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Filed Pursuant to Rule 497 (e)
Registration File No.: 333-17217
EQ Advisors Trust
PROSPECTUS DATED MAY 1, 1999 1
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This Prospectus describes the sixteen (16) Portfolios offered by EQ Advisors
Trust that you can choose as investment alternatives. Each Portfolio has its
own investment objective and strategies that are designed to meet different
investment goals. This Prospectus contains information you should know before
investing. Please read this Prospectus carefully before investing and keep it
for future reference.
DOMESTIC EQUITY PORTFOLIOS AGGRESSIVE EQUITY PORTFOLIOS
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BT Equity 500 Index BT Small Company Index
EQ/Putnam Growth & Income Value EQ/Evergreen
Merrill Lynch Basic Value Equity MFS Emerging Growth Companies
MFS Growth with Income Warburg Pincus Small Company Value
MFS Research
T. Rowe Price Equity Income
BALANCED PORTFOLIOS INTERNATIONAL PORTFOLIOS
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EQ/Evergreen Foundation BT International Equity Index
EQ/Putnam Balanced Morgan Stanley Emerging Markets Equity
Merrill Lynch World Strategy T. Rowe Price International Stock
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YOU SHOULD BE AWARE THAT THE SECURITIES AND EXCHANGE COMMISSION HAS NOT
APPROVED OR DISAPPROVED OF THE INVESTMENT MERIT OF THESE PORTFOLIOS OR
DETERMINED IF THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
Ver 3A
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Overview
2
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EQ ADVISORS TRUST
This Prospectus tells you about the sixteen (16) current Portfolios of the EQ
Advisors Trust ("Trust") and the Class IB shares offered by the Trust on behalf
of each Portfolio. The Trust is an open-end management investment company. Each
Portfolio is a separate series of the Trust with its own investment objective,
investment strategies and risks, which are described in this Prospectus. Each of
the current Portfolios of the Trust, except for the Morgan Stanley Emerging
Markets Equity Portfolio and the Merrill Lynch World Strategy Portfolio, are
diversified for purposes of the Investment Company Act of 1940, as amended
("1940 Act").
The Trust's shares are currently sold only to insurance company separate
accounts in connection with variable life insurance contracts and variable
annuity certificates and contracts (the "Contract" or collectively, the
"Contracts") issued by The Equitable Life Assurance Society of the United States
("Equitable") and Equitable of Colorado, Inc. ("EOC") and to The Equitable
Investment Plan for Employees, Managers and Agents ("Equitable Plan"). The
prospectus is designed to help you make informed decisions about the Portfolios
that are available under your Contract or under the Equitable Plan. You will
find information about your Contract and how it works in the accompanying
prospectus for the Contracts if you are a Contractholder or participant under a
Contract.
EQ Financial Consultants, Inc. ("Manager") serves as the Manager of the Trust,
subject to the supervision and direction of the Board of Trustees. The Manager
has overall responsibility for the general management and administration of the
Trust. During 1999, the Manager plans to change its name to AXA Advisors, Inc.
Each of the Portfolios has its own investment adviser ("Adviser"). Information
about the Adviser for each Portfolio is contained in the description concerning
that Portfolio in the section entitled "About the Investment Portfolios." The
Manager has the ultimate responsibility to oversee each of the Advisers and to
recommend their hiring, termination and replacement. Subject to approval by the
Board of Trustees, the Manager may without obtaining shareholder approval: (i)
select Advisers for each of the Trust's Portfolios; (ii) enter into and
materially modify existing investment advisory agreements; and (iii) terminate
and replace the Advisers.
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Table of contents
3
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1
Summary Information Concerning EQ
Advisors Trust 4
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2
About the Investment Portfolios 8
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Balanced Portfolios 10
EQ/Evergreen Foundation Portfolio 10
EQ/Putnam Balanced Portfolio 12
Merrill Lynch World Strategy Portfolio 15
Domestic Equity Portfolios 18
BT Equity 500 Index Portfolio 18
EQ/Putnam Growth & Income Value Portfolio 20
Merrill Lynch Basic Value Equity Portfolio 22
MFS Growth with Income Portfolio 24
MFS Research Portfolio 26
T. Rowe Price Equity Income Portfolio 29
Aggressive Equity Portfolios 31
BT Small Company Index Portfolio 31
EQ/Evergreen Portfolio 33
MFS Emerging Growth Companies Portfolio 35
Warburg Pincus Small Company Value Portfolio 37
International Portfolios 39
BT International Equity Index Portfolio 39
Morgan Stanley Emerging Markets Equity Portfolio 42
T. Rowe Price International Stock Portfolio 45
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3
More Information on Principal Risks 48
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4
Management of the Trust 54
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The Trust 54
The Manager 54
Expense Limitation Agreement 55
The Advisers 56
The Administrator 56
The Transfer Agent 57
Brokerage Practices 57
Brokerage Transactions with Affiliates 57
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5
Fund Distribution Arrangements 58
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6
Purchase and Redemption 59
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7
How Assets are Valued 60
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8
Tax Information 61
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9
Prior Performance of Each Adviser 63
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10
Financial Highlights 66
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1
Summary information concerning EQ Advisors Trust
4
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The following chart highlights the sixteen (16) Portfolios described in this
Prospectus that you can choose as investment alternatives under your Contracts
offered by Equitable or EOC. The chart and accompanying information identify
each Portfolio's investment objective(s), principal investment strategies, and
principal risks. "More Information on Principal Risks", which more fully
describes each of the principal risks, is provided beginning on page 48.
<TABLE>
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EQ ADVISORS TRUST BALANCED PORTFOLIOS
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PORTFOLIO INVESTMENT OBJECTIVE(S)
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EQ/EVERGREEN FOUNDATION Seeks to provide, in order of priority, reasonable income,
conservation of capital and capital appreciation
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EQ/PUTNAM BALANCED Seeks to provide a balanced investment composed of a
well-diversified portfolio of stocks and bonds that will
produce both capital growth and current income
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MERRILL LYNCH WORLD STRATEGY Seeks high total investment return by investing primarily in
a portfolio of equity and fixed income securities, including
convertible securities, of U.S. and foreign issuers
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EQ ADVISORS TRUST DOMESTIC EQUITY PORTFOLIOS
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PORTFOLIO INVESTMENT OBJECTIVE(S)
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BT EQUITY 500 INDEX Seeks to replicate as closely as possible (before deduction
of Portfolio expenses) the total return of the S&P 500 Index
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EQ/PUTNAM GROWTH & INCOME VALUE Seeks capital growth. Current income is a secondary
objective
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MERRILL LYNCH BASIC VALUE EQUITY Seeks capital appreciation and secondarily, income by
investing in securities, primarily equities, that the Adviser
believes are undervalued and therefore represent basic
investment value
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MFS GROWTH WITH INCOME Seeks to provide reasonable current income and long-term
growth of capital and income
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MFS RESEARCH Seeks to provide long-term growth of capital and future
income
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T. ROWE PRICE EQUITY INCOME Seeks to provide substantial dividend income and also
capital appreciation by investing primarily in
dividend-paying common stocks of established companies
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</TABLE>
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5
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<TABLE>
<CAPTION>
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PRINCIPAL INVESTMENT STRATEGIES PRINCIPAL RISKS
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Common stocks, preferred stocks, securities convertible General investment and fixed income risks
into or exchangeable for common stocks, corporate debt
obligations, U.S. Government securities and short-term
debt instruments
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Well-diversified portfolio of stocks and bonds, and General investment, fixed income, derivatives, and foreign
negotiable instruments securities risks
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Equity and fixed income securities of U.S. and foreign General investment, foreign securities, fixed income,
companies derivatives, non-diversification, liquidity, and portfolio
turnover risks
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PRINCIPAL INVESTMENT STRATEGIES PRINCIPAL RISKS
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Common stocks of companies in the S&P 500 Index General investment, index-fund, and fixed income risks
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Common stocks (plus convertible bonds, convertible General investment, derivatives, foreign securities, value
preferred stocks, preferred stocks and debt securities) investing, and fixed income risks
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Equity securities that are undervalued General investment, small-cap and mid-cap company,
value investing, and foreign securities risks
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Equity securities (common stock, preferred stock, General investment, small-cap and mid-cap company,
preference stock, convertible securities, warrants and foreign securities, and growth investing risks
depositary receipts)
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Common stock or securities convertible into common stock General investment, small-cap and mid-cap company,
of companies with better than average prospects for foreign securities, fixed income, and growth investing risks
long-term growth
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Dividend-paying common stocks of established companies General investment, value investing, foreign securities, and
fixed income risks
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</TABLE>
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<TABLE>
<CAPTION>
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EQ ADVISORS TRUST AGGRESSIVE EQUITY PORTFOLIOS
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PORTFOLIO INVESTMENT OBJECTIVE(S)
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BT Small Company Index Seeks to replicate as closely as possible (before the
deduction of Portfolio expenses) the total return of the
Russell 2000 Index
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EQ/Evergreen Seeks capital appreciation
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MFS Emerging Growth Companies Seeks to provide long-term capital growth
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Warburg Pincus Small Company Value Seeks long-term capital appreciation
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EQ ADVISORS TRUST INTERNATIONAL EQUITY PORTFOLIOS
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PORTFOLIO INVESTMENT OBJECTIVE(S)
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BT International Equity Index Seeks to replicate as closely as possible (before deduction
of Portfolio expenses) the total return of the MSCI EAFE
Index
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Morgan Stanley Emerging Markets Seeks long-term capital appreciation by investing primarily
in equity securities of emerging country issuers
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T. Rowe Price International Stock Seeks long-term growth of capital through investment
primarily in common stocks of established non-U.S.
companies
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</TABLE>
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<TABLE>
<CAPTION>
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PRINCIPAL INVESTMENT STRATEGIES PRINCIPAL RISKS
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Common stocks of small-cap companies in the Russell General investment, index-fund, small-cap and mid-cap
2000 Index company, derivatives, and fixed income risks
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Common stocks offering potential for capital growth (plus General investment, fixed income, small-cap and mid-cap
common stocks offering potential for current income, company, and value investing risks
corporate bonds, notes and debentures, preferred stocks
and convertible securities)
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Equity securities of emerging growth companies with the General investment, small-cap and mid-cap company,
potential to become major enterprises foreign securities, and growth investing risks
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Equity securities of U.S. small cap companies General investment, small-cap and mid-cap company,
foreign securities, fixed income, and value investing risks
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PRINCIPAL INVESTMENT STRATEGIES PRINCIPAL RISKS
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Equity securities of companies in the MSCI EAFE Index General investment, index-fund, foreign securities,
liquidity, and derivatives risks
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Equity securities of emerging market country companies General investment, foreign securities, convertible
securities, liquidity, derivatives, portfolio turnover,
non-diversification, and fixed income risks
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Common stocks of established foreign companies General investment, foreign securities, liquidity, fixed
income, and growth investing risks
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</TABLE>
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2
About the investment portfolios
8
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This section of the Prospectus provides a more complete description of the
principal investment objectives, strategies, and risks of each of the
Portfolios. Of course, there can be no assurance that any Portfolio will achieve
its investment objective.
Please note that:
o A fuller description of each of the principal risks is included in the
section "More Information on Principal Risks," which follows the description
of each Portfolio in this section of the Prospectus.
o Additional information concerning each Portfolio's strategies, investments,
and risks can also be found in the Trust's Statement of Additional
Information.
GENERAL INVESTMENT RISKS
Each of the Portfolios is subject to the following risks:
ASSET CLASS RISK: The returns from the types of securities in which a Portfolio
invests may underperform returns from the various general securities markets or
different asset classes.
MARKET RISK: You could lose money over short periods due to fluctuation in a
Portfolio's share price in reaction to stock or bond market movements, and over
longer periods during extended market downturns.
SECURITY SELECTION RISK: There is the possibility that the specific securities
selected by a Portfolio's Adviser will underperform other funds in the same
asset class or benchmarks that are representative of the general performance of
the asset class.
YEAR 2000 RISK: A Portfolio could be adversely affected if the computer systems
used by the Trust, Adviser, other service providers, or persons with whom they
deal, do not properly process and calculate date-related information and data
dated on and after January 1, 2000 ("Year 2000 Problem"). The extent of such
impact cannot be predicted and there can be no assurances that the Year 2000
Problem will not have an adverse effect on the issuers whose securities are held
by a Portfolio. This risk is greater for Portfolios that make foreign
investments, particularly in emerging market countries.
The Trust's Portfolios are not insured by the FDIC or any other government
agency. Each Portfolio is not a deposit or other obligation of any financial
institution or bank and is not guaranteed. Each Portfolio is subject to
investment risks and possible loss of principal invested.
THE BENCHMARKS
Performance of each of the Trust's Portfolios as shown on the following pages
compares each Portfolio's performance to that of a broad-based securities index.
Each of the Portfolios' annualized rates of return are net of: (i) its
investment management fees; and (ii) its other expenses. These rates are not
representative of the actual return you would receive under your Equitable
Contract.
Broad-based securities indices are unmanaged and are not subject to fees and
expenses typically associated with managed investment company portfolios.
Investments cannot be made directly in a broad-based securities index.
Comparisons with these benchmarks, therefore, are of limited use. They are
included because they are widely known and may help you to understand the
universe of securities from which each Portfolio is likely to select its
holdings. "Blended" performance numbers (e.g., 60% S&P 500/40% Lehman
Gov't/Corp) assume a static mix of the two indices.
THE COMPOSITE MARKET BENCHMARK is made up of 36% S&P 500, 24% MSCI EAFE Index,
21% Salomon Brothers U.S. Treasury Bond 1 year and, 14% Salomon Brothers World
Government ex U.S., and 5% U.S. Treasury Bill.
THE STANDARD & POOR'S 500 COMPOSITE STOCK PRICE INDEX ("S&P 500") is an
unmanaged index containing common stock of 500 industrial, transportation,
utility and financial companies, regarded as generally representative of the
larger capitalization portion of the United States stock
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market. The S&P 500 reflects the reinvestment of dividends, if any, but does not
reflect fees, brokerage commissions or other expenses of investing.
The Russell 2000 Index ("Russell 2000") is an unmanaged index (with no defined
investment objective) of 2000 small-cap stocks and reflects reinvestment of
dividends. It is compiled by the Frank Russell Company.
The Morgan Stanley Capital International EAFE Index ("MSCI EAFE") is a market
capitalization weighted equity index composed of a sample of companies
representative of the market structure of Europe, Australia and the Far East.
MSCI EAFE Index returns assume dividends reinvested net of withholding tax and
do not reflect any fees or expenses.
The Morgan Stanley Capital International Emerging Markets Free Price Return
Index ("MSCI Emerging Markets Free") is a market capitalization weighted equity
index composed of companies that are representative of the market structure of
the following countries: Argentina, Brazil, Chile, China Free, Columbia, Czech
Republic, Greece, Hungary, India, Indonesia, Israel, Jordan, Korea (@ 50%),
Mexico Free, Pakistan, Peru, Philippines Free, Poland, Russia, South Africa, Sri
Lanka, Taiwan (@50%), Thailand, Turkey and Venezuela Free. The base date for the
index is December 31, 1987. "Free" MSCI indices exclude those shares not
purchasable by foreign investors. The average size of the emerging market
companies within this index is US $800 million.
Lehman Government/Corporate Bond Index ("Lehman Gov't/Corp") represents an
unmanaged group of securities widely regarded by investors as representative of
the bond market.
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BALANCED PORTFOLIOS
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EQ/EVERGREEN FOUNDATION PORTFOLIO
INVESTMENT OBJECTIVE: Seeks to provide, in order of priority, reasonable income,
conservation of capital and capital appreciation.
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For purposes of this Portfolio, the words "reasonable income" mean moderate
income.
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THE INVESTMENT STRATEGY
The Portfolio invests primarily in a combination of common stocks, preferred
stocks, securities that are convertible into or exchangeable for common stocks,
investment grade corporate debt securities, securities of or guaranteed by the
U.S. Government, its agencies or instrumentalities, and short-term debt
instruments, such as high quality commercial paper, and obligations of
FDIC-member banks. Investments in common stocks focus on those that pay
dividends and have the potential for capital appreciation. Common stocks are
selected based on a combination of financial strength and estimated growth
potential. Bonds are selected based on the Adviser's projections of interest
rates, varying amounts and maturities in order to achieve capital protection
and, when possible, capital appreciation. The asset allocation of the Portfolio
will vary in accordance with changing economic and market conditions.
Under normal market conditions, at least 25% of the Portfolio's net assets will
be invested in fixed income securities. In selecting debt securities, the
Adviser will emphasize securities that the Adviser believes will not be subject
to significant fluctuations in value. The corporate debt obligations purchased
by the Portfolio will be rated A or higher by S&P and Moody's. The Fund is not
managed with a targeted maturity.
When market or financial conditions warrant, the Portfolio may invest 100% of
its assets in short-term obligations for temporary or defensive purposes. Such
investment strategies are inconsistent with the Portfolio's investment
objectives and could result in the Portfolio not achieving its investment
objective.
THE PRINCIPAL RISKS
This Portfolio invests in common stocks, therefore, its performance may go up or
down depending on general market conditions. Other principal risks include:
FIXED INCOME RISKS: To the extent that a substantial amount of the Portfolio's
assets are invested in fixed income securities, that portion of the Portfolio's
performance will be affected by changes in interest rates, the credit risk of
the issuer, the duration or maturity of the Portfolio's fixed income holdings,
and adverse market or economic conditions. When interest rates rise, the value
of the Portfolio's fixed income securities, particularly those with longer
durations or maturities, will go down. When interest rates fall, the reverse is
true. In addition, to the extent that the Portfolio invests in investment grade
securities which are rated BBB by S&P or an equivalent rating by any other
Nationally Recognized Statistical Rating Organization ("NRSRO"), it will be
exposed to greater risk than higher-rated obligations because BBB rated
investment grade securities are regarded as having only an adequate capacity to
pay principal and interest, are considered to lack outstanding investment
characteristics, and may be speculative.
PORTFOLIO PERFORMANCE
The inception date for this Portfolio is January 1, 1999. Therefore, no
performance information is available.
WHO MANAGES THE PORTFOLIO
EVERGREEN ASSET MANAGEMENT CORP. ("Evergreen"), 2500 Westchester Avenue,
Purchase, New York 10577. Evergreen has been the Adviser to the Portfolio since
it commenced operations. Evergreen is a registered investment adviser and a
wholly-owned subsidiary of First
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11
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Union Corporation. Evergreen offers a broad range of financial services to
individuals and businesses throughout the United States.
STEPHEN A. LIEBER is the Portfolio Manager and has been responsible for the
day-to-day management of the Portfolio since its inception. Mr. Lieber has been
the Chairman and Co-Chief Executive Officer of Evergreen since 1994 and has been
associated with Evergreen and its predecessor (as Chairman) since 1971.
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BALANCED PORTFOLIOS (CONTINUED)
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EQ/PUTNAM BALANCED PORTFOLIO
INVESTMENT OBJECTIVE: Seeks to provide a balanced investment composed of a
well-diversified portfolio of stocks and bonds that will produce both capital
growth and current income.
THE INVESTMENT STRATEGY
The Portfolio may invest in almost any type of security or negotiable
instrument, including common stocks, corporate bonds, cash and money market
securities. Although the proportion invested in each type of security is not
fixed, generally, no more than 75% of the Portfolio's assets will be invested in
common stocks, securities that are convertible into common stocks and other
equity securities.
