small Cap Value Portfolio) would be invested in such securities.
Securities purchased in accordance with Rule 144A under the 1933 Act and
determined to be liquid by the Trust's Board are not subject to the limitations
set forth in this investment restriction;
(3) Purchase securities on margin, except that each Portfolio may: (a) make use
of any short-term credit necessary for clearance of purchases and sales of
portfolio securities and (b) make initial or variation margin deposits in
connection with futures contracts, options, currencies, or other permissible
investments.
(4) Mortgage, pledge, hypothecate or, in any manner, transfer any security owned
by the Portfolio as security for indebtedness, except as may be necessary in
connection with permissible borrowings or investments; and then such mortgaging,
pledging or hypothecating may not exceed 33 1/3% of the respective total assets
of each Portfolio (except as specified below for the EQ/Putnam International
Equity Portfolio, Merrill Lynch World Strategy Portfolio, Merrill Lynch Basic
Value Equity Portfolio, MFS Investor Portfolio). Such mortgaging, pledging or
hypothecating may not exceed 15% of EQ/Putnam International Equity Portfolio's
total assets; 10% of each of the Merrill Lynch World Strategy Portfolio's and
Merrill Lynch Basic Value Equity Portfolio's total assets, (taken at the lower
of cost or market value); and 15% of MFS Investor Portfolio's gross assets
(taken at cost), each taken at the time of the permissible borrowing or
investment. The deposit of underlying securities and other assets in escrow and
collateral arrangements with respect to margin accounts for futures contracts,
options, currencies or other permissible investments are not deemed to be
mortgages, pledges, or hypothecations for these purposes;
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(5) Purchase participations or other direct interests in or enter into leases
with respect to, oil, gas, or other mineral exploration or development programs,
except that the MFS Emerging Growth Companies Portfolio, Warburg Pincus Small
Company Value Portfolio, Merrill Lynch World Strategy Portfolio, Merrill Lynch
Basic Value Equity Portfolio, JPM Core Bond Portfolio, Evergreen Foundation
Portfolio, and Evergreen 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 ("PFICs"). 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
Set forth below are description of certain securities in which various
Portfolios may invest. For information as to which Portfolios may invest
and to what extent they invest in each of these securities, please see the
Prospectus for the Trust.
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 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
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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
United States dollar price of the security. By entering into a forward contract
for the purchase or sale, for a fixed amount of dollars, of the amount of
foreign currency involved in the underlying security transactions, the Portfolio
will be able to protect itself against a possible loss resulting from an adverse
change in the relationship between the United States dollar and the subject
foreign currency during the period between the date the security is purchased or
sold and the date on which payment is made or received.
Second, when a Portfolio's Adviser believes that one currency may experience a
substantial movement against another currency, including the United States
dollar, it may enter into a forward contract to sell or buy the amount of the
former foreign currency, approximating the value of some or all of the
Portfolio's portfolio securities denominated in such foreign currency.
Alternatively, where appropriate, the Portfolio may hedge all or part of its
foreign currency exposure through the use of a basket of currencies,
multinational currency units, or a proxy currency where such currency or
currencies act as an effective proxy for other currencies. In such a case, the
Portfolio may enter into a forward contract where the amount of the foreign
currency to be sold exceeds the value of the securities denominated in such
currency. The use of this basket hedging technique may be more efficient and
economical than entering into separate forward contracts for each currency held
in the Portfolio.
The precise matching of the forward contract amounts and the value of the
securities involved will not generally be possible since the future value of
such securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the forward contract
is entered into and the date it matures. The projection of short-term currency
market movement is extremely difficult, and the successful execution of a
short-term hedging strategy is highly uncertain. Under normal circumstances,
consideration of the prospect for currency parities will be incorporated into
the diversification strategies. However, the Adviser to the Portfolio believes
that it is important to have the flexibility to enter into such forward
contracts when it determines that the best interests of the Portfolio will be
served.
A Portfolio may enter into forward contracts for any other purpose consistent
with the Portfolio's investment objective and program. However, the Portfolio
will not enter into a forward contract, or maintain exposure to any such
contract(s), if the amount of foreign currency required to be delivered
thereunder would exceed the Portfolio's holdings of liquid, securities and
currency available for cover of the forward contract(s). In determining the
amount to be delivered under a contract, the Portfolio may net offsetting
positions.
At the maturity of a forward contract, a Portfolio may sell the portfolio
security and make delivery of the foreign currency, or it may retain the
security and either extend the maturity of the forward contract (by "rolling"
that contract forward) or may initiate a new forward contract. If a Portfolio
retains the portfolio security and engages in an offsetting transaction, the
Portfolio will incur a gain or a loss (as described below) to the extent that
there has been movement in
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<PAGE>
forward contract prices. If the Portfolio engages in an offsetting transaction,
it may subsequently enter into a new forward contract to sell the foreign
currency.
Should forward prices decline during the period between the Portfolio's entering
into a forward contract for the sale of a foreign currency and the date it
enters into an offsetting contract for the purchase of the foreign currency, the
Portfolio will realize a gain to the extent the price of the currency it has
agreed to sell exceeds the price of the currency it has agreed to purchase.
Should forward prices increase, the Portfolio will suffer a loss to the extent
the price of the currency it has agreed to purchase exceeds the price of the
currency it has agreed to sell.
Although the Portfolio values its assets daily in terms of United States
dollars, it does not intend to convert its holdings of foreign currencies into
United States dollars on a daily basis. The 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, if permitted in the Prospectus, may purchase or sell
exchange-traded foreign currency options, foreign currency futures contracts and
related options on foreign currency futures contracts as a hedge against
possible variations in foreign exchange rates. The Portfolios will write options
on foreign currency or on foreign currency futures contracts only if they are
"covered." A put on a foreign currency or on a foreign currency futures contract
written by a Portfolio will be considered "covered" if, so long as the Portfolio
is obligated as the writer of the put, it segregates with the Portfolio's
custodian cash, United States Government securities or other liquid high-grade
debt securities equal at all times to the aggregate exercise price of the put. A
call on a foreign currency or on a foreign currency 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 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 23.
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<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 United States
dollars. Dividend and interest payments will be repatriated based on the
exchange rate at the time of disbursement, and restrictions on capital flows may
be imposed.
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. Depositary receipts exist for many foreign securities.
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 United States financial institution
which evidence ownership interests in a security 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 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.
Depositary receipts may be "sponsored" or "unsponsored". Sponsored depositary
receipts are established jointly by a depositary and the underlying issuer,
whereas unsponsored depositary receipts may be established by a depositary
without participation by the underlying issuer. Holders of an unsponsored
depositary receipt generally bear all the costs associated with establishing the
unsponsored depositary receipt. In addition, the issuers of the securities
underlying unsponsored depositary receipts are not obligated to disclose
material information in the United States and, therefore, there may be less
information available regarding such issuers and there may not be a correlation
between such information and the market value of the depositary receipts. For
purposes of a Portfolio's investment policies, the Portfolio's investment in
depositary receipts will be deemed to be investments in the underlying
securities except as noted.
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
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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. 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 custodian containing certain
protective conditions, including, among other things, the custodian's right to
conduct regular share confirmations on behalf of a Portfolio. This requirement
will likely have the effect of precluding investments in certain Russian
companies that a Portfolio would otherwise make.
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 United States economy in such respects as growth of gross
domestic product, rate of inflation, currency depreciation, capital
reinvestment, resource self-sufficiency and balance of payments position.
Further, the economies of developing countries generally are heavily dependent
upon international trade and, accordingly, have been, and may continue to be,
adversely affected by trade barriers, exchange controls, managed adjustments in
relative currency values and other protectionist measures imposed or negotiated
by the countries with which they trade. These economies also have been, and may
continue to be, adversely affected by economic conditions in the countries with
which they trade.
Investing in emerging market countries may entail purchasing securities issued
by or on behalf of entities that are insolvent, bankrupt, in default or
otherwise engaged in an attempt to reorganize or reschedule their obligations,
and in entities that have little or no proven credit rating or credit history.
In any such case, the issuer's poor or deteriorating financial condition may
increase the likelihood that the investing Portfolio will experience losses or
diminution in available gains due to bankruptcy, insolvency or fraud.
Special Considerations Concerning the Pacific Basin. Many Asian countries may be
subject to a greater degree of social, political and economic instability than
is the case in the United States and European countries. Such instability may
result from (i) authoritarian governments or military involvement in political
and economic decision-making; (ii) popular unrest associated with demands for
improved political, economic and social conditions; (iii) internal insurgencies;
(iv) hostile relations with neighboring countries; and (v) ethnic, religious and
racial disaffection.
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The economies of most of the Asian countries are heavily dependent on
international trade and are accordingly affected by protective trade barriers
and the economic conditions of their trading partners, principally, the United
States, Japan, China and the European Community. The enactment by the United
States or other principal trading partners of protectionist trade legislation,
reduction of foreign investment in the local economies and general declines in
the international securities markets could have a significant adverse effect
upon the securities markets of the Asian countries.
The securities markets in Asia are substantially smaller, less liquid and more
volatile than the major securities markets in the United States. A high
proportion of the shares of many issuers may be held by a limited number of
persons and financial institutions, which may limit the number of shares
available for investment by a Portfolio. Similarly, volume and liquidity in the
bond markets in Asia are less than in the United States and, at times, price
volatility can be greater than in the United States. A limited number of issuers
in Asian securities markets may represent a disproportionately large percentage
of market capitalization and trading value. The limited liquidity of securities
markets in Asia may also affect a Portfolio's ability to acquire or dispose of
securities at the price and time it wishes to do so. In addition, the Asian
securities markets are susceptible to being influenced by large investors
trading significant blocks of securities.
Many stock markets are undergoing a period of growth and change which may result
in trading volatility and difficulties in the settlement and recording of
transactions, and in interpreting and applying the relevant law and regulations.
With respect to investments in the currencies of Asian countries, changes in the
value of those currencies against the United States dollar will result in
corresponding changes in the United States dollar value of a Portfolio's assets
denominated in those currencies.
Eurodollar and Yankee Dollar Obligations. Eurodollar bank obligations are United
States dollar-denominated certificates of deposit and time deposits issued
outside the United States capital markets by foreign branches of United States
banks and by foreign banks. Yankee dollar bank obligations are United States
dollar-denominated obligations issued in the United States capital markets by
foreign banks.
Eurodollar and Yankee dollar obligations are subject to the same risks that
pertain to domestic issues, notably credit risk, market risk and liquidity risk.
Additionally, Eurodollar (and to a limited extent, Yankee dollar) obligations
are subject to certain sovereign risks. One such risk is the possibility that a
sovereign country might prevent capital, in the form of dollars, from flowing
across its borders. Other risks include adverse political and economic
developments; the extent and quality of government regulation of financial
markets and institutions; the imposition of foreign withholding taxes; and the
expropriation or nationalization of foreign issuers.
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 date the transactions are entered into, although the Portfolio may close out
its position prior to the settlement date by entering into a matching sales
transaction.
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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 the margin. However, if the
value of a position increases because of favorable price changes in the futures
contract so that the margin deposit exceeds the required margin, the broker will
pay the excess to the Portfolio. These subsequent payments called "variation
margin," to and from the futures broker, are made on a daily basis as the price
of the underlying assets fluctuate making the long and short positions in the
futures contract more or less valuable, a process known as "marking to the
market." The Portfolios expect to earn interest income on their initial and
variation margin deposits.
A Portfolio will incur brokerage fees when it purchases and sells futures
contracts. Positions taken in the futures markets are not normally held until
delivery or cash settlement is required, but are instead liquidated through
offsetting transactions which may result in a gain or a loss. While futures
positions taken by a Portfolio will usually be liquidated in this manner, the
Portfolio may instead make or take delivery of underlying securities whenever it
appears economically advantageous for the Portfolio to do so. A clearing
organization associated with the exchange on which futures are traded assumes
responsibility for closing out transactions and guarantees that as between the
clearing members of an exchange, the sale and purchase obligations will be
performed with regard to all positions that remain open at the termination of
the contract.
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
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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 or excepted 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 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
present less risk in hedging than the purchase and sale of the underlying
futures contracts since the potential loss is limited to the amount of the
premium plus related transaction costs.
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The purchase of put options on futures contracts is a means of hedging a
portfolio of securities against a general decline in market prices. The
purchase of a call option on a futures contract represents a means of hedging
against a market advance when a Portfolio is not fully invested.
The writing of a call option on a futures contract constitutes a partial hedge
against declining prices of the underlying securities. If the futures price at
expiration is below the exercise price, the Portfolio will retain the full
amount of the option premium, which provides a partial hedge against any decline
that may have occurred in the value of the Portfolio's holdings of securities.
The writing of a put option on a futures contract is analogous to the purchase
of a futures contract in that it hedges against an increase in the price of
securities the Portfolio intends to acquire. However, the hedge is limited to
the amount of premium received for writing the put.
Limitations on Purchase and Sale of Futures Contracts and Options on Futures
Contracts. The Portfolios will not engage in transactions in futures contracts
and related options for speculation. In addition, the Portfolios will not
purchase or sell futures contracts or related options unless either (1) the
futures contracts or options thereon are purchased for "bona fide hedging"
purposes (as that term is defined under the CFTC regulations) or (2) if
purchased for other purposes, the sum of the amounts of initial margin deposits
on a Portfolio's existing futures and premiums required to establish non-hedging
positions would not exceed 5% of the liquidation value of the Portfolio's total
assets. In instances involving the purchase of futures contracts or the writing
of put options thereon by a Portfolio, an amount of cash and cash equivalents,
equal to the cost of such futures contracts or options written (less any related
margin deposits), will be deposited in a segregated account with its custodian,
thereby insuring that the use of such futures contracts and options is
unleveraged. In instances involving the sale of futures contracts or the writing
of call options thereon by a Portfolio, the securities underlying such futures
contracts or options will at all times be maintained by the Portfolio or, in the
case of index futures and related options, the Portfolio will own securities the
price changes of which are, in the opinion of its Adviser, expected to replicate
substantially the movement of the index upon which the futures contract or
option is based.
For information concerning the risks associated with utilizing options, futures
contracts, and forward foreign currency exchange contracts, please see "Risks
of Transactions in Options, Futures Contracts and Forward Currency Contracts"
on page 24.
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 depositary instrument ("Hybrid Instruments"). Generally, a Hybrid Instrument
will be a debt security, preferred stock, depositary share, trust certificate,
certificate of deposit or other evidence of indebtedness on which a portion of
or all interest payments, and/or the principal or stated amount payable at
maturity, redemption or retirement, is determined by reference to prices,
changes in prices, or differences between prices, of securities, currencies,
intangibles, goods, articles or commodities (collectively "Underlying Assets")
or by another objective index, economic factor or other measure, such as
interest rates, currency exchange rates, commodity indices, and securities
indices (collectively "Benchmarks"). Thus, Hybrid Instruments may take a variety
of forms, including, but not limited to, debt instruments with interest or
principal payments or redemption terms determined by reference to the value of a
currency or commodity or securities index at a future point in time, preferred
stock with dividend rates determined by reference to the value of a currency, or
convertible securities with the conversion terms related to a particular
commodity.
Hybrid Instruments can be an efficient means of creating exposure to a
particular market, or segment of a market, with the objective of enhancing total
return. For example, a Portfolio may wish to take advantage of expected declines
in interest rates in several European countries, but avoid the transaction costs
associated with buying and currency-hedging the foreign bond positions. One
solution would be to purchase a United States dollar-denominated Hybrid
Instrument whose redemption price is linked to the average three year interest
rate in a designated group of countries. The redemption price formula would
provide for payoffs of greater than par if the average interest rate was lower
than a specified level, and payoffs of less than par if rates were above the
specified level. Furthermore, a Portfolio could limit the downside risk of the
security by establishing a minimum redemption price so that the principal paid
at maturity could not be below a predetermined minimum level if interest rates
were to rise significantly. The purpose of this arrangement,
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known as a structured security with an embedded put option, would be to give
the Portfolio the desired European bond exposure while avoiding currency risk,
limiting downside market risk, and lowering transaction costs. Of course, there
is no guarantee that the strategy will be successful and a Portfolio could lose
money if, for example, interest rates do not move as anticipated or credit
problems develop with the issuer of the Hybrid Instrument.
The risks of investing in Hybrid Instruments reflect a combination of the risks
of investing in securities, options, futures and currencies. The risks of a
particular Hybrid Instrument will, of course, depend upon the terms of the
instrument, but may include, without limitation, the possibility of significant
changes in the Benchmarks or the prices of Underlying Assets to which the
instrument is linked. Such risks generally depend upon factors which are
unrelated to the operations or credit quality of the issuer of the Hybrid
Instrument and which may not be readily foreseen by the purchaser, such as
economic and political events, the supply and demand for the Underlying Assets
and interest rate movements. In recent years, various Benchmarks and prices for
Underlying Assets have been highly volatile, and such volatility may be expected
in the future.
Hybrid Instruments are potentially more volatile and carry greater market risks
than traditional debt instruments. Depending on the structure of the particular
Hybrid Instrument, changes in a Benchmark may be magnified by the terms of the
Hybrid Instrument and have an even more dramatic and substantial effect upon the
value of the Hybrid Instrument. Also, the prices of the Hybrid Instrument and
the Benchmark or Underlying Asset may not move in the same direction or at the
same time.
Hybrid Instruments may bear interest or pay preferred dividends at below market
(or even relatively nominal) rates. Alternatively, Hybrid Instruments may bear
interest at above market rates but bear an increased risk of principal loss (or
gain). The latter scenario may result if "leverage" is used to structure the
Hybrid Instrument. Leverage risk occurs when the Hybrid Instrument is structured
so that a given change in a Benchmark or Underlying Asset is multiplied 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 investment company
and limits such investments to no more than 5% of the Portfolio's total assets
in any investment company and no more than 10% in any combination of
unaffiliated investment companies. The 1940 Act also prohibits a Portfolio from
acquiring shares of an open-end investment company whose investment manager or
investment adviser is the Adviser or an affiliate of the Adviser to the
Portfolio purchasing such securities. The 1940 Act further prohibits a Portfolio
from acquiring in the aggregate more than 10% of the outstanding voting shares
of any registered closed-end investment company.
INVESTMENT GRADE AND LOWER QUALITY FIXED INCOME SECURITIES
Investment grade securities rated Baa by Moody's Investors Service Inc.
("Moody's") or BBB by Standard & Poor's Rating Services, 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
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circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than in the case of higher grade fixed income securities.
Fixed income investments that are rated in the lower categories by NRSROs
(i.e., Ba or lower by Moody's or BB or lower by S&P) or are unrated securities
of comparative quality are known as "junk bonds." 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 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.
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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 risks to a
Portfolio. For example, if a loan or other direct indebtedness is foreclosed, a
Portfolio could become part owner of any collateral, and would bear the costs
and liabilities associated with owning and disposing of the collateral. In
addition, it is conceivable that under emerging legal theories of lender
liability, a Portfolio could be held liable. It is unclear whether loans and
other forms of direct indebtedness offer securities law protections against
fraud and misrepresentation. In the absence of definitive regulatory guidance, a
Portfolio relies on the Adviser's research in an attempt to avoid situations
where fraud and misrepresentation could adversely affect a Portfolio. In
addition, loans and other direct investments may not be in the form of
securities or may be subject to restrictions on transfer, and only limited
opportunities may exist to resell such instruments. As a result, a Portfolio may
be unable to sell such investments at an opportune time or may have to resell
them at less than fair market value. To the extent that the Adviser determines
that any such investments are illiquid, a Portfolio will include them in the
investment limitations described below.
MORTGAGE AND 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.
As specified in the Prospectus, certain Portfolios may invest in collateralized
mortgage obligations ("CMOs") and stripped mortgage-backed securities that
represent a participation in, or are secured by, mortgage loans.
CMOs may be issued by a United States Government agency or instrumentality or by
a private issuer. Although payment of the principal of, and interest on, the
underlying collateral securing privately issued CMOs may be guaranteed by the
United States Government or its agencies or instrumentalities, these CMOs
represent obligations solely of the private
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issuer and are not insured or guaranteed by the United States Government, its
agencies or instrumentalities or any other person or entity. Prepayments could
cause early retirement of CMOs. CMOs are designed to reduce the risk of
prepayment for investors by issuing multiple classes of securities (or
"tranches"), each having different maturities, interest rates and payment
schedules, and with the principal and interest on the underlying mortgages
allocated among the several classes in various ways. Payment of interest or
principal on some classes or series of CMOs may be subject to contingencies or
some classes or series may bear some or all of the risk of default on the
underlying mortgages. CMOs of different classes or series are generally retired
in sequence as the underlying mortgage loans in the mortgage pool are repaid.
If enough mortgages are repaid ahead of schedule, the classes or series of a
CMO with the earliest maturities generally will be retired prior to their
maturities. Thus, the early retirement of particular classes or series of a CMO
held by a Portfolio would have the same effect as the prepayment of mortgages
underlying other mortgage-backed securities. Conversely, slower than
anticipated prepayments can extend the effective maturities of CMOs, subjecting
them to a greater risk of decline in market value in response to rising
interest rates than traditional debt securities, and, therefore, potentially
increasing the volatility of a Portfolio that invests in CMOs.
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 investments in these
securities. Conversely, POs tend to increase in value if prepayments are greater
than anticipated and decline if prepayments are slower than anticipated. The
secondary market for stripped mortgage-backed securities may be more volatile
and less liquid than that for other mortgage-backed securities, potentially
limiting the Portfolios' ability to buy or sell those securities at any
particular time.
The JPM Core Bond Portfolio may also invest in directly placed mortgages
including residential mortgages, multifamily mortgages, mortgages on cooperative
apartment buildings, commercial mortgages, and sale-leasebacks. Investment in
direct mortgages involve many of the same risks as investments in
mortgage-related securities. In addition, in the event that the Portfolio
forecloses on any non-performing mortgage, and acquires a direct interest in the
real property, the Portfolio will be subject to the risks generally associated
with the ownership of real property. There may be fluctuations in the market
value of the foreclosed property and its occupancy rates, rent schedules and
operating expenses. There may also be adverse changes in local, regional or
general economic conditions, deterioration of the real estate market and the
financial circumstances of tenants and sellers, unfavorable changes in zoning,
building, environmental and other laws, increased real property taxes, rising
interest rates, reduced availability and increased cost of mortgage borrowings,
the need for anticipated renovations, unexpected increases in the cost of
energy, environmental factors, acts of God and other factors which are beyond
the control of the Portfolio or the Adviser. Hazardous or toxic substances may
be present on, at or under the mortgaged property and adversely affect the value
of the property. In addition, the owners of the property containing such
substances may be held responsible, under various laws, for containing,
monitoring, removing or cleaning up such substances. The presence of such
substances may also provide a basis for other claims by third parties. Costs of
clean-up or of liabilities to third parties may exceed the value of the
property. In addition, these risks may be uninsurable. In light of these and
similar risks, it may be impossible to dispose profitably of properties in
foreclosure.
MORTGAGE DOLLAR ROLLS
The JPM Core Bond Portfolio may enter into mortgage dollar rolls in which the
Portfolio sells securities for delivery in the current month and simultaneously
contracts with the same counterparty to repurchase similar (same type, coupon
and maturity) but not identical securities on a specified future date. During
the roll period, the Portfolio loses the right to receive principal (including
prepayments of principal) and interest paid on the securities sold. However, the
Portfolio may benefit from the interest earned on the cash proceeds of the
securities sold until the settlement date of the forward
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purchase. The Portfolio will hold and maintain in a segregated account until
the settlement date cash or liquid securities in an amount equal to the forward
purchase price. The benefits derived from the use of mortgage dollar rolls
depend upon the Adviser's ability to manage mortgage prepayments. There is no
assurance that mortgage dollar rolls can be successfully employed.
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 1933 Act, securities which are otherwise not readily
marketable and repurchase agreements having a maturity of longer than seven
days. Securities which have not been registered under the 1933 Act are referred
to as private placements or restricted securities and are purchased directly
from the issuer or in the secondary market. Mutual funds do not typically hold a
significant amount of these restricted or other illiquid securities because of
the potential for delays on resale and uncertainty in valuation. Limitations on
resale may have an adverse effect on the marketability of portfolio securities
and a mutual fund might be unable to dispose of restricted or other illiquid
securities promptly or at reasonable prices and might thereby experience
difficulty satisfying redemptions within seven days. A mutual fund might also
have to register such restricted securities in order to dispose of them
resulting in additional expense and delay. Adverse market conditions could
impede such a public offering of securities.