The Portfolio uses a value-oriented approach by investing in stocks the Adviser
believes are currently selling below their true worth.
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Value-investing attempts to identify strong companies selling at a discount from
their perceived true worth. The Adviser selects stocks for the Portfolio at
prices which in its view are temporarily low relative to the company's earnings,
assets, cash flow and dividends.
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The Portfolio may also invest in debt securities, issued by the U.S. Government
or by private companies. Most of the Portfolio's debt securities will be
investment grade (rated at least BBB) and are generally intermediate- to
long-term (with maturities of more than three (3) years). The Portfolio may also
invest in lower-rated debt securities (called "junk bonds").
The Portfolio may also invest up to 20% of its total assets in foreign
securities and may purchase Eurodollar certificates of deposit (i.e., short-term
time deposits issued by European banks) without regard to this 20% limit.
When market or financial conditions warrant, the Portfolio may invest up to 100%
of its assets in short term obligations for temporary or defensive purposes.
Such investment strategies are inconsistent with the Portfolio's investment
objectives and could result in the Portfolio not achieving its investment
objective.
THE PRINCIPAL RISKS
This Portfolio invests in common stocks, therefore, its performance may go up or
down depending on general market conditions. Other principal risks include:
VALUE INVESTING RISK: As noted above, the Portfolio uses a value-oriented
approach to stock selection. Value investing is subject to the risk that a value
stock's intrinsic value may never be fully recognized or realized by the market,
or its price may go down. There is also the risk that a stock judged to be
undervalued may actually be appropriately priced.
FIXED INCOME RISKS: To the extent that a substantial amount of the Portfolio's
assets are invested in fixed income securities, that portion of the Portfolio's
performance will be affected by changes in interest rates, the credit risk of
the issuer, the duration or maturity of the Portfolio's fixed income holdings,
and adverse market or economic conditions. When interest rates rise, the value
of the Portfolio's fixed income securities, particularly those with longer
durations or maturities, will go down. When interest rates fall, the reverse is
true. In addition, to the extent that the Portfolio invests in investment grade
securities which are rated BBB by S&P or an equivalent rating by any other
NRSRO, it will be exposed to greater risk than higher-rated obligations because
BBB rated investment grade securities are regarded as having only an adequate
capacity to pay principal and interest, are considered to lack outstanding
investment characteristics, and may be speculative.
DERIVATIVES RISK: The Portfolio's investments in derivatives can significantly
increase the Portfolio's exposure to market risk or credit risk of the
counterparty. Derivatives also involve the risk of mispricing or improper
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13
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valuation and the risk that changes in value of the derivative may not correlate
perfectly with the relevant assets, rates and indices.
PORTFOLIO TURNOVER RISK: The Portfolio's turnover rate was over 100% per year.
Higher portfolio turnover (e.g., over 100% per year) will cause the Portfolio to
incur additional transaction costs and may result in higher taxable gains that
could be passed through to shareholders.
FOREIGN SECURITIES RISKS: The Portfolio's investments in foreign securities
involve risks not associated with investing in U.S. securities, which can
adversely affect the Portfolio's performance. Foreign markets, particularly
emerging markets, may be less liquid, more volatile, and subject to less
government supervision than domestic markets. There may be difficulties
enforcing contractual obligations, and it may take more time for trades to clear
and settle. In addition, the value of foreign investments can be adversely
affected by: unfavorable currency exchange rates (relative to the U.S. dollar
for securities denominated in foreign currencies); inadequate or inaccurate
information about foreign companies; higher transaction, brokerage and custody
costs; adverse changes in foreign economic and tax policies; and foreign
government instability, war or other adverse political or economic actions.
PORTFOLIO PERFORMANCE
The bar chart which follows illustrates the Portfolio's annual total return for
1998, the Portfolio's first full year of operations. The table which follows
shows the Portfolio's average annual total returns for the Portfolio for one
year and since inception. The table also compares the Portfolio's performance to
the returns of a broad-based index. Both the bar chart and table assume
reinvestment of dividends and distributions. Past performance is not an
indication of future performance. In addition, holders of variable insurance
contracts representing interests in the 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 and if reflected the results
would be reduced. The inception date for the Portfolio is May 1, 1997.
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CALENDAR YEAR ANNUAL TOTAL RETURN
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1998
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11.92%
Best quarter: Worst quarter:
9.33% (1998 4th Quarter) (5.24)% (1998 3rd Quarter)
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AVERAGE ANNUAL TOTAL RETURNS
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SINCE
ONE YEAR INCEPTION
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EQ/Putnam Balanced Portfolio 11.92% 15.93%
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60% S&P 500/40% Lehman Gov't/Corp.
Index* 21.35% 23.48%
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* For more information on this index, see the preceding section "The
Benchmarks."
WHO MANAGES THE PORTFOLIO
PUTNAM INVESTMENT MANAGEMENT, INC. ("Putnam Management"), One Post Office
Square, Boston, MA 02109. Putnam Management has been the Adviser to the
Portfolio since it commenced operations. Putnam Management has been managing
mutual funds since 1937. Putnam Management is a subsidiary of Putnam
Investments, Inc., which is itself a subsidiary of Marsh & McLennan Companies,
Inc.
The Portfolio Managers, responsible for the day-to-day management of the
Portfolio, are: David L. Waldman, Managing Director, who has been employed by
Putnam Management as an investment professional* since 1997 and prior to 1997,
Mr. Waldman was a senior Portfolio Manager at Lazard Freres since 1995, and
prior to 1995, he was a Vice President at Goldman Sachs; Edward P. Bousa, Senior
Vice President, who has been employed by Putnam Management as an investment
professional* since October, 1992; James M. Prusko, Vice President, who has been
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employed by Putnam Management as an investment professional* since 1992; and
KRISHNA K. MEMANI, MANAGING DIRECTOR, Senior Vice President, who has been
employed by Putnam Management as an investment professional* since 1993.
(*Investment professional means that the manager was either a portfolio manager
or analyst.)
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BALANCED PORTFOLIOS (CONTINUED)
15
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MERRILL LYNCH WORLD STRATEGY PORTFOLIO
INVESTMENT OBJECTIVE: Seek high total investment return by investing primarily
in a portfolio of equity and fixed income securities, including convertible
securities, of U.S. and foreign issuers.
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For purposes of this Portfolio, "total investment return" consists of interest,
dividends, discount accruals and capital changes, including changes in the value
of non-dollar denominated securities and other assets and liabilities resulting
from currency fluctuations.
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THE INVESTMENT STRATEGY
The Portfolio is a non-diversified Portfolio that invests in both equity
securities and fixed income securities. The Portfolio may invest entirely in
equity securities, entirely in fixed income securities, or partly in equity
securities and partly in fixed income securities.
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A Portfolio may be considered to be "non-diversified" for federal securities law
purposes because it invests in a limited number of securities. In all cases, the
Portfolio intends to be diversified for tax purposes so that it can qualify as a
regulated investment company.
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The Portfolio will normally invest a significant portion of its assets in equity
securities of companies throughout the world. The equity securities in which the
Portfolio invests will primarily be common stocks of large companies.
There are no limits on the Portfolio's ability to invest in any country or
geographic region. The Portfolio can invest primarily in U.S. securities,
primarily in foreign securities, or partly in both. It normally invests in at
least three countries at any given time. The Portfolio may invest in companies
in emerging markets, but the Adviser anticipates that a substantially greater
portion of the Portfolio's equity investments will be in companies in developed
countries. At the present time, the Portfolio focuses on investments in Canada,
Western Europe, the Far East, and Latin America, as well as in the United
States. The Adviser will select the percentage of the Portfolio's assets that
will be invested in equity securities and fixed income securities, as well as
the geographic allocation of the Portfolio's investments, based on its view of
general economic and financial trends in various countries and industries, such
as inflation, commodity prices, the direction of interest and currency
movements, estimates of growth in industry output and profits, and government
fiscal policies. For example, if the Adviser believes that falling commodity
prices and decreasing estimates of industrial output globally signal low growth
and limited returns from equity securities, the Portfolio may emphasize fixed
income investments. Similarly, if the Adviser believes that low inflation, new
technologies and improvements in economic productivity in a country or region
signal a promising environment for equity securities in that country or region
the Portfolio may emphasize equity investments in that country or region.
The Portfolio may invest in fixed income securities of any maturity, including
United States and foreign government securities and corporate debt securities.
The Portfolio will only invest in debt securities that are rated investment
grade by S&P or Moody's or unrated securities that are of comparable quality.
The Portfolio may also invest in securities denominated in currencies other than
the U.S. dollar. The Portfolio may also engage in currency transactions to hedge
against the risk of loss from changes in currency exchange rates. In addition,
the Portfolio may also employ a variety of instruments and techniques to enhance
income and to hedge against market and currency risk.
The Portfolio has no stated minimum holding period for investments, and will buy
or sell securities whenever the Adviser sees an appropriate opportunity.
- -------------------------------------------------------------- EQ Advisors Trust
<PAGE>
16
- --------------------------------------------------------------------------------
When market or financial conditions warrant, the Portfolio may invest up to 100%
of its assets in United States Government or Government agency securities, money
market securities, other fixed income securities, or cash for temporary or
defensive purposes. Such investment strategies are inconsistent with the
Portfolio's investment objective and could result in the Portfolio not achieving
its investment objective.
THE PRINCIPAL RISKS
This Portfolio invests in common stocks, therefore, its performance may go up or
down depending on general market conditions. Other principal risks include:
FOREIGN SECURITIES RISKS: The Portfolio's investments in foreign securities
involve risks not associated with investing in U.S. securities that can
adversely affect the Portfolio's performance. Foreign markets, particularly
emerging markets, may be less liquid, more volatile and subject to less
government supervision than domestic markets. There may be difficulties
enforcing contractual obligations, and it may take more time for trades to clear
and settle. In addition, foreign investments can be adversely affected by:
unfavorable currency exchange rates (relative to the U.S. dollar for securities
denominated in a foreign currencies); inadequate or inaccurate information about
foreign companies; higher transaction, brokerage and custody costs; adverse
changes in foreign economic and tax policies; and foreign government
instability, war or other adverse political or economic actions. Other specific
risks of investing in foreign securities include:
EURO RISK: The Portfolio invests in securities issued by European issuers
that that may be adversely impacted by the introduction of the "Euro" as a
common currency in 11 European Monetary Union member states. The Euro may
result in various legal and accounting differences, tax treatments, the
creation and implementation of suitable clearing and settlement systems and
other operational problems, that may cause market disruptions that could
adversely affect investments quoted in the Euro.
REGULATORY RISK: In general, foreign companies are also not subject to
uniform accounting, auditing and financial reporting standards or to other
regulatory practices and requirements as are U.S. companies, which could
adversely affect their value.
FIXED INCOME RISKS: To the extent that a substantial amount of the Portfolio's
assets are invested in fixed income securities, that portion of the Portfolio's
performance will be affected by changes in interest rates, the credit risk of
the issuer, the duration or maturity of the Portfolio's fixed income holdings,
and adverse market or economic conditions. When interest rates rise, the value
of the Portfolio's fixed income securities, particularly those with longer
durations or maturities, will go down. When interest rates fall, the reverse is
true. In addition, to the extent that the Portfolio invests in investment grade
securities which are rated BBB by S&P or an equivalent rating by any other
NRSRO, it will be exposed to greater risk than higher-rated obligations because
BBB rated investment grade securities are regarded as having only an adequate
capacity to pay principal and interest, are considered to lack outstanding
investment characteristics, and may be speculative.
DERIVATIVES RISK: The Portfolio's investments in derivatives can significantly
increase the Portfolio's exposure to market risk or credit risk of the
counterparty. Derivatives also involve the risk of mispricing or improper
valuation and the risk that changes in value of the derivative may not correlate
perfectly with the relevant assets, rates and indices.
NON-DIVERSIFICATION RISK: Since a relatively high percentage of the Portfolio's
assets may be invested in the securities of a limited number of issuers, some of
which may be within the same industry, the securities of the Portfolio may be
more sensitive to changes in the market
<PAGE>
17
- --------------------------------------------------------------------------------
value of a single issuer or industry or to risks associated with a single
economic, political or regulatory event than a diversified portfolio.
LIQUIDITY RISK: Certain securities held by the Portfolio may be difficult (or
impossible) to sell at the time and at the price the seller would like which may
cause the Portfolio to lose money or be prevented from earning capital gains.
PORTFOLIO TURNOVER RISK: The Portfolio's turnover rate has been over 100% per
year. Higher portfolio turnover (e.g., over 100% per year) will cause the
Portfolio to incur additional transaction costs and may result in higher taxable
gains that could be passed through to shareholders.
PORTFOLIO PERFORMANCE
The bar chart which follows illustrates the Portfolio's annual total return for
1998, the Portfolio's first full year of operations. The table which follows
shows the Portfolio's average annual total returns for the Portfolio for one
year and since inception. The table also compares the Portfolio's performance to
the returns of a broad-based index. Both the bar chart and table assume
reinvestment of dividends and distributions. Past performance is not an
indication of future performance. In addition, holders of variable insurance
contracts representing interests in the 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 and if reflected the results
would be reduced. The inception date for the Portfolio is May 1, 1997.
- ------------------------------------------------------------------
CALENDAR YEAR ANNUAL TOTAL RETURN
- ------------------------------------------------------------------
1998
----
6.81%
Best quarter: Worst quarter:
10.56% (1998 4th Quarter) (11.15)% (1998 3rd Quarter)
- ------------------------------------------------------------------
- ------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- ------------------------------------------------------------------
SINCE
ONE YEAR INCEPTION
- ------------------------------------------------------------------
Merrill Lynch World Strategy Portfolio 6.81% 6.91%
- ------------------------------------------------------------------
Composite Market Benchmark Index* (25.34)% (28.92)%
- ------------------------------------------------------------------
* For more information on this index, see the preceding section "The
Benchmarks."
WHO MANAGES THE PORTFOLIO
MERRILL LYNCH ASSET MANAGEMENT, L.P. ("MLAM"), 800 Scudders Mill Road,
Plainsboro, New Jersey 08543. MLAM has been the Adviser to the Portfolio since
it commenced operations. MLAM is an indirect wholly-owned subsidiary of Merrill
Lynch & Co., Inc., a financial services holding company. MLAM and its affiliates
act as the manager for more than 100 registered investment companies. MLAM also
offers portfolio management and portfolio analysis services to individuals and
institutions.
THOMAS R. ROBINSON: is the Portfolio Manager primarily responsible for the
day-to-day management of the Portfolio since it commenced operations. Mr.
Robinson has served as a First Vice President of MLAM since 1997 and as a Senior
Portfolio Manager of MLAM since 1995. Prior to 1995, Mr. Robinson served as
Manager of International Strategy for Merrill Lynch & Co. Global Securities
Research and Economics Group.
- -------------------------------------------------------------- EQ Advisors Trust
<PAGE>
DOMESTIC EQUITY PORTFOLIOS
18
- --------------------------------------------------------------------------------
BT EQUITY 500 INDEX PORTFOLIO
INVESTMENT OBJECTIVE: Seeks to replicate as closely as possible (before
deduction of Portfolio expenses) the total return of the S&P 500.
THE INVESTMENT STRATEGY
The Portfolio invests in equity securities of companies included in the S&P 500.
The Adviser seeks to match the risk and return characteristics of the S&P 500 by
investing in a statistically selected sample of the securities found in the S&P
500, using a process known as "optimization". This process selects stocks for
the Portfolio so that industry weightings, market capitalizations and
fundamental characteristics (price to book ratios, price to earnings ratios,
debt to asset ratios and dividend yields) closely match those of the securities
included in the S&P 500. This approach helps to increase the Portfolio's
liquidity and reduce costs. The securities held by the Portfolio are weighted to
make the Portfolio's total investment characteristics similar to those of the
S&P 500 as a whole.
The Adviser generally will seek to match the composition of the S&P 500 but
usually will not invest the Portfolio's stock portfolio to mirror the S&P 500
exactly. Because of the difficulty and cost of executing relatively small stock
transactions, the Portfolio may not always be invested in the less heavily
weighted S&P 500 stocks, and may at times have its portfolio weighted
differently than the S&P 500, particularly if the Portfolio has a low level of
assets. In addition, the Portfolio may omit or remove any S&P 500 stock from the
Portfolio if, following objective criteria, the Adviser judges the stock to be
insufficiently liquid or believes the merit of the investment has been
substantially impaired by extraordinary events or financial conditions. The
Portfolio will not purchase the stock of Bankers Trust New York Corporation,
which is included in the S&P 500, and instead will overweight its holdings of
companies engaged in similar businesses.
- -------------------------------------------------------------------------------
For more information on the S&P 500, see the preceding section "The Benchmarks."
The Portfolio is not sponsored, endorsed, sold or promoted by Standard & Poor's
Corporation ("S&P") and S&P makes no guarantee as to the accuracy and/or
completeness of the S&P 500 or any data included therein.
- -------------------------------------------------------------------------------
Over time, the correlation between the performance of the Portfolio and the S&P
is expected to be 95% or higher before deduction of Portfolio expenses. The
Portfolio's ability to track the S&P 500 may be affected by, among others,
transaction costs, administration and other expenses incurred by the Portfolio,
changes in either the composition of the S&P 500 or the assets of the Portfolio,
and the timing and amount of Portfolio investor contributions and withdrawals,
if any. The Portfolio seeks securities to track the S&P 500, therefore, the
Adviser generally will not attempt to judge the merits of any particular
security as an investment.
The Portfolio may also invest up to 20% of its assets in short-term debt
securities and money market instruments to meet redemption requests or to
facilitate investment in the securities of the S&P 500. Securities index futures
contracts and related options, warrants and convertible securities may be used
for a number of reasons, including: to simulate full investment in the S&P 500
while retaining a cash balance for Portfolio management purposes; to facilitate
trading; to reduce transaction costs; or to seek higher investment returns when
a futures contract, option, warrant or convertible security is priced more
attractively than the underlying equity security or S&P 500. These instruments
are considered to be derivatives.
THE PRINCIPAL RISKS
This Portfolio invests in common stocks, therefore, its performance may go up or
down depending on general market conditions. Other principal risks include:
<PAGE>
19
- --------------------------------------------------------------------------------
INDEX-FUND RISK: The Portfolio is not actively managed and invests in securities
included in the index regardless of their investment merit. Therefore, the
Portfolio cannot modify its investment strategies to respond to changes in the
economy and may be particularly susceptible to a general decline in the U.S. or
global stock market segment relating to the index.
FIXED INCOME RISKS: To the extent that a substantial amount of the Portfolio's
assets are invested in fixed income securities, that portion of the Portfolio's
performance will be affected by changes in interest rates, the credit risk of
the issuer, the duration or maturity of the Portfolio's fixed income holdings,
and adverse market or economic conditions. When interest rates rise, the value
of the Portfolio's fixed income securities, particularly those with longer
durations or maturities, will go down. When interest rates fall, the reverse is
true. In addition, to the extent that the Portfolio invests in investment grade
securities which are rated BBB by S&P or an equivalent rating by any other
Nationally Recognized Statistical Rating Organization ("NRSRO"), it will be
exposed to greater risk than higher-rated obligations because BBB rated
investment grade securities are regarded as having only an adequate capacity to
pay principal and interest, are considered to lack outstanding investment
characteristics, and may be speculative.