In recent years, however, a large institutional market has developed for certain
securities that are not registered under the 1933 Act including repurchase
agreements, commercial paper, foreign securities, municipal securities and
corporate bonds and notes. Institutional investors depend on an efficient
institutional market in which the unregistered security can be readily resold or
on an issuer's ability to honor a demand for repayment. The fact that there are
contractual or legal restrictions on resale to the general public or to certain
institutions may not be indicative of the liquidity of such investments.
Rule 144A Securities will be considered illiquid and therefore subject to a
Portfolio's limit on the purchase of illiquid securities unless the Board or its
delegates determines that the Rule 144A Securities are liquid. In reaching
liquidity decisions, the Board of Trustees and its delegates may consider, inter
alia, the following factors: (i) the unregistered nature of the security; (ii)
the frequency of trades and quotes for the security; (iii) the number of dealers
wishing to purchase or sell the security and the number of other potential
purchasers; (iv) dealer undertakings to make a market in the security; and (v)
the nature of the security and the nature of the marketplace trades (e.g., the
time needed to dispose of the security, the method of soliciting offers and the
mechanics of the transfer).
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 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
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the amount paid to purchase a call option is less or more than the amount
received from the sale of the corresponding call option. Also, because
increases in the market price of a call option will generally reflect increases
in the market price of the underlying security, any loss resulting from the
exercise or closing out of a call option is likely to be offset in whole or
part by unrealized appreciation of the underlying security owned by the
Portfolio. When an underlying security is sold from the Portfolio's securities
portfolio, the Portfolio will effect a closing purchase transaction so as to
close out any existing covered call option on that underlying security.
Writing Put Options. The writer of a put option becomes obligated to purchase
the underlying security at a specified price during the option period if the
buyer elects to exercise the option before its expiration date. A Portfolio
which writes a put option will be required to "cover" it, for example, by
depositing and maintaining in a segregated account with its custodian cash,
United States Government securities or other liquid securities having a value
equal to or greater than the exercise price of the option.
The Portfolios may write put options either to earn additional income in the
form of option premiums (anticipating that the price of the underlying security
will remain stable or rise during the option period and the option will
therefore not be exercised) or to acquire the underlying security at a net cost
below the current value (e.g., the option is exercised because of a decline in
the price of the underlying security, but the amount paid by the Portfolio,
offset by the option premium, is less than the current price). The risk of
either strategy is that the price of the underlying security may decline by an
amount greater than the premium received. The premium which a Portfolio receives
from writing a put option will reflect, among other things, the current market
price of the underlying security, the relationship of the exercise price to that
market price, the historical price volatility of the underlying security, the
option period, supply and demand and interest rates.
A Portfolio may effect a closing purchase transaction to realize a profit on an
outstanding put option or to prevent an outstanding put option from being
exercised.
Purchasing Put and Call Options. A Portfolio may purchase put options on
securities to protect their holdings against a substantial decline in market
value. The purchase of put options on securities will enable a Portfolio to
preserve, at least partially, unrealized gains in an appreciated security in its
portfolio without actually selling the security. In addition, the Portfolio will
continue to receive interest or dividend income on the security. The Portfolios
may also purchase call options on securities to protect against substantial
increases in prices of securities that Portfolios intend to purchase pending
their ability to invest in an orderly manner in those securities. The Portfolios
may sell put or call options they have previously purchased, which could result
in a net gain or loss depending on whether the amount received on the sale is
more or less than the premium and other transaction costs paid on the put or
call option which was bought.
Securities Index 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.
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<PAGE>
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 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 24.
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 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
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<PAGE>
other liquid securities having a value not less than the repurchase price
(including accrued interest). The assets contained in the segregated account
will be marked-to-market daily and additional assets will be placed in such
account on any day in which the assets fall below the repurchase price (plus
accrued interest). A Portfolio's liquidity and ability to manage its assets
might be affected when it sets aside cash or portfolio securities to cover such
commitments. Reverse repurchase agreements involve the risk that the market
value of the securities retained in lieu of sale may decline below the price of
the securities a Portfolio has sold but is obligated to repurchase. In the
event the buyer of securities under a reverse repurchase agreement files for
bankruptcy or becomes insolvent, such buyer or its trustee or receiver may
receive an extension of time to determine whether to enforce a Portfolio's
obligation to repurchase the securities, and a Portfolio's use of the proceeds
of the reverse repurchase agreement may effectively be restricted pending such
decision.
In "dollar 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.
The effectiveness of hedging through the purchase of securities index options
will depend upon the extent to which price movements in the portion of the
securities portfolio being hedged correlate with price movements in the selected
securities index. Perfect correlation is not possible because the securities
held or to be acquired by a Portfolio will not exactly match the composition of
the securities indexes on which options are written. In the purchase of
securities index options the principal risk is that the premium and transaction
costs paid by a Portfolio in purchasing an option will be lost if the changes
(increase in the case of a call, decrease in the case of a put) in the level of
the index do not exceed the cost of the option.
Futures. The prices of futures contracts are volatile and are influenced, among
other things, by actual and anticipated changes in the market and interest
rates, which in turn are affected by fiscal and monetary policies and national
and international political and economic events.
Most United States futures exchanges limit the amount of fluctuation permitted
in futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of a
trading session. Once the daily limit has been reached in a particular type of
futures contract, no trades may be made on that day at a price beyond that
limit. The daily limit governs only price movement during a particular trading
day and therefore does not limit potential losses, because the limit may prevent
the liquidation of unfavorable positions. Futures contract prices have
occasionally moved to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of futures positions
and subjecting some futures traders to substantial losses.
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Because of the low margin deposits required, futures trading involves an
extremely high degree of leverage. As a result, a relatively small price
movement in a futures contract may result in immediate and substantial loss, as
well as gain, to the investor. For example, if at the time of purchase, 10% of
the value of the futures contract is deposited as margin, a subsequent 10%
decrease in the value of the futures contract would result in a total loss of
the margin deposit, before any deduction for the transaction costs, if the
account were then closed out. A 15% decrease would result in a loss equal to
150% of the original margin deposit, if the contract were closed out. Thus, a
purchase or sale of a futures contract may result in losses in excess of the
amount invested in the futures contract.
A decision of whether, when, and how to hedge involves skill and judgment, and
even a well-conceived hedge may be unsuccessful to some degree because of
unexpected market behavior, market trends or interest rate trends. There are
several risks in connection with the use by a Portfolio of futures contracts as
a hedging device. One risk arises because of the imperfect correlation between
movements in the prices of the futures contracts and movements in the prices of
the underlying instruments which are the subject of the hedge. A Portfolio's
Adviser will, however, attempt to reduce this risk by entering into futures
contracts whose movements, in its judgment, will have a significant correlation
with movements in the prices of the Portfolio's underlying instruments sought to
be hedged.
Successful use of futures contracts by a Portfolio for hedging purposes is also
subject to a Portfolio's ability to correctly predict movements in the direction
of the market. It is possible that, when a Portfolio has sold futures to hedge
its portfolio against a decline in the market, the index, indices, or
instruments underlying futures might advance and the value of the underlying
instruments held in the Portfolio's portfolio might decline. If this were to
occur, the Portfolio would lose money on the futures and also would experience a
decline in value in its underlying instruments.
Positions in futures contracts may be closed out only on an exchange or a board
of trade which provides the market for such futures. Although the Portfolios,
specified in the Prospectus, intend to purchase or sell futures only on
exchanges or boards of trade where there appears to be an active market, there
is no guarantee that such will exist for any particular contract or at any
particular time. If there is not a liquid market at a particular time, it may
not be possible to close a futures position at such time, and, in the event of
adverse price movements, a Portfolio would continue to be required to make daily
cash payments of variation margin. However, in the event futures positions are
used to hedge portfolio securities, the securities will not be sold until the
futures positions can be liquidated. In such circumstances, an increase in the
price of securities, if any, may partially or completely offset losses on the
futures contracts.
Foreign Options and Futures. Participation in foreign futures and foreign
options transactions involves the execution and clearing of trades on or subject
to the rules of a foreign board of trade. Neither the National Futures
Association nor any domestic exchange regulates activities of any foreign boards
of trade, including the execution, delivery and clearing of transactions, or has
the power to compel enforcement of the rules of a foreign board of trade or any
applicable foreign law. This is true even if the exchange is formally linked to
a domestic market so that a position taken on the market may be liquidated by a
transaction on another market. Moreover, such laws or regulations will vary
depending on the foreign country in which the foreign futures or foreign options
transaction occurs. For these reasons, when a Portfolio trades foreign futures
or foreign options contracts, it may not be afforded certain of the protective
measures provided by the Commodity Exchange Act, the CFTC's regulations and the
rules of the National Futures Association and any domestic exchange, including
the right to use reparations proceedings before the CFTC and arbitration
proceedings provided by the National Futures Association or any domestic futures
exchange. In particular, funds received from a Portfolio for foreign futures or
foreign options transactions may not be provided the same protections as funds
received in respect of transactions on United States futures exchanges. In
addition, the price of any foreign futures or foreign options contract and,
therefore, the potential profit and loss thereon, may be affected by any
variance in the foreign exchange rate between the time the Portfolio's order is
placed and the time it is liquidated, offset or exercised.
Foreign Currency Contracts. Hedging against a decline in the value of a currency
does not eliminate fluctuations in the prices of portfolio securities or prevent
losses if the prices of such securities decline. These hedging transactions also
preclude the opportunity for gain if the value of the hedged 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,
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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,
United States Government securities, letters of credit or such other collateral
as may be permitted under a Portfolio's investment program. While the securities
are being loaned, a Portfolio will continue to receive the equivalent of the
interest or dividends paid by the issuer on the securities, as well as interest
on the investment of the collateral or a fee from the borrower. A Portfolio has
a right to call each loan and obtain the securities on five business days'
notice or, in connection with securities trading on foreign markets, within such
longer period for purchases and sales of such securities in such foreign
markets. A Portfolio will generally not have the right to vote securities while
they are being loaned, but its Manager or Adviser will call a loan in
anticipation of any important vote. The risks in lending portfolio securities,
as with other extensions of secured credit, consist of possible delay in
receiving additional collateral or in the recovery of the securities or possible
loss of rights in the collateral should the borrower fail financially. Loans
will only be made to firms deemed by a Portfolio's Adviser to be of good
standing and will not be made unless, in the judgment of the Adviser, the
consideration to be earned from such loans would justify the risk.
STRUCTURED NOTES
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 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
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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. A Portfolio may enter into OTC swap
transactions with counterparties that are approved by the Advisers in accordance
with guidelines established by the Board of Trustees. These guidelines provide
for a minimum credit rating for each counterparty and various credit enhancement
techniques (for example, collateralization of amounts due from counterparties)
to limit exposure to counterparties that have lower credit ratings.
The 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 March 31, 1998 the Trustees and officers of the Trust owned Contracts
entitling them to provide voting instructions in the aggregate with respect to
less than one percent of the Trust's shares of beneficial interest.
The Trustees
<TABLE>
<CAPTION>
NAME, ADDRESS AND AGE PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
<S> <C>
Peter D. Noris* (42) Executive Vice President and Chief Investment
Equitable Life Officer, Equitable Life since May 1995; prior
1290 Avenue of the Americas thereto, Vice President, Salomon Brothers Inc.,
New York, New York 10104 1992 to 1995. Principal, Equity Division, Morgan
Stanley & Co., Inc., 1984 to 1992. Director,
Alliance Capital Management Co. since July 1995.
Trustee, Hudson River Trust (investment company)
since July 1995. Executive Vice President, EQ
Financial Consultants, Inc. since November 1996.
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<PAGE>
Jettie M. Edwards (51) Partner and Consultant, Syrus Associates since 1986.
Syrus Associates Trustee, Provident Investment Counsel Trust (investment
880 Third Avenue company) since 1992. Director, The PBHG Funds, Inc.
New York, NY 10022 (investment company) since 1995.
William M. Kearns, Jr. (62) President, W.M. Kearns & Co., Inc., a private investment
W.M. Kearns & Co., Inc. company, since 1994; Director, Kuhlman Corporation, Malibu
310 South Street Entertainment Worldwide, Inc., Selective Insurance Group,
Morristown, NJ 07960 Inc., as well as a number of private and venture-backed
companies; Managing Director, Lehman Brothers, Inc. and
predecessor firms, 1969-1992; Advisory Director, Lehman
Brothers, Inc. 1992-1994.
Christopher P.A. Komisarjevsky (53) President and Chief Executive Officer,
Burson-Marsteller Burson-Marsteller USA since 1996. President and
230 Park Avenue South Chief Executive Officer, Burson-Marsteller New
New York, NY 10003-1566 York, 1995 to 1996. President and Chief Executive
Officer, Gavin Anderson & Company New York, 1994 to
1995. Prior thereto, he held various positions with
Hill and Knowlton, Inc. for twenty years.
Harvey Rosenthal (55) Independent Director and Investor, CVS Corporation
60 State Street (formerly Melville Corporation) since 1996.
Suite 700 President and Chief Operating Officer, CVS
Boston, MA 02109 Corporation from 1994 to 1996.
Prior thereto, he held various positions with CVS
division of Melville Corporation, for twenty-seven
years.
William T. McCaffrey* (61) Director, Senior Executive Vice President and Chief
89-25 63rd Avenue Operating Officer, Equitable Life, to March 1998.
Rego Park, NY 11374 Executive Vice President and Chief Administrative
Officer, The Equitable Companies Incorporated since
1994. Director, Equitable Foundation and Equitable
Distributors, Inc. since May 1996.
Michael Hegarty* (53) Director, President and Chief Operating Officer,
Equitable Life Equitable Life since April 1, 1998. Vice Chairman,
1290 Avenue of the Americas Chase Manhattan Corporation from 1996 to 1998. Vice
New York, New York 10104 Chairman, Chemical Bank, 1995 to 1996 (Chase
Manhattan Corporation and Chemical Bank merged in
1996). Senior Executive Vice President, Chemical
Bank, 1991-1995. Executive Vice President, Group
Executive and other various positions,
Manufacturers Hanover Trust.
</TABLE>
* Mr. Noris, Mr. McCaffrey and Mr. Hegarty are "interested persons" (as
defined in the 1940 Act) of the Trust. Mr. Noris, Mr. McCaffrey and
Mr. Hegarty are deemed "interested persons" of the Trust by virtue of their
position as officers of Equitable Life.
COMMITTEES OF THE BOARD
The Trust has a standing audit committee consisting of all of the Trust's
disinterested Trustees. The audit committee's function is to recommend to the
Board of Trustees a firm of independent accountants to conduct the annual audit
of the Trust's financial statements; review with such firm the outline, scope
and results of this annual audit; and review the performance and fees charged by
the independent accountants for professional services. In addition, the
committee meets with the independent accountants and representatives of
management to review accounting activities and areas of financial reporting and
control.
The Trust has a valuation committee consisting of Peter D. Noris, Harvey Blitz,
Norman Abrams, Kevin Byrne, and such other officers of the Trust, the Manager,
and Chase Global Funds Services Company, as well as such officers of any Adviser
to any Portfolio as are deemed necessary by Mr. Noris or Mr. Blitz from time to
time, each of whom shall serve at the pleasure of the Board of Trustees as
members of the Valuation Committee. This committee determines the value of any
of the Trust's securities and assets for which market quotations are not readily
available or for which valuation cannot otherwise be provided.
The Trust has a compensation committee consisting of Jettie M. Edwards, William
K. Kearns, Jr., Christopher P.A. Komisarjevsky and Harvey Rosenthal. The
compensation committee's function is to review the Trustees' compensation
arrangements.
- 27 -
<PAGE>
The Trust has a conflicts committee consisting of Peter D. Noris and William T.
McCaffrey. The conflicts committee's function is to take any action necessary to
resolve conflicts among shareholders.
Compensation of the Trustees
Each Trustee, other than those who are "interested persons" of the Trust (as
defined in the 1940 Act), receives from the Trust an annual fee of $25,000 plus
an additional fee of $1,000 per Board meeting and $500 per committee meeting
attended in person or by telephone.
TRUSTEE COMPENSATION TABLE*
<TABLE>
<CAPTION>
TRUSTEE AGGREGATE PENSION OR TOTAL
COMPENSATION RETIREMENT COMPENSATION
FROM THE TRUST BENEFITS ACCRUED FROM FUND
AS PART OF COMPLEX
TRUST EXPENSES
<S> <C> <C> <C>
Peter D. Noris $-0- $-0- $-0-
Jettie M. Edwards $30,000 $-0- $30,000
William M. Kearns, Jr. $30,000 $-0- $30,000
Christopher P.A. Komisarjevsky $30,000** $-0- $30,000**
Harvey Rosenthal $30,000 $-0- $30,000
William T. McCaffrey $-0- $-0- $-0-
Michael Hegarty*** $-0- $-0- $-0-
</TABLE>
* For the initial fiscal year.
** Mr. Komisarjevsky has elected to participate in the Trust's deferred
compensation plan. As of December 31, 1997, Mr. Komisarjevsky had
accrued $30,362 (including interest).
*** Mr. Hegarty joined the Board of Trustees on March 3, 1998.
A deferred compensation plan for the benefit of the Trustees has been adopted by
the Trust. Under the deferred compensation plan, each Trustee may defer payment
of all or part of the fees payable for such Trustee's services. Each Trustee may
defer payment of such fees until his or her retirement as a Trustee or until the
earlier attainment of a specified age. Fees deferred under the deferred
compensation plan, together with accrued interest thereon, will be disbursed to
a participating Trustee in monthly installments over a five to twenty year
period elected by such Trustee.
The Trust's Officers
No officer of the Trust receives any compensation paid by the Trust. Each
officer of the Trust is an employee of the Manager, Equitable Distributors,
Inc. ("EDI"), Equitable Life or Chase Global Funds Services Company. The
Trust's principal officers are:
<TABLE>
<CAPTION>
NAME, AGE AND POSITION WITH TRUST PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
<S> <C>
Peter D. Noris (42) (see above)
President
- 28 -
<PAGE>
Norman Abrams (49) Vice President and Associate General Counsel, Equitable Life since January 1997.
Vice President and Secretary Vice President and Counsel, Equitable Life from October 1991 to December 1996.
Counsel, Equitable Life from September 1991 to October 1991.
Harvey Blitz (51) Senior Vice President, Equitable Life since September 1987. Deputy Chief Financial
Vice President and Chief Financial Officer Officer, Equitable Life since September 1992. Senior Vice President, The Equitable
Companies Incorporated since July 1992. Director, The Equitable of Colorado, Inc.
since September 1992. Director and Chairman, Frontier Trust Company since April 1993
and September 1995, respectively. Director, Equitable Distributors, Inc., February
1995 to May 1996. Director and Senior Vice President, EquiSource since October 1992
and June 1993, respectively. Director and Executive Vice President, EQ Financial
Consultants, Inc. since September 1992 and November 1996, respectively. Director,
Equitable Realty Assets Corporation since December 1996.
Mary Breen (39) Vice President and Associate General Counsel, Equitable Life since October 1996.
Vice President Vice President and Counsel, Equitable Life, 1992 to 1996. Vice President and
Counsel, EQ Financial Consultants, Inc. since April 1997 and Equitable Distributors,
Inc. since March 1997.
Kevin R. Byrne (41) Vice President and Treasurer, The Equitable Companies Incorporated and Equitable
Vice President and Treasurer Life. Treasurer, Frontier Trust Company and EquiSource. Vice President and
Treasurer, Equitable Casualty Insurance Company.
Robin K. Murray (42) Vice President, Office of the Chief Investment Officer, and First Vice President,
First Vice President Equitable Financial Consultants, Inc. since May 1997. Vice President, Office of the
President, Equitable Life since 1996. Vice President, Income Management Group,
Equitable Life since 1994; Assistant Vice President of Marketing, Equitable Life
from 1989 to 1994.
Martin J. Telles (49) Executive Vice President and Chief Marketing Officer, Equico Securities since 1993.
Vice President Director, Royal Alliance.
Mary Joan Hoene (48) Vice President and Counsel, Insurance Division, Equitable Life since 1998.
Vice President Divisional Senior Vice President, Financial Institution and Government Affairs, AIG
Technical Services from 1994 to 1998. General Counsel, Mitchell Hutchins Asset
Management Inc., from 1988 to 1994.
Allen T. Zabusky (46) Vice President and Deputy Controller, Equitable Life since 1990. Controller, The
Vice President and Controller Equitable of Colorado, Inc. since 1996.
Mary E. Cantwell (36) Assistant Vice President, Office of the Chief Investment Officer, Equitable Life
Assistant Vice President since September 1997. Assistant Vice President, Equitable Financial Consultants,
Inc. since September 1997. Marketing Director, Income Management Group, Equitable
Life since 1994. Marketing Manager, Equitable Life since 1991.
Paul Roselli (33) Vice President, Fund Administration, Chase Global Funds Services Company since March
1997. Assistant Manager of Fund Accounting , Brown Brothers Harriman from July 1993
to March 1997. Audit Manager, Ernst & Young LLP from August 1987 to July 1993.
Karl O. Hartmann (42) Senior Vice President and General Counsel, Chase Global Funds Services Company.
Assistant Secretary
Lloyd Lipsett (33) Vice President and Associate General Counsel, Chase Global Funds Services Company
Assistant Secretary since 1997. Associate, Hale and Dorr (law firm), 1995 to 1997. Associate, Choate,
Hall & Stewart (law firm), 1993 to 1995. Associate, Rogers & Wells (law firm), 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,
- 29 -
<PAGE>
corporations and other business entities. The Manager is a wholly-owned
subsidiary of Equitable Holding Corporation, a wholly-owned subsidiary of
Equitable Life.
Equitable Life, 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 Life are located at 1290 Avenue of the Americas, New
York, New York 10104.
AXA, a French insurance holding company, currently owns approximately 59% 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 Life and their subsidiaries. AXA is the holding company for
an international group of insurance and related financial services companies.
AXA is among the world's largest insurance groups with worldwide revenues in
1997 of $60.8 billion. AXA is also the world's largest insurer-based investment
manager with $531 billion in assets under management as of December 31, 1997.
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"). This was initially approved by the Board of Trustees
on March 31, 1997. The Management Agreement obligates the Manager to: (i)
provide investment management services to the Trust; (ii) select the Adviser for
each Portfolio; (iii) monitor the Adviser's investment programs and results;
(iv) review brokerage matters; (v) oversee compliance by the Trust with various
federal and state statutes; and (vi) carry out the directives of the Board of
Trustees. The Management Agreement requires the Manager to provide the Trust
with office space, office equipment, and personnel necessary to operate and
administer the Trust's business, and also to supervise the provision of services
by third parties. The continuance of the Management Agreement, with respect to
each Portfolio, after the first two years must be specifically approved at least
annually (i) by the Trust's Board of Trustees or by vote of a majority of the
outstanding voting securities (as defined in the 1940 Act) of such Portfolio and
(ii) by the affirmative vote of a majority of the Trustees who are not parties
to the Management Agreement or "interested persons" (as defined in the 1940 Act)
of any such party by votes cast in person at a meeting called for such purpose.
The Management Agreement with respect to each Portfolio may be terminated (i) at
any time, without the payment of any penalty, by the Trust upon the vote of a
majority of the Trustees or by vote of the majority of the outstanding voting
securities (as defined in the 1940 Act) of such Portfolio upon sixty (60) days'
written notice to the Manager or (ii) by the Manager at any time without penalty
upon sixty (60) days' written notice to the Trust. The Management Agreement will
also terminate automatically in the event of its assignment (as defined in the
1940 Act).
Each Portfolio pays a fee to the Manager as described in the Prospectus for the
investment management services the Manager provides each Portfolio. The Manager
and the Trust have also entered into an expense limitation agreement with
respect to each Portfolio ("Expense Limitation Agreement"), pursuant to which
the Manager has agreed to waive or limit its fees and to assume other expenses
so that the total annual operating expenses (with certain exceptions described
in the Prospectus) of each Portfolio are limited to the extent described in the
"Expense Limitation Agreement" section of the Prospectus. The table below shows
the fees paid by each Portfolio to the Manager during the fiscal year ended
December 31, 1997. The first column shows each fee without fee waivers, the next
column shows the fees actually paid to the Manager after fee waivers and the
third column shows the total amount of fees waived by the Manager and other
expenses of each Portfolio assumed by the Manager pursuant to the Expense
Limitation Agreement.