PORTFOLIO PERFORMANCE
The bar chart which follows illustrates the Portfolio's annual total return for
1998, the Portfolio's first year of existence. The table which follows shows the
Portfolio's average annual total returns for the Portfolio for one year and
since inception. The table also compares the Portfolio's performance to the
returns of a broad based index. Both the bar chart and table assume reinvestment
of dividends and distributions. Past performance is not an indication of future
performance. In addition, holders of variable insurance contracts representing
interests in the 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 and if reflected the results would be reduced.
The Portfolio's inception date was January 1, 1998.
- ------------------------------------------------------------------
CALENDAR YEAR ANNUAL TOTAL RETURN
- ------------------------------------------------------------------
1998
-----
25.14%
Best quarter: Worst quarter:
21.26% (1998 4th Quarter) (10.03)% (1998 3rd Quarter)
- ------------------------------------------------------------------
- ------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- ------------------------------------------------------------------
SINCE
ONE YEAR INCEPTION
- ------------------------------------------------------------------
BT Equity 500 Index Portfolio 25.14% 25.14%
S&P 500 Index* 28.58% 28.58%
- ------------------------------------------------------------------
* For more information on this index, see the preceding section "The
Benchmarks."
WHO MANAGES THE PORTFOLIO
BANKERS TRUST COMPANY: ("Bankers Trust"), 130 Liberty Street (One Bankers Trust
Plaza), New York, New York 10006. Bankers Trust has been the Adviser to the
Portfolio since it commenced operations. Bankers Trust is a wholly-owned
subsidiary of Bankers Trust Corporation. Bankers Trust conducts a variety of
general banking and trust activities and is a major wholesale supplier of
financial services, including investment management to the international and
domestic institutional markets. During 1999, Bankers Trust Corporation and a
wholly owned subsidiary of Deutsche Bank AG ("Deutsche Bank") expect to finalize
a merger in which Bankers Trust Corporation will be acquired by and become a
subsidiary of Deutsche Bank.
- -------------------------------------------------------------- EQ Advisors Trust
<PAGE>
DOMESTIC EQUITY PORTFOLIOS (CONTINUED)
20
- --------------------------------------------------------------------------------
EQ/PUTNAM GROWTH & INCOME VALUE PORTFOLIO
INVESTMENT OBJECTIVE: Seeks capital growth. Current income is a secondary
objective.
THE INVESTMENT STRATEGY
The Portfolio invests primarily in common stocks that offer potential for
capital growth and may invest in stocks that offer potential for current income.
In analyzing companies for investment, the Adviser tries to identify common
stocks of companies that are significantly undervalued compared with their
underlying assets or earnings potential and offer growth and current income
potential.
The Portfolio may also invest in corporate bonds, notes and debentures,
preferred stocks or convertible securities (both debt securities and preferred
stocks) or U.S. Government securities.
It may also invest a portion of its assets in debt securities rated below
investment grade (commonly referred to as "junk bonds"), zero-coupon bonds and
payment-in-kind bonds, and high quality U.S. and foreign dollar-denominated
money market securities. The Portfolio may invest up to 20% of its total assets
in foreign securities, including transactions involving futures contracts,
forward contracts and options and foreign currency exchange transactions.
There may be times when the Adviser will use additional investment strategies to
achieve the Portfolio's investment objectives. For example, the Portfolio may
engage in a variety of investment management practices such as buying and
selling derivatives, including stock index futures contracts and call and put
options.
When market or financial conditions warrant, the Portfolio may invest up to 100%
of its assets in debt securities, preferred stocks or other securities for
temporary or defensive purposes. Such investment strategies are inconsistent
with the Portfolio's investment objectives and could result in the Portfolio not
achieving its investment objective.
THE PRINCIPAL RISKS
This Portfolio invests in common stocks, therefore, its performance may go up or
down depending on general market conditions. Other principal risks include:
VALUE INVESTING RISK: As noted above, the Portfolio uses a value-oriented
approach to stock selection. Value investing is subject to the risk that a value
stock's intrinsic value may never be fully recognized or realized by the market,
or its price may go down. There is also the risk that a stock judged to be
undervalued may actually be appropriately priced.
FOREIGN SECURITIES RISKS: The Portfolio's investments in foreign securities
involve risks not associated with investing in U.S. securities, which can
adversely affect the Portfolio's performance. Foreign markets, particularly
emerging markets, may be less liquid, more volatile, and subject to less
government supervision than domestic markets. There may be difficulties
enforcing contractual obligations, and it may take more time for trades to clear
and settle. In addition, the value of foreign investments can be adversely
affected by: unfavorable currency exchange rates (relative to the U.S. dollar
for securities denominated in foreign currencies); inadequate or inaccurate
information about foreign companies; higher transaction, brokerage and custody
costs; adverse changes in foreign economic and tax policies; and foreign
government instability, war or other adverse political or economic actions.
DERIVATIVES RISK: The Portfolio's investments in derivatives can significantly
increase the Portfolio's exposure to market risk or credit risk of the
counterparty. Derivatives also involve the risk of mispricing or improper
valuation and the risk that changes in value of the derivative may not correlate
perfectly with the relevant assets, rates and indices.
<PAGE>
21
- --------------------------------------------------------------------------------
FIXED INCOME RISKS: To the extent that a substantial amount of the Portfolio's
assets are invested in fixed income securities, that portion of the Portfolio's
performance will be affected by changes in interest rates, the credit risk of
the issuer, the duration or maturity of the Portfolio's fixed income holdings,
and adverse market or economic conditions. When interest rates rise, the value
of the Portfolio's fixed income securities, particularly those with longer
durations or maturities, will go down. When interest rates fall, the reverse is
true. In addition, to the extent that the Portfolio invests in investment grade
securities which are rated BBB by S&P or an equivalent rating by any other
NRSRO, it will be exposed to greater risk than higher-rated obligations because
BBB rated investment grade securities are regarded as having only an adequate
capacity to pay principal and interest, are considered to lack outstanding
investment characteristics, and may be speculative. The risk that an issuer or
guarantor of a fixed income security or counterparty to the Portfolio's fixed
income transaction is unable to meets its financial obligations is particularly
significant for this Portfolio because this Portfolio invests a portion of its
assets in "junk bonds" (i.e., securities rated below investment grade). Junk
bonds are issued by companies with questionable credit strength and,
consequently, are considered to be speculative in nature and may be subject to
greater market fluctuations than investment grade fixed income securities.
PORTFOLIO PERFORMANCE
The bar chart which follows illustrates the Portfolio's annual total return for
1998, the Portfolio's first full year of operations. The table which follows
shows the Portfolio's average annual total returns for the Portfolio for one
year and since inception. The table also compares the Portfolio's performance to
the returns of a broad-based index. Both the bar chart and table assume
reinvestment of dividends and distributions. Past performance is not an
indication of future performance. In addition, holders of variable insurance
contracts representing interests in the 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 and if reflected the results
would be reduced. The inception date for the Portfolio is May 1, 1997.
- ---------------------------------------------------------------------
CALENDAR YEAR ANNUAL TOTAL RETURN
- ---------------------------------------------------------------------
1998
-----
12.75%
Best quarter: Worst quarter:
16.49% (1998 4th Quarter) (10.58)% (1998 3rd Quarter)
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- ---------------------------------------------------------------------
SINCE
ONE YEAR INCEPTION
- ---------------------------------------------------------------------
EQ/Putnam Growth & Income Value
Portfolio 12.75% 17.56%
- ---------------------------------------------------------------------
S&P 500 Index* 28.58% 31.63%
- ---------------------------------------------------------------------
* For more information on this index, see the preceding section "The
Benchmarks."
WHO MANAGES THE PORTFOLIO
PUTNAM INVESTMENT MANAGEMENT, INC.: ("Putnam Management"), One Post Office
Square, Boston, MA 02109. Putnam Management has been the Adviser to the
Portfolio since the Portfolio commenced operations. Putnam Management has been
managing mutual funds since 1937. Putnam Management is a subsidiary of Putnam
Investments, Inc., which is itself a subsidiary of Marsh & McLennan Companies,
Inc.
ANTHONY I. KREISEL: is the Portfolio Manager responsible for the day to day
management of the Portfolio since it commenced operations. Mr. Kreisel has been
employed by Putnam Management as either a portfolio manager or analyst since
1986.
- -------------------------------------------------------------- EQ Advisors Trust
<PAGE>
DOMESTIC EQUITY PORTFOLIOS (CONTINUED)
22
- --------------------------------------------------------------------------------
MERRILL LYNCH BASIC VALUE EQUITY PORTFOLIO
INVESTMENT OBJECTIVE: Seeks capital appreciation and secondarily, income by
investing in securities, primarily equities, that the Adviser of the Portfolio
believes are undervalued and therefore represent basic investment value.
THE INVESTMENT STRATEGY
The Portfolio chooses securities for capital appreciation that are expected to
increase in value. In selecting securities the Adviser emphasizes stocks that
are undervalued, are selling at a discount, or seem capable of recovering from
being temporarily out of favor. The Adviser places particular emphasis on
securities with statistical characteristics associated with undervaluation.
The Adviser follows a contrary opinion/out-of-favor investment style. The
Adviser believes that favorable changes in market prices are more likely to
occur when:
o stocks are out of favor,
o company earnings are depressed,
o price/earnings ratios are relatively low,
o investment expectations are limited, and/or
o there is no general interest in a security or industry.
On the other hand, the Adviser believes that negative developments are more
likely to occur when:
o investment expectations are high,
o stock prices are advancing or have advanced rapidly,
o price/earnings ratios have been inflated, and/or
o an industry or security continues to become popular among investors.
In other words, the Adviser believes that stocks with relatively high
price/earnings ratios are more vulnerable to price declines from unexpected
adverse developments. At the same time, stocks with relatively low
price/earnings ratios are more likely to benefit from favorable but generally
unanticipated events. Thus, the Portfolio may invest a large part of its net
assets in stocks that have weak research ratings.
The Portfolio invests primarily in common stocks of U.S. companies, but may buy
equity securities other than common stock and may also invest up to 10% of its
total assets in securities issued by foreign companies. The Portfolio may also
invest a substantial portion of its assets in companies with market
capitalizations below the largest companies. The Adviser believes that large
institutional investors may overlook these companies, making them undervalued.
The Portfolio has no minimum holding period for investments, and will buy or
sell securities whenever the Portfolio's management sees an appropriate
opportunity.
When market or financial conditions warrant, the Portfolio may invest in U.S.
Government and agency securities, money market securities and other fixed income
securities for temporary or defensive purposes. Such investment strategies are
inconsistent with the Portfolio's investment objectives and could result in the
Portfolio not achieving its investment objective.
THE PRINCIPAL RISKS
This Portfolio invests in common stocks, therefore, its performance may go up or
down depending on general market conditions. Other principal risks include:
VALUE INVESTING RISK: As noted above, the Portfolio uses a value-oriented
approach to stock selection. Value investing is subject to the risk that a value
stock's intrinsic value may never be fully recognized or realized by the market,
or its price may go down. There is also the risk that a stock judged to be
undervalued may actually be appropriately priced.
SMALL-CAP AND MID-CAP COMPANY RISK: The Portfolio's investments in small-cap and
mid-cap companies may be subject to more abrupt or erratic movements in price
than are those of larger, more established companies because:
<PAGE>
23
- --------------------------------------------------------------------------------
the securities of such companies are less well-known and may trade less
frequently and in lower volume; such companies are more likely to experience
greater or more unexpected changes in their earnings and growth prospects; and
the products or technologies of such companies may be at a relatively early
stage of development or not fully tested.
Foreign Securities Risks: The Portfolio's investments in foreign securities
involve risks not associated with investing in U.S. securities, which can
adversely affect the Portfolio's performance. Foreign markets, particularly
emerging markets, may be less liquid, more volatile, and subject to less
government supervision than domestic markets. There may be difficulties
enforcing contractual obligations, and it may take more time for trades to clear
and settle. In addition, the value of foreign investments can be adversely
affected by: unfavorable currency exchange rates (relative to the U.S. dollar
for securities denominated in foreign currencies); inadequate or inaccurate
information about foreign companies; higher transaction, brokerage and custody
costs; adverse changes in foreign economic and tax policies; and foreign
government instability, war or other adverse political or economic actions.
PORTFOLIO PERFORMANCE
The bar chart which follows illustrates the Portfolio's annual total return for
1998, the Portfolio's first full year of operations. The table which follows
shows the Portfolio's average annual total returns for the Portfolio for one
year and since inception. The table also compares the Portfolio's performance to
the returns of a broad-based index. Both the bar chart and table assume
reinvestment of dividends and distributions. Past performance is not an
indication of future performance. In addition, holders of variable insurance
contracts representing interests in the 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 and if reflected the results
would be reduced. The inception date for the Portfolio is May 1, 1997.
- ------------------------------------------------------------------
CALENDAR YEAR ANNUAL TOTAL RETURN
- ------------------------------------------------------------------
1998
-----
11.59%
Best quarter: Worst quarter:
11.20% (1997 3rd Quarter) (10.91)% (1998 3rd Quarter)
- ------------------------------------------------------------------
- ------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- ------------------------------------------------------------------
SINCE
ONE YEAR INCEPTION
- ------------------------------------------------------------------
Merrill Lynch Basic Value Portfolio 11.59% 17.29%
- ------------------------------------------------------------------
S&P 500 Index* 28.58% 31.63%
- ------------------------------------------------------------------
* For more information on this index, see the preceding section "The
Benchmarks."
WHO MANAGES THE PORTFOLIO
MERRILL LYNCH ASSET MANAGEMENT, L.P. ("MLAM"), 800 Scudders Mill Road,
Plainsboro, NJ 08543. MLAM has been the Adviser to the Portfolio since it
commenced operations. MLAM is an indirect wholly-owned subsidiary of Merrill
Lynch & Co., Inc., a financial services holding company. The general partner of
MLAM is Princeton Services, Inc., a wholly-owned subsidiary of Merrill Lynch &
Co., Inc. MLAM and its affiliates act as the manager for more than 100
registered investment companies. MLAM also offers portfolio management and
portfolio analysis services to individuals and institutions.
KEVIN RENDINO, a First Vice President of MLAM since 1997, has been the Portfolio
Manager responsible for the day to day management of the Portfolio since it
commenced operations. Mr. Rendino was a Vice President of MLAM from 1993 to
1997.
- -------------------------------------------------------------- EQ Advisors Trust
<PAGE>
DOMESTIC EQUITY PORTFOLIOS (CONTINUED)
24
- --------------------------------------------------------------------------------
MFS GROWTH WITH INCOME PORTFOLIO
INVESTMENT OBJECTIVE: Seeks to provide reasonable current income and long-term
growth of capital and income.
- -------------------------------------------------------------------------------
For purposes of this Portfolio, the words "reasonable current income" mean
moderate income.
- -------------------------------------------------------------------------------
THE INVESTMENT STRATEGY
The Portfolio invests, under normal market conditions, primarily (at least 65%
of its total assets) in equity securities, including common stocks, preferred
stocks, convertible securities, warrants and depositary receipts for those
securities. Equity securities may be listed on a securities exchange or traded
in the over-the-counter markets. While the Portfolio may invest in companies of
any size, the Portfolio generally focuses on companies with larger market
capitalizations that the Adviser believes have sustainable growth prospects and
attractive valuations based on current and expected earnings or cash flow.
The Adviser uses a "bottom-up" investment style in managing the Portfolio. This
means that securities are selected based upon fundamental analysis performed by
the Adviser's large group of equity research analysts.
The Portfolio may invest in foreign securities and may have exposure to foreign
currencies through its investment in these securities, its direct holdings of
foreign currencies or through its use of forward foreign currency exchange
contracts for the purchase or sale of a fixed quantity of foreign currency at a
future date.
When adverse market, financial or political conditions warrant, the Portfolio
may depart from its principal strategies for temporary or defensive purposes.
Such investment strategies are inconsistent with the Portfolio's investment
objective and could result in the Portfolio not achieving its investment
objective.
THE PRINCIPAL RISKS
This Portfolio invests in common stocks, therefore, its performance may go up or
down depending on general market conditions. Other principal risks include:
GROWTH INVESTING RISK: As noted above, this Portfolio uses a growth oriented
approach to stock selection. The price of growth stocks may be more sensitive to
changes in current or expected earnings than the prices of other stocks. The
price of growth stocks is also subject to the risk that the stock price of one
or more companies will fall or will fail to appreciate as anticipated by the
Adviser, regardless of movements in the securities market.
SMALL-CAP AND MID-CAP COMPANY RISK: The Portfolio's investments in small-cap and
mid-cap companies may be subject to more abrupt or erratic movements in price
than are those of larger, more established companies because: the securities of
such companies are less well-known and may trade less frequently and in lower
volume; such companies are more likely to experience greater or more unexpected
changes in their earnings and growth prospects; and the products or technologies
of such companies may be at a relatively early stage of development or not fully
tested.
FOREIGN SECURITIES RISKS: The Portfolio's investments in foreign securities
involve risks not associated with investing in U.S. securities, which can
adversely affect the Portfolio's performance. Foreign markets, particularly
emerging markets, may be less liquid, more volatile, and subject to less
government supervision than domestic markets. There may be difficulties
enforcing contractual obligations, and it may take more time for trades to clear
and settle. In addition, the value of foreign investments can be adversely
affected by: unfavorable currency exchange rates (relative to the U.S. dollar
for securities denominated in foreign currencies); inadequate or inaccurate
information about foreign companies; higher transaction, brokerage and custody
costs; adverse changes in foreign economic and tax policies; and foreign
government instability, war or other adverse political or economic actions.
<PAGE>
25
- --------------------------------------------------------------------------------
PORTFOLIO PERFORMANCE
The inception date for this Portfolio is January 1, 1999. Therefore, no prior
performance information is available.
WHO MANAGES THE PORTFOLIO
MASSACHUSETTS FINANCIAL SERVICES COMPANY ("MFS"), 500 Boylston Street, Boston,
MA 02116. MFS has been the Adviser to the Portfolio since it commenced
operations. MFS is America's oldest mutual fund organization. MFS and its
predecessor organizations have a history of money management dating from 1924
and the founding of the first mutual fund in the United States, Massachusetts
Investors Trust. MFS is a subsidiary of Sun Life of Canada (United States)
Financial Services Holdings Inc., which, in turn, is an indirect wholly-owned
subsidiary of Sun Life Assurance Company of Canada.
The Portfolio Managers are JOHN D. LAUPHEIMER, JR., Senior Vice President of
MFS, who has been employed as a portfolio manager by MFS since 1986; and
MITCHELL D. DYNAN, a Vice President of MFS, who has been employed as a portfolio
manager by MFS since 1981.
- -------------------------------------------------------------- EQ Advisors Trust
<PAGE>
DOMESTIC EQUITY PORTFOLIOS (CONTINUED)
26
- --------------------------------------------------------------------------------
MFS RESEARCH PORTFOLIO
INVESTMENT OBJECTIVE: Seeks to provide long-term growth of capital and future
income.
THE INVESTMENT STRATEGY
The Portfolio invests primarily in equity securities, such as common stocks,
securities convertible into common stocks, preferred stocks and depositary
receipts of companies believed by the Adviser to have:
o favorable prospects for long-term growth,
o attractive valuations based on current and expected earnings or cash flow,
o dominant or growing market share, and
o superior management.
The Portfolio may invest in securities of companies of any size. The Portfolio's
investments may include securities traded on securities exchanges or in the
over-the-counter markets.
The Portfolio may invest in foreign equity securities, and may have exposure to
foreign currencies through its investment in these securities, its direct
holdings of foreign currencies or through its use of foreign currency exchange
contracts for the purchase or sale of a fixed quantity of foreign currency at a
future date.
When adverse market, financial or political conditions warrant, the Portfolio
may depart from its principal investment strategies for temporary or defensive
purposes. Such investment strategies are inconsistent with the Portfolio's
investment objectives and could result in the Portfolio not achieving its
investment objective.
The Portfolio may invest up to 10% of its assets in high yielding debt
securities rated below investment grade ("junk bonds").
THE PRINCIPAL RISKS
This Portfolio invests in common stocks, therefore, its performance may go up or
down depending on general market conditions. Other principal risks include:
GROWTH INVESTING RISK: As noted above, this Portfolio uses a growth oriented
approach to stock selection. The price of growth stocks may be more sensitive to
changes in current or expected earnings than the prices of other stocks. The
price of growth stocks is also subject to the risk that the stock price of one
or more companies will fall or will fail to appreciate as anticipated by the
Adviser, regardless of movements in the securities market.
SMALL-CAP AND MID-CAP COMPANY RISK: The Portfolio's investments in small-cap and
mid-cap companies may be subject to more abrupt or erratic movements in price
than are those of larger, more established companies because: the securities of
such companies are less well-known and may trade less frequently and in lower
volume; such companies are more likely to experience greater or more unexpected
changes in their earnings and growth prospects; and the products or technologies
of such companies may be at a relatively early stage of development or not fully
tested.
FIXED INCOME RISKS: To the extent that a substantial amount of the Portfolio's
assets are invested in fixed income securities, that portion of the Portfolio's
performance will be affected by changes in interest rates, the credit risk of
the issuer, the duration or maturity of the Portfolio's fixed income holdings,
and adverse market or economic conditions. When interest rates rise, the value
of the Portfolio's fixed income securities, particularly those with longer
durations or maturities, will go down. When interest rates fall, the reverse is
true. In addition, to the extent that the Portfolio invests in investment grade
securities which are rated BBB by S&P or an equivalent rating by any other
NRSRO, it will be exposed to greater risk than higher-rated obligations because
BBB rated investment grade securities are regarded as having only an adequate
capacity to pay principal and interest, are considered to lack outstanding
<PAGE>
27
- --------------------------------------------------------------------------------
investment characteristics, and may be speculative. The risk that an issuer or
guarantor of a fixed income security or counterparty to the Portfolio's fixed
income transaction is unable to meets its financial obligations is particularly
significant for this Portfolio because this Portfolio invests a portion of its
assets in "junk bonds" (i.e., securities rated below investment grade). Junk
bonds are issued by companies with questionable credit strength and,
consequently, are considered to be speculative in nature and may be subject to
greater market fluctuations than investment grade fixed income securities.
Foreign Securities Risks: The Portfolio's investments in foreign securities
involve risks not associated with investing in U.S. securities, which can
adversely affect the Portfolio's performance. Foreign markets, particularly
emerging markets, may be less liquid, more volatile, and subject to less
government supervision than domestic markets. There may be difficulties
enforcing contractual obligations, and it may take more time for trades to clear
and settle. In addition, the value of foreign investments can be adversely
affected by: unfavorable currency exchange rates (relative to the U.S. dollar
for securities denominated in foreign currencies); inadequate or inaccurate
information about foreign companies; higher transaction, brokerage and custody
costs; adverse changes in foreign economic and tax policies; and foreign
government instability, war or other adverse political or economic actions.
PORTFOLIO PERFORMANCE
The bar chart which follows illustrates the Portfolio's annual total return for
1998, the Portfolio's first full year of operations. The table which follows
shows the Portfolio's average annual total returns for the Portfolio for one
year and since inception. The table also compares the Portfolio's performance to
the returns of a broad-based index. Both the bar chart and table assume
reinvestment of dividends and distributions. Past performance is not an
indication of future performance. In addition, holders of variable insurance
contracts representing interests in the 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 and if reflected the results
would be reduced. The inception date for the Portfolio is May 1, 1997.
- -----------------------------------------------------------------
CALENDAR YEAR ANNUAL TOTAL RETURN
- -----------------------------------------------------------------
1998
-----
24.11%
Best quarter: Worst quarter:
21.36% (1998 4th Quarter) (17.35)% (1997 4th Quarter)
- -----------------------------------------------------------------
- -----------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- -----------------------------------------------------------------
SINCE
ONE YEAR INCEPTION
- -----------------------------------------------------------------
MFS Research Portfolio 24.11% 24.41%
- -----------------------------------------------------------------
S&P 500 Index* 28.58% 31.63%
- -----------------------------------------------------------------
* For more information on this index, see the preceding section "The
Benchmarks."
WHO MANAGES THE PORTFOLIO
MASSACHUSETTS FINANCIAL SERVICES COMPANY ("MFS"), 500 Boylston Street, Boston,
MA 02116. MFS has been the Adviser to the Portfolio since it commenced
operations. MFS is America's oldest mutual fund organization. MFS and its
predecessor organizations have a history of money management dating from 1924
and the founding of the first mutual fund in the United States, Massachusetts
Investors Trust. MFS is a subsidiary of Sun Life of Canada (United States)
Financial Services Holdings Inc., which, in turn, is an indirect wholly-owned
subsidiary of Sun Life Assurance Company of Canada.
A committee of investment research analysts selects portfolio securities for the
Portfolio. This committee includes investment analysts employed not only by MFS,
but also by
- -------------------------------------------------------------- EQ Advisors Trust
<PAGE>
28
- --------------------------------------------------------------------------------
MFS International (U.K.) Limited, a wholly owned subsidiary of MFS. The
committee allocates the Portfolio's assets among various industries.
Individual analysts then select what they view as the securities best suited
to achieve the Portfolio's investment objective within their assigned industry
responsibility.
<PAGE>
DOMESTIC EQUITY PORTFOLIOS (CONTINUED)
29
- --------------------------------------------------------------------------------
T. ROWE PRICE EQUITY INCOME PORTFOLIO
INVESTMENT OBJECTIVE: Seeks to provide substantial dividend income and also
capital appreciation by investing primarily in dividend-paying common stocks of
established companies.
THE INVESTMENT STRATEGY
The Portfolio invests primarily in dividend-paying common stocks of established
companies that have favorable prospects for increasing dividend income and
capital appreciation. The Portfolio's yield as a result of that dividend income
is expected to be significantly above the average yield of the companies of the
S&P 500.
The Adviser bases its investment decisions on three premises: (1) over time,
dividend income can account for a significant portion of the Portfolio's return;
(2) dividends are a more stable and predictable source of return; and (3) prices
of stocks that pay a high current income level tend to be less volatile than
those paying below average dividends.
The Adviser uses a "value" approach in choosing securities. It looks for common
stocks of companies that have:
o established operating histories;
o above-average dividend yields relative to the S&P 500;
o low price to earnings ratios relative to the S&P 500;
o sound balance sheets; and
o low stock price relative to the company's asset value, earnings and cash
flow.
- -------------------------------------------------------------------------------
Equity income investing involves finding common stocks that pay dividend income.
As an example, utility company stocks often provide dividend income while a
shareholder waits for the stock price to move. Dividends can help reduce the
Portfolio's volatility during turbulent markets and help offset losses when
stock prices are falling.
- -------------------------------------------------------------------------------
The Portfolio may invest up to 25% of its total assets in foreign securities.
These securities include non-dollar-denominated securities traded outside the
United States and dollar-denominated securities such as American Depositary
Receipts. The Portfolio may also purchase preferred stocks, convertible
securities, warrants, U.S. Government securities, high-quality money market
securities, as well as investment grade debt securities and high yielding debt
securities ("junk bonds").
When market or financial conditions warrant, the Portfolio may invest without
limitation in high quality money market securities, and United States Government
debt securities for temporary or defensive purposes. Such investment strategies
are inconsistent with the Portfolio's investment objectives and could result in
the Portfolio not achieving its investment objective.
THE PRINCIPAL RISKS
This Portfolio invests in common stocks, therefore, its performance may go up or
down depending on general market conditions. Other principal risks include:
VALUE INVESTING RISK: As noted above, the Portfolio uses a value-oriented
approach to stock selection. Value investing is subject to the risk that a value
stock's intrinsic value may never be fully recognized or realized by the market,
or its price may go down. There is also the risk that a stock judged to be
undervalued may actually be appropriately priced.
FOREIGN SECURITIES RISKS: The Portfolio's investments in foreign securities
involve risks not associated with investing in U.S. securities, which can
adversely affect the Portfolio's performance. Foreign markets, particularly
emerging markets, may be less liquid, more volatile, and subject to less
government supervision than domestic markets. There may be difficulties
enforcing contractual obligations, and it may take more time for trades to clear
and settle. In addition, the value of foreign investments can be adversely
affected by: unfavorable currency exchange rates (relative to the U.S. dollar
for securities denominated in foreign
- -------------------------------------------------------------- EQ Advisors Trust
<PAGE>
30
- --------------------------------------------------------------------------------
currencies); inadequate or inaccurate information about foreign companies;
higher transaction, brokerage and custody costs; adverse changes in foreign
economic and tax policies; and foreign government instability, war or other
adverse political or economic actions.
FIXED INCOME RISKS: To the extent that a substantial amount of the Portfolio's
assets are invested in fixed income securities, that portion of the Portfolio's
performance will be affected by changes in interest rates, the credit risk of
the issuer, the duration or maturity of the Portfolio's fixed income holdings,
and adverse market or economic conditions. When interest rates rise, the value
of the Portfolio's fixed income securities, particularly those with longer
durations or maturities, will go down. When interest rates fall, the reverse is
true. In addition, to the extent that the Portfolio invests in investment grade
securities which are rated BBB by S&P or an equivalent rating by any other
NRSRO, it will be exposed to greater risk than higher-rated obligations because
BBB rated investment grade securities are regarded as having only an adequate
capacity to pay principal and interest, are considered to lack outstanding
investment characteristics, and may be speculative.
PORTFOLIO PERFORMANCE
The bar chart which follows illustrates the Portfolio's annual total return for
1998, the Portfolio's first full year of operations. The table which follows
shows the Portfolio's average annual total returns for the Portfolio for one
year and since inception. The table also compares the Portfolio's performance to
the returns of a broad-based index. Both the bar chart and table assume
reinvestment of dividends and distributions. Past performance is not an
indication of future performance. In addition, holders of variable insurance
contracts representing interests in the 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 and if reflected the results
would be reduced. The inception date for the Portfolio is May 1, 1997.
- -----------------------------------------------------------------
CALENDAR YEAR ANNUAL TOTAL RETURN
- -----------------------------------------------------------------
1998
----
9.11%
Best quarter: Worst quarter:
11.16% (1998 4th Quarter) (7.66)% (1998 3rd Quarter)
- -----------------------------------------------------------------
- -----------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- -----------------------------------------------------------------
SINCE
ONE YEAR INCEPTION
- -----------------------------------------------------------------
T. Rowe Price Equity Income Portfolio 9.11% 18.73%
- -----------------------------------------------------------------
S&P 500 Index* 28.58% 31.63%
- -----------------------------------------------------------------
* For more information on this index, see the preceding section "The
Benchmarks."
WHO MANAGES THE PORTFOLIO
T. ROWE PRICE ASSOCIATES, INC. ("T. Rowe Price"), 100 East Pratt Street,
Baltimore, MD 21202. T. Rowe Price has been the Adviser to the Portfolio since
the Portfolio commenced operations. T. Rowe Price serves as investment manager
to a variety of individual and institutional investor accounts, including
limited partnerships and other mutual funds.
Investment decisions with respect to the Portfolio are made by an Investment
Advisory Committee. BRIAN C. ROGERS has been the Committee Chairman since the
inception of the Portfolio and has day-to-day responsibility for managing the
Portfolio. Mr. Rogers joined T. Rowe Price in 1982 and has been managing
investments since 1983.
<PAGE>
AGGRESSIVE EQUITY PORTFOLIOS
31
- --------------------------------------------------------------------------------
BT SMALL COMPANY INDEX PORTFOLIO
INVESTMENT OBJECTIVE: Seeks to replicate as closely as possible (before the
deduction of Portfolio expenses) the total return of the Russell 2000 Index
("Russell 2000").
THE INVESTMENT STRATEGY
The Portfolio invests primarily in equity securities of small-cap companies
included in the Russell 2000. The Adviser seeks to match the returns of the
Russell 2000. The Portfolio invests in a statistically selected sample of the
securities found in the Russell 2000, using a process known as "optimization."
This process selects stocks for the Portfolio so that industry weightings,
market capitalizations and fundamental characteristics (price to book ratios,
price to earnings ratios, debt to asset ratios and dividend yields) closely
match those of the securities included in the Russell 2000. This approach helps
to increase the Portfolio's liquidity and reduce costs. The securities held by
the Portfolio are weighted to make the Portfolio's total investment
characteristics similar to those of the Russell 2000 as a whole.
- -------------------------------------------------------------------------------
For more information on The Russell 2000, see the preceding section "The
Benchmarks." The Portfolio is neither sponsored by nor affiliated with the Frank
Russell Company, which is the owner of the trademarks and copyrights relating to
the Russell indices.
- -------------------------------------------------------------------------------
Over time, the correlation between the performance of the Portfolio and the
Russell 2000 is expected to be 95% or higher before the deduction of Portfolio
expenses. The Portfolio's ability to track the Russell 2000 may be affected by,
among other things, transaction costs, administration and other expenses
incurred by the Portfolio, changes in either the composition of the Russell 2000
or the assets of the Portfolio, and the timing and amount of Portfolio investor
contributions and withdrawals, if any. The Portfolio seeks to track the Russell
2000, therefore, the Adviser generally will not attempt to judge the merits of
any particular security as an investment.
Securities index futures contracts and related options, warrants and convertible
securities may be used for a number of reasons, including: to simulate full
investment in the Russell 2000 while retaining a cash balance for fund
management purposes; to facilitate trading; to reduce transaction costs; or to
seek higher investment returns when a futures contract, option, warrant or
convertible security is priced more attractively than the underlying equity
security or Russell 2000. These instruments are considered to be derivatives.
The Portfolio may invest to a lesser extent in short-term debt securities and
money market securities to meet redemption requests or to facilitate investment
in the securities included in the Russell 2000.
THE PRINCIPAL RISKS
This Portfolio invests in common stocks, therefore, its performance may go up or
down depending on general market conditions. Other principal risks include:
INDEX-FUND RISK: The Portfolio is not actively managed and invests in securities
included in the index regardless of their investment merit. Therefore, the
Portfolio cannot modify its investment strategies to respond to changes in the
economy and may be particularly susceptible to a general decline in the U.S. or
global stock market segment relating to the index.
SMALL-CAP AND MID-CAP COMPANY RISK: The Portfolio's investments in small-cap and
mid-cap companies may be subject to more abrupt or erratic movements in price
than are those of larger, more established companies because: the securities of
such companies are less known and may trade less frequently and in lower volume;
such companies are more likely to experience greater or more unexpected changes
in their earnings and growth prospects; and the products or technologies of such
companies may be at a relatively early stage of development or not fully tested.
- -------------------------------------------------------------- EQ Advisors Trust
<PAGE>
32
- --------------------------------------------------------------------------------
DERIVATIVES RISK: The Portfolio's investments in derivatives can significantly
increase the Portfolio's exposure to market risk or credit risk of the
counterparty. Derivatives also involve the risk of mispricing or improper
valuation and the risk that changes in value of the derivative may not correlate
perfectly with the relevant assets, rates and indices.
FIXED INCOME RISKS: To the extent that a substantial amount of the Portfolio's
assets are invested in fixed income securities, that portion of the Portfolio's
performance will be affected by changes in interest rates, the credit risk of
the issuer, the duration or maturity of the Portfolio's fixed income holdings,
and adverse market or economic conditions. When interest rates rise, the value
of the Portfolio's fixed income securities, particularly those with longer
durations or maturities, will go down. When interest rates fall, the reverse is
true. In addition, to the extent that the Portfolio invests in investment grade
securities which are rated BBB by S&P or an equivalent rating by any other
NRSRO, it will be exposed to greater risk than higher-rated obligations because
BBB rated investment grade securities are regarded as having only an adequate
capacity to pay principal and interest, are considered to lack outstanding
investment characteristics, and may be speculative.
PORTFOLIO PERFORMANCE
The bar chart which follows illustrates the Portfolio's annual total return for
1998, the Portfolio's first year of existence. The table which follows shows the
Portfolio's average annual total returns for the Portfolio for one year and
since inception. The table also compares the Portfolio's performance to the
returns of a broad based index. Both the bar chart and table assume reinvestment
of dividends and distributions. Past performance is not an indication of future
performance. In addition, holders of variable insurance contracts representing
interests in the 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 and if reflected the results would be reduced.
The Portfolio's inception date was January 1, 1998.
- -------------------------------------------------------------------
CALENDAR YEAR ANNUAL TOTAL RETURN
- -------------------------------------------------------------------
1998
------
(2.27)%
Best quarter: Worst quarter:
16.21% (1998 4th Quarter) (19.52)% (1998 3rd Quarter)
- -------------------------------------------------------------------
- -------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- -------------------------------------------------------------------
SINCE
ONE YEAR INCEPTION
- -------------------------------------------------------------------
BT Small Company Index Portfolio (2.27)% (2.27)%
- -------------------------------------------------------------------
Russell 2000 Index* (2.54)% (2.54)%
- -------------------------------------------------------------------
* For more information on this index, see the preceding section "The
Benchmarks."
WHO MANAGES THE PORTFOLIO
BANKERS TRUST COMPANY Bankers Trust"), 130 Liberty Street (One Bankers Trust
Plaza), New York, New York 10006. Bankers Trust has been the Adviser to the
Portfolio since it commenced operations. Bankers Trust is a wholly-owned
subsidiary of Bankers Trust New York Corporation. Bankers Trust conducts a
variety of general banking and trust activities and is a major wholesale
supplier of financial services to the international and domestic institutional
markets. Investment management is a core business of Bankers Trust built on a
tradition of excellence from its roots as a trust bank founded in 1903. During
1999, Bankers Trust Corporation and a wholly owned subsidiary of Deutsche Bank
AG ("Deutsche Bank") expect to finalize a merger in which Bankers Trust
Corporation will be acquired by and become a subsidiary of Deutsche Bank.
<PAGE>
AGGRESSIVE EQUITY PORTFOLIOS (CONTINUED)
33
- --------------------------------------------------------------------------------
EQ/EVERGREEN PORTFOLIO
INVESTMENT OBJECTIVE: Seeks capital appreciation.
THE INVESTMENT STRATEGY
The Evergreen Portfolio invests primarily in common stocks and convertible
securities of companies that are relatively small or little-known or represent
special situations which the Adviser believes offer potential for capital
appreciation. In addition, the Portfolio may invest in relatively well-known,
large company securities that have the potential for capital appreciation.
Securities are selected based on a combination of comparative undervaluation
relative to growth potential and/or merger/acquisition price.
- -------------------------------------------------------------------------------
For purposes of this Portfolio, a "little-known" company is one whose business
is limited to a regional market or whose securities are mainly privately held. A
"relatively small" company is one that has a small share of the market for its
products or services in comparison with other companies in its field or that
provides goods or services for a limited market. A "special situation" company
is one which offers potential for capital appreciation because of a recent or
anticipated change in structure, management, products or services.
- -------------------------------------------------------------------------------
The Portfolio also may invest to a lesser extent in non-convertible debt
securities and preferred stocks that offer an opportunity for capital
appreciation.