<TABLE>
<CAPTION>
TOTAL AMOUNT OF
MANAGEMENT FEE FEES WAIVED AND
PAID TO MANAGER OTHER EXPENSES
PORTFOLIO MANAGEMENT FEE AFTER FEE WAIVER ASSUMED BY MANAGER
<S> <C> <C> <C>
Merrill Lynch Basic Value Equity Portfolio $73,477 $0 $123,460
Merrill Lynch World Strategy Portfolio $49,425 $0 $115,763
MFS Emerging Growth Companies Portfolio $169,781 $0 $280,111
</TABLE>
- 30 -
<PAGE>
<TABLE>
<CAPTION>
TOTAL AMOUNT OF
MANAGEMENT FEE FEES WAIVED AND
PAID TO MANAGER OTHER EXPENSES
PORTFOLIO MANAGEMENT FEE AFTER FEE WAIVER ASSUMED BY MANAGER
<S> <C> <C> <C>
MFS Research Portfolio $186,533 $0 $292,185
EQ/Putnam Balanced Portfolio $50,946 $0 $137,739
EQ/Putnam Growth & Income Value Portfolio $227,936 $0 $350,861
EQ/Putnam International Equity Portfolio $130,202 $0 $228,427
EQ/Putnam Investors Growth Portfolio $67,578 $0 $141,578
T. Rowe Price Equity Income Portfolio $166,401 $0 $250,098
T. Rowe Price International Stock Portfolio $213,839 $0 $365,096
Warburg Pincus Small Company Value Portfolio $252,178 $5,693 $246,485
Morgan Stanley Emerging Markets Equity Portfolio $66,404 $23,496 $42,908
</TABLE>
The BT Equity 500 Index, BT International Equity Index, BT Small Company Index,
JPM Core Bond, Lazard Large Cap Value and Lazard Small Cap Portfolios are not
included in the above table because they had no operations during the fiscal
year ended December 31, 1997 except for the issuance of Class IB shares. The
Evergreen Foundation, Evergreen, and MFS Investors are not included in the above
table because they had no operations during the fiscal year ended December 31,
1997.
THE ADVISERS
On behalf of the T. Rowe Price Equity Income Portfolio and the T. Rowe Price
International Stock Portfolio, the Manager has entered into investment advisory
agreements ("Advisory Agreements") with T. Rowe Price and Price Fleming,
respectively. Additionally, the Manager has entered into an Advisory Agreement
on behalf of EQ/Putnam Growth & Income Value Portfolio, EQ/Putnam International
Equity Portfolio, EQ/Putnam Investors Growth Portfolio and EQ/Putnam Balanced
Portfolio with Putnam Management. The Manager has entered into an amendment to
the Advisory Agreement on behalf of MFS Research Portfolio, MFS Emerging Growth
Companies Portfolio and MFS Growth with Income Portfolio with MFS. The Manager
has entered into Advisory Agreements on behalf of Morgan Stanley Emerging
Markets Equity Portfolio and Warburg Pincus Small Company Value Portfolio with
MSAM and Warburg, respectively. The Manager has entered into an Advisory
Agreement on behalf of Merrill Lynch World Strategy Portfolio and Merrill Lynch
Basic Value Equity Portfolio with MLAM. The Manager has entered into an Advisory
Agreement on behalf of Lazard Large Cap Value Portfolio and Lazard Small Cap
Value Portfolio with LAM. The Manager has entered into an Advisory Agreement on
behalf of the JPM Core Bond Portfolio with J.P. Morgan. The Manager has entered
into an Advisory Agreement on behalf of BT Small Company Index Portfolio, BT
International Equity Index Portfolio and BT Equity 500 Index Portfolio with
Bankers Trust. Finally, the Manager has entered into an Advisory Agreement on
behalf of Evergreen Foundation Portfolio and Evergreen Portfolio with Evergreen.
The Advisory Agreements obligate T. Rowe Price, Price Fleming, Putnam
Management, MFS, Warburg, MSAM, MLAM, LAM, J.P. Morgan, Bankers Trust, and
Evergreen 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 Manager or an Adviser; and (iii) perform certain limited related
administrative functions in connection therewith.
During the fiscal year ended December 31, 1997, the Manager paid the following
fees to each Adviser with respect to the Portfolios listed below pursuant to the
Investment Advisory Agreements:
- 31 -
<PAGE>
PORTFOLIO ADVISORY FEE PAID
Merrill Lynch Basic Value Equity Portfolio $53,462
Merrill Lynch World Strategy Portfolio $35,301
MFS Emerging Growth Companies Portfolio $123,543
MFS Research Portfolio $135,730
EQ/Putnam Balanced Portfolio $46,342
EQ/Putnam Growth & Income Value Portfolio $207,320
EQ/Putnam International Equity Portfolio $120,864
EQ/Putnam Investors Growth Portfolio $61,471
T. Rowe Price Equity Income Portfolio $121,142
T. Rowe Price International Stock Portfolio $185,338
Warburg Pincus Small Company Value Portfolio $193,934
Morgan Stanley Emerging Markets Equity Portfolio $66,277
No advisory fees were paid to Bankers Trust, JP Morgan, LAM, or Evergreen
during the fiscal year ended December 31, 1997. No advisory fees were paid to
MFS on behalf of MFS Growth with Income Portfolio during the fiscal year ended
December 31, 1997.
The Manager recommends Advisers for each Portfolio to the Trustees based upon
its continuing quantitative and qualitative evaluation of each Adviser's skills
in managing assets pursuant to specific investment styles and strategies. Unlike
many other mutual funds, the Portfolios are not associated with any one
portfolio manager, and benefit from independent specialists carefully selected
from the investment management industry. Short-term investment performance, by
itself, is not a significant factor in selecting or terminating an Adviser, and
the Manager does not expect to recommend frequent changes of Advisers. The Trust
has received an exemptive order from the SEC that permits the Manager, subject
to certain conditions, to enter into Advisory Agreements with Advisers approved
by the Trustees, but without the requirement of shareholder approval. Pursuant
to the terms of the SEC order, the Manager is able, subject to the approval of
the Trustees but without shareholder approval, to employ new Advisers for new or
existing Portfolios, change the terms of particular Advisory Agreements or
continue the employment of existing Advisers after events that under the 1940
Act and the Advisory Agreements would cause an automatic termination of the
agreement. Although shareholder approval would not be required for the
termination of Advisory Agreements, shareholders of a Portfolio would continue
to have the right to terminate such agreements for the Portfolio at any time by
a vote of a majority of outstanding voting securities of the Portfolio.
When a Portfolio has more than one Adviser, the assets of each Portfolio are
allocated by the Manager among the Advisers selected for the Portfolio. Each
Adviser has discretion, subject to oversight by the Trustees, and the Manager,
to purchase and sell portfolio assets, consistent with each Portfolio's
investment objectives, policies and restrictions and specific investment
strategies developed by the Manager.
Generally, no Adviser provides any services to any Portfolio except asset
management and related recordkeeping services. However, an Adviser or its
affiliated broker-dealer may execute portfolio transactions for a Portfolio and
receive brokerage commissions in connection therewith as permitted by Section
17(e) of the 1940 Act.
THE ADMINISTRATOR
Pursuant to an administrative agreement ("Mutual Funds Services Agreement"),
Chase Global Funds Services Company ("Administrator") provides the Trust with
necessary administrative services. In addition, the Administrator makes
available the office space, equipment, personnel and facilities required to
provide such administrative services to the Trust.
The Administrator was organized as a Delaware corporation. Its principal place
of business is at 73 Tremont Street, Boston, Massachusetts 02108. The Mutual
Funds Services Agreement was reapproved by the Board of Trustees on
- 32 -
<PAGE>
March 3, 1998 and will continue in effect from year to year unless terminated
by any party upon not less than ninety (90) days' prior written notice to the
other party.
During the fiscal year ended December 31, 1997, the Administrator was paid the
following fees, net of any fee waivers by the Administrator with respect to each
Portfolio:
PORTFOLIO ADMINISTRATION FEE
Merrill Lynch Basic Value Equity Portfolio $11,213
Merrill Lynch World Strategy Portfolio $13,633
MFS Emerging Growth Companies Portfolio $17,902
MFS Research Portfolio $18,033
EQ/Putnam Balanced Portfolio $12,451
EQ/Putnam Growth & Income Value Portfolio $19,904
EQ/Putnam International Equity Portfolio $16,721
EQ/Putnam Investors Growth Portfolio $11,247
T. Rowe Price Equity Income Portfolio $17,376
T. Rowe Price International Stock Portfolio $30,599
Warburg Pincus Small Company Value Portfolio $17,213
Morgan Stanley Emerging Markets Equity Portfolio $9,652
The BT Equity 500 Index, BT International Equity Index, BT Small Company Index,
JPM Core Bond, Lazard Large Cap Value, Lazard Small Cap Value, Evergreen
Foundation, Evergreen, and MFS Investor Portfolios did not pay a fee to the
Administrator during the fiscal year ended December 31, 1997.
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 Life. The address for EDI
is 1290 Avenue of the Americas, New York, New York 10104, and that for EQ
Financial Consultants, Inc. is 1290 Avenue of the Americas, New York, New York
10104. 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 and Class IB
shares.
The Trust's distribution agreements with respect to the Class IA shares and
Class IB shares, each dated April 14, 1997 ("Distribution Agreements") were
reapproved by the Board of Trustees on March 3, 1998 and will remain in effect
from year to year provided each Distribution Agreement's continuance is
approved annually by (i) a majority of the Trustees who are not parties to such
agreement or "interested persons" (as defined in the 1940 Act) of the Trust or
a Portfolio and, if applicable, who have no direct or indirect financial
interest in the operation of the Distribution Plan or any such related
agreement ("Independent Trustees") and (ii) either by vote of a majority of the
Trustees or a majority of the outstanding voting securities (as defined in the
1940 Act) of the Trust.
The Distributors or their affiliates for the Class IA shares will pay for
printing and distributing prospectuses or reports prepared for their use in
connection with the offering of the Class IA shares to prospective 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 their respective qualification and registration as a broker or
dealer under federal and state laws.
- 33 -
<PAGE>
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 3, 1998, the Board of Trustees of
the Trust, including the Independent Trustees, unanimously voted to reapprove
the Distribution Plan. In connection with its consideration of the Distribution
Plan, the Board of Trustees was furnished with a copy of the Distribution Plan
and the related materials, including information related to the advantages and
disadvantages of the Distribution Plan. Legal counsel for the Independent
Trustees discussed the legal and regulatory considerations in readopting the
Distribution Plan.
The Board of Trustees considered various factors in connection with its
decision as to whether to reapprove the Distribution Plan, including: (i) the
nature and causes of the circumstances which makes continuation of the
Distribution Plan necessary and appropriate; (ii) the way in which the
Distribution Plan would continue to address those circumstances, including the
nature and potential amount of expenditures; (iii) the nature of the
anticipated benefits; (iv) the possible benefits of the 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, including the Independent Trustees, unanimously determined, in the
exercise of its business judgment, that the Distribution Plan is reasonably
likely to continue to benefit the Trust and the shareholders of its Portfolios.
The Distribution Plan and any Rule 12b-1 related agreement that is entered into
by the Trust or the 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.
The table below shows the amount paid by each Portfolio to each of the
Distributors pursuant to the Distribution Plan for the fiscal year ended
December 31, 1997:
<TABLE>
<CAPTION>
PORTFOLIO DISTRIBUTION FEE DISTRIBUTION FEE TOTAL
PAID TO EQF PAID TO EDI DISTRIBUTION FEES
<S> <C> <C> <C>
Merrill Lynch Basic Value Equity Portfolio $22,070 $11,329 $33,399
Merrill Lynch World Strategy Portfolio $14,675 $2,977 $17,652
MFS Emerging Growth Companies Portfolio $40,631 $36,542 $77,173
MFS Research Portfolio $35,342 $49,446 $84,788
EQ/Putnam Balanced Portfolio $19,137 $4,020 $23,157
EQ/Putnam Growth & Income Value Portfolio $30,456 $73,151 $103,607
EQ/Putnam International Equity Portfolio $0 $46,501 $46,501
EQ/Putnam Investors Growth Portfolio $0 $30,717 $30,717
T. Rowe Price Equity Income Portfolio $61,824 $13,813 $75,637
- 34 -
<PAGE>
PORTFOLIO DISTRIBUTION FEE DISTRIBUTION FEE TOTAL
PAID TO EQF PAID TO EDI DISTRIBUTION FEES
T. Rowe Price International Stock Portfolio $60,887 $10,392 $71,279
Warburg Pincus Small Company Value Portfolio $78,139 $18,853 $96,992
Morgan Stanley Emerging Markets Equity Portfolio $13,284 $1,152 $14,436
</TABLE>
The BT Equity 500 Index, BT International Equity Index, BT Small Company Index,
JPM Core Bond, Lazard Large Cap Value, Lazard Small Cap Value, Evergreen
Foundation, Evergreen, and MFS Investors did not pay any distribution fees
during the fiscal year ended December 31, 1997.
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, seek to obtain the best net price and execution
on all orders placed for the Portfolios, considering all the circumstances
except to the extent they may be permitted to pay higher commissions as
described below.
It is expected that securities will ordinarily be purchased in the primary
markets, whether over-the-counter or listed, and that listed securities may be
purchased in the over-the-counter market if that market is deemed the primary
market.
Transactions on stock exchanges involve the payment of brokerage commissions.
In transactions on stock exchanges in the United States, these commissions are
negotiated, whereas on many foreign stock exchanges these commissions are
fixed. However, brokerage commission rates in certain countries in which the
Portfolios may invest may be discounted for certain large domestic and foreign
investors such as the Portfolios. A number of foreign banks and brokers will be
used for execution of each Portfolio's portfolio transactions. In the case of
securities traded in the foreign and domestic over-the-counter markets, there
is generally no stated commission, but the price usually includes an
undisclosed commission or mark-up. In underwritten offerings, the price
generally includes a disclosed fixed commission or discount.
The Manager and Advisers may, as appropriate, in the allocation of brokerage
business, take into consideration research and other brokerage services
provided by brokers and dealers to Equitable Life, the Manager or Advisers. The
research services include economic, market, industry and company research
material. Based upon an assessment of the value of research and other brokerage
services provided, proposed allocations of brokerage for commission
transactions are periodically prepared internally. In addition, the Manager and
Advisers may allocate brokerage business to brokers and dealers that have made
or are expected to make significant efforts in facilitating the distribution of
the Trust's shares.
Commissions charged by brokers that provide research services may be somewhat
higher than commissions charged by brokers that do not provide research
services. As permitted by Section 28(e) of the 1934 Act and by policies adopted
by the Trustees, the Manager and Advisers may cause the Trust to pay a
broker-dealer that provides brokerage and research services to the Manager and
Advisers an amount of commission for effecting a securities transaction for the
Trust in excess of the commission another broker-dealer would have charged for
effecting that transaction.
The Manager and Advisers do not engage brokers and dealers whose commissions
are believed to be unreasonable in relation to brokerage and research services
provided. The overall reasonableness of commissions paid will be evaluated by
rating brokers on such general factors as execution capabilities, quality of
research (that is, quantity and quality of information provided, diversity of
sources utilized, nature and frequency of communication, professional
experience, analytical ability and professional stature of the broker) and
financial standing, as well as the net results of specific transactions, taking
into account such factors as price, promptness, size of order and difficulty of
execution. The research services obtained will, in general, be used by the
Manager and Advisers for the benefit of all accounts for which the responsible
party makes investment decisions. The receipt of research services from brokers
will tend to reduce the Manager's and Advisers' expenses in managing the
Portfolios.
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<PAGE>
During the fiscal year ended December 31, 1997, the Portfolios paid the amounts
indicated in brokerage commissions:
<TABLE>
<CAPTION>
PORTFOLIO BROKERAGE COMMISSIONS PAID
<S> <C>
Merrill Lynch Basic Value Equity Portfolio $75,654
Merrill Lynch World Strategy Portfolio $43,547
MFS Emerging Growth Companies Portfolio $146,321
MFS Research Portfolio $146,977
EQ/Putnam Balanced Portfolio $15,797
EQ/Putnam Growth & Income Value Portfolio $109,815
EQ/Putnam International Equity Portfolio $164,293
EQ/Putnam Investors Growth Portfolio $25,284
T. Rowe Price Equity Income Portfolio $67,627
T. Rowe Price International Stock Portfolio $244,072
Warburg Pincus Small Company Value Portfolio $220,138
Morgan Stanley Emerging Markets Equity Portfolio $64,176
</TABLE>
The BT Equity 500 Index, BT International Equity Index, BT Small Company Index,
JPM Core Bond, Lazard Large Cap Value, Lazard Small Cap Value, Evergreen
Foundation, Evergreen, and MFS Growth with Income Portfolio did not pay any
brokerage commissions during the fiscal year ended December 31, 1997.
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
brokers that are affiliates of an Adviser to a Portfolio for which that Adviser
provides investment advice do not exceed the usual and customary broker's
commission. In addition, the Trust will adhere to the requirements under the
1934 Act governing floor trading. Also, because of securities law limitations,
the Trust will limit purchases of securities in a public offering, if such
securities are underwritten by brokers that are affiliates of the Manager and
Advisers or their affiliates.
During the fiscal year ended December 31, 1997, the following Portfolios paid
the amounts indicated to the affiliated broker-dealers of the Manager or
affiliates of the Adviser to each such Portfolio.
<TABLE>
<CAPTION>
PORTFOLIO AFFILIATED AGGREGATE PERCENTAGE OF PERCENTAGE OF
BROKER-DEALER BROKERAGE TOTAL BROKERAGE TRANSACTIONS
COMMISSIONS PAID COMMISSIONS (BASED
ON DOLLAR
AMOUNTS)
<S> <C> <C> <C> <C>
Merrill Lynch Basic Value Equity Donaldson, Lufkin & Jenrette $1,444 1.91% 1.48%
Portfolio Securities Corporation ("DLJ")
Merrill Lynch, Pierce Fenner & $7,984 10.55% 10.93%
Smith Incorporated ("Merrill
Lynch")
Merrill Lynch World Strategy Portfolio DLJ $166 0.38% 0.74%
Merrill Lynch $2,622 6.02% 5.72%
MFS Emerging Growth Companies Portfolio Pershng Trading Company, L.P. $72 0.05% 0.05%
- 36 -
<PAGE>
<CAPTION>
PORTFOLIO AFFILIATED AGGREGATE PERCENTAGE OF PERCENTAGE OF
BROKER-DEALER BROKERAGE TOTAL BROKERAGE TRANSACTIONS
COMMISSIONS PAID COMMISSIONS (BASED
ON DOLLAR
AMOUNTS)
EQ/Putnam Balanced Portfolios Equico Securities Corp. $75 0.47% 0.33%
EQ/Putnam Growth & Incomem Value Equico Securities Corporaiton $363 0.33% 0.23%
T. Rowe Price Equity Income Portfolio DLJ $694 1.03% 0.55%
T. Rowe Price International Stock Jardine Fleming Securities Ltd. $454 0.19% 0.18%
Robert Fleming Securities Ltd. $2,210 0.91% 1.29%
Fleming Martin Limited $69 0.03% 0.04%
</TABLE>
The BT Equity 500 Index, BT International Equity Index, BT Small Company Index,
JPM Core Bond, Lazard Large Cap Value, Lazard Small Cap Value, Evergreen
Foundation, Evergreen, and MFS Growth with Income Portfolio did not pay any
brokerage commissions during the fiscal year ended December 31, 1997.
PURCHASE AND PRICING OF SHARES
The Trust will offer and sell its shares at each Portfolio's net asset value per
share, which will be determined in the manner set forth below.
The net asset value of the shares of each class of a Portfolio of the Trust
will be determined once daily, immediately after the declaration of dividends,
if any, at the close of business on each business day. The net asset value per
share of each class of a Portfolio will be computed by dividing the sum of the
investments held by that Portfolio applicable to that class, plus any cash or
other assets, minus all liabilities, by the total number of outstanding shares
of that class of the Portfolio at such time. All expenses borne by the Trust
and each of its Classes, will be accrued daily.
The net asset value per share of each Portfolio will be determined and computed
as follows, in accordance with generally accepted accounting principles, and
consistent with the 1940 Act:
o The assets belonging to each Portfolio will include (i) all
consideration received by the Trust for the issue or sale of shares of
that particular Portfolio, together with all assets in which such
consideration is invested or reinvested, (ii) all income, earnings,
profits, and proceeds thereof, including any proceeds derived from the
sale, exchange or liquidation of such assets, (iii) any funds or
payments derived from any reinvestment of such proceeds in whatever form
the same may be, and (iv) "General Items", if any, allocated to that
Portfolio. "General Items" include any assets, income, earnings,
profits, and proceeds thereof, funds, or payments which are not readily
identifiable as belonging to any particular Portfolio. General Items
will be allocated as the Trust's Board of Trustees considers fair and
equitable.
o The liabilities belonging to each Portfolio will include (i) the
liabilities of the Trust in respect of that Portfolio, (ii) all
expenses, costs, changes and reserves attributable to that Portfolio,
and (iii) any general liabilities, expenses, costs, charges or reserves
of the Trust which are not readily identifiable as belonging to any
particular Portfolio which have been allocated as the Trust's Board of
Trustees considers fair and equitable.
The value of each Portfolio will be determined at the close of business on each
"business day." Normally, this would be each day that the New York Stock
Exchange is open and would include some federal holidays. For stocks and
options, the close of trading is 4:00 p.m. and 4:15 p.m. Eastern Time,
respectively; for bonds it is the close of business in New York City, and for
foreign securities it is the close of business in the applicable foreign
country, with exchange rates determined at 12:00 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:
- 37 -
<PAGE>
o Stocks listed on national securities exchanges and certain
over-the-counter issues traded on the NASDAQ national market system are
valued at the last sale price, or, if there is no sale, at the latest
available bid price. Other unlisted stocks are valued at their last sale
price or, if there is no reported sale during the day, at a bid price
estimated by a broker.
o Foreign securities not traded directly, or in ADRs or similar form in
the United States, are valued at representative quoted prices in the
currency of the country of origin. Foreign currency is converted into
United States dollar equivalent at current exchange rates.
o United States Treasury securities and other obligations issued or
guaranteed by the United States Government, its agencies or
instrumentalities, are valued at representative quoted prices.
o Long-term corporate bonds are valued at prices obtained from a bond
pricing service of a major dealer in bonds when such prices are
available; however, when such prices are not available, such bonds are
valued at a bid price estimated by a broker.
o Short-term debt securities in the Portfolios 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.
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.
- 38 -
<PAGE>
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.
As a regulated investment company, each Portfolio will not be subject to
federal income or excise tax on any of its net investment income or net
realized capital gains which are timely distributed to shareholders under the
Code. A number of technical rules are prescribed for computing net investment
income and net capital gains. For example, dividends are generally treated as
received on the ex-dividend date. Also, certain foreign currency losses and
capital losses arising after October 31 of a given year may be treated as if
they arise on the first day of the next taxable year.
A Portfolio investing in foreign securities or currencies may be subject to
foreign taxes which could reduce the investment performance of such Portfolio.
However, if foreign securities comprise more than 50% of the year-end value of
a Portfolio, the Portfolio may elect to pass through such foreign taxes as a
deemed dividend to shareholders. In such a case the shareholder and not the
Portfolio would be entitled to claim a federal tax deduction or credit for
foreign taxes, as appropriate. The deduction or credit will not necessarily
result in a direct or immediate benefit to Contract owners.
To qualify for treatment as a regulated investment company, a Portfolio must,
among other things, derive in each taxable year at least 90% of its gross
income from dividends, interest, payments with respect to securities loans,
gains from the sale or other disposition of stock or securities or foreign
currencies, or other income derived with respect to its business of investing.
For purposes of this test, gross income is determined without regard to losses
from the sale or other dispositions of stock or securities.
In addition, the Secretary of the Treasury has regulatory authority to exclude
from qualifying income described above foreign currency gains which are not
"directly related" to a regulated investment company's "principal business of
investing" in stock, securities or related options or futures. The Secretary of
the Treasury has not to date exercised this authority.
Generally, in order to avoid a 4% nondeductible excise tax, each Portfolio must
distribute to its shareholders during the calendar year the following amounts:
o 98% of the Portfolio's ordinary income for the calendar year;
o 98% of the Portfolio's capital gain net income (all capital
gains, both long-term and short-term, minus all such capital
losses), all computed as if the Portfolio were on a taxable year
ending October 31 of the year in question and beginning the
previous November 1; and
o any undistributed ordinary income or capital gain net income for
the prior year.
The excise tax generally is inapplicable to any regulated investment company
whose sole shareholders are either tax-exempt pension trusts or separate
accounts of life insurance companies funding variable contracts. Although each
- 39 -
<PAGE>
Portfolio believes that it is not subject to the excise tax, the Portfolios
intend to make the distributions required to avoid the imposition of such a tax.
Because the Trust is used to fund non-qualified Contracts, each Portfolio must
meet the diversification requirements imposed by the Code or these Contracts
will fail to qualify as life insurance and annuities. In general, for a
Portfolio to meet the investment diversification requirements of Subchapter L
of the Code, Treasury regulations require that no more than 55% of the total
value of the assets of the Portfolio may be represented by any one investment,
no more than 70% by two investments, no more than 80% by three investments and
no more than 90% by four investments. Generally, for purposes of the
regulations, all securities of the same issuer are treated as a single
investment. In the context of United States Government securities (including
any security that is issued, guaranteed or insured by the United States or an
instrumentality of the United States) each United States Government agency or
instrumentality is treated as a separate issuer. Compliance with the
regulations is tested on the first day of each calendar year quarter. There is
a thirty (30) day period after the end of each calendar year quarter in which
to cure any non-compliance.
PORTFOLIO PERFORMANCE
COMPUTATION OF TOTAL RETURN
Each Portfolio may provide average annual total return information calculated
according to a formula prescribed by the SEC. According to that formula,
average annual total return figures represent the average annual compounded
rate of return for the stated period. Average annual total return quotations
reflect the percentage change between the beginning value of a static account
in the Portfolio and the ending value of that account measured by the then
current net asset value of that Portfolio assuming that all dividends and
capital gains distributions during the stated period were invested in shares of
the Portfolio when paid. Total return is calculated by finding the average
annual compounded rates of return of a hypothetical investment that would
equate the initial amount invested to the ending redeemable value of such
investment, according to the following formula:
T = (ERV/P)1/n
where "T" equals average annual total return; where "ERV", the ending
redeemable value, is the value at the end of the applicable period of a
hypothetical $1,000 investment made at the beginning of the applicable period;
where "P" equals a hypothetical initial investment of $1,000; and where "n"
equals the number of years.
Each Portfolio's total return will vary from time to time depending upon market
conditions, the composition of each Portfolio's investment portfolio and
operating expenses of the Trust allocated to each Portfolio. Total return
should also be considered relative to changes in the value of a Portfolio's
shares and to the relative risks associated with the investment objectives and
policies of the Portfolios. These total return figures do not reflect insurance
company expenses and fees applicable to the Contracts. At any time in the
future, total return may be higher or lower than in the past and there can be
no assurance that any historical results will continue.
NON-STANDARD PERFORMANCE
In addition to the performance information described above, each Portfolio may
provide total return information with respect to the Portfolios for designated
periods, such as for the most recent six months or most recent twelve months.
This total return information is computed as described under "Computation of
Total Return" above except that no annualization is made.
OTHER SERVICES
INDEPENDENT ACCOUNTANT
PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York, New York
10036, serves as the Trust's independent accountants. PricewaterhouseCoopers
LLP is responsible for auditing the annual financial statements of the Trust.
- 40 -
<PAGE>
CUSTODIAN
The Chase Manhattan Bank, 1211 Avenue of the Americas, New York, New York 10036
serves as custodian of the Trust's portfolio securities and other assets. Under
the terms of the custody agreement between the Trust and The Chase Manhattan
Bank, The Chase Manhattan Bank maintains and deposits in separate accounts,
cash, securities and other assets of the Portfolios. The Chase Manhattan Bank
is also required, upon the order of the Trust, to deliver securities held by
The Chase Manhattan Bank, and to make payments for securities purchased by the
Trust. The Chase Manhattan Bank has also entered into sub-custodian agreements
with a number of foreign banks and clearing agencies, pursuant to which
portfolio securities purchased outside the United States are maintained in the
custody of these entities.
TRANSFER AGENT
Equitable Life serves as the transfer agent and dividend disbursing agent for
the Trust. Equitable Life receives no compensation for providing such services
for the Trust.
COUNSEL
Dechert Price & Rhoads, 1775 Eye Street, N.W. Washington, D.C. 20006, serves as
counsel to the Trust.
Sullivan & Worcester, LLP, 1025 Connecticut Avenue, N.W., Suite 1000,
Washington, D.C. 20036, serves as counsel to the independent Trustees of the
Trust.
FINANCIAL STATEMENTS
The audited financial statements for the period ended December 31, 1997,
including the financial highlights, appearing in the Trust's Annual Report to
Shareholders are incorporated by reference and made a part of this document.
The unaudited financial statements for the period ended June 30, 1998,
including the financial highlights, appearing in the Trust's Semi-Annual Report
are incorporated by reference and made a part of this document.
- 41 -
<PAGE>
APPENDIX
DESCRIPTION OF COMMERCIAL PAPER RATINGS
A-1 and Prime-1 Commercial Paper Ratings
The rating A-1 (including A-1+) is the highest commercial paper rating assigned
by S&P. Commercial paper rated A-1 by S&P has the following characteristics:
o liquidity ratios are adequate to meet cash requirements;
o long-term senior debt is rated "A" or better;
o the issuer has access to at least two additional channels of
borrowing;
o basic earnings and cash flow have an upward trend with
o 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.
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
- 42 -
<PAGE>
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than in higher rated categories.
o Debt rated BB, B, CCC, CC or C is regarded, on balance, as predominantly
speculative with respect to the issuer's capacity to pay interest and
repay principal in accordance with the terms of the obligation. While
such debt will likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major risk exposures to
adverse debt conditions.
o The rating C1 is reserved for income bonds on which no interest is being
paid.
o Debt rated D is in default and payment of interest and/or repayment of
principal is in arrears.
The ratings from AA to CCC may be modified by the addition of a plus (+) or
minus (&) sign to show relative standing within the major rating categories.
Moody's ratings are as follows:
o Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred
to as "gilt-edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
o Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities
or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long term risks
appear somewhat larger than in Aaa securities.
o Bonds which are rated A possess many favorably investment attributes and
are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements
may be present which suggest a susceptibility to impairment some time in
the future.
o Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics
as well.
o Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not
well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
o Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time
may be small.
o Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest.
o Bonds which are rated Ca represent obligations which are speculative to
a high degree. Such issues are often in default or have other marked
shortcomings.
o Bonds which are rated C are the lowest class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Moody's applies modifiers to each rating classification from Aa through B to
indicate relative ranking within its rating categories. The modifier "1"
indicates that a security ranks in the higher end of its rating category; the
modifier "2" indicates a mid-range ranking and the modifier "3" indicates that
the issue ranks in the lower end of its rating category.
- 43 -
<PAGE>
PART C: OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements: The information in response to Item 24 (b) is
incorporated herein by reference from the audited Annual Report for
the Trust for the fiscal year ended December 31, 1997, as filed
with the Commission on March 5, 1998, and from the unaudited
Semi-Annual Report for the Trust for the period ended June 30,
1998, as filed with the Commission on August 28, 1998.
Part A - Prospectus:
Financial Highlights
Part B - Statement of Additional Information:
The following financial statements with respect to each Portfolio
are incorporated into the Statement of Additional Information by
reference to the Trust's audited Annual Report for the fiscal year
ended December 31, 1997, as filed with the Commission on March 5,
1998, and to the Trust's unaudited semi-annual report for the
period ended June 30, 1998, as filed with the Commission on August
28, 1998.
Statements of Assets and Liabilities as of December 31, 1997 and
June 30, 1998 Statements of Operations as of December 31, 1997 and
June 30, 1998 Statements of Changes in Net Assets as of December
31, 1997 and June 30, 1998 Portfolio of Investments as of December
31, 1997 and June 30, 1998 Notes to Financial Statements Financial
Highlights as of December 31, 1997 and June 30, 1998 Report of
Independent Accountants dated February 23, 1998
(b) Exhibits:
1(a). Agreement and Declaration of Trust.1
1(b). Amended and Restated Agreement and Declaration of
Trust.2
1(c). Certificate of Trust.1
1(d). Certificate of Amendment.2
2. By-Laws of the Trust.1
3. Not applicable.
4. None other than Exhibit 1.
5(a)(1). Investment Management Agreement between EQ Advisors
Trust and EQ Financial Consultants, Inc. dated April
14, 1997 and Appendices A and B dated April 14, 1997.4
C-1
<PAGE>
5(a)(2). Amendment No. 1, dated December 9, 1997, to Investment
Management Agreement between EQ Advisors Trust and EQ
Financial Consultants, Inc. dated April 14, 1997 and
Appendices A and B dated April 14, 1997.7
5(a)(3). Form of Amendment No. 2, dated December __, 1998, to
Investment Management Agreement between EQ Advisors
Trust and EQ Financial Consultants, Inc. dated April
14, 1997 and Appendices A and B dated April 14, 1997.
5(b). Investment Advisory Agreement between EQ Financial
Consultants, Inc. and T. Rowe Price Associates, Inc.
dated April 1997 and Appendix A dated April 1997.4
5(c). Investment Advisory Agreement between EQ Financial
Consultants, Inc. and Rowe Price-Fleming International,
Inc. dated April 1997 and Appendix A dated April 1997.4
5(d). Investment Advisory Agreement between EQ Financial
Consultants, Inc. and Putnam Investment Management,
Inc. dated April 1997 and Appendix A dated April 1997.4
5(e)(1). Investment Advisory Agreement between EQ Financial
Consultants, Inc. and Massachusetts Financial Services
Company dated April 1997 and Appendix A dated April
1997.4
5(e)(2). Form of Amendment No. 1, dated December ___, 1998 to
Investment Advisory Agreement between EQ Financial
Consultants, Inc. and Massachusetts Financial Services
Company dated April 1997 and Appendix A dated April
1997.
5(f). Investment Advisory Agreement between EQ Financial
Consultants, Inc. and Morgan Stanley Asset Management
Inc. dated April 1997 and Appendix A dated April 1997.4
5(g). Investment Advisory Agreement between EQ Financial
Consultants, Inc. and Warburg, Pincus Counsellors, Inc.
dated April 1997 and Appendix A dated April 1997.4
5(h). Investment Advisory Agreement between EQ Financial
Consultants, Inc. and Merrill Lynch Asset Management,
L.P. dated April 1997 and Appendix A dated April 1997.4
5(i). Investment Advisory Agreement between EQ Financial
Consultants, Inc. and Lazard Freres & Co. LLC dated
December 9, 1997.7
5(j). Investment Advisory Agreement between EQ Financial
Consultants, Inc. and J.P. Morgan Investment
Management, Inc. dated December 9, 1997 and Appendix A
dated December 9, 1997.7
5(k). Investment Advisory Agreement between EQ Financial
Consultants, Inc. and Bankers Trust Global Investment
Management, a unit of Bankers Trust Company, dated
December 9, 1997.7
5(l). Form of Investment Advisory Agreement between EQ
Financial Consultants, Inc. and Evergreen Asset
Management Corp., dated December ___, 1998.
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6(a)(1). Distribution Agreement between EQ Advisors Trust and EQ
Financial Consultants, Inc. with respect to the Class
IA shares dated April 14, 1997 and Schedule A dated
April 14, 1997.4
6(a)(2). Amendment No. 1 dated December 9, 1997 to the
Distribution Agreement between EQ Advisors Trust and EQ
Financial Consultants, Inc. with respect to the Class
IA shares dated April 14, 1997 and Schedule A dated
April 14, 1997.7
6(a)(3). Form of Amendment No. 2 dated December __, 1998 to the
Distribution Agreement between EQ Advisors Trust and EQ
Financial Consultants with respect to the Class 1A
shares dated April 14, 1997 and Schedule A dated April
14, 1997.
6(b)(1). Distribution Agreement between EQ Advisors Trust and EQ
Financial Consultants, Inc. with respect to the Class
IB shares dated April 14, 1997 and Schedule A dated
April 14, 1997.4
6(b)(2). Amendment No. 1 dated December 9, 1997 to the
Distribution Agreement between EQ Advisors Trust and EQ
Financial Consultants, Inc. with respect to the Class
IB shares dated April 14, 1997 and Schedule A dated
April 14, 1997.7
6(b)(3). Form of Amendment No. 2 dated December __, 1998 to the
Distribution Agreement between EQ Advisors Trust and EQ
Financial Consultants, Inc. with respect to the Class
IB shares dated April 14, 1997 and Schedule A dated
April 14, 1997.
6(c)(1). Distribution Agreement between EQ Advisors Trust and
Equitable Distributors, Inc. with respect to the Class
IA shares dated April 14, 1997 and Schedule A dated
April 14, 1997. 4
6(c)(2). Amendment No. 1 dated December 9, 1997 to the
Distribution Agreement between EQ Advisors Trust and
Equitable Distributors, Inc. with respect to the Class
IA shares dated April 14, 1997 and Schedule A dated
April 14, 1997.7
6(c)(3). Form of Amendment No. 2 dated December __, 1998 to the
Distribution Agreement between EQ Advisors Trust and
Equitable Distributors, Inc. with respect to the Class
IA shares dated April 14, 1997 and Schedule A dated
April 14, 1997.
6(d)(1). Distribution Agreement between EQ Advisors Trust and
Equitable Distributors, Inc. with respect to the Class
IB shares dated April 14, 1997 and Schedule A dated
April 14, 1997.4
6(d)(2). Amendment No. 1 dated December 9, 1997 to the
Distribution Agreement between EQ Advisors Trust and
Equitable Distributors, Inc. with respect to the Class
IB shares dated April 14, 1997 and Schedule A dated
April 14, 1997.7
6(d)(3). Form of Amendment No. 2 dated December __, 1998 to the
Distribution Agreement between EQ Advisors Trust and
Equitable Distributors, Inc. with respect to the Class
IB shares dated April 14, 1997 and Schedule A dated
April 14, 1997.
7. Form of Deferred Compensation Plan.3
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<PAGE>
8(a)(1). Custodian Agreement between EQ Advisors Trust and North
American Insurance Securities Division of the Chase
Manhattan Bank dated April 17, 1997 and Appendix A
dated April 17, 1997.4
8(a)(2). Amendment No. 1 dated December 9, 1997 to the Custodian
Agreement between EQ Advisors Trust and North American
Insurance Securities Division of the Chase Manhattan
Bank dated April 17, 1997 and Appendix A dated April
17, 1997.7
8(a)(3). Form of Amendment No. 2 dated December __, 1998 to the
Custodian Agreement between EQ Advisors Trust and North
American Insurance Securities Division of the Chase
Manhattan Bank dated April 17, 1997 and Appendix A
dated April 17, 1997.
8(b) Amended and Restated Global Custody Rider to the
Domestic Custody Agreement for Mutual Funds between the
Chase Manhattan Bank and EQ Advisors Trust dated
August 31, 1998 and Schedules A-E, dated August 31,
1998.
9(a)(1). Mutual Fund Services Agreement between EQ Advisors
Trust and Chase Global Funds Services Company dated
April 25, 1997 and Schedule A dated April 25, 1997.4
9(b)(1). Amended and Restated Expense Limitation Agreement
between EQ Advisors Trust and EQ Financial Consultants,
Inc. dated March 3, 1998 and Schedule A dated March 3,
1998.8
9(b)(2). Amended and Restated Expense Limitation Agreement
between EQ Advisors Trust and EQ Advisers Trust and EQ
Financial Consultants, Inc. dated April, 1998 and
Schedule A dated April, 1998 (to be filed by
amendment).
9(b)(3). Amendment No. 1 dated December ____, 1998 to Amended
and Restated Expense Limitation Agreement between EQ
Financial Consultants, Inc. and EQ Advisors Trust dated
April, 1998 and Schedule A dated April, 1998 (to be
filed by amendment).
9(c)(1). Organizational Expense Reimbursement Agreement between
EQ Advisors Trust, on behalf of each series of the
Trust except for the Lazard Large Cap Value Portfolio,
Lazard Small Cap Value Portfolio, the JPM Core Bond
Portfolio, BT Small Company Index Portfolio, BT
International Equity Index Portfolio and BT Equity 500
Index Portfolio and EQ Financial Consultants, Inc.
dated April 14, 1997.4
9(c)(2). Organizational Expense Reimbursement Agreement between
EQ Advisors Trust, on behalf of the Lazard Large Cap
Value Portfolio, Lazard Small Cap Value Portfolio, JPM
Core Bond Portfolio, BT Small Company Index Portfolio,
BT International Equity Index Portfolio, and BT Equity
500 Index Portfolio and EQ Financial Consultants, Inc.
dated December 9, 1997.7
9(d)(1). Participation Agreement dated April 14, 1997 and
Schedule B dated April 14, 1997.4
9(d)(2). Amendment No. 1 dated December 9, 1997 to the
Participation Agreement dated April 14, 1997 and
Schedule B dated April 14, 1997.7
9(d)(3). Amendment No. 2 dated December __, 1998 to the
Participation Agreement dated April 14, 1997 and
Schedule B dated April 14, 1997 (to be filed by
amendment).
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9(d)(4). Participation Agreement dated December 1, 1998 with the
Equitable Investment Plan for Employees, Managers and
Agents (to be filed by amendment).
9(e). License Agreement Relating to Use of Name between
Merrill Lynch & Co., Inc., and EQ Advisors Trust dated
April 28, 1997. 4
10(a). Opinion and Consent of Katten Muchin & Zavis regarding
the legality of the securities being registered.1
10(b). Opinion and Consent of Dechert Price & Rhoads regarding
the legality of the securities being registered with
respect to the Lazard Large Cap Value Portfolio, Lazard
Small Cap Value Portfolio, and JPM Core Bond
Portfolio.5
10(c). Opinion and Consent of Dechert Price & Rhoads regarding
the legality of the securities being registered with
respect to the BT Small Company Index Portfolio, BT
International Equity Index Portfolio, and BT Equity 500
Index Portfolio.6
10(d). Opinion and Consent of Dechert Price & Rhoads regarding
the legality of the securities being registered with
respect to the Evergreen Foundation Portfolio,
Evergreen Portfolio, and MFS Growth with Income
Portfolio.
11. Consent of PricewaterhouseCoopers LLP, Independent
Public Accountants.
12. Not applicable.
13. Stock Subscription Agreement between the Trust, on
behalf of the T. Rowe Price Equity Income Portfolio,
and Separate Account FP.3
14. Not Applicable.
15. Distribution Plan Pursuant to Rule 12b-1 for the
Trust's Class IB shares.4
16. Schedule for Computation of each Performance
Quotation.8
18. Plan Pursuant to Rule 18f-3 under the 1940 Act.4
19. Not Applicable.
20(a). Power of Attorney.3
20 (b). Power of Attorney for Michael Hegarty.8
27. Financial Data Schedules.
- ---------------
1 Incorporated herein by reference to Registrant's Registration
Statement on Form N-1A filed on December 3, 1996 (File
No.333-17217).
2 Incorporated herein by reference to Registrant's Registration
Statement on Form N-1A filed on January 23, 1997 (File No.
333-17217).
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3 Incorporated herein by reference to Registrant's Registration
Statement on Form N-1A filed on April 7, 1997 (File No. 333-17217).
4 Incorporated herein by reference to Registrant's Registration
Statement on Form N-1A filed on August 28, 1997 (File No.
333-17217).
5 Incorporated herein by reference to Registrant's Registration
Statement on Form N-1A filed on October 15, 1997 (File No.
333-17217).
6 Incorporated herein by reference to Registrant's Registration
Statement on Form N-1A filed on October 31, 1997 (File No.
333-17217).
7 Incorporated herein by reference to Registrant's Registration
Statement on Form N-1A filed on December 29, 1997 (File No.
333-17217).
8 Incorporated herein by reference to Registrant's Registration
Statement on Form N-1A filed on March 5, 1998.
Item 25. Persons Controlled by or under Common Control with Registrant
The Equitable Life Assurance Society of the United States
("Equitable") controls the Trust by virtue of its ownership of 100% of the
Trust's shares as of September 30, 1998. 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 converted from a New York mutual life
insurance company to a publicly-owned New York stock life insurance company. At
that time Equitable became a wholly-owned subsidiary of The Equitable Companies
Incorporated ("Holding Company"). The Holding Company continues to own 100% of
Equitable's common stock as well as approximately 72% of the common stock of
Donaldson, Lufkin & Jenrette, Inc., a registered broker-dealer.
AXA, a French insurance holding company, currently owns
approximately 59% 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 of insurance and related
financial services companies. AXA is among the world's largest insurance groups
with worldwide revenues in 1997 of $60.8 billion and is also the world's
largest insurer-based investment manager with $531 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 SEPTEMBER 30, 1998
- ------------------------------ ------------------------
Class IA Shares of beneficial interest None
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Class IB Shares of beneficial interest 1
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
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."
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<PAGE>
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 31, 1997 (File No. 801-00856) and
amended through the date hereof, is incorporated by reference.
The information as to the directors and officers of Rowe Price-Fleming
International, Inc. is set forth in Rowe Price-Fleming International, Inc.'s
Form ADV filed with the Securities and Exchange Commission on March 31, 1997
(File No. 801-14713) and amended through the date hereof, is incorporated by
reference.
The information as to the directors and officers of Putnam Investment
Management, Inc. is set forth in Putnam Investment Management, Inc.'s Form ADV
filed with the Securities and Exchange Commission on April 2, 1996 (File No.
801-07974) and amended through the date hereof, is incorporated by reference.
The information as to the directors and officers of Massachusetts Financial
Services Company is set forth in Massachusetts Financial Services Company's
Form ADV filed with the Securities and Exchange Commission on March 31, 1998
(File No. 801-17352) and amended through the date hereof, is incorporated by
reference.
The information as to the directors and officers of Morgan Stanley Asset
Management Inc. is set forth in Morgan Stanley Asset Management Inc.'s Form ADV
filed with the Securities and Exchange Commission on August 1, 1997 (File No.
801-15757) and amended through the date hereof, is incorporated by reference.
The information as to the directors and officers of Warburg Pincus Asset
Management is set forth in Warburg Pincus Asset Management, Inc.'s Form ADV
filed with the Securities and Exchange Commission on March 31, 1997 (File No.
801-07321) and amended through the date hereof, is incorporated by reference.
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<PAGE>
The information as to the directors and officers of Merrill Lynch Asset
Management, L.P. is set forth in Merrill Lynch Asset Management, L.P.'s Form
ADV filed with the Securities and Exchange Commission on March 25, 1998 (File
No. 801-11583) and amended through the date hereof, is incorporated by
reference.
The information as to the directors and officers of Lazard Asset Management (a
division of Lazard Freres & Co. LLC) is set forth in Lazard Freres & Co. LLC's
Form ADV filed with the Securities and Exchange Commission on June 9, 1997
(File No. 801-6568) and amended through the date hereof, is incorporated by
reference.
The information as to the directors and officers of J. P. Morgan Investment
Management Inc. is set forth in J.P. Morgan Investment Management Inc.'s Form
ADV filed with the Securities and Exchange Commission on March 27, 1998 (File
No. 801-21011) and amended through the date hereof, is incorporated by
reference.
The information as to the directors and officers of Evergreen Asset Management
Corp. is set forth in Evergreen Asset Management Corp.'s Form ADV filed with
the Securities and Exchange Commission on March 31, 1998 (File No. 801-46522)
and amended through the date hereof, is incorporated by reference.
THE INFORMATION AS TO THE DIRECTORS AND OFFICERS OF BANKERS TRUST COMPANY IS
SET FORTH BELOW. TO THE KNOWLEDGE OF THE TRUST, NONE OF THE DIRECTORS OR
OFFICERS OF BANKERS TRUST, EXCEPT THOSE SET FORTH BELOW, IS OR HAS BEEN AT
ANYTIME DURING THE PAST TWO FISCAL YEARS ENGAGED IN ANY OTHER BUSINESS,
PROFESSION, VOCATION OR EMPLOYMENT OF A SUBSTANTIAL NATURE, EXCEPT THAT CERTAIN
DIRECTORS AND OFFICERS ALSO HOLD VARIOUS POSITIONS WITH AND ENGAGE IN BUSINESS
FOR BANKERS TRUST NEW YORK CORPORATION. SET FORTH BELOW ARE THE NAMES AND
PRINCIPAL BUSINESSES OF THE DIRECTORS AND OFFICERS OF BANKERS TRUST WHO ARE OR
DURING THE PAST TWO FISCAL YEARS HAVE BEEN ENGAGED IN ANY OTHER BUSINESS,
PROFESSION, VOCATION OR EMPLOYMENT OF A SUBSTANTIAL NATURE.