When market or financial conditions warrant, the Portfolio may invest up to 100%
of its assets in short-term obligations for temporary or defensive purposes.
Such investment strategies are inconsistent with the Portfolio's investment
objectives and could result in the Portfolio not achieving its investment
objective.
THE PRINCIPAL RISKS
This Portfolio invests in common stocks, therefore, its performance may go up or
down depending on general market conditions. Other principal risks include:
SMALL-CAP AND MID-CAP COMPANY RISK: The Portfolio's investments in small-cap and
mid-cap companies may be subject to more abrupt or erratic movements in price
than are those of larger, more established companies because: the securities of
such companies are less well-known and may trade less frequently and in lower
volume; such companies are more likely to experience greater or more unexpected
changes in their earnings and growth prospects; and the products or technologies
of such companies may be at a relatively early stage of development or not fully
tested.
VALUE INVESTING RISK: As noted above, the Portfolio uses a value-oriented
approach to stock selection. Value investing is subject to the risk that a value
stock's intrinsic value may never be fully recognized or realized by the market,
or its price may go down. There is also the risk that a stock judged to be
undervalued may actually be appropriately priced.
FIXED INCOME RISKS: To the extent that a substantial amount of the Portfolio's
assets are invested in fixed income securities, that portion of the Portfolio's
performance will be affected by changes in interest rates, the credit risk of
the issuer, the duration or maturity of the Portfolio's fixed income holdings,
and adverse market or economic conditions. When interest rates rise, the value
of the Portfolio's fixed income securities, particularly those with longer
durations or maturities, will go down. When interest rates fall, the reverse is
true. In addition, to the extent that the Portfolio invests in investment-grade
securities which are rated BBB by S&P or an equivalent rating by any other
NRSRO, it will be exposed to greater risk than higher-rated obligations because
BBB rated investment grade securities are regarded as having only an adequate
capacity to pay principal and interest, are considered to lack outstanding
investment characteristics, and may be speculative.
- -------------------------------------------------------------- EQ Advisors Trust
<PAGE>
34
- --------------------------------------------------------------------------------
PORTFOLIO PERFORMANCE
The inception date for this Portfolio is January 1, 1999. Therefore, no prior
performance information is available.
WHO MANAGES THE PORTFOLIO
EVERGREEN ASSET MANAGEMENT CORP.: ("Evergreen"), 2500 Westchester Avenue,
Purchase, New York 10577. Evergreen has been the Adviser to the Portfolio since
it commenced operations. Evergreen is a registered investment adviser and a
wholly-owned subsidiary of First Union Corporation. Evergreen offers a broad
range of financial services to individuals and businesses throughout the United
States.
The Portfolio Managers, responsible for the day-to-day management of the
Portfolio since its inception, are STEPHEN A. LIEBER, who has been Chairman and
Co-Chief Executive Officer of Evergreen since 1994 and has been associated with
Evergreen and its predecessor (as Chairman) since 1971; and NOLA MADDOX FALCONE,
C.F.A., who has been President and Co-Chief Executive Officer of Evergreen since
1994. Ms. Falcone has been associated with Evergreen and its predecessor (as
portfolio manager) since 1974.
<PAGE>
AGGRESSIVE EQUITY PORTFOLIOS (CONTINUED)
35
- --------------------------------------------------------------------------------
MFS EMERGING GROWTH COMPANIES PORTFOLIO
INVESTMENT OBJECTIVE: Seeks to provide long-term capital growth.
THE INVESTMENT STRATEGY
The Portfolio invests, under normal market conditions, primarily (at least 65%
of its total assets) in common stocks and related securities, such as preferred
stock, convertible securities and depositary receipts of emerging growth
companies. Emerging growth companies that the Adviser believes are either:
o early in their life cycle but have the potential to become major enterprises,
or
o are major enterprises whose rates of earnings growth are expected to
accelerate because of special factors such as rejuvenated management, new
products, changes in customer demand or basic changes in the economic
environment.
For purposes of this Portfolio, emerging growth companies may be of any size and
the Adviser would expect these companies to have products, technologies,
management, markets and opportunities that will facilitate earnings growth over
time that is well above the growth rate of the overall economy and rate of
inflation. The Portfolio's investments may include securities traded in the
over-the-counter markets.
The Adviser uses a "bottom-up" investment style in managing the Portfolio. This
means the securities are selected based upon fundamental analysis performed by
the Adviser.
In addition, up to 15% of the Portfolio's assets may be invested in foreign
securities, including those in emerging markets, or in cash and cash
equivalents.
When adverse market, financial or political conditions warrant, the Portfolio
may depart from its principal strategies for temporary or defensive purposes.
Such investment strategies are inconsistent with the Portfolio's investment
objectives and could result in the Portfolio not achieving its investment
objective.
The Portfolio may engage in active and frequent trading to achieve its principal
investment strategies. Frequent trading increases transaction costs, which could
detract from the Portfolio's performance.
THE PRINCIPAL RISKS
This Portfolio invests in common stocks, therefore, its performance may go up or
down depending on general market conditions. Other principal risks include:
GROWTH INVESTING RISK: As noted above, this Portfolio uses a growth oriented
approach to stock selection. The price of growth stocks may be more sensitive to
changes in current or expected earnings than the prices of other stocks. The
price of growth stocks is also subject to the risk that the stock price of one
or more companies will fall or will fail to appreciate as anticipated by the
Adviser, regardless of movements in the securities market.
SMALL-CAP AND MID-CAP COMPANY RISK: The Portfolio's investments in small-cap and
mid-cap companies may be subject to more abrupt or erratic movements in price
than are those of larger, more established companies because: the securities of
such companies are less well-known and may trade less frequently and in lower
volume; such companies are more likely to experience greater or more unexpected
changes in their earnings and growth prospects; and the products or technologies
of such companies may be at a relatively early stage of development or not fully
tested.
FOREIGN SECURITIES RISKS: The Portfolio's investments in foreign securities
involve risks not associated with investing in U.S. securities, which can
adversely affect the Portfolio's performance. Foreign markets, particularly
emerging markets, may be less liquid, more volatile, and subject to less
government supervision than domestic markets. There may be difficulties
enforcing contractual obligations, and it may take more time for trades to clear
and settle. In
- -------------------------------------------------------------- EQ Advisors Trust
<PAGE>
36
- --------------------------------------------------------------------------------
addition, the value of foreign investments can be adversely affected by:
unfavorable currency exchange rates (relative to the U.S. dollar for securities
denominated in foreign currencies); inadequate or inaccurate information about
foreign companies; higher transaction, brokerage and custody costs; adverse
changes in foreign economic and tax policies; and foreign government
instability, war or other adverse political or economic actions.
PORTFOLIO PERFORMANCE
The bar chart which follows illustrates the Portfolio's annual total return for
1998, the Portfolio's first full year of operations. The table which follows
shows the Portfolio's average annual total returns for the Portfolio for one
year and since inception. The table also compares the Portfolio's performance to
the returns of a broad-based index. Both the bar chart and table assume
reinvestment of dividends and distributions. Past performance is not an
indication of future performance. In addition, holders of variable insurance
contracts representing interests in the 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 and if reflected the results
would be reduced. The inception date for the Portfolio is May 1, 1997.
- ----------------------------------------------------------------
CALENDAR YEAR ANNUAL TOTAL RETURN
- ----------------------------------------------------------------
1998
-----
34.57%
Best quarter: Worst quarter:
26.70% (1998 4th Quarter) (12.69)% (1998 3rd Quarter)
- ----------------------------------------------------------------
- ----------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- ----------------------------------------------------------------
SINCE
ONE YEAR INCEPTION
- ----------------------------------------------------------------
MFS Emerging Growth Companies
Portfolio 34.57% 34.81%
- ----------------------------------------------------------------
Russell 2000 Index* (2.54)% (14.53)%
- ----------------------------------------------------------------
* For more information on this index, see the preceding section "The
Benchmarks."
WHO MANAGES THE PORTFOLIO
MASSACHUSETTS FINANCIAL SERVICES COMPANY ("MFS"), 500 Boylston Street, Boston,
MA 02116. MFS has been the Adviser to the Portfolio since it commenced
operations. MFS is America's oldest mutual fund organization. MFS and its
predecessor organizations have a history of money management dating from 1924
and the founding of the first mutual fund in the United States, Massachusetts
Investors Trust. MFS is a subsidiary of Sun Life of Canada (United States)
Financial Services Holdings Inc., which, in turn, is an indirect wholly-owned
subsidiary of Sun Life Assurance Company of Canada.
The Portfolio Managers are JOHN W. BALLEN, President of MFS, who has been
employed by MFS as a portfolio manager of the Portfolio since 1984, and TONI Y.
SHIMURA, a Vice President of MFS, who has been employed by MFS as a portfolio
manager for the Portfolio since 1995.
<PAGE>
AGGRESSIVE EQUITY PORTFOLIOS (CONTINUED)
37
- --------------------------------------------------------------------------------
WARBURG PINCUS SMALL COMPANY VALUE PORTFOLIO
INVESTMENT OBJECTIVE: Seeks long-term capital appreciation.
THE INVESTMENT STRATEGY
The Portfolio invests primarily in equity securities of U.S. small-cap companies
with above-average growth potential that the Adviser believes to be undervalued.
Typically, such investments may include common stocks, preferred stocks,
convertible securities, warrants and rights of small-cap companies. Once 65% of
the Portfolio's assets are invested in small-cap companies, the Portfolio may
also invest in companies with a market capitalization of any size.
For purposes of this Portfolio, small-cap companies are companies having market
capitalizations within the range of capitalizations of companies represented in
the Russell 2000 Index.
In determining whether a company's stock is undervalued, the Adviser considers
all relevant factors which may include a company's:
o price/earnings ratio,
o price to book value ratio,
o price to cash flow ratio, and
o debt to capital ratio.
The Portfolio will invest primarily (at least 65% of its net assets) in the
securities of U.S. companies traded in the U.S. securities markets. The
Portfolio may invest to a lesser extent in foreign securities, investment grade
debt securities and high quality domestic and foreign short-term (one year or
less) and medium-term money-market securities.
When market or financial conditions warrant, the Portfolio may invest without
limitation in investment grade debt obligations and in domestic and foreign
obligations, including repurchase agreements for temporary or defensive
purposes. Such investment strategies are inconsistent with the Portfolio's
investment objectives and could result in the Portfolio not achieving its
investment objective.
THE PRINCIPAL RISKS This Portfolio invests in common stocks, therefore, its
performance may go up or down depending on general market conditions. Other
principal risks include:
VALUE INVESTING RISK: As noted above, the Portfolio uses a value-oriented
approach to stock selection. Value investing is subject to the risk that a value
stock's intrinsic value may never be fully recognized or realized by the market,
or its price may go down. There is also the risk that a stock judged to be
undervalued may actually be appropriately priced.
SMALL-CAP AND MID-CAP COMPANY RISK: The Portfolio's investments in small-cap and
mid-cap companies may be subject to more abrupt or erratic movements in price
than are those of larger, more established companies because: the securities of
such companies are less well-known and may trade less frequently and in lower
volume; such companies are more likely to experience greater or more unexpected
changes in their earnings and growth prospects; and the products or technologies
of such companies may be at a relatively early stage of development or not fully
tested.
PORTFOLIO TURNOVER RISK: The Portfolio's turnover rate has been over 100% per
year. Higher portfolio turnover (e.g., over 100% per year) will cause the
Portfolio to incur additional transaction costs and may result in higher taxable
gains that could be passed through to shareholders.
FOREIGN SECURITIES RISKS: The Portfolio's investments in foreign securities
involve risks not associated with investing in U.S. securities, which can
adversely affect the Portfolio's performance. Foreign markets, particularly
emerging markets, may be less liquid, more volatile, and subject to less
government supervision than domestic markets. There may be difficulties
enforcing contractual obligations, and it may take more time for trades to clear
and settle. In addition, the value of foreign investments can be adversely
- -------------------------------------------------------------- EQ Advisors Trust
<PAGE>
38
- --------------------------------------------------------------------------------
affected by: unfavorable currency exchange rates (relative to the U.S. dollar
for securities denominated in foreign currencies); inadequate or inaccurate
information about foreign companies; higher transaction, brokerage and custody
costs; adverse changes in foreign economic and tax policies; and foreign
government instability, war or other adverse political or economic actions.
Fixed Income Risks: To the extent that a substantial amount of the Portfolio's
assets are invested in fixed income securities, that portion of the Portfolio's
performance will be affected by changes in interest rates, the credit risk of
the issuer, the duration or maturity of the Portfolio's fixed income holdings,
and adverse market or economic conditions. When interest rates rise, the value
of the Portfolio's fixed income securities, particularly those with longer
durations or maturities, will go down. When interest rates fall, the reverse is
true. In addition, to the extent that the Portfolio invests in investment grade
securities, which are rated BBB by S&P or an equivalent rating by any other
NRSRO, it will be exposed to greater risk than higher-rated obligations because
BBB rated investment grade securities are regarded as having only an adequate
capacity to pay principal and interest, are considered to lack outstanding
investment characteristics, and may be speculative.
PORTFOLIO PERFORMANCE
The bar chart which follows illustrates the Portfolio's annual total return for
1998, the Portfolio's first full year of operations. The table which follows
shows the Portfolio's average annual total returns for the Portfolio for one
year and since inception. The table also compares the Portfolio's performance to
the returns of a broad-based index. Both the bar chart and table assume
reinvestment of dividends and distributions. Past performance is not an
indication of future performance. In addition, holders of variable insurance
contracts representing interests in the 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 and if reflected the results
would be reduced. The inception date for the Portfolio is May 1, 1997.
- --------------------------------------------------------------------
CALENDAR YEAR ANNUAL TOTAL RETURN
- --------------------------------------------------------------------
1998
-----
(10.02)%
Best quarter: Worst quarter:
15.49% (1997 3rd Quarter) (20.25)% (1998 3rd Quarter)
- --------------------------------------------------------------------
- --------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------
SINCE
ONE YEAR INCEPTION
- --------------------------------------------------------------------
Warburg Pincus Small Company Value
Portfolio (10.02)% 4.25%
- --------------------------------------------------------------------
Russell 2000 Index* ( 2.54)% 14.53%
- --------------------------------------------------------------------
* For more information on this index, see the preceding section "The
Benchmarks."
WHO MANAGES THE PORTFOLIO
WARBURG PINCUS ASSET MANAGEMENT, INC. ("WPAM"), 466 Lexington Avenue, New York,
New York 10017-3147. WPAM has been the Adviser to the Portfolio since it
commenced operations. WPAM is a professional investment advisory firm that
provides investment services to investment companies, employee benefit plans,
endowment funds, foundations and other institutions and individuals. WPAM is
indirectly controlled by Warburg, Pincus & Co., a New York partnership which has
no business other than being a holding company of WPAM and its affiliates.
During 1999, WPAM and Credit Suisse Group expect to finalize Credit Suisse
Group's acquisition of WPAM. WPAM will be combined with and into Credit Suisse
Group's global asset management subsidiary, Credit Suisse Asset Management, LLC.
KYLE F. FREY is the Portfolio Manager and has been responsible for the
day-to-day management of the Portfolio since the Portfolio commenced operations.
Mr. Frey is a managing director of WPAM and has been with WPAM since 1989.
<PAGE>
INTERNATIONAL PORTFOLIOS
39
- --------------------------------------------------------------------------------
BT INTERNATIONAL EQUITY INDEX PORTFOLIO
INVESTMENT OBJECTIVE: Seeks to replicate as closely as possible (before
deduction of Portfolio expenses) the total return of the MSCI EAFE Index.
THE INVESTMENT STRATEGY
The Portfolio invests primarily in equity securities of companies included in
the MSCI EAFE Index. The Portfolio is constructed to have aggregate investment
characteristics similar to those of the MSCI EAFE Index. The Portfolio invests
in a statistically selected sample of the securities of companies included in
the MSCI EAFE Index, although not all companies within a country will be
represented in the Portfolio at the same time. Stocks are selected based on
country of origin, market capitalization, yield, volatility and industry sector.
The Adviser will manage the Portfolio using advanced statistical techniques to
determine which securities should be purchased or sold in order to replicate the
MSCI EAFE index.
- -------------------------------------------------------------------------------
For more information on the MSCI EAFE Index see the preceding section "The
Benchmarks." The MSCI EAFE Index is the exclusive property of Morgan Stanley.
The Portfolio is not sponsored, endorsed, sold or promoted by Morgan Stanley and
Morgan Stanley makes no guarantee as to the accuracy or completeness of the MSCI
EAFE Index or any data included therein.
- -------------------------------------------------------------------------------
Over time, the correlation between the performance of the Portfolio and the MSCI
EAFE Index is expected to be 95% or higher before deduction of Portfolio
expenses. The Portfolio's ability to track the MSCI EAFE Index may be affected
by, among others, transaction costs, administration and other expenses incurred
by the Portfolio, changes in either the composition of the MSCI EAFE Index or
the assets of the Portfolio, and the timing and amount of Portfolio investor
contributions and withdrawals, if any. The Portfolio seeks to track the MSCI
EAFE Index, therefore, the Adviser generally will not attempt to judge the
merits of any particular security as an investment.
The Portfolio may invest to a lesser extent in short-term debt securities and
money market instruments to meet redemption requests or to facilitate investment
in the securities of the MSCI EAFE Index. Securities index futures contracts and
related options, warrants and convertible securities may be used for a number of
reasons, including: to simulate full investment in the MSCI EAFE Index while
retaining a cash balance for Portfolio management purposes; to facilitate
trading; to reduce transaction costs; or to seek higher investment returns when
a futures contract, option, warrant or convertible security is priced more
attractively than the underlying equity security or MSCI EAFE Index. These
instruments are considered to be derivatives.
THE PRINCIPAL RISKS
This Portfolio invests in common stocks, therefore, its performance may go up or
down depending on general market conditions. Other principal risks include:
INDEX-FUND RISK: The Portfolio is not actively managed and invests in securities
included in the index regardless of their investment merit. Therefore, the
Portfolio cannot modify its investment strategies to respond to changes in the
economy and may be particularly susceptible to a general decline in the U.S. or
global stock market segment relating to the index.
FOREIGN SECURITIES RISKS: The Portfolio's investments in foreign securities
involve risks not associated with investing in U.S. securities that can
adversely affect the Portfolio's performance. Foreign markets, particularly
emerging markets, may be less liquid, more volatile and subject to less
government supervision than domestic markets. There may be difficulties
enforcing contractual obligations, and it may take more time for trades to clear
and settle. In addition, foreign investments can be adversely affected by:
unfavorable currency exchange rates (relative to the U.S. dollar for securities
denominated in a foreign currencies);
- -------------------------------------------------------------- EQ Advisors Trust
<PAGE>
40
- --------------------------------------------------------------------------------
inadequate or inaccurate information about foreign companies; higher
transaction, brokerage and custody costs; adverse changes in foreign economic
and tax policies; and foreign government instability, war or other adverse
political or economic actions. Other specific risks of investing in foreign
securities include:
EMERGING MARKET RISK: There are greater risks involved in investing in
emerging markets countries and/or their securities markets, such as less
diverse and less mature economic structures, less stable political systems,
more restrictive foreign investment policies, smaller-sized securities
markets and low trading volumes. Such risks can make investments illiquid and
more volatile than investments in developed countries and such securities may
be subject to abrupt and severe price declines. The Year 2000 problem may
also be especially acute in emerging market countries, which also may
adversely affect the value of the Portfolio's investments.