These persons may be contacted c/o Bankers Trust Company, 130 Liberty Street,
New York, New York 10006.
Lee A. Ault III, Private Investor. Director of Bankers Trust Company. Former
Chairman and Chief Executive Officer, Telecredit, Inc. Also a director of
Equifax, Inc., Sunrise Medical Inc., Viking Office Products, Inc. and Pacific
Crest Outward Bound School.
Neil R. Austrian, President and Chief Operating Officer, National Football
League. Director of Bankers Trust Company. Also a director of Rafac Technology
and Viking Office Products, Inc., and trustee of Swarthmore College.
George B. Beitzel, Director of Various Corporations. Director of Bankers Trust
Company. Retired Senior Vice President and Director, International Business
Machines Corporation. Also a director of Computer Task Group, Phillips
Petroleum Company, Rohm and Haas Company and TIG Holdings; chairman emeritus of
Amherst College; and chairman of the Colonial Williamsburg Foundation.
Richard H. Daniel, Bankers Trust Company, 130 Liberty Street, New York, New
York 10006. Vice chairman and chief financial officer, Bankers Trust Company
and Bankers Trust New York Corporation; Beneficial owner, general partner,
Daniel Brothers, Daniel Lingo & Assoc., Daniel Pelt & Assoc.; and Beneficial
owner, Rhea C. Daniel Trust.
Phillip A. Griffiths, Director, Institute for Advanced Study. Director of
Bankers Trust Company. Chairman, Committee on Science, Engineering and Public
Policy of the National Academies of Sciences
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<PAGE>
and Engineering & the Institute of Medicine; member, National Academy of
Sciences, American Academy of Arts and Sciences and American Philosophical
Society; and trustee of North Carolina School of Science and Mathematics and
the Woodward Academy. Former member of the board of director, Research Triangle
Institute.
William R. Howell, Chairman Emeritus, J.C. Penney Company, Inc. Director of
Bankers Trust Company. Also a director of Exxon Corporation, Halliburton
Company, Warner-Lambert Company, Williams, Inc., Central & South West Corp.;
and the National Retail Federation.
Vernon E. Jordan, Jr., Senior Partner, Akin, Gump, Strauss, Hauer & Feld, LLP,
Attorneys-at-law, Washington, D.C. and Dallas, Texas. Director of Bankers Trust
Company. Former President of the National Urban League, Inc. Also a director of
American Express Company, Chancellor Media Corporation, Dow Jones, Inc., J.C.
Penney Company, Inc., Revlon Group Incorporated, Ryder System, Inc., Sara Lee
Corporation, Union Carbide Corporation and Xerox Corporation; and a trustee of
Brookings Institution, The Ford Foundation and Howard University.
David Marshall, 130 Liberty Street, New York, New York 10006. Chief Information
Officer and Executive Vice President, Bankers Trust New York Corporation; and
Senior Managing Director, Bankers Trust Company.
Hamish Maxwell, Retired Chairman and Chief Executive Officer, Philip Morris
Companies Inc. Director of Bankers Trust Company. Also a director of Sola
International Inc., and chairman of WPP Group plc.
Frank N. Newman, Chairman of the Board, Chief Executive Officer and President
of the Bankers Trust New York Corporation and Bankers Trust Company. Former
Deputy Secretary of the United States Treasury and former Vice Chairman of the
Board and director of BankAmerica Corporation and Bank of America NT&SA. Also a
director of Dow Jones, Inc.; trustee of Carnegie Hall; and member, Board of
Overseers of Cornell University Medical College and the Graduate School of
Medical Sciences.
N.J. Nicholas Jr., Investor. Director of Bankers Trust Company. Former Co-chief
Executive Officer of Time Warner Inc. Also a director of Boston Scientific
Corporation and Xerox Corporation.
Russell E. Palmer, Chairman and Chief Executive Officer, The Palmer Group.
Director of Bankers Trust Company. Former Dean of the Wharton School,
University of Pennsylvania and former Chief Executive Officer of Touche Ross &
Co. (now Deloitte & Touche). Also a director of Allied-Signal Inc., Federal
Home Loan Mortgage Corporation, GTE Corporation, The May Department Stores
Company and Safeguard Scientifics, Inc.; and a trustee, the University of
Pennsylvania.
Donald L. Staheli, Retired Chairman of the Board and Chief Executive Officer,
Continental Grain Company. Director of Bankers Trust Company. Also a director
of Continental Grain Company, ContiFinancial Corporation, Prudential Insurance
Company of America, Fresenius Medical Care, A.G., National Committee on United
States-China Relations and America's Promise; member, Council on Foreign
Relations; and chairman of The Points of Light Foundation.
Patricia Carry Stewart, Former Vice President, The Edna McConnell Clark
Foundation (a charitable foundation). Director of Bankers Trust Company. Also a
director of CVS Corporation and of the Community Foundation for Palm Beach and
Martin Counties; and a trustee emerita of Cornell University.
G. Richard Thoman, President, Chief Operating Officer and Director, Xerox
Corporation. Director of Bankers Trust Company. Also a director of Fuji Xerox
Company, Ltd. and Union Bancaire Privee
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(Switzerland); member, General Electric Investments Equity Advisory Board, Yale
School of Management Advisory Board, Fletcher School of Law and Diplomacy
Advisory Board, and the INSEAD U.S. Advisory Board; director, The Americas
Society; and member, Council on Foreign Relations.
George J. Vojta, Vice Chairman of the Board of the Corporation and Bankers
Trust Company. Also a director of Alicorp, S.A., Northwest Airlines and Private
Export Funding Corp.; member of the New York State Banking Board; vice chairman
of the Board of Trustees of St. Luke's-Roosevelt Hospital Center; a partner of
New York City Partnership; chairman, Wharton Financial Services Center; and a
member of the Bretton Woods Committee.
Paul A. Volcker, Director of Various Corporations. Director of Bankers Trust
Company. Former Chairman and Chief Executive Officer of Wolfensohn & Co., Inc.
and former Chairman of the Board of Governors of the Federal Reserve System.
Also a director of the American Stock Exchange, Nestle S.A., Prudential
Insurance Company of America and UAL Corporation and an overseer of TIAA-CREF;
director of American Council on Germany, Council on Foreign Relations and The
Japan Society; trustee of The American Assembly; and member of the advisory
boards of several international corporations.
Melvin A. Yellin, Bankers Trust Company, 130 Liberty Street, New York, New York
10006. Senior Managing Director and General Counsel of Bankers Trust New York
Corporation and Bankers Trust Company; Director, 1136 Tenants Corporation; and
Director, ABA Securities Association.
Item 29. Principal Underwriters.
(a) EQ Financial Consultants, Inc. is a principal underwriter of
the Trust's Class IA shares and Class IB shares, and Equitable Distributors,
Inc. is also a principal underwriter of the Trust's Class IA shares and Class
IB shares. EQ Financial Consultants Inc. also serves as a principal underwriter
for the following entities: the Class IA and IB shares of The Hudson River
Trust; Separate Account Nos. 45, 66 and 301 of Equitable; and Separate Accounts
A, I and FP of Equitable. Equitable Distributors, Inc. serves as the principal
underwriter for the Class IB shares of The Hudson River Trust and Separate
Account FB and Separate Account No. 49 of Equitable.
(b) Set forth below is certain information regarding the directors
and officers of EQ Financial Consultants, Inc., and of Equitable Distributors,
Inc., the principal underwriters of the Trust's Class IA and Class IB shares.
The business address of the persons whose names are preceded by a single
asterisk is 1290 Avenue of the Americas, New York, New York 10104. The business
address of the persons whose names are preceded by a double asterisk is 660
Newport Center Drive, Suite 1200, Newport Beach, CA 92660. Mr. Laughlin's
business address is 1345 Avenue of the Americas, 39th Floor, New York, New York
10105. Mr. Kornweiss's business address is 4251 Crums Mill Road, Harrisburg, PA
17112. The business address of Mr. Bullen and Ms.
Fazio is 200 Plaza Drive, Secaucus, New Jersey 07096.
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<TABLE>
<CAPTION>
================================================================================================================================
EQ FINANCIAL CONSULTANTS, INC.
================================================================================================================================
NAME AND PRINCIPAL WITH POSITIONS AND OFFICES WITH EQ FINANCIAL POSITIONS AND OFFICES WITH
BUSINESS ADDRESS CONSULTANTS, INC. REGISTRANT (EQ ADVISORS TRUST)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
DIRECTORS
* Derry E. Bishop Director
* Harvey E. Blitz Director Chief Financial Officer and Vice President
Michael J. Laughlin Director Vice President
* Michael S. Martin Director
* Michael F. McNelis Director
* Richard V. Silver Director
* Mark R. Wutt Director
- --------------------------------------------------------------------------------------------------------------------------------
OFFICERS
* Michael S. Martin Chairman of the Board and Chief Executive Vice President
Officer
* Michael F. McNelis President and Chief Operating Officer
Executive Vice President and Chief Marketing
* Martin J. Telles Officer Vice President
* Derry E. Bishop Executive Vice President
* Harvey Blitz Executive Vice President Chief Financial Officer and Vice President
* Thomas J. Duddy, Jr. Executive Vice President
* Fred A. Folco Executive Vice President
* William J. Green Executive Vice President
* Edward J. Hayes Executive Vice President
* Craig A. Junkins Executive Vice President
* Peter D. Noris Executive Vice President President
* Mark A. Silberman Senior Vice President and Chief Financial
Officer
* Theresa A. Nurge-Alws Senior Vice President
* Mary P. Breen Vice President and Counsel Vice President and Secretary
* Donna M. Dazzo First Vice President
* Robin K. Murray First Vice President
* Michael Brzozowski Vice President and Compliance Director First Vice President
* Raymond T. Barry Vice President
* Claire A. Comerford Vice President
* Amy Franceschini Vice President
* Linda Funigiello Vice President
* Mark Generales Vice President
Peter R. Kornweiss Vice President
* Frank Lupo Vice President
* Rosemary Magee Vice President
* Michael McBryan Vice President
* T.S. Narayanan Vice President
* Bill Nestel Vice President
* Laura A. Pellegrini Vice President
================================================================================================================================
</TABLE>
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<TABLE>
<CAPTION>
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<S> <C> <C>
* Dan Roebuck Vice President
* Sid Smith Vice President
* Dan Wiley Vice President
* Mike Woodhead
* Mary E. Cantwell Assistant Vice President Assistant Vice President
* Tom C. Gosnell Assistant Vice President
* Ara Klidjian Assistant Vice President
* John T. McCabe Assistant Vice President
* Janet E. Hannon Secretary
* Linda J. Galasso Assistant Secretary
================================================================================================================================
</TABLE>
C-13
<PAGE>
<TABLE>
<CAPTION>
========================================================================================================================
EQUITABLE DISTRIBUTORS, INC.
========================================================================================================================
POSITIONS AND OFFICES WITH EQUITABLE POSITIONS AND OFFICES WITH
NAME AND PRINCIPAL BUSINESS ADDRESS DISTRIBUTORS, INC. REGISTRANT (EQ ADVISORS TRUST)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
DIRECTORS
** Greg Brakovich Director
* Edward J. Hayes Director
** James A. Shepherdson, III Director
* Jose S. Suquet Director
* Charles Wilder Director
- ------------------------------------------------------------------------------------------------------------------------
OFFICERS
* Jose S. Suquet Chairman of the Board
** Greg Brakovich Co-President and Co-Chief Executive Officer
and Managing Director
** James A. Shepherdson, III Co-President and Co-Chief Executive Officer
and Managing Director
** Hunter Allen Senior Vice President
* Elizabeth Forget Senior Vice President
** Jennifer Hall Senior Vice President
** Al Haworth Senior Vice President
** Stuart Hutchins Senior Vice President
** Ken Jaffe Senior Vice President Vice President and Secretary
** Michael McDaniel Senior Vice President
** Debora Buffington Chief Compliance Officer
* Mary P. Breen Vice President and Counsel
* Mark A. Silberman Vice President and Chief Financial Officer
* Raymond T. Barry Vice President
** Mark Brandenberger Vice President
* Thomas D. Bullen Vice President
** Dave Hughes Vice President
** Marty Krager Vice President
** Michelle O'Haren Vice President
* Ronald R. Quist Treasurer
* Janet Hannon Secretary
* Linda J. Galasso Assistant Secretary
========================================================================================================================
</TABLE>
C-14
<PAGE>
(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.
1290 Avenue of the Americas 100 East Pratt St.
New York, New York 10104 Baltimore, MD 21202
Rowe Price-Fleming International, Inc. Putnam Investment Management, Inc.
100 East Pratt Street One Post Office Square
Baltimore, MD 21202 Boston, MA 02109
Massachusetts Financial Services Company Merrill Lynch Asset Management, L.P.
500 Boylston Street 800 Scudders Mill Road
Boston, MA 02116 Plainsboro, New Jersey 08543-9011
Warburg Pincus Asset Management, 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
Lazard Asset Management J.P Morgan Investment Management Inc.
30 Rockefeller Plaza 522 Fifth Avenue
New York, New York 10020 New York, New York 10036
Bankers Trust Company Evergreen Asset Management Corp.
130 Liberty Street 2500 Westchester Avenue
One Bankers Trust Plaza Purchase, New York 10577
New York, New York 10006
Item 31. Management Services: None.
C-15
<PAGE>
Item 32. Undertakings
(a) Inapplicable.
(b) Inapplicable.
(c) The Registrant hereby undertakes to furnish each person
to whom a prospectus is delivered with a copy of the
Registrant's latest annual report to shareholders upon
request and without charge.
C-16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, ("1933
Act") and the Investment Company Act of 1940, as amended, the Registrant has
duly caused this Post-Effective Amendment No. 7 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 15th day of October,
1998.
EQ ADVISORS TRUST
By: /s/
-----------------------------
Peter D. Noris
President
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Post-Effective Amendment No. 7 to the Registration Statement has been signed
below by the following persons in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ President and Trustee October 15, 1998
- ------------------------------
Peter D. Noris
* Trustee October 15, 1998
- ------------------------------
William T. McCaffrey
* Trustee October 15, 1998
- ------------------------------
Michael Hegarty
* Trustee October 15, 1998
- ------------------------------
Jettie M. Edwards
* Trustee October 15, 1998
- ------------------------------
William M. Kearns, Jr.
* Trustee October 15, 1998
- ------------------------------
Christopher P.A. Komisarjevsky
* Trustee October 15, 1998
- ------------------------------
Harvey Rosenthal
* Chief Financial Officer October 15, 1998
- ------------------------------
Harvey Blitz
* By: /s/
-------------------------
Peter D. Noris
(Attorney-in-Fact)
C-17
<PAGE>
EXHIBIT LIST
EXHIBIT
NUMBER DESCRIPTION
5(a)(3). Form of Amendment No. 2, dated December __, 1998, to
Investment Management Agreement between EQ Advisors
Trust and EQ Financial Consultants, Inc. dated April
14, 1997 and Appendices A and B dated April 14, 1997.
5(e)(2). Form of Amendment No. 1, dated December ___, 1998 to
Investment Advisory Agreement between EQ Financial
Consultants, Inc. and Massachusetts Financial Services
Company dated April 1997 and Appendix A dated April
1997.
5(l). Form of Investment Advisory Agreement between EQ
Financial Consultants, Inc. and Evergreen Asset
Management Corp., dated December ___, 1998.
6(a)(3). Form of Amendment No. 2 dated December __, 1998 to the
Distribution Agreement between EQ Advisors Trust and EQ
Financial Consultants with respect to the Class 1A
shares dated April 14, 1997 and Schedule A dated April
14, 1997.
6(b)(3). Form of Amendment No. 2 dated December __, 1998 to the
Distribution Agreement between EQ Advisors Trust and EQ
Financial Consultants, Inc. with respect to the Class
IB shares dated April 14, 1997 and Schedule A dated
April 14, 1997.
6(c)(3). Form of Amendment No. 2 dated December __, 1998 to the
Distribution Agreement between EQ Advisors Trust and EQ
Financial Consultants, Inc. with respect to the Class
IB shares dated April 14, 1997 and Schedule A dated
April 14, 1997.
6(d)(3). Form of Amendment No. 2 dated December __, 1998 to the
Distribution Agreement between EQ Advisors Trust and EQ
Financial Consultants, Inc. with respect to the Class
IB shares dated April 14, 1997 and Schedule A dated
April 14, 1997 (to be filed by amendment).
8(a)(3) Form of Amendment No. 2 dated December __, 1998 to the
Custodian Agreement between EQ Advisors Trust and North
American Insurance Securities Division of the Chase
Manhattan Bank dated April 17, 1997 and Appendix A
dated April 17, 1997.
8(b). Amended and Restated Global Custody Rider to the
Domestic Custody Agreement for Mutual Funds between the
Chase Manhattan Bank and EQ Advisors Trust dated
August 31, 1998 and Schedules A-E dated August 31,
1998.
10(d). Opinion and Consent of Dechert Price & Rhoads regarding
the legality of the securities being registered with
respect to the Evergreen Foundation Portfolio,
Evergreen Portfolio, and Massachusetts Investors
Portfolio.
11. Consent of PricewaterhouseCoopers LLP, Independent
Public Accountants.
C-18
<PAGE>
27. Financial Data Schedules.
C-19
<PAGE>
EXHIBIT 5(A)(3)
FORM OF
AMENDMENT NO. 2
TO
INVESTMENT MANAGEMENT AGREEMENT
AMENDMENT No. 2, dated as of December 1, 1998 ("Amendment No. 2"),
to the INVESTMENT MANAGEMENT AGREEMENT, dated as of April 14, 1997 ("Original
Agreement"), between EQ Advisors Trust, a Delaware business trust (the "Trust")
and EQ Financial Consultants, Inc., a Delaware corporation ("EQ Financial" or
the "Manager").
The Trust and EQ Financial agree as follows:
1. Duration of Agreement. With respect to each Portfolio specified
in Appendix A to the Original Agreement, the Original Agreement will continue
in effect until April 14, 1999 and thereafter will continue annually only so
long as such continuance is specifically approved at least annually either by
the Board of Trustees of the Trust or by a vote of a majority of the
outstanding voting securities of the Trust, provided that, in either event,
such continuance shall also be approved by a vote of a majority of the Trustees
of the Trust who are not interested persons of any party to the Original
Agreement, as amended, cast in person at a meeting called for the purpose of
voting on such approval.
With respect to each new Portfolio specified in Appendix A to
Amendment No. 1 to the Original Agreement, dated December 9, 1997, the Original
Agreement, as amended, will not continue in effect for a period of more than
two years from the date of execution of that Amendment No. 1 unless such
continuance is approved as specified above. Similarly, with respect to each new
Portfolio specified in Appendix A to this Amendment No. 2 to the Original
Agreement, the Original Agreement, as amended, will not continue in effect for
a period more than two years from the date of the execution of this Amendment
No. 2 unless such continuance is approved as specified above.
2. Appendix A. Appendix A to the Original Agreement and to
Amendment No. 1 to the Original Agreement setting forth the portfolios of the
Trust for which EQ Financial is appointed as the investment manager, is hereby
replaced in its entirety by Appendix A attached hereto.
3. Appendix B. Appendix B to the Original Agreement and to
Amendment No. 1 to the Original Agreement setting forth the fees payable to EQ
Financial with respect to each portfolio of the Trust, is hereby replaced in
its entirety by Appendix B attached hereto.
Except as modified and amended hereby, the Original Agreement and
Amendment No. 1 to the Original Agreement are hereby ratified and confirmed in
full force and effect in accordance with its terms.
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this
Amendment No. 2 as of the date first above set forth.
EQ ADVISORS TRUST EQ FINANCIAL CONSULTANTS, INC.
By: By:
---------------------------- ---------------------------
Peter D. Noris Michael S. Martin
President and Trustee Chairman of the Board and
Chief Executive Officer
<PAGE>
APPENDIX A
TO
AMENDMENT NO. 2
TO
INVESTMENT MANAGEMENT AGREEMENT
PORTFOLIOS
----------
Original Portfolios
-------------------
T. Rowe Price International Stock Portfolio
T. Rowe Price Equity Income Portfolio
EQ/Putnam, Growth & Income Value Portfolio
EQ/Putnam International Equity Portfolio
EQ/Putnam Investors Growth Portfolio
EQ/Putnam Balanced Portfolio MFS Research
Portfolio MFS Emerging Growth Companies
Portfolio Morgan Stanley Emerging Markets
Equity Portfolio Warburg Pincus Small
Company Value Portfolio Merrill Lynch World
Strategy Portfolio Merrill Lynch Basic
Value Equity Portfolio
Amendment No. 1 Additions
-------------------------
Lazard Small Cap Value Portfolio Lazard
Large Cap Value Portfolio JPM Core Bond
Portfolio BT Small Company Index Portfolio
BT International Equity Index Portfolio BT
Equity 500 Index Portfolio
Amendment No. 2 Additions
-------------------------
Evergreen Foundation Portfolio
Evergreen Portfolio
MFS Growth with Income Portfolio
<PAGE>
APPENDIX B
TO
AMENDMENT NO. 2
TO
INVESTMENT MANAGEMENT AGREEMENT
The Trust shall pay the Manager, at the end of each calendar month,
compensation computed daily at an annual rate equal to the following:
<TABLE>
<CAPTION>
Portfolio Management Fee
- --------- --------------
<S> <C>
T. Rowe Price International Stock Portfolio .75% of the Portfolio's average daily net assets.
T. Rowe Price Equity Income Portfolio .55% of the Portfolio's average daily net assets.
EQ/Putnam Growth & Income Value Portfolio .55% of the Portfolio's average daily net assets.
EQ/Putnam International Equity Portfolio .70% of the Portfolio's average daily net assets.
EQ/Putnam Investors Growth Portfolio .55% of the Portfolio's average daily net assets.
EQ/Putnam Balanced Portfolio .55% of the Portfolio's average daily net assets.
MFS Research Portfolio .55% of the Portfolio's average daily net assets.
MFS Emerging Growth Companies Portfolio .55% of the Portfolio's average daily net assets.
MFS Growth with Income Portfolio .55% of the Portfolio's average daily net assets.
Morgan Stanley Emerging Markets Equity 1.15% of the Portfolio's average daily net assets.
Portfolio
Warburg Pincus Small Company Value Portfolio .65% of the Portfolio's average daily net assets.
Merrill Lynch World Strategy Portfolio .70% of the Portfolio's average daily net assets.
Merrill Lynch Basic Value Equity Portfolio .55% of the Portfolio's average daily net assets.
Lazard Small Cap Value Portfolio .80% of the Portfolio's average daily net assets.
Lazard Large Cap Value Portfolio .55% of the Portfolio's average daily net assets.
JPM Core Bond Portfolio .45% of the Portfolio's average daily net assets.
BT Small Company Index Portfolio .25% of the Portfolio's average daily net assets.
BT International Equity Index Portfolio .35% of the Portfolio's average daily net assets
BT Equity 500 Index Portfolio .25% of the Portfolio's average daily net assets.
Evergreen Foundation Portfolio .63% of the Portfolio's average daily net assets.
Evergreen Portfolio .75% of the Portfolio's average daily net assets.
</TABLE>
EXHIBIT 5(E)(2)
FORM OF
AMENDMENT NO. 1 TO
INVESTMENT ADVISORY AGREEMENT
AMENDMENT No. 1, dated as of December __, 1998 ("Amendment No. 1"),
to the INVESTMENT ADVISORY AGREEMENT, dated as of December 9, 1997 ("Original
Agreement"), between EQ Financial Consultants, Inc., a Delaware corporation
("EQ Financial" or the "Manager"), and Massachusetts Financial Services
Company, a Delaware corporation (the "Adviser").
EQ Financial and the Adviser agree as follows:
1. Duration of Agreement. With respect to the Portfolios specified
in Schedule A to the Original Agreement, the Original Agreement will continue
in effect until December 9, 1999, and thereafter will continue annually 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 Board of Trustees who are not
interested persons of any party to this Agreement cast in person at a meeting
called for the purpose of voting on such approval.
With respect to MFS Growth with Income Portfolio, as specified in
Schedule A to this Amendment No. 1 to the Original Agreement, the Original
Agreement, as amended, will not continue in effect for a period of more than
two years from the date of execution of this Amendment No. 1 unless such
continuance is approved as specified above.
2. Schedule A. Schedule A to the Original Agreement is replaced in
its entirety by Schedule A attached hereto.
Except as modified and amended hereby, the Original Agreement is
hereby ratified and conformed in full force and effect in accordance with its
terms.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
No. 1 to the Original Agreement to be executed by their duly authorized
officers as of the date first mentioned above.
EQ FINANCIAL CONSULTANTS, INC. MASSACHUSETTS FINANCIAL SERVICES
COMPANY
By: By:
---------------------------------- --------------------------------
Name: Name:
Title: Title:
<PAGE>
APPENDIX A
TO
ADVISORY AGREEMENT
WITH
MASSACHUSETTS FINANCIAL SERVICES COMPANY
Portfolio Advisory Fee
--------- ------------
MFS Research Portfolio 0.40% of the Portfolio's average daily net
assets up to and including $150,000,000
0.375% of the Portfolio's average daily net
assets in excess of $150,000,000 up to and
including $300,000,000
0.35% of the Portfolio's average daily net
assets in excess of $300,000,000
Advisory Fee
------------
MFS Emerging Growth Companies
Portfolio 0.40% of the Portfolio's average daily net
assets up to and including $150,000,000
0.375% of the Portfolio's average daily net
assets in excess of $150,000,000 up to and
including $300,000,000
0.35% of the Portfolio's average daily net
assets in excess of $300,000,000
Advisory Fee
------------
MFS Growth with Income Portfolio 0.40% of the Portfolio's average daily net
assets up to and including $150,000,000
0.375% of the Portfolio's average daily net
assets in excess of $150,000,000 up to and
including $300,000,000
0.35% of the Portfolio's average daily net
assets in excess of $300,000,000
-2-
<PAGE>
EXHIBIT (5)(L)
FORM OF
INVESTMENT ADVISORY AGREEMENT
AGREEMENT, dated as of December __, 1998, by and between EQ
Financial Consultants, Inc., a Delaware corporation ("EQ Financial" or the
"Manager"), and Evergreen Asset Management Corp., a New York 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 Directors of the Trust and EQ Financial
desire to retain the Adviser to render investment advisory services to the
portfolios to be known as Evergreen Foundation Portfolio and Evergreen
Portfolio (each a "Portfolio" and collectively, the "Portfolios") in the manner
and on the terms hereinafter set forth, which Portfolios are more particularly
described in Post-Effective Amendment No. 7 to the Registration Statement on
Form N-1A for the Trust filed with the Securities and Exchange Commission on
October __, 1998;
NOW, THEREFORE, EQ Financial and the Adviser agree as follows:
1. APPOINTMENT OF ADVISER
The Manager hereby appoints the Adviser to act as investment
adviser for each Portfolio and to manage the investment and reinvestment of the
assets of each 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 each Portfolio and determine the composition of the assets of each
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 each
Portfolio, the Adviser will:
(i) obtain and evaluate pertinent economic, statistical, financial, and
other information affecting the economy generally and individual
companies or industries, the securities of which are included in
the Portfolio or are under consideration for inclusion in the
Portfolio;
(ii) formulate and implement a continuous investment program for the
Portfolio (a) consistent with the investment objectives, policies
and restrictions of the Portfolio as stated in the Trust's
Agreement and Declaration of Trust, By-Laws, and such Portfolio's
currently effective Prospectus and Statement of Additional
Information ("SAI") as amended from time to time, and (b) in
compliance with the requirements applicable to both regulated
investment companies and segregated asset accounts under
Subchapters M and L of the Internal Revenue Code of 1986, as
amended;
(iii) take whatever steps are necessary to implement the investment
program for the Portfolio by the purchase and sale of securities
and other investments authorized under the Trust's Agreement and
Declaration of Trust, By-Laws, and such Portfolio's currently
effective Prospectus and SAI, including the placing of orders for
such purchases and sales;
(iv) regularly report to the Trustees of the Trust and the Manager with
respect to the implementation of the investment program and, in
addition, provide such statistical information and special reports
concerning the Portfolio and/or important developments materially
affecting the investments held, or contemplated to be purchased, by
the Portfolio, as may reasonably be requested by the Manager or the
Trustees of the Trust, including attendance at Board of Trustees
Meetings, as reasonably requested, to present such information and
reports to the Board;
(v) provide determinations of the fair value of certain portfolio
securities when market quotations are not readily available for the
purpose of calculating the Portfolio's net asset value in
accordance with procedures and methods established by the Trustees
of the Trust;
(vi) provide any and all information, records and supporting
documentation about accounts the Adviser manages that have
investment objectives, policies, and strategies substantially
similar to those employed by the Adviser in managing the Portfolio
which may be reasonably necessary, under applicable laws, to allow
the Portfolio or its agent to present information concerning the
Adviser's prior performance in
-2-
<PAGE>
the Prospectus and the SAI of the Portfolio and any permissible
reports and materials prepared by the Portfolio or its agent; and
(vii) establish appropriate interfaces with the Trust's administrator and
Manager in order to provide such administrator and Manager with all
necessary information requested by the administrator and Manager.
B. The Adviser, at its expense, will furnish: (i) all necessary investment and
management facilities and investment personnel, including salaries, expenses
and fees of any personnel required for it to faithfully perform its duties
under this Agreement; and (ii) administrative facilities, including
bookkeeping, clerical personnel and equipment necessary for the efficient
conduct of the investment affairs of each 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 each 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 each Portfolio, in the name of the Portfolio or its nominees, the Adviser
shall use its best efforts to obtain for the Portfolio the most favorable price
and best execution available, considering all of the circumstances, and shall
maintain records adequate to demonstrate compliance with this requirement.
Subject to the appropriate policies and procedures approved by the
Board of Trustees, the Adviser may, to the extent authorized by Section 28(e)
of the Securities Exchange Act of 1934, cause each 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 each
Portfolio or its other advisory clients. To the extent authorized by said
Section 28(e) and the Trust's Board of Trustees, the Adviser shall not be
deemed to have acted unlawfully or to have breached any duty created by this
Agreement or otherwise solely by reason of such action. In addition, subject to
seeking the most favorable price and best execution available, the Adviser may
also consider sales of shares of the Trust as a factor in the selection of
brokers and dealers.
D. On occasions when the Adviser deems the purchase or sale of a security to be
in the best interest of the Portfolios as well as other clients of the Adviser,
the Adviser to the extent permitted by applicable laws and regulations, may,
but shall be under no obligation to, aggregate the securities to be purchased
or sold to attempt to obtain a more favorable price or lower brokerage
commissions and efficient execution. In such event, allocation of the
securities so purchased or sold, as well as the expenses incurred in the
transaction, will be made by the
-3-
<PAGE>
Adviser in the manner the Adviser considers to be the most equitable and
consistent with its fiduciary obligations to each Portfolio and to its other
clients.
E. The Adviser will maintain all accounts, books and records with respect to
the Portfolios 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 each 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 each Portfolio's assets and
accrued on a daily basis.
4. LIABILITY OF ADVISER
Neither the Adviser nor any of its directors, officers, or
employees shall be liable to the Manager for any loss suffered by the Manager
resulting from its acts or omissions as Adviser to the Portfolios, except for
losses to the Manager or the Trust resulting from willful misconduct, bad
faith, or gross negligence in the performance of, or from reckless disregard
of, the duties of the Adviser or any of its directors, officers or employees.
The Adviser, its directors, officers or employees shall not be liable to the
Manager or the Trust for any loss suffered as a consequence of any action or
inaction of other service providers to the Trust in failing to observe the
instructions of the Adviser, provided such action or inaction of such other
service providers to the Trust is not a result of the willful misconduct, bad
faith or gross negligence in the performance of, or from reckless disregard of,
the duties of the Adviser under this Agreement.
5. NON-EXCLUSIVITY
The services of the Adviser to the Portfolios 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
-4-
<PAGE>
which any such body by reason of this Agreement may request or require pursuant
to applicable laws and regulations.
8. RECORDS
The records relating to the services provided under this Agreement
shall be the property of the Trust and shall be under its control; however, the
Trust shall furnish to the Adviser such records and permit it to retain such
records (either in original or in duplicate form) as it shall reasonably
require in order to carry out its duties. In the event of the termination of
this Agreement, such records shall promptly be returned to the Trust by the
Adviser free from any claim or retention of rights therein. The Adviser shall
keep confidential any information obtained in connection with its duties
hereunder and disclose such information only if the Trust has authorized such
disclosure or if such disclosure is expressly required or requested by
applicable federal or state regulatory authorities.
9. DURATION OF AGREEMENT
This Agreement shall become effective with respect to each
Portfolio on the later of the date of its execution or the date of the
commencement of the Portfolio. This Agreement will continue in effect for a
period more than two years from the date of its execution only so long as such
continuance is specifically approved at least annually by the Board of Trustees
provided that in such event such continuance shall also be approved by the vote
of a majority of the Trustees who are not "interested persons" (as defined in
the Investment Company Act) ("Independent Trustees") of any party to this
Agreement cast in person at a meeting called for the purpose of voting on such
approval.
10. TERMINATION OF AGREEMENT
This Agreement may be terminated at any time, without the payment
of any penalty, by the Board of Trustees, including a majority of the
Independent Trustees, by the vote of a majority of the outstanding voting
securities of such Portfolio, on sixty (60) day's written notice to the Manager
and the Adviser, or by the Manager or Adviser on sixty (60) day's written
notice to the Trust and the other party. This Agreement will automatically
terminate, without the payment of any penalty, 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:
-5-
<PAGE>
A. the Adviser fails to be registered as an investment adviser under the
Advisers Act or under the laws of any jurisdiction in which the Adviser is
required to be registered as an investment adviser in order to perform its
obligations under this Agreement;
B. the Adviser is served or otherwise receives notice of any action, suit,
proceeding, inquiry, or investigation, at law or in equity, before or by any
court, public board, or body, involving the affairs of the Trust; and/or
C. the chief executive officer or controlling stockholder of the Adviser or the
portfolio manager of any Portfolio changes or there is otherwise an actual
change in control or management of the Adviser.
12. USE OF ADVISER'S NAME
The Manager will not use the Adviser's name (or that of any
affiliate) in Trust literature without prior review and approval by the
Adviser, which may not be unreasonably withheld or delayed.
13. AMENDMENTS TO THE AGREEMENT
Except to the extent permitted by the Investment Company Act or the
rules or regulations thereunder or pursuant to any exemptive relief granted by
the Securities and Exchange Commission ("SEC"), this Agreement may be amended
by the parties only if such amendment, if material, is specifically approved by
the vote of a majority of the outstanding voting securities of the affected
Portfolio or Portfolios (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 a Portfolio if a majority of the
outstanding voting securities of such 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 Portfolios.
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
-6-
<PAGE>
private mail or delivery service providing the sender with notice of receipt.
The specific person to whom notice shall be provided for each party will be
specified in writing to the other party. Notice shall be deemed given on the
date delivered or mailed in accordance with this paragraph.
17. SEVERABILITY
Should any portion of this Agreement for any reason be held to be
void in law or in equity, the Agreement shall be construed, insofar as is
possible, as if such portion had never been contained herein.
18. GOVERNING LAW
The provisions of this Agreement shall be construed and interpreted
in accordance with the laws of the State of Delaware, or any of the applicable
provisions of the Investment Company Act. To the extent that the laws of the
State of Delaware, or any of the provisions in this Agreement, conflict with
applicable provisions of the Investment Company Act, the latter shall control.
Any question of interpretation of any term or provision of this
Agreement having a counterpart in or otherwise derived from a term or provision
of the Investment Company Act shall be resolved by reference to such term or
provision of the Investment Company Act and to interpretations thereof, if any,
by the United States courts or, in the absence of any controlling decision of
any such court, by rules, regulations or orders of the SEC validly issued
pursuant to the Investment Company Act. Specifically, the terms "vote of a
majority of the outstanding voting securities," "interested persons,"
"assignment," and "affiliated persons," as used herein shall have the meanings
assigned to them by Section 2(a) of the Investment Company Act. In addition,
where the effect of a requirement of the Investment Company Act reflected in
any provision of this Agreement is relaxed by a rule, regulation or order of
the SEC, whether of special or of general application, such provision shall be
deemed to incorporate the effect of such rule, regulation or order.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed by their duly authorized officers as of the date first mentioned
above.
EQ FINANCIAL CONSULTANTS, INC. EVERGREEN ASSET MANAGEMENT CORP.
By: By:
--------------------------------- -------------------------------
Name: Name:
Title: Title:
-7-
<PAGE>
APPENDIX A
TO
ADVISORY AGREEMENT
WITH
EVERGREEN ASSET MANAGEMENT CORP.
Portfolio Advisory Fee
--------- ------------
Evergreen Foundation Portfolio .425% of the Portfolio's average daily
net assets
Evergreen Portfolio .55% of the Portfolio's average daily net
assets
<PAGE>
EXHIBIT 6(A)(3)
FORM OF
AMENDMENT NO. 2
TO
DISTRIBUTION AGREEMENT
EQ FINANCIAL CONSULTANTS, INC./CLASS IA SHARES
AMENDMENT No. 2 dated as of December ___, 1998 ("Amendment No. 2"),
to the Distribution Agreement relating to the Class IA Shares dated as of April
14, 1997 ("Original Agreement") by and between EQ Advisors Trust ("Trust") and
EQ Financial Consultants, Inc. ("EQ Financial").
The Trust and EDI agree that:
1. Duration of Agreement. With respect to each Portfolio specified
in Schedule A to the Original Agreement, the Original Agreement will continue
in effect until April 14, 1999 and thereafter will continue annually only so
long as such continuance is specifically approved at least annually either by
the (a) Board of Trustees of the Trust or (b) persons having voting rights in
respect of the Trust, by the vote stated in Section 11 of the Original
Agreement, voted in accordance with the provisions contained in the
Participation Agreement or any policies on conflicts adopted by the Board of
Trustees, provided that in either event such continuance shall also be approved
by a vote of a majority of the Trustees of the Trust who are not interested
persons of any party to the Agreement, cast in person at a meeting called for
the purpose of voting on such approval.
With respect to each new Portfolio specified in Schedule A to
Amendment No. 1 to the Original Agreement, dated December 9, 1997, the Original
Agreement, as amended, will not continue in effect for a period of more than
two years from the date of execution of that Amendment No. 1 unless such
continuance is approved as specified above. Similarly, with respect to each new
Portfolio specified in Schedule A to this Amendment No. 2 to the Original
Agreement, the Original Agreement, as amended, will not continue in effect for
a period of more than two years from the date of the execution of this
Amendment No. 2 unless such continuance is approved as specified above.
2. Schedule A. Schedule A to the Original Agreement and to
Amendment No. 1 to the Original Agreement is replaced in its entirety by
Schedule A attached hereto.
Except as modified and amended hereby, the Original Agreement and
Amendment No. 1 to the Original Agreement are hereby ratified and confirmed in
full force and effect in accordance with its terms.
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this
Amendment No. 2 as of the date first above set forth.
EQ ADVISORS TRUST EQ FINANCIAL CONSULTANTS,
INC.
By: By:
--------------------------------- ---------------------------------
Peter D. Noris Michael S. Martin
President and Trustee Chairman of the Board and
Chief Executive Officer
<PAGE>
SCHEDULE A
TO
AMENDMENT NO. 2
TO
DISTRIBUTION AGREEMENT
CLASS IA SHARES
PORTFOLIOS OF
EO ADVISORS TRUST
-----------------
Original Portfolios
-------------------
T. Rowe Price International Stock
Portfolio T. Rowe Price Equity Income
Portfolio EQ/Putnarn 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
Amendment No. 1 Additions
-------------------------
Lazard Small Cap Value Portfolio
Lazard Large Cap Value Portfolio JPM
Core Bond Portfolio BT Small Company
Index Portfolio BT International
Equity Index Portfolio BT Equity 500
Index Portfolio
Amendment No. 2 Additions
-------------------------
Evergreen Foundation Portfolio
Evergreen Portfolio
MFS Growth with Income Portfolio
<PAGE>
EXHIBIT 6(B)(3)
FORM OF
AMENDMENT NO. 2
TO
DISTRIBUTION AGREEMENT
EQ FINANCIAL CONSULTANTS, INC. / CLASS 1B SHARES
AMENDMENT No. 2 dated as of December ___, 1998 ("Amendment No. 2"),
to the Distribution Agreement relating to the Class IB Shares dated as of April
14, 1997 ("Original Agreement") by and between EQ Advisors Trust ("Trust") and
EQ Financial Consultants, Inc. ("EQ Financial").
The Trust and EQ Financial agree that:
1. Duration of Agreement. With respect to each Portfolio specified
in Schedule A to the Original Agreement, the Original Agreement will continue
in effect until April 14, 1999 and thereafter will continue annually only so
long as such continuance is specifically approved at least annually either by
the (a) Board of Trustees of the Trust or (b) persons having voting rights in
respect of the Trust, by the vote stated in Section 11 of the Original
Agreement, voted in accordance with the provisions contained in the
Participation Agreement or any policies on conflicts adopted by the Board of
Trustees, provided that in either event such continuance shall also be approved
by a vote of a majority of the Trustees of the Trust who are not interested
persons of any party to the Agreement, cast in person at a meeting called for
the purpose of voting on such approval.
With respect to each new Portfolio specified in Schedule A to
Amendment No. 1 to the Original Agreement, dated December 9, 1997, the Original
Agreement, as amended, will not continue in effect for a period of more than
two years from the date of execution of that Amendment No. 1 unless such
continuance is approved as specified above. Similarly, with respect to each new
Portfolio specified in Schedule A to this Amendment No. 2 to the Original
Agreement, the Original Agreement, as amended, will not continue in effect for
a period of more than two years from the date of the execution of this
Amendment No. 2 unless such continuance is approved as specified above.
2. Schedule A. Schedule A to the Original Agreement and to
Amendment No. 1 to the Original Agreement is replaced in its entirety by
Schedule A attached hereto.
Except as modified and amended hereby, the Original Agreement and
Amendment No. 1 to the Original Agreement are hereby ratified and confirmed in
full force and effect in accordance with its terms.
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this
Amendment No. 2 as of the date first above set forth.
EQ ADVISORS TRUST EQ FINANCIAL CONSULTANTS, INC.
By: By:
------------------------------- -----------------------------
Peter D. Noris Michael S. Martin
President and Trustee Chairman of the Board and
Chief Executive Officer
<PAGE>
SCHEDULE A
TO
AMENDMENT NO. 2
TO
DISTRIBUTION AGREEMENT
CLASS IB SHARES
PORTFOLIOS OF
EO ADVISORS TRUST
-----------------
Original Portfolios
-------------------
T. Rowe Price International Stock
Portfolio T. Rowe Price Equity Income
Portfolio EQ/Putnam Growth & Income
Value Portfolio EQ/Putnam International
Equity Portfolio EQ/Putnam Investors
Growth Portfolio EQ/Putnam Balanced
Portfolio MFS Research Portfolio MFS
Emerging Growth Companies Portfolio
Morgan Stanley Emerging Markets Equity
Portfolio Warburg Pincus Small Company
Value Portfolio Merrill Lynch World
Strategy Portfolio Merrill Lynch Basic
Value Equity Portfolio
Amendment No. 1 Additions
-------------------------
Lazard Small Cap Value Portfolio Lazard
Large Cap Value Portfolio JPM Core Bond
Portfolio BT Small Company Index
Portfolio BT International Equity Index
Portfolio BT Equity 500 Index Portfolio
Amendment No. 2 Additions
-------------------------
Evergreen Foundation Portfolio
Evergreen Portfolio
MFS Growth with Income Portfolio
<PAGE>
EXHIBIT 6(C)(3)
FORM OF
AMENDMENT NO. 2
TO
DISTRIBUTION AGREEMENT
EQUITABLE DISTRIBUTORS, INC. / CLASS IA SHARES
AMENDMENT No. 2 ("Amendment"), dated as of December 1, 1998, to the
Distribution Agreement relating to the Class IA Shares dated as of April 14,
1997 ("Original Agreement") by and between EQ Advisors Trust ("Trust") and
Equitable Distributors, Inc. ("EDI").
The Trust and EDI agree that:
1. Duration of Agreement. With respect to each Portfolio specified
in Schedule A to the Original Agreement, the Original Agreement will continue
in effect until April 14, 1999 and thereafter will continue annually only so
long as such continuance is specifically approved at least annually either by
the (a) Board of Trustees of the Trust or (b) persons having voting rights in
respect of the Trust, by the vote stated in Section 11 of the Original
Agreement, voted in accordance with the provisions contained in the
Participation Agreement or any policies on conflicts adopted by the Board of
Trustees, provided that in either event such continuance shall also be approved
by a vote of a majority of the Trustees of the Trust who are not interested
persons of any party to the Agreement, cast in person at a meeting called for
the purpose of voting on such approval.
With respect to each new Portfolio specified in Schedule A to
Amendment No. 1 to the Original Agreement, dated December 9, 1997, the Original
Agreement, as amended, will not continue in effect for a period of more than
two years from the date of execution of that Amendment No. 1 unless such
continuance is approved as specified above. Similarly, with respect to each new
Portfolio specified in Schedule A to this Amendment No. 2 to the Original
Agreement, the Original Agreement, as amended, will not continue in effect for
a period of more than two years from the date of the execution of this
Amendment No. 2 unless such continuance is approved as specified above.
2. Schedule A. Schedule A to the Original Agreement and to
Amendment No. 1 to the Original Agreement is replaced in its entirety by
Schedule A attached hereto.
Except as modified and amended hereby, the Original Agreement and
Amendment No. 1 to the Original Agreement are hereby ratified and confirmed in
full force and effect in accordance with its terms.
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this
Amendment No. 2 as of the date first above set forth.
EQ ADVISORS TRUST EQUITABLE DISTRIBUTORS, INC.
By: By:
-------------------------------- -------------------------------
Peter D. Noris Jerome S. Golden
President and Trustee Chairman of the Board
<PAGE>
SCHEDULE A
TO
AMENDMENT NO. 2
TO
EQUITABLE DISTRIBUTORS, INC. DISTRIBUTION AGREEMENT
CLASS IA SHARES
PORTFOLIOS OF
EO ADVISORS TRUST
-----------------
Original Portfolios
-------------------
T. Rowe Price International Stock
Portfolio T. Rowe Price Equity Income
Portfolio EQ/Putnam Growth & Income
Value Portfolio EQ/Putnam
International Equity Portfolio
EQ/Putnam Investors Growth Portfolio
EQ/Putnam Balanced Portfolio MFS
Research Portfolio MFS Emerging
Growth Companies Portfolio Morgan
Stanley Emerging Markets Equity
Portfolio Warburg Pincus Small
Company Value Portfolio Merrill Lynch
World Strategy Portfolio Merril I
Lynch Basic Value Equity Portfolio
Amendment No. 1 Additions
-------------------------
Lazard Small Cap Value Portfolio
Lazard Large Cap Value Portfolio JPM
Core Bond Portfolio BT Small Company
Index Portfolio BT International
Equity Index Portfolio BT Equity 500
Index Portfolio
Amendment No. 2 Additions
-------------------------
Evergreen Foundation Portfolio
Evergreen Portfolio
MFS Growth with Income Portfolio
<PAGE>
EXHIBIT 6(D)(3)
FORM OF
AMENDMENT NO. 2
TO
DISTRIBUTION AGREEMENT
EQUITABLE DISTRIBUTORS, INC. / CLASS IB SHARES
AMENDMENT No. 2 dated as of December ___, 1998 ("Amendment No. 2"),
to Distribution Agreement relating to the Class IB Shares dated as of April 14,
1997 ("Original Agreement") by and between EQ Advisors Trust ("Trust") and
Equitable Distributors, Inc. ("EDI").
The Trust and EDI agree that:
1. Duration of Agreement. With respect to each Portfolio specified
in Schedule A to the Original Agreement, the Original Agreement will continue
in effect until April 14, 1999 and thereafter will continue annually only so
long as such continuance is specifically approved at least annually either by
the (a) Board of Trustees of the Trust or (b) persons having voting rights in
respect of the Trust, by the vote stated in Section 11 of the Original
Agreement, voted in accordance with the provisions contained in the
Participation Agreement or any policies on conflicts adopted by the Board of
Trustees, provided that in either event such continuance shall also be approved
by a vote of a majority of the Trustees of the Trust who are not interested
persons of any party to the Agreement, cast in person at a meeting called for
the purpose of voting on such approval.