EURO RISK: The Portfolio invests in securities issued by European issuers
that that may be adversely impacted by the introduction of the "Euro" as a
common currency in 11 European Monetary Union member states. The Euro may
result in various legal and accounting differences, tax treatments, the
creation and implementation of suitable clearing and settlement systems and
other operational problems, that may cause market disruptions that could
adversely affect investments quoted in the Euro.
REGULATORY RISK: In general, foreign companies are also not subject to
uniform accounting, auditing and financial reporting standards or to other
regulatory practices and requirements as are U.S. companies, which could
adversely affect their value.
LIQUIDITY RISK: Certain securities held by the Portfolio may be difficult (or
impossible) to sell at the time and at the price the seller would like which may
cause the Portfolio to lose money or be prevented from earning capital gains.
DERIVATIVES RISK: The Portfolio's investments in derivatives can significantly
increase the Portfolio's exposure to market risk or credit risk of the
counterparty. Derivatives also involve the risk of mispricing or improper
valuation and the risk that changes in value of the derivative may not correlate
perfectly with the relevant assets, rates and indices.
PORTFOLIO PERFORMANCE
The bar chart which follows illustrates the Portfolio's average annual total
return for 1998, the Portfolio's first year of existence. The table which
follows shows the Portfolio's average annual total returns for the Portfolio for
one year and since inception. The table also compares the Portfolio's
performance to the returns of a broad based index. Both the bar chart and table
assume reinvestment of dividends and distributions. Past performance is not an
indication of future performance. In addition, holders of variable insurance
contracts representing interests in the 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 and if reflected the results
would be reduced. The Portfolio's inception date was January 1, 1998.
- -----------------------------------------------------------------
CALENDAR YEAR ANNUAL TOTAL RETURN
- -----------------------------------------------------------------
1998
-----
20.07%
Best quarter: Worst quarter:
20.43% (1998 4th Quarter) (13.90)% (1998 3rd Quarter)
- -----------------------------------------------------------------
<PAGE>
41
- --------------------------------------------------------------------------------
- -----------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- -----------------------------------------------------------------
SINCE
ONE YEAR INCEPTION
- -----------------------------------------------------------------
BT International Equity Index Portfolio 20.07% 20.07%
- -----------------------------------------------------------------
MSCI EAFE Index* 20.00% 20.00%
- -----------------------------------------------------------------
* For more information on this index, see the preceding section "The
Benchmarks."
WHO MANAGES THE PORTFOLIO
BANKERS TRUST COMPANY ("Bankers Trust"), 130 Liberty Street (One Bankers Trust
Plaza), New York, New York 10006. Bankers Trust has been the Adviser to the
Portfolio since it commenced operations. Bankers Trust is a wholly-owned
subsidiary of Bankers Trust New York Corporation. Bankers Trust conducts a
variety of general banking and trust activities and is a major wholesale
supplier of financial services to the international and domestic institutional
markets, including investment management. During 1999, Bankers Trust Corporation
and a wholly owned subsidiary of Deutsche Bank AG ("Deutsche Bank") expect to
finalize a merger in which Bankers Trust Corporation will be acquired by and
become a subsidiary of Deutsche Bank.
- -------------------------------------------------------------- EQ Advisors Trust
<PAGE>
INTERNATIONAL PORTFOLIOS (CONTINUED)
42
- --------------------------------------------------------------------------------
MORGAN STANLEY EMERGING MARKETS EQUITY PORTFOLIO
INVESTMENT OBJECTIVE: Seeks long-term capital appreciation by investing
primarily in equity securities of emerging country issuers.
THE INVESTMENT STRATEGY
The Portfolio is a non-diversified Portfolio that invests primarily in equity
securities of companies located in emerging markets countries. Such equity
securities may include common stocks, preferred stocks, convertible securities,
depositary receipts, rights and warrants. The Adviser focuses on growth-oriented
companies in emerging market countries that it believes have strong developing
economies and increasingly sophisticated markets. The Portfolio generally
invests only in emerging markets countries whose currencies are freely
convertible into United States dollars.
- -------------------------------------------------------------------------------
A Portfolio may be considered to be "non-diversified" for federal securities law
purposes because it invests in a limited number of securities. In all cases, the
Portfolio intends to be diversified for tax purposes so that it can qualify as a
regulated investment company.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
For purposes of this Portfolio, an emerging market country security is defined
as a security of an issuer having one or more of the following characteristics:
o Its principal securities trading market is in an emerging market country;
o alone or on a consolidated basis, at least 50% of its revenues are derived
from goods produced, sales made or services performed in emerging market
countries; and
o it is organized under the laws of or has a principal office in an emerging
market country.
- -------------------------------------------------------------------------------
The Adviser's investment approach combines top-down country allocation with
bottom-up stock selection.
- -------------------------------------------------------------------------------
In a "top-down" approach, country allocations are made based on forecasts of
stock market trends. In a "bottom-up" approach, securities are reviewed and
chosen individually.
- -------------------------------------------------------------------------------
The Portfolio may invest to a lesser extent in corporate or government-issued or
guaranteed debt securities of emerging markets countries, including debt
securities that are rated or considered to be below investment grade ("junk
bonds"). The Portfolio also may, to a lesser extent, invest in equity or debt
securities (including "junk bonds") of corporate or governmental issuers located
in industrialized countries, foreign currency or investment funds and
supranational entities such as the World Bank. In addition, the Portfolio may
utilize forward foreign currency contracts, options and futures contracts and
swap transactions.
When market or financial conditions warrant, the Portfolio may invest in certain
short- and medium-term fixed income securities of issuers other than emerging
market issuers and may invest without limitation in high quality money market
instruments for temporary or defensive purposes. Such investment strategies are
inconsistent with the Portfolio's investment objectives and could result in the
Portfolio not achieving its investment objective.
THE PRINCIPAL RISKS
This Portfolio invests in common stocks, therefore, its performance may go up or
down depending on general market conditions. Other principal risks include:
FOREIGN SECURITIES RISKS: The Portfolio's investments in foreign securities
involve risks not associated with investing in U.S. securities that can
adversely affect the Portfolio's performance. Foreign markets, particularly
emerging markets, may be less liquid, more volatile and subject to less
government supervision than domestic markets. There may be difficulties
enforcing contractual obligations, and it
<PAGE>
43
- --------------------------------------------------------------------------------
may take more time for trades to clear and settle. In addition, foreign
investments can be adversely affected by: unfavorable currency exchange rates
(relative to the U.S. dollar for securities denominated in a foreign
currencies); inadequate or inaccurate information about foreign companies;
higher transaction, brokerage and custody costs; adverse changes in foreign
economic and tax policies; and foreign government instability, war or other
adverse political or economic actions. Other specific risks of investing in
foreign securities include:
EMERGING MARKET Risk: There are greater risks involved in investing in
emerging markets countries and/or their securities markets, such as less
diverse and less mature economic structures, less stable political systems,
more restrictive foreign investment policies, smaller-sized securities
markets and low trading volumes. Such risks can make investments illiquid and
more volatile than investments in developed countries and such securities may
be subject to abrupt and severe price declines. The Year 2000 problem may
also be especially acute in emerging market countries, which also may
adversely affect the value of the Portfolio's investments.
EURO RISK: The Portfolio invests in securities issued by European issuers
that that may be adversely impacted by the introduction of the "Euro" as a
common currency in 11 European Monetary Union member states. The Euro may
result in various legal and accounting differences, tax treatments, the
creation and implementation of suitable clearing and settlement systems and
other operational problems, that may cause market disruptions that could
adversely affect investments quoted in the Euro.
REGULATORY RISK: In general, foreign companies are also not subject to
uniform accounting, auditing and financial reporting standards or to other
regulatory practices and requirements as are U.S. companies, which could
adversely affect their value.
DERIVATIVES RISK: The Portfolio's investments in derivatives can significantly
increase the Portfolio's exposure to market risk or credit risk of the
counterparty. Derivatives also involve the risk of mispricing or improper
valuation and the risk that changes in value of the derivative may not correlate
perfectly with the relevant assets, rates and indices.
LIQUIDITY RISK: Certain securities held by the Portfolio may be difficult (or
impossible) to sell at the time and at the price the seller would like which may
cause the Portfolio to lose money or be prevented from earning capital gains.
PORTFOLIO TURNOVER RISK: The Portfolio's turnover rate has been over 100% per
year. Higher portfolio turnover (e.g., over 100% per year) will cause the
Portfolio to incur additional transaction costs and may result in higher taxable
gains that could be passed through to shareholders.
NON-DIVERSIFICATION RISK: Since a relatively high percentage of the Portfolio's
assets may be invested in the securities of a limited number of issuers, some of
which may be within the same industry, the securities of the Portfolio may be
more sensitive to changes in the market value of a single issuer or industry or
to risks associated with a single economic, political or regulatory event than a
diversified portfolio.
FIXED INCOME RISKS: To the extent that a substantial amount of the Portfolio's
assets are invested in fixed income securities, that portion of the Portfolio's
performance will be affected by changes in interest rates, the credit risk of
the issuer, the duration or maturity of the Portfolio's fixed income holdings,
and adverse market or economic conditions. When interest rates rise, the value
of the Portfolio's fixed income securities, particularly those with longer
durations or maturities, will go down. When interest rates fall, the reverse is
true. In addition, to the extent that the Portfolio invests in investment grade
securities, which are rated BBB by S&P or an equivalent rating by any other
NRSRO, it will be exposed to greater risk than higher-rated obligations because
BBB rated investment grade securities
- -------------------------------------------------------------- EQ Advisors Trust
<PAGE>
44
- --------------------------------------------------------------------------------
are regarded as having only an adequate capacity to pay principal and interest,
are considered to lack outstanding investment characteristics, and may be
speculative. The risk that an issuer or guarantor of a fixed income security or
counterparty to the Portfolio's fixed income transaction is unable to meets its
financial obligations is particularly significant for this Portfolio because
this Portfolio invests a portion of its assets in "junk bonds" (i.e., securities
rated below investment grade). Junk bonds are issued by companies with
questionable credit strength and, consequently, are considered to be speculative
in nature and may be subject to greater market fluctuations than investment
grade fixed income securities.
PORTFOLIO PERFORMANCE
The bar chart which follows illustrates the Portfolio's annual total return for
1998, the Portfolio's first full year of operations. The table which follows
shows the Portfolio's average annual total returns for the Portfolio for one
year and since inception. The table also compares the Portfolio's performance to
the returns of a broad-based index. Both the bar chart and table assume
reinvestment of dividends and distributions. Past performance is not an
indication of future performance. In addition, holders of variable insurance
contracts representing interests in the 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 and if reflected the results
would be reduced. The inception date for the Portfolio is August 20, 1997.
- -----------------------------------------------------------------
CALENDAR YEAR ANNUAL TOTAL RETURN
- -----------------------------------------------------------------
1998
-----
(27.10)%
Best quarter: Worst quarter:
14.56% (1998 4th Quarter) (22.14)% (1998 2nd Quarter)
- -----------------------------------------------------------------
- -----------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- -----------------------------------------------------------------
SINCE
ONE YEAR INCEPTION
- -----------------------------------------------------------------
Morgan Stanley Emerging Markets
Equity Portfolio (27.10)% (32.69)%
- -----------------------------------------------------------------
MSCI Emerging Markets Free* (25.34)% (28.92)%
- -----------------------------------------------------------------
* For more information on this index, see the preceding section "The
Benchmarks."
WHO MANAGES THE PORTFOLIO
MORGAN STANLEY ASSET MANAGEMENT ("MSAM"), 1221 Avenue of the Americas, New York,
NY 10020. MSAM has been the Adviser to the Portfolio since the Portfolio
commenced operations. MSAM conducts a worldwide investment management business,
providing a broad range of portfolio management services to customers in the
United States and abroad. MSAM serves as an investment adviser to numerous
open-end and closed-end investment companies. On December 1, 1998, Morgan
Stanley Asset Management Inc. changed its name to Morgan Stanley Dean Witter
Investment Management Inc. but continues to do business in certain instances
using the name Morgan Stanley Asset Management.
The Portfolio Managers, responsible for the day to day management of the
Portfolio since the Portfolio commenced operations, are: ROBERT MEYER, a
Managing Director of MSAM and Morgan Stanley & Co. Incorporated, who is head of
MSAM's Emerging Markets Equity Group and who joined MSAM in 1989; and ANDY SKOV,
a Principal of MSAM and Morgan Stanley & Co. Incorporated who joined MSAM in
1994.
<PAGE>
INTERNATIONAL PORTFOLIOS (CONTINUED)
45
- --------------------------------------------------------------------------------
T. ROWE PRICE INTERNATIONAL STOCK PORTFOLIO
INVESTMENT OBJECTIVE: Seeks long-term growth of capital through investment
primarily in common stocks of established non-United States companies.
THE INVESTMENT STRATEGY
The Portfolio invests substantially all of its assets in common stocks of
established companies outside of the United States. The Portfolio intends to
diversify broadly among countries throughout the world by having securities from
at least five different countries represented in the Portfolio. No more than 20%
of its assets will be invested in securities of any one country, except that up
to 35% can be invested in stocks of companies in Australia, Canada, France,
Japan, United Kingdom or Germany. In determining the appropriate distribution of
investments among various countries and geographic regions, the Adviser
ordinarily considers the following factors:
o prospects for relative economic growth between foreign countries,
o expected levels of inflation,
o government policies influencing business conditions,
o the outlook for currency relationships, and
o the range of individual investment opportunities available to international
investors.
The Portfolio expects to invest substantially all of its assets in common
stocks. However, the Portfolio may also invest in a variety of other equity
securities such as preferred stocks, warrants and convertible securities as well
as governmental debt securities and investment grade debt securities. The
Portfolio may also invest in certain foreign investment funds, hybrid
instruments and derivative instruments in keeping with the Portfolio objective.
In analyzing companies for investment, the Adviser uses a "bottom-up" approach
and looks for companies that have:
o prospects for achieving and sustaining above-average, long-term earnings
growth per share;
o a high return on invested capital,
o healthy balance sheet,
o sound financial and accounting policies and overall financial strength;
o strong competitive advantages,
o effective research, product development and marketing,
o pricing flexibility,
o strong management and
o record of paying dividends.
This means that the securities are selected based upon fundamental analysis
performed by the Adviser, and are not selected based upon the type of industries
to which they belong.
When market or financial conditions warrant, the Portfolio may invest without
limitation in high quality U.S. Government and corporate debt obligations for
temporary or defensive purposes. Such investment strategies are inconsistent
with the Portfolio's investment objectives and could result in the Portfolio not
achieving its investment objective.
THE PRINCIPAL RISKS
This Portfolio invests in common stocks, therefore, its performance may go up or
down depending on general market conditions. Other principal risks include:
GROWTH INVESTING RISK: As noted above, this Portfolio uses a growth oriented
approach to stock selection. The price of growth stocks may be more sensitive to
changes in current or expected earnings than the prices of other stocks. The
price of growth stocks is also subject to the risk that the stock price of one
or more companies will fall or will fail to appreciate as anticipated by the
Adviser, regardless of movements in the securities market.
FOREIGN SECURITIES RISKS: The Portfolio's investments in foreign securities
involve risks not associated with investing in U.S. securities that can
adversely affect the Portfolio's performance. Foreign markets, particularly
emerging
- -------------------------------------------------------------- EQ Advisors Trust
<PAGE>
46
- --------------------------------------------------------------------------------
markets, may be less liquid, more volatile and subject to less government
supervision than domestic markets. There may be difficulties enforcing
contractual obligations, and it may take more time for trades to clear and
settle. In addition, foreign investments can be adversely affected by:
unfavorable currency exchange rates (relative to the U.S. dollar for securities
denominated in a foreign currencies); inadequate or inaccurate information about
foreign companies; higher transaction, brokerage and custody costs; adverse
changes in foreign economic and tax policies; and foreign government
instability, war or other adverse political or economic actions. Other specific
risks of investing in foreign securities include:
EMERGING MARKET RISK: There are greater risks involved in investing in
emerging markets countries and/or their securities markets, such as less
diverse and less mature economic structures, less stable political systems,
more restrictive foreign investment policies, smaller-sized securities
markets and low trading volumes. Such risks can make investments illiquid and
more volatile than investments in developed countries and such securities may
be subject to abrupt and severe price declines. The Year 2000 problem may
also be especially acute in emerging market countries, which also may
adversely affect the value of the Portfolio's investments.
EURO RISK: The Portfolio invests in securities issued by European issuers
that that may be adversely impacted by the introduction of the "Euro" as a
common currency in 11 European Monetary Union member states. The Euro may
result in various legal and accounting differences, tax treatments, the
creation and implementation of suitable clearing and settlement systems and
other operational problems, that may cause market disruptions that could
adversely affect investments quoted in the Euro.
REGULATORY RISK: In general, foreign companies are also not subject to
uniform accounting, auditing and financial reporting standards or to other
regulatory practices and requirements as are U.S. companies, which could
adversely affect their value.
LIQUIDITY RISK: Certain securities held by the Portfolio may be difficult (or
impossible) to sell at the time and at the price the seller would like which may
cause the Portfolio to lose money or be prevented from earning capital gains.
FIXED INCOME RISKS: To the extent that a substantial amount of the Portfolio's
assets are invested in fixed income securities, that portion of the Portfolio's
performance will be affected by changes in interest rates, the credit risk of
the issuer, the duration or maturity of the Portfolio's fixed income holdings,
and adverse market or economic conditions. When interest rates rise, the value
of the Portfolio's fixed income securities, particularly those with longer
durations or maturities, will go down. When interest rates fall, the reverse is
true. In addition, to the extent that the Portfolio invests in investment grade
securities, which are rated BBB by S&P or an equivalent rating by any other
NRSRO, it will be exposed to greater risk than higher-rated obligations because
BBB rated investment grade securities are regarded as having only an adequate
capacity to pay principal and interest, are considered to lack outstanding
investment characteristics, and may be speculative.
PORTFOLIO PERFORMANCE
The bar chart which follows illustrates the Portfolio's annual total return for
1998, the Portfolio's first full year of operations. The table which follows
shows the Portfolio's average annual total returns for the Portfolio for one
year and since inception. The table also compares the Portfolio's performance to
the returns of a broad-based index. Both the bar chart and table assume
reinvestment of dividends and distributions. Past performance is not an
indication of future performance. In addition, holders of variable insurance
contracts representing interests in the 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 and if reflected the
<PAGE>
47
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results would be reduced. The inception date for the Portfolio is May 1, 1997.
- ----------------------------------------------------------------
CALENDAR YEAR ANNUAL TOTAL RETURN
- ----------------------------------------------------------------
1998
-----
13.68%
Best quarter: Worst quarter:
16.86% (1998 4th Quarter) (13.63)% (1998 4th Quarter)
- ----------------------------------------------------------------
- ----------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- ----------------------------------------------------------------
SINCE
ONE YEAR INCEPTION
- ----------------------------------------------------------------
T. Rowe Price International
Stock Portfolio 13.68% 7.01%
- ----------------------------------------------------------------
MSCI EAFE Index* 20.00% 13.43%
- ----------------------------------------------------------------
* For more information on this index, see the preceding section "The
Benchmarks."