With respect to each new Portfolio specified in Schedule A to
Amendment No. 1 to the Original Agreement, dated December 9, 1997, the Original
Agreement, as amended, will not continue in effect for a period of more than
two years from the date of execution of that Amendment No. 1 unless such
continuance is approved as specified above. Similarly, with respect to each new
Portfolio specified in Schedule A to this Amendment No. 2 to the Original
Agreement, the Original Agreement, as amended, will not continue in effect for
a period of more than two years from the date of the execution of this
Amendment No. 2 unless such continuance is approved as specified above.
2. Schedule A. Schedule A to the Original Agreement and to
Amendment No. 1 to the Original Agreement is replaced in its entirety by
Schedule A attached hereto.
Except as modified and amended hereby, the Original Agreement and
Amendment No. 1 to the Original Agreement are hereby ratified and confirmed in
full force and effect in accordance with its terms.
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this
Amendment No. 2 as of the date first above set forth.
EQ ADVISORS TRUST EQUITABLE DISTRIBUTORS, INC.
By: By:
---------------------------- ----------------------------
Peter D. Noris Jerome S. Golden
President and Trustee Chairman of the Board
<PAGE>
SCHEDULE A
TO
AMENDMENT NO. 2
TO
DISTRIBUTION AGREEMENT
EQUITABLE DISTRIBUTORS, INC./ CLASS IB SHARES
PORTFOLIOS OF
EQ ADVISORS TRUST
-----------------
Original Portfolios
-------------------
T. Rowe Price International Stock Portfolio
T. Rowe Price Equity Income Portfolio
EQ/Putnam Growth & Income Value Portfolio
EQ/Putnam International Equity Portfolio
EQ/Putnam. Investors Growth Portfolio
EQ/Putnam Balanced Portfolio MFS Research
Portfolio MFS Emerging Growth Companies
Portfolio Morgan Stanley Emerging Markets
Equity Portfolio Warburg, Pincus Small
Company Value Portfolio Merrill Lynch World
Strategy Portfolio Merrill Lynch Basic
Value Equity Portfolio
Amendment No. 1 Additions
-------------------------
Lazard Small Cap Value Portfolio Lazard
Large Cap Value Portfolio JPM Core Bond
Portfolio BT Small Company Index Portfolio
BT International Equity Index Portfolio BT
Equity 500 Index Portfolio
Amendment No. 2 Additions
-------------------------
Evergreen Foundation Portfolio
Evergreen Portfolio
MFS Growth with Income Portfolio
<PAGE>
EXHIBIT 8(A)(3)
AMENDMENT NO. 2
TO
CUSTODIAN AGREEMENT
AMENDMENT No. 2, dated as of December ___, 1998 ("Amendment No.
2"), to the CUSTODIAN AGREEMENT, dated as of April 14, 1997 ("Original
Agreement") by and between EQ Advisors Trust and The Chase Manhattan Bank.
The parties hereto agree that Appendix A to the Original Agreement
and to Amendment No. 1to the Original Agreement is replaced in its entirety by
Appendix A attached hereto.
Except as modified and amended hereby, the Original Agreement and
Amendment No. 1 to the Original Agreement are hereby ratified and confirmed in
full force and effect in accordance with its terms.
IN WITNESS WHEREOF, the parties have executed and delivered this
Amendment No. 2 as of the date first above set forth.
EQ ADVISORS TRUST THE CHASE MANHATTAN BANK
By: By:
---------------------------- ----------------------------
Name: Peter D. Noris Name: John K. Breitweg
Title: President and Trustee Title: Vice President
<PAGE>
APPENDIX A
TO
AMENDMENT NO. 2 TO
CUSTODIAN AGREEMENT
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:
MFS Growth with Income Portfolio:
Class IA and Class IB
Morgan Stanley Emerging Markets Equity:
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
Lazard Large Cap Value Portfolio:
Class IA and Class IB
Lazard Small Cap Value Portfolio:
Class IA and Class IB
JPM Core Bond Portfolio:
Class IA and Class IB
BT Small Company Index Portfolio:
Class IA and Class IB
BT International Equity Index Portfolio:
Class IA and Class IB
BT Equity 500 Index Portfolio:
Class IA and Class IB
Evergreen Foundation Portfolio:
Class IA and Class IB
Evergreen Portfolio:
Class IA and Class IB
<PAGE>
EXHIBIT (8)(B)
FORM OF
AMENDED AND RESTATED GLOBAL CUSTODY RIDER
TO
DOMESTIC CUSTODY AGREEMENT
FOR
MUTUAL FUNDS
We hereby request you, The Chase Manhattan Bank ("Chase" or
"Delegate"), to provide to us, EQ Advisors Trust ("Trust"), on behalf of each
of the Trust's separate series ("Portfolios") designated in Appendix A to the
Domestic Custody Agreement, 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 Amended and Restated Global Custody Rider ("Rider") with regard to your
providing Global Custody Services to us, the terms of this Rider shall govern.
All capitalized terms not defined herein shall have the meaning as set forth in
the Domestic Custody Agreement. The terms of this Rider shall be effective as
of the date stated below.
WHEREAS, pursuant to the provisions of Rule 17f-5(b) under the
Investment Company Act of 1940, as amended ("1940 Act") and subject to the
terms and conditions set forth herein, the Board of Trustees ("Board") of the
Trust desires to delegate to the Delegate, and the Delegate hereby agrees to
accept and assume, certain responsibilities described herein concerning Assets,
as defined in Section 1(b) hereof, held outside the United States.
NOW THEREFORE, in consideration of the premises and of the mutual
agreements contained herein, the parties hereto agree as follows:
1. MAINTENANCE OF FINANCIAL ASSETS AND CASH OUTSIDE THE UNITED STATES.
(a) Unless our instructions specifically require another location
acceptable to you:
(1) Financial Assets shall be held in the country or other
jurisdiction in which the principal trading market for such Financial Assets
are located, where such Financial Assets are to be presented for payment or
where such Financial Assets are acquired; and
(2) 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.
(b) Financial Assets and cash hereinafter shall be referred to
collectively as "Assets".
(c) 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
1
<PAGE>
purposes hereof, the term "Affiliate" shall mean an entity controlling,
controlled by, or under common control with, you.
(d) If we wish to have any of the Assets 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 SECURITIES DEPOSITORIES.
(a) You may act under this Rider through the Subcustodians listed
in Schedule A hereto that are branches of a U.S. Bank, with which you have
entered into subcustodial agreements . You may act under this Rider through the
Subcustodians listed in Schedule B hereto that are Eligible Foreign Custodians
(hereinafter defined), with which you have entered into subcustodian agreements
or with your own branches. You may act under this Rider through the Compulsory
Depositories listed in Schedule C hereto. At our request, you may, but need
not, add to Schedule B an Eligible Foreign Custodian (hereinafter defined) that
is either a bank or a securities depository that is not a Compulsory Depository
(as defined herein) where you have not acted as Foreign Custody Manager
(hereinafter defined) with respect to the selection thereof. You shall notify
us in writing in the event that you agree to add any such entity. We authorize
you to hold Assets recorded to the Custody Account in accounts that you have
established with one or more of your branches or Subcustodians. You and the
Subcustodians are authorized to hold any of the Financial Assets in your
accounts with any securities depository in which you or they participate,
subject in the case of a Compulsory Depository to the provisions set forth in
section 9(e) hereof.
(b) You may add new, replace or remove Subcustodians. We shall be
given reasonable notice by you of any amendment to Schedules A or B.
Subcustodians also may be added to Schedule A or B by all written instructions
of the Trust that are accepted in writing by you in your sole and absolute
discretion as amendments to Schedules A or B. Upon our request, you shall
identify the name, address and principal place of business of any Subcustodian
of our Assets and the name and address of the governmental agency or other
regulatory authority that supervises or regulates such Subcustodian.
(c) To be a Subcustodian of Assets maintained outside the United
States, the Subcustodian chosen must be either a branch of a U.S. Bank or an
Eligible Foreign Custodian, which are further defined as follows:
(1) "U.S. Bank" shall mean a qualified U.S. bank, as defined in
Rule 17f-5(a)(7) under the 1940 Act;
(2) "Eligible Foreign Custodian" shall have the meaning set
forth in Rule 17f-5(a)(1).
3. USE OF SUBCUSTODIAN.
(a) You shall identify the Assets on your books as belonging to us.
2
<PAGE>
(b) A Subcustodian shall hold our Assets together with assets
belonging to other of your customers in accounts identified on such
Subcustodian's books as for the exclusive benefit of your customers.
(c) Any Assets in the accounts held by a Subcustodian shall be
subject only to the instruction of you or your agent. Any Financial Assets held
with a securities 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: (i) for indemnification or insurance
arrangements (or any combination of the foregoing) such that the Trust and its
Portfolios will be adequately protected against the risk of loss of the Assets
held in accordance with such agreement; (ii) that the Assets shall not be
subject to any right, charge, security interest, lien or claim of any kind in
favor of such Subcustodian or its creditors, except a claim of payment for
their safe custody or administration or, in the case of cash deposits, liens or
rights in favor of creditors of the Subcustodian arising under bankruptcy,
insolvency or similar laws; (iii) that beneficial ownership of the Assets shall
be freely transferable without the payment of money or value other than for
safe custody or administration; (iv) that adequate records will be maintained
identifying the Assets as belonging to the Trust, on behalf of its Portfolios,
or as being held by a third party for the benefit of the Trust, on behalf of
its Portfolios; (v) that the Trust's independent public accountants will be
given access to those records or confirmation of the contents of those records,
and (vi) that the Trust will receive periodic reports with respect to the
safekeeping of the Assets, including, but not limited to, notification of any
transfer of the Assets to or from the account of a Portfolio or a third party
account containing the Assets held for the benefit of the Portfolio. In lieu of
any or all of the provisions set forth in (i) though (vi) above, such agreement
may contain such other provisions that Chase, as the Foreign Custody Manager,
determines will provide, in their entirety, the same or greater level of care
and protection for the Assets as the provisions set forth in (i) through (vi)
above in their entirety. Where Financial Assets 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 Financial Assets 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) Financial Assets shall be transferred, exchanged or delivered
by you or the Subcustodian upon receipt by you of instructions that include all
information required by you. Settlement and payment for Financial Assets
received for, and delivery of Financial Assets 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
Financial Assets to a purchaser, dealer or their agents against a receipt with
the expectation of receiving later payment and free delivery. Delivery of
Financial Assets out of the Custody Account may be made in any manner
specifically required by our instructions acceptable to you.
3
<PAGE>
(b) All collections of funds or other property paid or distributed
in respect of Financial Assets 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 Financial Assets 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.
(1) Whenever you receive information concerning the Financial
Assets which requires discretionary action by the beneficial owner of the
Financial Assets (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 Financial Assets 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.
(2) When a rights entitlement or a fractional interest
resulting from a rights issue, stock dividend, stock split or similar Corporate
Action is received that 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 reasonable and appropriate, in which case you shall be held harmless for any
such action.
(b) Proxy Voting. You shall provide proxy voting services, if
selected 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.
(c) Tax Reclaims.
(1) 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
Financial Assets for our benefit which you believe may be available to us.
(2) 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 Financial Assets (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 Financial Assets
issued outside
4
<PAGE>
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.
(3) You shall not be liable to us or any third party for any
taxes, fines or penalties payable by you or us, and shall 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 of 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.
(4) 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.
(5) 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.
(6) Confirm that you are authorized to disclose any information
requested by any revenue authority or any governmental body in relation to us
or the Financial Assets and/or cash held for us.
(7) 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.
Financial Assets which are ordinarily held in registered form may
be registered in a nominee name of yours, a Subcustodian, or a securities
depository, as the case may be. You may without notice to us cause any such
Financial Assets to cease to be registered in the name of any such nominee and
to be registered in our name. We agree to hold you, the Subcustodians listed on
Schedules A and B, Compulsory Depositories, 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 Financial Assets in the Custody
Account.
7. STANDARD OF CARE.
(a) With respect to Section 7 of the Domestic Custody Agreement,
delete the second paragraph under "Custodian Responsibility" and insert, in
lieu thereof, the following:
5
<PAGE>
You shall use reasonable care with respect to your obligations and
the safekeeping of our Assets hereunder. You shall be liable to us for any loss
which shall occur as the result of the failure of a Subcustodian listed in
Schedules A and B(except that you shall have no liability for the performance
of a Compulsory Depository as defined in Section 9(e) hereof and listed in
Schedule C) to exercise reasonable care with respect to the safekeeping of
Assets where such loss results directly from the failure of a Subcustodian to
use reasonable care in the provision of custodial services by it in accordance
with the standards in its local market or from the willful default of such
Subcustodian in the provision of custodial services by it. In the event of any
loss to us by reason of the failure of you or a Subcustodian listed in
Schedules A and B 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 Assets which are 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 special, indirect or consequential
damages of any kind whatsoever (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 through which
any such claim for damages may be made. As long as you shall have been in
compliance with your obligations under Rule 17f-5 to determine that each
Subcustodian listed on Schedules A and B has the requisite financial strength
to provide reasonable care for the Trust's Assets , you shall not be
responsible for the insolvency of any Subcustodian which is not a branch or
your Affiliate.
(b) With respect to Section 7 of the Domestic Custody Agreement,
add the following at the end of the "Custodian Responsibility" section:
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.
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 Assets 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 Assets.
You hereby warrant to us that in your opinion, after due inquiry,
the established procedures to be followed by each of your branches and each
branch of a qualified U.S. Bank holding our Assets pursuant hereto afford
protection for such Assets 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. You hereby warrant to us that in your opinion, after
due inquiry, the established procedures to be followed by each Subcustodian or
each non-Compulsory Depository (as listed in Schedules A and B) holding our
Assets pursuant hereto shall be subject to reasonable care, based on the
standards applicable to custodians in the relevant market, after having
considered all
6
<PAGE>
factors relevant to the safekeeping of such Assets, including without
limitation, those factors set forth in Rule 17f-5 under the 1940 Act.
At our election we will be entitled to be subrogated to your rights
with respect to any claims you may have against a Subcustodian or Compulsory
Depository as a consequence of any loss, damage, cost, expenses, liabilities or
claim incurred by us if and to the extent that we have not been made whole by
you for any such loss, damage, expense, liability or claim; it being understood
that the foregoing does not constitute a representation by you that subrogation
will be permitted by applicable law.
8. FEES AND EXPENSES.
We agree to pay you for Global Custody Services hereunder the fees set forth in
Schedule E hereto or such other amounts as may be agreed upon in writing,
together with your reasonable out-of-pocket or incidental expenses, including,
but not limited to, legal fees.
9. 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 Affiliates or Subcustodians.
Instructions including standing instructions, may be issued with respect to
such contracts but you may establish rules or limitations concerning any
foreign exchange facility made available. In all cases where you and your
Affiliates or Subcustodians enter into a foreign exchange contract related to
the Custody Account, the terms and conditions of the then current foreign
exchange contract used by you or your Affiliate or Subcustodian and, to the
extent not inconsistent, the Agreement shall apply to such transaction.
(b) Certification of Residency, etc. We certify that we are a
resident of the United States and agree to notify you of any changes in
residency. You may rely upon this certification or the certification of such
other facts as may be required to administer your obligations under this Rider
and the Agreement. We shall indemnify you against all losses, liability,
damages, claims or demands arising directly or indirectly from any such
certifications.
(c) Access to Records. You shall allow our independent public
accountant 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
Financial Assets 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 holding Assets.
7
<PAGE>
(d) Our Representation. We represent that the Financial Assets
being placed in your custody are subject to the 1940 Act, as the same may be
amended from time to time.
(e) Compliance with SEC Rule 17f-5.
(1) Our Board hereby delegates to you, and you hereby accept the
delegation to you, of the obligation to perform as our "Foreign Custody
Manager" (as that term is defined in SEC Rule 17f-5(a)(2)), both for the
purpose of selecting Eligible Foreign Custodians (as that term is defined in
SEC Rule 17f-5(a)(1), and as the same may be amended from time to time, or that
have otherwise been made exempt pursuant to an SEC exemptive order) to hold
Assets and of evaluating the contractual arrangements with such Eligible
Foreign Custodians (as set forth in SEC Rule 17f-5(c)(2)); provided that, the
term Eligible Foreign Custodian shall not include any "Compulsory Depository".
A Compulsory Depository shall mean a foreign securities depository or clearing
agency the use of which is compulsory because: (i) its use is required by law
or regulation, (ii) securities cannot be withdrawn from the depository, or
(iii) maintaining securities outside the depository is not consistent with
prevailing custodial practices in the country which the depository serves.
Compulsory Depositories used by you as of the date hereof are set forth in
Schedule C hereto, and as the same may be amended on notice to us from time to
time.
(2) In connection with the foregoing, you shall:
(i) provide written reports notifying our Board of the
placement of Assets with particular Eligible Foreign Custodians (including the
Subcustodians listed in Schedules A and B) and of any material change in the
arrangements with such Eligible Foreign Custodians, with such reports to be
provided to our Board at such times as the Board deems reasonable and
appropriate based on the circumstances of our foreign custody arrangements (and
until further notice from us such reports shall be provided no less frequently
than quarterly with respect to the placement of Assets with particular Eligible
Foreign Custodians and promptly upon the occurrence of any material change in
the arrangements with such Eligible Foreign Custodians);
(ii) exercise such reasonable care, prudence and diligence
in performing as our Foreign Custody Manager as a person having responsibility
for the safekeeping of Assets would exercise;
(iii) in selecting an Eligible Foreign Custodian, first
have determined that Assets placed and maintained in the safekeeping of such
Eligible Foreign Custodian shall be subject to reasonable care, based on the
standards applicable to custodians in the relevant market, after having
considered all factors relevant to the safekeeping of such Assets, including,
without limitation, those factors set forth in Rule 17f-5(c)(1)(i)-(iv) under
the 1940 Act;
(iv) determine that the written agreement with the Eligible
Foreign Custodian (or, in the case of an Eligible Foreign Custodian that is a
foreign non-Compulsory Depository or clearing agency, such written agreement,
the rules or established practices or procedures of the foreign non-Compulsory
Depository or clearing agency, or any combination of the foregoing) requires
that each Eligible Foreign Custodian will provide reasonable care for
8
<PAGE>
Assets held by that Eligible Foreign Custodian based on the standards
applicable to custodians in the relevant market; and
(v) have established a system to monitor the continued
appropriateness of maintaining Assets with particular Eligible Foreign
Custodians and of the governing contractual arrangements; it being understood,
however, that in the event that you shall have determined that the existing
Eligible Foreign Custodian in a given country would no longer afford Assets
reasonable care and that no other Eligible Foreign Custodian in that country
would afford reasonable care, you shall promptly so advise us and shall then
act in accordance with our instructions with respect to the disposition of the
affected Assets. You shall also monitor Compulsory Depositories and shall
advise the Trust of any material negative change in the performance of, or
arrangements with, any Compulsory Depository as the same would adversely affect
the custody of Assets.
Subject to paragraphs (e)(2)(i)-(v) above, you are hereby authorized to place
and maintain Assets on our behalf with Eligible Foreign Custodians pursuant to
a written contract deemed appropriate by you.
(3) Except as expressly provided herein, we shall be solely
responsible to assure that the maintenance of Assets hereunder complies with
the rules, regulations, interpretations and exemptive orders promulgated by or
under the authority of the SEC.
(4) You represent to us that you are a U.S. Bank as defined in
Rule 17f-5(a)(7). We represent to you that: (i) the Assets being placed and
maintained in your custody are subject to the 1940 Act, as the same may be
amended from time to time; (ii) our Board has determined that it is reasonable
to rely on you to perform as our Foreign Custody Manager; and (iii) the Board
of the Trust or the investment adviser for each Portfolio shall have determined
that we may maintain Assets in each country in which our Assets shall be held
hereunder and determined to accept the risks arising therefrom (including, but
not limited to, a country's financial infrastructure (and including any
Compulsory Depository operating in such country), prevailing custody and
settlement practices, laws applicable to the safekeeping and recovery of Assets
held in custody, and the likelihood of nationalization, currency controls and
the like (collectively ("Country Risk")).
(5) You shall provide to us such information relating to
Country Risk as is specified in Schedule D hereto. We hereby acknowledge that:
(i) such information is solely designed to inform us of market conditions and
procedures, but is not intended as a recommendation to invest or not invest in
particular markets; and (ii) you have gathered the information from sources you
consider reliable, but that you shall have no responsibility for inaccuracies
or incomplete information.
(6) The provisions of this Rider applicable to the parties
based on compliance with Rule 17f-5 shall be in force to the extent Rule 17f-5
or portions of Rule 17f-5 are in effect. To the extent any portion of the Rule
is suspended or revoked, the parties shall not be responsible for compliance
with such portion of the Rule: (a) for the period of time during which the
suspension or revocation is applicable; (b) to the extent compliance with the
applicable portion
9
<PAGE>
of the Rule would be unfeasible; (c) to the extent the parties agree that
noncompliance with any such provision will not harm or impose an undue burden
on the Trust or its shareholders; and (d) to the extent the parties agree in
writing to any change in procedures as a result of the suspension or
revocation. If any portion of Rule 17f-5 is suspended or revoked, those
provisions of the prior Global Custody Rider that were applicable to any duties
and responsibilities of the parties with respect to such provisions of the Rule
will continue in effect, as appropriate, until such provisions are no longer
suspended or revoked or unless otherwise agreed to in writing by the parties.
THE CHASE MANHATTAN BANK
By:
-----------------------------------
Name: John K. Breitweg
Title: Vice President
Date:
---------------------------------
EQ ADVISORS TRUST
By:
-----------------------------------
Name: Peter D. Noris
Title: President and Trustee
Date:
---------------------------------
10
<PAGE>
SCHEDULES A and B
LIST OF APPROVED FOREIGN SUBCUSTODIANS &
DEPOSITORIES
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
COUNTRY SUBCUSTODIAN DEPOSITORY
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Bangladesh Standard Chartered Bank, Dhaka
- --------------------------------------------------------------------------------------------------------------------------
Botswana Barclays Bank of Botswana Ltd., Gaborone
- --------------------------------------------------------------------------------------------------------------------------
Chile Citibank N.A.
- --------------------------------------------------------------------------------------------------------------------------
Cyprus Barclays Bank PLC, Cyprus
- --------------------------------------------------------------------------------------------------------------------------
Ecuador Citibank, N.A., Quito
- --------------------------------------------------------------------------------------------------------------------------
Finland Merita Bank Ltd., Helsinki Pankkitarkastus Virasto ("Securities Association")
- --------------------------------------------------------------------------------------------------------------------------
Germany Dresdner Bank AG DKV (Deutscher Kassenverein AG-KV)
- --------------------------------------------------------------------------------------------------------------------------
Ghana Barclays Bank of Ghana Ltd., Accra
- --------------------------------------------------------------------------------------------------------------------------
Hong Kong The Chase Manhattan Bank, Hong Kong HKSCC (Hong Kong Securities Clearing Co. Ltd.)
- --------------------------------------------------------------------------------------------------------------------------
Indonesia Hongkong Shanghai Banking Corporation, Ltd., Jakarta
Standard Chartered Bank
- --------------------------------------------------------------------------------------------------------------------------
Israel Bank Leumi Le-Israel B.M., Tel Aviv Stock Exchange Clearing House Ltd. (Clearing House
- --------------------------------------------------------------------------------------------------------------------------
Japan The Fuji Bank, Ltd., Tokyo JASDEC (Japan Securities Depository Center)
- --------------------------------------------------------------------------------------------------------------------------
Jordan Arab Bank, Ltd. Amman
- --------------------------------------------------------------------------------------------------------------------------
Kenya Barclays Bank of Kenya Ltd., Nairobi
- --------------------------------------------------------------------------------------------------------------------------
Mauritius HongKong and Shanghai Banking Corporation, Limited Central Depository & Settlement Co. Ltd.
- --------------------------------------------------------------------------------------------------------------------------
Morocco Banque Commerciale du Maroc, Casablanca
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
COUNTRY SUBCUSTODIAN DEPOSITORY
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Namibia Standard Bank - Namibia Ltd.
- --------------------------------------------------------------------------------------------------------------------------
Peru Citibank, N.A., Lima
- --------------------------------------------------------------------------------------------------------------------------
Portugal Banco Espirito Santo E. Commercial De Lisboa, Lisbon Central de Valores Mobiliaros (Central)
- --------------------------------------------------------------------------------------------------------------------------
Thailand The Chase Manhattan Bank, Bangkok SDC (Securities Depository Center)
- --------------------------------------------------------------------------------------------------------------------------
Turkey The Chase Manhattan Bank, Istanbul Takas ve Saklama A.S.-TVS
- --------------------------------------------------------------------------------------------------------------------------
Uruguay The First National Bank of Boston, Montevideo
- --------------------------------------------------------------------------------------------------------------------------
Venezuela Citibank, N.A., Caracas
- --------------------------------------------------------------------------------------------------------------------------
Zimbabwe Barclays Bank of Zimbabwe Ltd., Harare
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
SCHEDULE C
----------
COMPULSORY DEPOSITORIES
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
COUNTRY SUBCUSTODIAN DEPOSITORY
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Argentina The Chase Manhattan Bank, Buenos Aires Caja de Valores, S.A.
- ---------------------------------------------------------------------------------------------------------------------
Australia The Chase Manhattan Bank, Sydney Austraclear Limited; RITS (The Reserve Bank
Information and Transfer System)
- ---------------------------------------------------------------------------------------------------------------------
Austria Creditanstalt-Bankverein, Vienna Oesterreichische Kontrollbank
Aktiengesellschaft
- ---------------------------------------------------------------------------------------------------------------------
Belgium Generale Bank, Brussels CIK (Caisse Interprofessionnelle de Depots
et de Virements de Titres)
- ---------------------------------------------------------------------------------------------------------------------
Brazil Citibank N.A. BOVESPA (Bolsa de Valores de Sao Paulo)
- ---------------------------------------------------------------------------------------------------------------------
Canada Canada Trust Company, Toronto CDS (Canadian Depository for Securities)
Royal Bank of Canada, Toronto [
- ---------------------------------------------------------------------------------------------------------------------
Cedel-Luxembourg Cedel Bank, S.A., Luxembourg
- ---------------------------------------------------------------------------------------------------------------------
China, Shanghai Hongkong Shanghai Banking Corporation , Ltd., SSCCRC (Shanghai Securities Central
Shanghai Clearing & Registration Corporation)
- ---------------------------------------------------------------------------------------------------------------------
China, Shenzhen Hongkong Shanghai Banking Corporation , Ltd., SSCC (Shenzhen Securities Clearing Co.,
Shenzhen Ltd.)
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
COUNTRY INSTRUMENT
- -----------------------------------------------------------------
<S> <C>
Argentina Equity, Corporate & Government Debt
- -----------------------------------------------------------------
Australia Corporate Debt, Money Market &
Semi-Government Debt
- -----------------------------------------------------------------
Austria Equity, Corporate + Government Debt
- -----------------------------------------------------------------
Belgium Equity + Corporate Debt
- -----------------------------------------------------------------
Brazil Equity
- -----------------------------------------------------------------
Canada Equity, Corporate + Government Debt
- -----------------------------------------------------------------
Cedel-Luxembourg Equity
- -----------------------------------------------------------------
China, Shanghai Equity
- -----------------------------------------------------------------
China, Shenzhen Equity
- -----------------------------------------------------------------
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
COUNTRY SUBCUSTODIAN DEPOSITORY
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Colombia Cititrust Columbia S.A. Sociedad Fiduciaria, DCV (Deposito Central de Valores)
Bogota
- ----------------------------------------------------------------------------------------------------------------------
Czech Republic Ceskoslovenska Obchodni Banka, A.S., Prague SCP (Securities Center)
- ----------------------------------------------------------------------------------------------------------------------
Denmark Den Danske Bank, Copenhagen VP Center (Vaerdipapircentralen)
- ----------------------------------------------------------------------------------------------------------------------
Egypt National Bank of Egypt, Cairo Misr Clearing & Securities Depository
- ----------------------------------------------------------------------------------------------------------------------
France Banque Paribas, Paris SICOVAM (Societe Interprofessionnelle pour
la Compensation des Valeurs Mobilieres)
- ----------------------------------------------------------------------------------------------------------------------
Greece Barclays Bank Plc, Athens Apothetirio Titlon A.E.
- ----------------------------------------------------------------------------------------------------------------------
Hungary Citibank Budapest Rt., Budapest Keler Ltd.
- ----------------------------------------------------------------------------------------------------------------------
India Deutsche Bank, Bombay NSDL (National Securities Depository
Limited)
Hongkong Shanghai Banking Corporation, Ltd.,
Bombay
- ----------------------------------------------------------------------------------------------------------------------
Ireland Bank of Ireland, Dublin CRESTCo. Ltd.
- ----------------------------------------------------------------------------------------------------------------------
Italy Banque Paribas, Milan Monte Titoli S.p.A.
- ----------------------------------------------------------------------------------------------------------------------
Malaysia The Chase Manhattan Bank, (M) Berhad, Kuala MCD (Malaysian Central Depository Sdn. Bhd.)
Lumpur
- ----------------------------------------------------------------------------------------------------------------------
Mexico The Chase Manhattan Bank, S.A., Mexico City INDEVAL (Institucion para el Deposito de
Valores)
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
COUNTRY INSTRUMENT
- -----------------------------------------------------------------
<S> <C>
Colombia Government debt issued, guaranteed or
administered by the central bank
- -----------------------------------------------------------------
Czech Republic Equity + Long-Term Government Debt
- -----------------------------------------------------------------
Denmark Equity, Corporate + Government Debt
- -----------------------------------------------------------------
Egypt Equity
- -----------------------------------------------------------------
France Equity + Corporate Debt
- -----------------------------------------------------------------
Greece Equity
- -----------------------------------------------------------------
Hungary Equity + Government Debt
- -----------------------------------------------------------------
India Equity + Corporate Debt
- -----------------------------------------------------------------
Ireland Equity
- -----------------------------------------------------------------
Italy Equity + Corporate Debt
- -----------------------------------------------------------------
Malaysia Equity
- -----------------------------------------------------------------
Mexico Equity, Corporate + Government Debt
- -----------------------------------------------------------------
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
COUNTRY SUBCUSTODIAN DEPOSITORY
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Netherlands ABN-AMRO Bank N.V., Amsterdam NECIGEF/KAS Associate NV (Nederlands
Centraal Instituut Voor Giraal
Effectenverkeer BV)
- --------------------------------------------------------------------------------------------------------------------
New Zealand National Nominees Linted, Auckland Austraclear New Zealand
- --------------------------------------------------------------------------------------------------------------------
Norway Den Norske Bank, Oslo VPS (Verdipapirsentralen)
- --------------------------------------------------------------------------------------------------------------------
Pakistan Citibank, N.A., Karachi CDC (Central Depository Company)
Deutsche Bank, Karachi
- --------------------------------------------------------------------------------------------------------------------
Philippines Hongkong & Shanghai Banking Corporation Ltd., PCD (Phillipine Central Depository)
Manila
- --------------------------------------------------------------------------------------------------------------------
Poland Bank Handlowy W. Warzawie S.A., Warsaw NSD (National Securities Depository)
- --------------------------------------------------------------------------------------------------------------------
Russia Chase Manhattan Bank International Vnestorgbank
Credit Suisse First Boston (Moscow) Ltd.
- --------------------------------------------------------------------------------------------------------------------
Singapore The Chase Manhattan Bank, Singapore CDP (Central Depository Pte. Ltd.)
Standard Chartered Bank
- --------------------------------------------------------------------------------------------------------------------
Slovak Republic Ceskoslovensaka Obchodni Banka, A.S., SCP (Stedisko Cennych Papierov)
Bratislava
- --------------------------------------------------------------------------------------------------------------------
South Africa Standard Bank of South Africa, Johannesburg CD (The Central Depository Ltd.)
- --------------------------------------------------------------------------------------------------------------------
South Korea Hongkong & Shanghai Banking Corporation Ltd., KSDC (Korea Securities Depository
Seoul Corporation)
- --------------------------------------------------------------------------------------------------------------------
Spain The Chase Manhattan Bank, Madrid SCLV (Servicio de Compensacion Y
Liquidacion de Valores)
- --------------------------------------------------------------------------------------------------------------------
Sri Lanka Hongkong & Shanghai Banking Corporation, CDS (Central Depository System (PVT) Ltd.)
Ltd., Colombo
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
COUNTRY INSTRUMENT
- ------------------------------------------------------------------
<S> <C>
Netherlands Equity, Corporate + Government Debt
- ------------------------------------------------------------------
New Zealand Equity, Corporate + Government Debt
- ------------------------------------------------------------------
Norway Equity, Corporate + Government Debt
- ------------------------------------------------------------------
Pakistan Equity
- ------------------------------------------------------------------
Philippines Equity
- ------------------------------------------------------------------
Poland Equity, Long-Term Government Debt +
Vouchers
- ------------------------------------------------------------------
Russia Ministry of Finance Bonds
- ------------------------------------------------------------------
Singapore Equity + Corporate Debt and Malaysian
equities traded on CLOB
- ------------------------------------------------------------------
Slovak Republic Equity + Government Debt
- ------------------------------------------------------------------
South Africa Corporate + Government Debt
- ------------------------------------------------------------------
South Korea Equity, Corporate + Government Debt
- ------------------------------------------------------------------
Spain Equity + Corporate Debt
- ------------------------------------------------------------------
Sri Lanka Equity
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
COUNTRY SUBCUSTODIAN DEPOSITORY
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
Sweden Skandinaviska Enskilda Banken, Stockholm VPC (Vaerdepapercentralen AB)
- ---------------------------------------------------------------------------------------------------------------------
Switzerland Union Bank of Switzerland, Zurich SEGA (Schweizerische Effekten-Giro AG)
- ---------------------------------------------------------------------------------------------------------------------
Taiwan The Chase Manhattan Bank, Taipei TSCD (Taiwan Securities Central Depository
Co., Ltd.)
- ---------------------------------------------------------------------------------------------------------------------
United Kingdom The Chase Manhattan Bank, London CREST (Clearing and settlement system)
First Chicago NBD Corporation, London (for
CDs only)
- ---------------------------------------------------------------------------------------------------------------------
Zambia Barclays Bank of Zambia Ltd., Lusaka LuSE (Lusaka Stock Exchange Central Shares
Depository Ltd.)
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------
COUNTRY INSTRUMENT
- --------------------------------------------------------------
<S> <C>
- --------------------------------------------------------------
Sweden Equity, Corporate + Government Debt
- --------------------------------------------------------------
Switzerland Equity, Corporate + Government Debt
- --------------------------------------------------------------
Taiwan Equity + Government Debt
- --------------------------------------------------------------
United Kingdom Equity + Corporate Debt
- --------------------------------------------------------------
Zambia Equity + Government Debt
- --------------------------------------------------------------
</TABLE>
16
<PAGE>
SCHEDULE D
Information Regarding Country Risk
1. To aid Trust's Board in its determinations regarding Country Risk, Chase
shall furnish the Board annually and upon the initial placing of Assets into a
country the following information (check items applicable):
A. Opinion of local counsel concerning:
i. Whether applicable foreign law would restrict the access
afforded the Trust's independent public accountants to books and records kept
by an Eligible Foreign Custodian located in that country.
ii. Whether applicable foreign law would restrict the Trust's
ability to recover its assets in the event of the bankruptcy of an Eligible
Foreign Custodian located in that country.
iii. Whether applicable foreign law would restrict the Trust's
ability to recover assets that are lost while under the control of an Eligible
Foreign Custodian located in the country.
B. Written information concerning:
i. The likelihood of expropriation, nationalization, freezes, or
confiscation of the Trust's Assets
ii. Whether difficulties in converting the Trust's cash and cash
equivalents to U.S. dollars are reasonably foreseeable.
C. A market report with respect to the following topics:
(i) securities regulatory environment, (ii) foreign ownership
restrictions, (iii) foreign exchange, (iv) securities settlement and
registration, (v) taxation, and (vi) Compulsory Depositories (including
depository evaluation).
2. To aid the Trust's Board in monitoring Country Risk, Chase shall furnish the
Board the following additional information:
17
<PAGE>
Market flashes, including with respect to changes in the
information in market reports.
18
<PAGE>
SCHEDULE E
----------
Fees
Country Charges
Safekeeping Transaction
Market (BPs) (USD)
- ------ ----- -----
Argentina 40 100
Australia 6 35
Austria 10 50
Bangladesh 40 100
Belgium 10 50
Botswana 40 100
Brazil 40 100
Canada 6 35
Cedel 4 0
Chile 40 100
China (Shanghai) 40 100
China (Shenzen) 40 100
Columbia 40 100
Czech Republic 40 100
Denmark 10 50
Ecuador 50 150
Egypt 50 150
Finland 10 50
France 8 35
Germany 6 35
Ghana 50 150
Greece 40 100
Hong Kong 10 50
Hungary 40 100
India 40 100
Indonesia 40 100
Ireland 10 35
Israel 40 100
Italy 8 35
Japan 5 35
Jordan 40 100
Kenya 50 150
Luxembourg 10 35
19
<PAGE>
Malaysia 10 35
Mauritius 50 150
Mexico 20 50
Morocco 40 100
Netherlands 8 35
New Zealand 10 50
Norway 10 50
Pakistan 40 100
Peru 40 100
Philippines 40 100
Poland 40 100
Portugal 40 100
Russia 100 1,000
Singapore 10 50
Slovak Republic 50 150
South Africa 25 100
South Korea 20 100
Spain 20 100
Sri Lanka 40 100
Sweden 10 50
Switzerland 8 35
Taiwan 40 100
Thailand 20 100
Turkey 40 100
United Kingdom 6 35
Uruguay 40 100
Venezuela 40 100
Zambia 50 150
Zimbabwe 40 100
20
<PAGE>
EXHIBIT 10(D)
FORM OF OPINION AND CONSENT OF COUNSEL
October ___, 1998
EQ Advisors Trust
1290 Avenue of the Americas
New York, New York 10104
Dear Gentlemen:
This opinion is given in connection with the filing by EQ Advisors
Trust, a Delaware business trust ("Trust"), of Post-Effective Amendment No. 7
to the Registration Statement on Form N-1A ("Registration Statement") under the
Securities Act of 1933 ("1933 Act") and Amendment No. 9 under the Investment
Company Act of 1940 ("1940 Act") relating to an indefinite amount of authorized
shares of beneficial interest, at a par value of $.01 per share, of three new
separate series of the Trust, MFS Growth with Income Portfolio, Evergreen
Foundation Portfolio, and Evergreen Portfolio (individually "Portfolio" and,
together, the "Portfolios"). The authorized shares of beneficial interest of
the Portfolios are hereinafter referred to as the "Shares."
We have examined the following Trust documents: Certificate of
Trust; Certificate of Amendment; Amended and Restated Agreement and Declaration
of Trust; By-Laws; Registration Statement on Form N-1A filed on December 3,
1996; Pre-Effective Amendment No. 1 to the Registration Statement on Form N-1A
filed January 23, 1997; Pre-Effective Amendment No. 2 to the Registration
Statement on Form N-1A filed April 7, 1997; Post-Effective Amendment No. 1 to
the Registration Statement on Form N-1A filed August 28, 1997, Post-Effective
Amendment No. 2 to the Registration Statement on Form N-1A filed October 15,
1997; Post-Effective Amendment No. 3 to the Registration Statement on Form N-1A
filed October 31, 1997; Post-Effective Amendment No. 4 to the Registration
Statement filed December 29, 1997, Post Effective Amendment No. 5 to the
Registration Statement filed March 5, 1998; and Post-Effective Amendment No. 6
to the Registration Statement filed April 22, 1998; pertinent provisions of the
laws of the State of Delaware; and such other corporate records, certificates,
documents and statutes that we have deemed relevant in order to render the
opinion expressed herein.
Based on such examination, we are of the opinion that:
1. EQ Advisors Trust is a Delaware business trust duly
organized, validly existing, and in good standing under
the laws of the State of Delaware; and
2. The Shares to be offered for sale by EQ Advisors Trust,
when issued in the manner contemplated by the
Registration Statement, will be legally issued,
fully-paid and non-assessable.
<PAGE>
This letter expresses our opinion as to the Delaware Business Trust
Act governing matters such as the due organization of EQ Advisors Trust and the
authorization and issuance of the Shares, but does not extend to the securities
or "Blue Sky" laws of the State of Delaware or to federal securities or other
laws.
We consent to the use of this opinion as an exhibit to the
Registration Statement and to the reference to Dechert Price & Rhoads under the
caption "Counsel" in the Statement of Additional Information, which is
incorporated by reference into the Prospectus comprising a part of the
Registration Statement.
Very truly yours,
DECHERT PRICE & RHOADS
2
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 7 to the registration statement on Form N-1A (the "Registration
Statement") of our report dated February 23, 1998, relating to the financial
statements and financial highlights appearing in the December 31, 1997 Annual
Report to Shareholders of EQ Advisors Trust, which is also incorporated by
reference into the Registration Statement. We also consent to the references
to us under the heading "Financial Highlights" in the Prospectus and under the
headings "Other Services - Independent Accountant" and "Financial Statements"
in the Statement of Additional Information.
/s/ Pricewaterhouse Coopers LLP
- -------------------------------
Pricewaterhouse Coopers LLP
1177 Avenue of the Americas
New York, New York 10036
October 7, 1998
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<INVESTMENTS-AT-VALUE> 199,205,389
<RECEIVABLES> 2,535,693
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<OTHER-ITEMS-ASSETS> 34,662,625
<TOTAL-ASSETS> 236,403,707
<PAYABLE-FOR-SECURITIES> 1,595,578
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<OTHER-ITEMS-LIABILITIES> 35,129,685
<TOTAL-LIABILITIES> 36,725,263
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<PAID-IN-CAPITAL-COMMON> 186,803,782
<SHARES-COMMON-STOCK> 15,546,264
<SHARES-COMMON-PRIOR> 8,272,803
<ACCUMULATED-NII-CURRENT> 1,688,760
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<ACCUMULATED-NET-GAINS> 2,651,458
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<ACCUM-APPREC-OR-DEPREC> 8,534,444
<NET-ASSETS> 199,678,444
<DIVIDEND-INCOME> 1,951,320
<INTEREST-INCOME> 369,212
<OTHER-INCOME> 17,435
<EXPENSES-NET> (651,208)
<NET-INVESTMENT-INCOME> 1,686,759
<REALIZED-GAINS-CURRENT> 2,560,333
<APPREC-INCREASE-CURRENT> 3,088,429
<NET-CHANGE-FROM-OPS> 7,335,521
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<NUMBER-OF-SHARES-SOLD> 8,463,906
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<ACCUMULATED-NII-PRIOR> 2,001
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<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 421,000
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<GROSS-EXPENSE> 795,596
<AVERAGE-NET-ASSETS> 154,339,085
<PER-SHARE-NAV-BEGIN> 12.08
<PER-SHARE-NII> 0.11
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<PER-SHARE-NAV-END> 12.84
<EXPENSE-RATIO> 0.85
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
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<OTHER-ITEMS-ASSETS> 12,256,386
<TOTAL-ASSETS> 124,806,876
<PAYABLE-FOR-SECURITIES> 6,867,385
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,886,578
<TOTAL-LIABILITIES> 9,753,963
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 109,157,685
<SHARES-COMMON-STOCK> 10,366,644
<SHARES-COMMON-PRIOR> 7,571,312
<ACCUMULATED-NII-CURRENT> 641,355
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,448,982)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 6,702,855
<NET-ASSETS> 115,052,913
<DIVIDEND-INCOME> 1,059,252
<INTEREST-INCOME> 155,012
<OTHER-INCOME> 2,642
<EXPENSES-NET> (555,174)
<NET-INVESTMENT-INCOME> 661,732
<REALIZED-GAINS-CURRENT> (1,223,643)
<APPREC-INCREASE-CURRENT> 10,319,675
<NET-CHANGE-FROM-OPS> 9,757,764
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,726,254
<NUMBER-OF-SHARES-REDEEMED> (3,930,922)
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<NET-CHANGE-IN-ASSETS> 40,480,944
<ACCUMULATED-NII-PRIOR> (20,377)
<ACCUMULATED-GAINS-PRIOR> (225,339)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 346,500
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 652,971
<AVERAGE-NET-ASSETS> 93,233,155
<PER-SHARE-NAV-BEGIN> 9.85
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<PER-SHARE-GAIN-APPREC> 1.19
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<PER-SHARE-NAV-END> 11.10
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<INVESTMENTS-AT-COST> 309,656,871
<INVESTMENTS-AT-VALUE> 320,504,482
<RECEIVABLES> 9,555,504
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<OTHER-ITEMS-ASSETS> 42,179,229
<TOTAL-ASSETS> 372,239,215
<PAYABLE-FOR-SECURITIES> 7,866,346
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 42,887,782
<TOTAL-LIABILITIES> 50,754,128
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 305,105,103
<SHARES-COMMON-STOCK> 25,774,857
<SHARES-COMMON-PRIOR> 13,045,713
<ACCUMULATED-NII-CURRENT> 1,476,911
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<ACCUMULATED-NET-GAINS> 4,055,462
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<ACCUM-APPREC-OR-DEPREC> 10,847,611
<NET-ASSETS> 321,485,087
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<INTEREST-INCOME> 363,787
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<EXPENSES-NET> (992,179)
<NET-INVESTMENT-INCOME> 1,476,953
<REALIZED-GAINS-CURRENT> 4,468,625
<APPREC-INCREASE-CURRENT> 8,032,698
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<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 13,200,793
<NUMBER-OF-SHARES-REDEEMED> (471,649)
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<NET-CHANGE-IN-ASSETS> 171,225,365
<ACCUMULATED-NII-PRIOR> (42)
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<ACCUM-APPREC-OR-DEPREC> 14,836,825
<NET-ASSETS> 95,502,907
<DIVIDEND-INCOME> 241,458
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<OTHER-INCOME> 4,557
<EXPENSES-NET> (264,384)
<NET-INVESTMENT-INCOME> 62,276
<REALIZED-GAINS-CURRENT> 209,843
<APPREC-INCREASE-CURRENT> 12,298,433
<NET-CHANGE-FROM-OPS> 12,570,552
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,131,820
<NUMBER-OF-SHARES-REDEEMED> (32,871)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 55,808,301
<ACCUMULATED-NII-PRIOR> 412
<ACCUMULATED-GAINS-PRIOR> (230,644)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 170,703
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 337,322
<AVERAGE-NET-ASSETS> 62,639,806
<PER-SHARE-NAV-BEGIN> 12.33
<PER-SHARE-NII> 0.01
<PER-SHARE-GAIN-APPREC> 2.77
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.11
<EXPENSE-RATIO> 0.85
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
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<MULTIPLIER> 1
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<OTHER-ITEMS-LIABILITIES> 10,063,118
<TOTAL-LIABILITIES> 11,355,540
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 48,377,547
<SHARES-COMMON-STOCK> 4,284,557
<SHARES-COMMON-PRIOR> 2,305,399
<ACCUMULATED-NII-CURRENT> 544,256
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,128,207
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,844,585
<NET-ASSETS> 51,894,595
<DIVIDEND-INCOME> 260,218
<INTEREST-INCOME> 459,969
<OTHER-INCOME> 7,266
<EXPENSES-NET> (169,516)
<NET-INVESTMENT-INCOME> 557,937
<REALIZED-GAINS-CURRENT> 1,021,315
<APPREC-INCREASE-CURRENT> 1,003,403
<NET-CHANGE-FROM-OPS> 2,582,655
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,005,962
<NUMBER-OF-SHARES-REDEEMED> (1,026,804)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 26,041,007
<ACCUMULATED-NII-PRIOR> (13,681)
<ACCUMULATED-GAINS-PRIOR> 106,892
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 103,243
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 233,664
<AVERAGE-NET-ASSETS> 37,861,641
<PER-SHARE-NAV-BEGIN> 11.21
<PER-SHARE-NII> 0.13
<PER-SHARE-GAIN-APPREC> 0.77
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
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<PER-SHARE-NAV-END> 12.11
<EXPENSE-RATIO> 0.90
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<AVG-DEBT-PER-SHARE> 0
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<MULTIPLIER> 1
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<FISCAL-YEAR-END> DEC-31-1998
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<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 226,876,390
<SHARES-COMMON-STOCK> 18,694,573
<SHARES-COMMON-PRIOR> 10,170,931
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<NAME> EQ ADVISORS TRUST
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<NAME> BT SMALL COMPANY INDEX PORTFOLIO
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