WHO MANAGES THE PORTFOLIO
ROWE PRICE-FLEMING INTERNATIONAL, INC. ("Price-Fleming"), 100 East Pratt Street,
Baltimore, MD 21202. Price-Fleming has been the Adviser to the Portfolio since
it commenced its operations. Price-Fleming was incorporated in Maryland in 1979
as a joint venture between T. Rowe Price and Robert Fleming Holdings Limited
("Flemings"). Flemings is a diversified investment organization that
participates in a global network of regional investment offices. The common
stock of Price-Fleming is 50% owned by a wholly owned subsidiary of T. Rowe
Price, 25% owned by a subsidiary of Flemings and 25% owned by Jardine Fleming
Group Limited ("Jardine Fleming").
Investment decisions with respect to the Portfolio are made by an Investment
Advisory Committee Group. The Investment Advisory Group has day-to-day
responsibility for managing the Portfolio and developing and executing the
Portfolio's investment program.
- -------------------------------------------------------------- EQ Advisors Trust
<PAGE>
3
More information on principal risks
48
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Risk is the chance that you will lose money on your investment or that it will
not earn as much as you expect. In general, the greater the risk, the more money
your investment can earn for you and the more you can lose. Like other
investment companies, the value of each Portfolio's shares may be affected by
the Portfolio's investment objective(s), principal investment strategies and
particular risk factors. Consequently, each Portfolio may be subject to
different principal risks. Some of the principal risks of investing in the
Portfolios are discussed below. However, other factors may also affect each
Portfolio's net asset value.
There is no guarantee that a Portfolio will achieve its investment objective(s)
or that it will not lose principal value.
GENERAL INVESTMENT RISKS: Each Portfolio is subject to the following risks:
ASSET CLASS RISK: There is the possibility that the returns from the types of
securities in which a Portfolio invests will underperform returns from the
various general securities markets or different asset classes. Different types
of securities tend to go through cycles of outperformance and underperformance
in comparison to the general securities markets.
MARKET RISK: Each Portfolio's share price moves up and down over the short term
in reaction to stock or bond market movements. This means that you could lose
money over short periods, and perhaps over longer periods during extended market
downturns.
SECURITY SELECTION RISK: The Advisers for each Portfolio rely on the insights of
different specialists in making investment decisions based on each Portfolio's
particular investment objective(s) and investment strategies. There is the
possibility that the specific securities held by a Portfolio will underperform
other funds in the same asset class or benchmarks that are representative of the
general performance of the asset class because of the Adviser's choice of
portfolio securities.
YEAR 2000 RISK: Like other mutual funds, financial and business organizations
and individuals around the world, the Trust and its Portfolios could be
adversely affected if the computer systems used by the Advisers, other service
providers, or persons with whom they deal, do not properly process and calculate
date-related information and data dated on and after January 1, 2000. This
possibility is commonly known as the "Year 2000 Problem." Virtually all
operations of the Trust and its Portfolios are computer reliant. The Manager,
Advisers, administrator, transfer agent, distributors and custodian have
informed the Trust that they are actively taking steps to address the Year 2000
Problem with regard to their respective computer systems and the interfaces
between their respective computer systems. The Trust is also taking measures to
obtain assurances from necessary persons that comparable steps are being taken
by the key service providers to the Trust's Advisers, administrator, transfer
agent, distributors, and custodian. There can be no assurance that the Trust and
the Portfolios' key service providers will be Year 2000 compliant. If not
adequately addressed, the Year 2000 Problem could result in the inability of the
Trust to perform its mission critical functions, including trading and settling
trades of Portfolio securities, pricing of portfolio securities and processing
shareholder transactions, and the net asset value of its Portfolios' shares may
be materially affected.
In addition, because the Year 2000 Problem affects virtually all issuers, the
companies or entities in which the Portfolios may invest also could be adversely
impacted by the Year 2000 Problem. For example, issuers may incur substantial
costs to address the Year 2000 problem. The extent of such impact cannot be
predicted and there can be no assurances that the Year 2000 Problem will not
have an adverse effect on the issuers whose securities are held by the
Portfolios. The Advisers have assured the Trust that they consider such issues
in making investment decisions for the Portfolios. Furthermore, certain of the
Portfolios make international investments thereby exposing these Portfolios to
operations, custody and settlement processes outside the United States.
<PAGE>
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In many countries outside the United States the Year 2000 Problem has not been
adequately addressed and concerns have been raised that capital flight, among
other issues, may be triggered by full disclosure of the Year 2000 Problem on
countries outside the United States. Additional information on the impact of the
Year 2000 Problem on emerging market countries is provided in this section,
under "FOREIGN SECURITIES RISKS-EMERGING MARKET RISK."
As indicated in "Summary Information Concerning EQ Advisors Trust" and "About
the Investment Portfolios," a particular Portfolio may also be subject to the
following risks:
CONVERTIBLE SECURITIES RISK: Convertible securities may include both convertible
debt and convertible preferred stock. Such securities may be converted into
shares of the underlying common stock at either a stated price or stated rate.
Therefore, convertible securities enable you to benefit from increases in the
market price of the underlying common stock. Convertible securities provide
higher yields than the underlying common stocks, but generally offer lower
yields than nonconvertible securities of similar quality. 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. Each Adviser will consider such event in its determination of whether
a Portfolio should continue to hold the securities.
DERIVATIVES RISK: Derivatives are financial contracts whose value depends on, or
is derived from the value of an underlying asset, reference rate or index.
Derivatives include stock options, securities index options, currency options,
forward currency exchange contracts, futures contracts, swaps and options on
futures contracts. Certain Portfolios can use derivatives involving the U.S.
Government and foreign government securities and currencies. Investments in
derivatives can significantly increase your exposure to market risk, or credit
risk of the counterparty. Derivatives also involve the risk of mispricing or
improper valuation and the risk that changes in value of the derivative may not
correlate perfectly with the relevant assets, rates and indices.
FIXED INCOME RISKS: To the extent that any of the Portfolios invest a
substantial amount of its assets in fixed income securities, a Portfolio may be
subject to the following risks:
CREDIT RISK: Credit risk is the risk that the issuer or guarantor of a debt
security or counterparty to a Portfolio's transactions will be unable or
unwilling to make timely principal and/or interest payments, or otherwise
will be unable or unwilling to honor its financial obligations. Each of the
Portfolios may be subject to credit risk to the extent that it invests in
debt securities or engages in transactions, such as securities loans, which
involve a promise by a third party to honor an obligation to the Portfolio.
Credit risk is particularly significant for the Portfolios that invest a
portion of their assets in "junk bonds" or lower-rated securities.
INTEREST RATE RISK: The price of a bond or a fixed income security is
dependent upon interest rates. Therefore, the share price and total return of
a Portfolio investing a significant portion of its assets in bonds or fixed
income securities will vary in response to changes in interest rates. A rise
in interest rates causes the value of a bond to decrease, and vice versa.
There is the possibility that the value of a Portfolio's investment in bonds
or fixed income securities may fall because bonds or fixed income securities
generally fall in value when interest rates rise. The longer the term of a
bond or fixed income instrument, the more sensitive it will be to
fluctuations in value from interest rate changes. Changes in interest rates
may have a significant effect on Portfolios holding a significant portion of
their assets in fixed income securities with long term maturities.
- -------------------------------------------------------------- EQ Advisors Trust
<PAGE>
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MORTGAGE-BACKED SECURITIES RISK: In the case of mortgage-backed securities,
rising interest rates tend to extend the term to maturity of the securities,
making them even more susceptible to interest rate changes. When interest
rates drop, not only can the value of fixed income securities drop, but the
yield can drop, particularly where the yield on the fixed income securities
is tied to changes in interest rates, such as adjustable mortgages. Also when
interest rates drop, the holdings of mortgage-backed securities by a
Portfolio can reduce returns if the owners of the underlying mortgages pay
off their mortgages sooner than anticipated since the funds prepaid will have
to be reinvested at the then lower prevailing rates. This is known as
prepayment risk. When interest rates rise, the holdings of mortgage-backed
securities by a Portfolio can reduce returns if the owners of the underlying
mortgages pay off their mortgages later than anticipated. This is known as
extension risk.
INVESTMENT GRADE SECURITIES RISK: Debt securities are rated by national bond
ratings agencies. Securities rated BBB by S&P or Baa by Moody's are
considered investment grade securities, but are somewhat riskier than higher
rated obligations because they are regarded as having only an adequate
capacity to pay principal and interest, and are considered to lack
outstanding investment characteristics and may be speculative.
JUNK BONDS OR LOWER RATED SECURITIES RISK: Bonds rated below investment grade
by S&P and Moody's are speculative in nature, may be subject to certain risks
with respect to the issuing entity and to greater market fluctuations than
higher rated fixed income securities. They are usually issued by companies
without long track records of sales and earnings, or by those companies with
questionable credit strength. These bonds are considered "below investment
grade." The retail secondary market for these "junk bonds" may be less liquid
than that of higher rated securities and adverse conditions could make it
difficult at times to sell certain securities or could result in lower prices
than those used in calculating the Portfolio's net asset value.
FOREIGN SECURITIES RISKS: A Portfolio's investments in foreign securities,
including depositary receipts, involve risks not associated with investing in
U.S. securities and can affect a Portfolio's performance. Foreign markets,
particularly emerging markets, may be less liquid, more volatile and subject to
less government supervision than domestic markets. There may be difficulties
enforcing contractual obligations, and it may take more time for trades to clear
and settle. The specific risks of investing in foreign securities, among others,
include:
CURRENCY RISK: The risk that changes in currency exchange rates will
negatively affect securities denominated in, and/or receiving revenues in,
foreign currencies. Adverse changes in currency exchange rates (relative to
the U.S. dollar) may erode or reverse any potential gains from a Portfolio's
investment in securities denominated in a foreign currency or may widen
existing losses.
EMERGING MARKET RISK: There are greater risks involved in investing in
emerging markets countries and/or their securities markets. Generally,
economic structures in these countries are less diverse and mature than those
in developed countries, and their political systems are less stable.
Investments in emerging markets countries may be affected by national
policies that restrict foreign investment in certain issuers or industries.
The small size of their securities markets and low trading volumes can make
investments illiquid and more volatile than investments in developed
countries and such securities may be subject to abrupt and severe price
declines. As a result, a Portfolio investing in emerging markets countries
may be required to establish special custody or other arrangements before
investing.
<PAGE>
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The YEAR 2000 PROBLEM may also be especially acute in emerging market
countries. Many emerging market countries are currently lagging behind more
developed countries in their Year 2000 preparedness because they lack the
financial resources to undertake the necessary remedial actions. A lack of
Year 2000 preparedness may adversely affect the health, security and economic
well-being of emerging market countries and could, obviously, adversely
affect the value of a Portfolio's investments in emerging market countries.
More information on the Year 2000 Problem is provided in this section, under
"GENERAL INVESTMENT RISKS-YEAR 2000 RISK."
EURO RISK: Certain of the Portfolios invest in securities issued by European
issuers. On January 1, 1999, 11 of the 15 member states of the European
Monetary Union ("EMU") introduced the "Euro" as a common currency. During a
three-year transitional period, the Euro will coexist with each participating
state's currency and, on July 1, 2002, the Euro is expected to become the
sole currency of the participating states. The introduction of the Euro will
result in the redenomination of European debt and equity securities over a
period of time, which may result in various legal and accounting differences
and/or tax treatments that otherwise would not likely occur. During this
period, the creation and implementation of suitable clearing and settlement
systems and other operational problems may cause market disruptions that
could adversely affect investments quoted in the Euro.
The consequences of the Euro conversion for foreign exchange rates, interest
rates and the value of European securities eligible for purchase by the
Portfolios are presently unclear and it is not possible to predict the
eventual impact of the Euro implementation plan on the Portfolios. There are
a number of significant risks associated with EMU. Monetary and economic
union on this scale has never been attempted before. There is a significant
degree of uncertainty as to whether participating countries will remain
committed to EMU in the face of changing economic conditions. The conversion
may adversely affect a Portfolio if the Euro does not take effect as planned
or if a participating state withdraws from the EMU. Such actions may
adversely affect the value and/or increase the volatility of securities held
by the Portfolios.
POLITICAL/ECONOMIC RISK: Changes in economic and tax policies, government
instability, war or other political or economic actions or factors may have
an adverse effect on a Portfolio's foreign investments.
REGULATORY RISK: Less information may be available about foreign companies.
In general, foreign companies are not subject to uniform accounting, auditing
and financial reporting standards or to other regulatory practices and
requirements as are U.S. companies.
TRANSACTION COSTS RISK: The costs of buying and selling foreign securities,
including tax, brokerage and custody costs, generally are higher than those
involving domestic transactions.
GROWTH INVESTING RISK: Growth investing generally focuses on companies that, due
to their strong earnings and revenue potential, offer above-average prospects
for capital growth, with less emphasis on dividend income. Earnings
predictability and confidence in earnings forecasts are an important part of the
selection process. As a result, the price of growth stocks may be more sensitive
to changes in current or expected earnings than the prices of other stocks.
Advisers using this approach generally seek out companies experiencing some or
all of the following: high sales growth, high unit growth, high or improving
returns on assets and equity, and a strong balance sheet. Such Advisers also
prefer companies with a competitive advantage such as unique management,
marketing or research and development. Growth investing is also subject to the
risk that the stock price of one or more companies
- -------------------------------------------------------------- EQ Advisors Trust
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52
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will fall or will fail to appreciate as anticipated by the Advisers, regardless
of movements in the securities market.
INDEX-FUND RISK: The BT Equity 500 Index, BT Small Company Index and BT
International Equity Index Portfolios are not actively managed (which involves
buying and selling of securities based upon economic, financial and market
analysis and investment judgment). Rather, the Portfolios utilize a "passive" or
"indexing" investment approach and attempt to duplicate the investment
performance of the particular index the Portfolio is tracking (i.e., S&P 500
Index, Russell 2000 Index or MSCI EAFE Index) through statistical procedures.
Therefore, the Portfolios will invest in the securities included in the relevant
index or substantially identical securities regardless of market trends. The
Portfolios cannot modify their investment strategies to respond to changes in
the economy, which means they may be particularly susceptible to a general
decline in the U.S. or global stock market segment relating to the relevant
index.
LEVERAGING RISK: When a Portfolio is borrowing money or otherwise leveraging its
portfolio, the value of an investment in that Portfolio will be more volatile
and all other risks will tend to be compounded. All of the Portfolios may take
on leveraging risk by investing in collateral from securities loans and by
borrowing money to meet redemption requests.
LIQUIDITY RISK: Certain securities held by a Portfolio may be difficult (or
impossible) to sell at the time and at the price the seller would like. A
Portfolio may have to hold these securities longer than it would like and may
forego other investment opportunities. There is the possibility that a Portfolio
may lose money or be prevented from earning capital gains if it can not sell a
security at the time and price that is most beneficial to the Portfolio.
Portfolios that invest in privately-placed securities, high-yield bonds,
mortgage-backed securities or foreign or emerging markets securities, which have
all experienced periods of illiquidity, are subject to liquidity risks. A
particular Portfolio may be more susceptible to some of these risks than others,
as noted in the description of each Portfolio.
NON-DIVERSIFICATION RISK: The Morgan Stanley Emerging Markets Equity and Merrill
Lynch World Strategy Portfolios are classified as "non-diversified" investment
companies, which means that the proportion of each Portfolio's assets that may
be invested in the securities of a single issuer is not limited by the 1940 Act.
Since a relatively high percentage of each non-diversified Portfolio's assets
may be invested in the securities of a limited number of issuers, some of which
may be within the same industry, the securities of each Portfolio may be more
sensitive to changes in the market value of a single issuer or industry. The use
of such a focused investment strategy may increase the volatility of a
Portfolio's investment performance, as the Portfolio may be more susceptible to
risks associated with a single economic, political or regulatory event than a
diversified portfolio. If the securities in which the Portfolio invests perform
poorly, the Portfolio could incur greater losses than it would have had it been
invested in a greater number of securities. However to qualify as a regulated
investment company ("RIC") under the Internal Revenue Code of 1986, as amended
(the "Code") and receive pass through tax treatment, each Portfolio at the close
of each fiscal quarter, may not have more than 25% of its total assets invested
in the securities of any one issuer (excluding U.S. Government obligations) and
with respect to 50% of its assets, (i) may not have more than 5% of its total
assets invested in the securities of any one issuer and (ii) may not own more
than 10% of the outstanding voting securities of any one issuer. Each
non-diversified Portfolio intends to qualify as a RIC.
PORTFOLIO TURNOVER RISK: Consistent with their investment policies, the
Portfolios also will purchase and sell securities without regard to the effect
on portfolio turnover. Higher portfolio turnover (e.g., over 100% per year) will
cause a Portfolio to incur additional transaction costs and may result in
taxable gains being passed through to shareholders.
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SMALL-CAP AND MID-CAP COMPANY RISK: A Portfolio's investments in small-cap and
mid-cap companies may involve greater risks than investments in larger, more
established issuers. Smaller companies may have narrower product lines, more
limited financial resources and more limited trading markets for their stock, as
compared with larger companies. Their securities may be less well-known and
trade less frequently and in more limited volume than the securities of larger,
more established companies. In addition, small-cap and mid-cap companies are
typically subject to greater changes in earnings and business prospects than are
those of larger companies. Consequently, the prices of small company stocks tend
to rise and fall in value more frequently than the stocks of larger companies.
Although investing in small-cap and mid-cap companies offers potential for
above-average returns, the companies may not succeed and the value of their
stock could decline significantly.
VALUE INVESTING RISK: Value investing attempts to identify strong companies
selling at a discount from their perceived true worth. Advisers using this
approach generally select stocks at prices, in their view, that are temporarily
low relative to the company's earnings, assets, cash flow and dividends. Value
investing is subject to the risk that the stocks' intrinsic value may never be
fully recognized or realized by the market, or their prices may go down. In
addition, there is the risk that a stock judged to be undervalued may actually
be appropriately priced. Value investing generally emphasizes companies that,
considering their assets and earnings history, are attractively priced and may
provide dividend income.
The Trust's Portfolios are not insured by the FDIC or any other government
agency. Each Portfolio is not a deposit or other obligation of any financial
institution or bank and is not guaranteed. Each Portfolio is subject to
investment risks and possible loss of principal invested.
- -------------------------------------------------------------- EQ Advisors Trust
<PAGE>
4
Management of the Trust
54
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This section gives you information on the Trust, the Manager and the Advisers
for the Portfolios. More detailed information concerning each of the Advisers
and portfolio managers is included in the description for each Portfolio in the
section "About The Investment Portfolios."
THE TRUST
The Trust is organized as a Delaware business trust and is registered with the
Securities and Exchange Commission ("SEC") as an open-end management investment
company. The Trust issues shares of beneficial interest that are currently
divided among twenty-five Portfolios, each of which has authorized Class IA and
Class IB shares. Each Portfolio has its own objectives, investment strategies
and risks, which have been previously described in this prospectus.
THE MANAGER
EQ Financial Consultants, Inc., 1290 Avenue of the Americas, New York, New York
10104, serves as the Manager of the Trust, subject to the supervision and
direction of the Board of Trustees. The Manager has overall responsibility for
the general management and administration of the Trust.
In the exercise of that responsibility, the Manager, without obtaining
shareholder approval but subject to the review and approval by the Board of
Trustees, may: (i) select the Advisers for the Portfolios; (ii) enter into and
materially modify existing investment advisory agreements; and (iii) terminate
and replace the Advisers. The Manager also monitors each Adviser's investment
program and results, reviews brokerage matters, oversees compliance by the Trust
with various federal and state statutes, and carries out the directives of the
Board of Trustees. The Manager also supervises the provision of services by
third parties such as the Trust's custodian and administrator.
The Manager is an investment adviser registered under the 1940 Act and a
broker-dealer registered under the Securities Exchange Act of 1934, as amended.
EQ Financial Consultants, Inc. is a wholly-owned subsidiary of Equitable. During
1999, the Manager plans to change its name to AXA Advisors, Inc.
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The table below shows the annual rate of the management fees (as a percentage of
each Portfolio's average daily net assets) that the Manager received in 1998 for
managing each of the Portfolios and the rate of the management fees waived by
the Manager in 1998 in accordance with the provisions of the Expense Limitation
Agreement, as defined directly below, between the Manager and the Trust.
MANAGEMENT FEES PAID BY THE PORTFOLIOS TO EQ FINANCIAL CONSULTANTS, INC. IN 1998
- -----------------------------------------------------------
ANNUAL RATE OF
RATE FEES
PORTFOLIOS RECEIVED WAIVED
- -----------------------------------------------------------
BT Equity 500 Index 0.00% 0.25%
BT International Equity Index 0.00% 0.35%
BT Small Company Index 0.00% 0.25%
EQ/Putnam Balanced 0.20% 0.35%
EQ/Putnam Growth & Income 0.36% 0.19%
Value
Merrill Lynch Basic Value Equity 0.34% 0.21%
Merrill Lynch World Strategy 0.26% 0.44%
MFS Emerging Growth 0.36% 0.19%
Companies
MFS Research 0.35% 0.20%
Morgan Stanley Emerging 0.33% 0.82%
Markets Equity
T. Rowe Price Equity Income 0.36% 0.19%
T. Rowe Price International Stock 0.54% 0.21%
Warburg Pincus Small Company 0.47% 0.18%
Value
- -----------------------------------------------------------
The three (3) Portfolios listed in the table below did not commence operations
during 1998. The table below shows the annual rate of the management fees (as a
percentage of each Portfolio's average daily net assets) that the Manager is
entitled to receive in 1999 for managing each of these Portfolios.
ANNUAL RATE OF MANAGEMENT FEES
- ----------------------------------------------
PORTFOLIOS ANNUAL RATE
- ----------------------------------------------
EQ/Evergreen 0.75%
EQ/Evergreen Foundation 0.63%
MFS Growth with Income 0.55%
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EXPENSE LIMITATION AGREEMENT
In the interest of limiting expenses of each Portfolio, the Manager has entered
into an expense limitation agreement with the Trust with respect to each
Portfolio ("Expense Limitation Agreement"). Pursuant to that Expense Limitation
Agreement, the Manager has agreed to waive or limit its fees and to assume other
expenses so that the total annual operating expenses of each Portfolio other
than interest, taxes, brokerage commissions, other expenditures which are
capitalized in accordance with generally accepted accounting principles, other
extraordinary expenses not incurred in the ordinary course of each Portfolio's
business and amounts payable pursuant to a plan adopted in accordance with Rule
12b-1 under the 1940 Act, are limited to the following fees:
- -------------------------------------------------------------- EQ Advisors Trust
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MANAGEMENT EXPENSE LIMITATION FEES
- ----------------------------------------------------------
AMOUNT EXPENSES
LIMITED TO (% OF
PORTFOLIOS DAILY NET ASSETS)
- ----------------------------------------------------------
BT Equity 500 Index 0.30%
BT International Equity Index 0.55%
BT Small Company Index 0.35%
EQ/Evergreen 0.80%
EQ/Evergreen Foundation 0.70%
EQ/Putnam Balanced 0.65%
EQ/Putnam Growth & Income Value 0.60%
Merrill Lynch Basic Value Equity 0.60%
Merrill Lynch World Strategy 0.95%
MFS Emerging Growth Companies 0.60%
MFS Growth with Income 0.60%
MFS Research 0.60%
Morgan Stanley Emerging Markets 1.50%
Equity Portfolio
T. Rowe Price Equity Income 0.60%
T. Rowe Price International Stock 0.95%
Warburg Pincus Small Company Value 0.75%
- ----------------------------------------------------------
Each Portfolio may at a later date reimburse to the Manager the management fees
waived or limited and other expenses assumed and paid by the Manager pursuant to
the Expense Limitation Agreement provided such Portfolio has reached a
sufficient asset size to permit such reimbursement to be made without causing
the total annual expense ratio of each Portfolio to exceed the percentage limits
stated above. Consequently, no reimbursement by a Portfolio will be made unless:
(i) the Portfolio's assets exceed $100 million; (ii) the Portfolio's total
annual expense ratio is less than the respective percentages stated above; and
(iii) the payment of such reimbursement has been approved by the Trust's Board
of Trustees on a quarterly basis.
THE ADVISERS
Each Portfolio has an Adviser that furnishes an investment program for the
Portfolio pursuant to an investment advisory agreement with the Manager. Each
Adviser makes investment decisions on behalf of the Portfolio, places all orders
for the purchase and sale of investments for the Portfolio's account with
brokers or dealers selected by such Adviser and may perform certain limited
related administrative functions in connection therewith.
The Manager has received an exemptive order from the SEC that permits the
Manager, subject to certain conditions, including board approval, and without
the approval of shareholders to: (a) employ a new Adviser or Advisers for any
Portfolio pursuant to the terms of a new Advisory Agreement, in each case either
as a replacement for an existing Adviser or as an additional Adviser; (b) change
the terms of any Advisory Agreement; and (c) continue the employment of an
existing Adviser on the same advisory contract terms where a contract has been
assigned because of a change in control of the Adviser. In such circumstances,
shareholders would receive notice of such action, including the information
concerning the Adviser that normally is provided in the Prospectus.
The Manager pays each Adviser a fee based on the Portfolio's average daily net
assets. No Portfolio is responsible for the fees paid to each of the Advisers.
THE ADMINISTRATOR
Pursuant to an agreement, Chase Global Funds Services Company ("Administrator")
assists the Manager in the performance of its administrative responsibilities to
the Trust and provides the Trust with other necessary administrative, fund
accounting and compliance services. In addition, the Administrator makes
available the office space, equipment, personnel and facilities required to
provide such services to the Trust. For these services, the Trust pays the
Administrator a monthly fee at the annual rate of .0525 of 1% of the 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
<PAGE>
57
- --------------------------------------------------------------------------------
next $2.0 billion of the total Trust assets; .025 of 1% of the next $1.0 billion
of the total Trust assets; .015 of 1% of the next $2.5 billion of the total
Trust assets; .01 of 1% of the total Trust assets in excess of $8.0 billion;
provided, however, that the annual fee payable to Chase with respect to any
Portfolio which commenced operations after July 1, 1997 and whose assets do not
exceed $200 million shall be computed at the annual rate of .0525% of 1% of the
Portfolio's total assets plus $25,000.
THE TRANSFER AGENT
Equitable serves as the transfer agent and dividend disbursing agent of the
Trust and receives no compensation for serving in such capacity.
BROKERAGE PRACTICES
In selecting brokers and dealers, the Manager and each Adviser may consider
research and brokerage services furnished to either company and their
affiliates. Subject to seeking the most favorable net price and execution
available, the Manager and each Adviser may also consider sales of shares of the
Trust as a factor in the selection of brokers and dealers.
BROKERAGE TRANSACTIONS WITH AFFILIATES
To the extent permitted by law, the Trust may engage in securities and other
transactions with entities that may be affiliated with the Manager or the
Advisers. The 1940 Act generally prohibits the Trust from engaging in principal
securities transactions with an affiliate of the Manager or Advisers unless
pursuant to an exemptive order from the SEC. For these purposes, however, the
Trust has considered this issue and believes that a broker-dealer affiliate of
an Adviser to one Portfolio should not be treated as an affiliate of the Adviser
to another Portfolio for which such Adviser does not provide investment advice.
The Trust has adopted procedures that are reasonably designed to provide that
any commission it pays to affiliates of the Manager or Advisers does not exceed
the usual and customary broker's commission. The Trust has also adopted
procedures permitting it to purchase securities, under certain restrictions
prescribed by a rule under the 1940 Act, in a public offering in which an
affiliate of the Manager or Advisers is an underwriter.
- -------------------------------------------------------------- EQ Advisors Trust
<PAGE>
5
Fund distribution arrangements
58
- --------------------------------------------------------------------------------
The Trust offers two classes of shares on behalf of each Portfolio: Class IA
shares and Class IB shares. EQ Financial Consultants, Inc., 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. serves as the other distributor for the Class IB
shares of the Trust as well as the Class IA shares. Both classes of shares are
offered and redeemed at their net asset value without any sales load.
The Trust has adopted a Distribution Plan under Rule 12b-1 under the 1940 Act
for the Trust's Class IB shares. Under the Class IB Distribution Plan the Class
IB shares of the Trust pay each of the distributors an annual fee to compensate
them for promoting, selling and servicing shares of the Portfolios. The annual
fees equal 0.25% of each Portfolio's average daily net assets. Over time, the
fees will increase your cost of investing and may cost you more than other types
of charges.
<PAGE>
6
Purchase and redemption
59
- --------------------------------------------------------------------------------
The price at which a purchase or redemption is effected is based on the next
calculation of net asset value after an order is placed by an insurance company
or qualified retirement plan investing in or redeeming from the Trust.
Net asset value per share is calculated for purchases and redemption of shares
of each Portfolio by dividing the value of total Portfolio assets, less
liabilities (including Trust expenses and class related expenses, which are
accrued daily), by the total number of outstanding shares of that Portfolio. The
net asset value per share of each Portfolio is determined each business day at
4:00 p.m. Eastern time. Net asset value per share is not calculated on days on
which the New York Stock Exchange is closed for trading.
Foreign securities (other depositary receipts) are valued at the close of
business in the applicable foreign country. Consequently, Portfolios that invest
a significant portion of their assets in foreign securities, may experience
changes in their net asset value on days when a shareholder may not purchase or
redeem shares of that Portfolio.
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.
<PAGE>
7
How assets are valued
60
- --------------------------------------------------------------------------------
Values are determined according to accepted practices and all laws and
regulations that apply. The assets of each Portfolio are generally valued as
follows:
o Stocks and debt securities which mature in more than 60 days are valued on
the basis of market quotations.
o Foreign securities not traded directly in the United States are valued at
representative quoted prices in the currency in the country of origin.
Foreign currency is converted into United States dollars equivalents at
current exchange rates.
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.
<PAGE>
8
Tax information
61
- --------------------------------------------------------------------------------
Each Portfolio of the Trust is a separate regulated investment company for
federal income tax purposes. Regulated investment companies are usually not
taxed at the entity (Portfolio) level. They pass through their income and gains
to their shareholders by paying dividends. Their shareholders include this
income on their respective tax returns. A Portfolio will be treated as a
regulated investment company if it meets specified federal income tax rules,
including types of investments, limits on investments, calculation of income,
and dividend payment requirements. Although the Trust intends that it and each
Portfolio will be operated to have no federal tax liability, if they have any
federal tax liability, that could hurt the investment performance of the
Portfolio in question. Also, any Portfolio investing in foreign securities or
holding foreign currencies could be subject to foreign taxes which could reduce
the investment performance of the Portfolio.
It is important for each Portfolio to maintain its federal income tax regulated
investment company status because the shareholders of the Portfolio that are
insurance company separate accounts will then be able to use a favorable federal
income tax investment diversification testing rule in figuring out whether the
Contracts indirectly funded by the Portfolio meet tax qualification rules for
variable insurance contracts. If a Portfolio fails to meet specified investment
diversification requirements, owners of non-pension plan Contracts funded
through the Trust could be taxed immediately on the accumulated investment
earnings under their Contracts and could lose any benefit of tax deferral. The
Administrator and the Manager therefore carefully monitor compliance with all of
the regulated investment company rules and variable insurance contract
investment diversification rules.
<PAGE>
62
- --------------------------------------------------------------------------------
(Intentionally Left Blank)
<PAGE>
9
Prior performance of each adviser
63
- --------------------------------------------------------------------------------
The following table provides information concerning the historical performance
of another registered investment company (or series) or other institutional
private accounts managed by each Adviser that has investment objectives,
policies, strategies and risks substantially similar to those of the respective
Portfolio(s) of the Trust for which it serves as Adviser. The data is provided
to illustrate the past performance of each Adviser in managing a substantially
similar investment vehicle as measured against specified market indices. This
data does not represent the past performance of any of the Portfolios or the
future performance of any Portfolio or its Adviser. Consequently, potential
investors should not consider this performance data as an indication of the
future performance of any Portfolio of the Trust or of its Adviser and should
not confuse this performance data with performance data for each of the Trust's
Portfolios, which is shown for each Portfolio under the caption "ABOUT THE
INVESTMENT PORTFOLIOS."
Each Adviser's performance data shown below for other registered investment
companies (or series thereof) was calculated in accordance with standards
prescribed by the SEC for the calculation of average annual total return
information for registered investment companies. Average annual total return
reflects changes in share prices and reinvestment of dividends and distributions
and is net of fund expenses. In each such instance, the share prices and
investment returns will fluctuate, reflecting market conditions as well as
changes in company-specific fundamentals of portfolio securities.
Composite performance data relating to the historical performance of
institutional private accounts managed by the relevant Adviser was calculated on
a total return basis and includes all losses. (As specified below, this
composite performance data is provided only for the J.P. Morgan Active Fixed
Income Composite). The total returns for the J.P. Morgan Active Fixed Income
Composite ("Composite") reflect the deduction of investment advisory fees,
brokerage commissions and execution costs paid by J.P. Morgan'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 J.P.
Morgan that have investment objectives, policies, strategies and risks
substantially similar to those of the relevant Portfolio. Securities
transactions are accounted for on the trade date and accrual accounting is
utilized. Cash and equivalents are included in performance returns. The
institutional private accounts that are included in the Composite are not
subject to the same types of expenses to which the relevant Portfolio is subject
or to the diversification requirements, specific tax restrictions and investment
limitations imposed on the Portfolio by the 1940 Act or Subchapter M of the
Internal Revenue Code. Consequently, the performance results for the 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.
The major difference between the SEC prescribed calculation of average annual
total returns for registered investment companies or (series thereof) and total
returns for composite performance is that average annual total returns reflects
all fees and charges applicable to the registered investment company in question
and the total return calculation for the Composite reflects only those fees and
charges described in the paragraph directly above.
The performance results for the registered investment companies or Composite
presented below are subject to lower fees and expenses than the relevant
Portfolios although in most instances the fees and expenses are substantially
similar. In addition, holders of Contracts representing interests in the
Portfolio below will be subject to charges and expenses relating to such
insurance contracts. The performance results presented above do not reflect any
insurance related expenses and would be reduced if such charges were reflected.
The investment results presented below are unaudited. For more information on
the specified market indices used below, see the section "The Benchmarks."
<PAGE>
64
- --------------------------------------------------------------------------------
ANNUAL RATES OF RETURN OF OTHER FUNDS OR ACCOUNTS MANAGED BY ADVISERS AS OF
12/31/98
The name of the other fund or account managed by the Adviser is shown in BOLD.
The name of the Trust Portfolio is shown in (parentheses). The name of the
benchmark is shown in italics.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
OTHER FUND OR ACCOUNT MANAGED BY ADVISER (EQAT PORTFOLIO) 1 5 10 Since Inception
- --------------------------------------------------------------- Year Years Years Inception Date
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Benchmark
- -----------------------------------------------------------------------------------------------------------------------------------
BT ADVISORS FUNDS - EAFE EQUITY INDEX FUND - INSTITUTIONAL CLASS (BT INTERNATIONAL EQUITY INDEX PORTFOLIO)
19.81% N/A N/A 9.69% 1/24/96
- -----------------------------------------------------------------------------------------------------------------------------------
MSCI EAFE Index(5) 20.00% N/A N/A 9.70%
- -----------------------------------------------------------------------------------------------------------------------------------
BT ADVISORS FUNDS - SMALL CAP INDEX FUND-INSTITUTIONAL CLASS (BT SMALL COMPANY INDEX PORTFOLIO)
(2.60)% N/A N/A 11.58% 7/10/96
- -----------------------------------------------------------------------------------------------------------------------------------
Russell 2000 Index(4) (2.54)% N/A N/A 11.85%
- -----------------------------------------------------------------------------------------------------------------------------------
BT INSTITUTIONAL FUNDS - EQUITY 500 INDEX FUND - INSTITUTIONAL CLASS (BT EQUITY 500 INDEX PORTFOLIO)
28.75% 24.05% N/A 21.56% 12/31/92
- -----------------------------------------------------------------------------------------------------------------------------------
S&P 500 Index(3) 28.57% 24.06% N/A 21.61%
- -----------------------------------------------------------------------------------------------------------------------------------
EVERGREEN FUND - CLASS Y SHARES (EQ/EVERGREEN PORTFOLIO)
7.23% 17.82% 14.07% 10/15/71
- -----------------------------------------------------------------------------------------------------------------------------------
Russell 2000 Index(4) (2.54)% 11.86% 12.94%
- -----------------------------------------------------------------------------------------------------------------------------------
EVERGREEN FOUNDATION FUND - CLASS Y SHARES (EQ/EVERGREEN FOUNDATION PORTFOLIO)
12.21% 15.06% N/A 16.89% 1/2/90
- -----------------------------------------------------------------------------------------------------------------------------------
S&P 500 Index(3) 28.57% 24.06% N/A 18.82%
- -----------------------------------------------------------------------------------------------------------------------------------
THE GEORGE PUTNAM FUND OF BOSTON(2) (EQ/PUTNAM BALANCED PORTFOLIO)
10.60% 15.07% 13.77% 11/5/37
- -----------------------------------------------------------------------------------------------------------------------------------
S&P 500 Index(3) 28.57% 24.06% 19.21%
- -----------------------------------------------------------------------------------------------------------------------------------
MASSACHUSETTS INVESTORS TRUST(2) (MFS GROWTH WITH INCOME PORTFOLIO)
22.95% 22.97% 19.15% 7/15/24
- -----------------------------------------------------------------------------------------------------------------------------------
S&P 500 Index(3) 28.57% 24.06% 19.21%
- -----------------------------------------------------------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC. - MERRILL LYNCH BASIC VALUE FOCUS FUND (MERRILL LYNCH BASIC VALUE
EQUITY PORTFOLIO)
9.44% 15.40% N/A 15.80% 7/1/93
- -----------------------------------------------------------------------------------------------------------------------------------
S&P 500 Index(3) 28.57% 24.06% N/A 22.74%
- -----------------------------------------------------------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC. - MERRILL LYNCH GLOBAL STRATEGY FOCUS FUND (MERRILL LYNCH WORLD
STRATEGY PORTFOLIO)
8.88% 8.49% N/A 9.57% 2/28/92
- -----------------------------------------------------------------------------------------------------------------------------------
MSCI EAFE Index(5) 20.00% 9.19% N/A 9.98%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
65
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
OTHER FUND OR ACCOUNT MANAGED BY ADVISER (EQAT PORTFOLIO) 1 5 10 Since Inception
- --------------------------------------------------------------- Year Years Years Inception Date
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MFS EMERGING GROWTH FUND(6) (MFS EMERGING GROWTH COMPANIES PORTFOLIO)
23.56% 19.66% 22.94% 12/29/86
- -----------------------------------------------------------------------------------------------------------------------------------
Russell 2000 Index(4) (2.54)% 11.86% 12.94%
- -----------------------------------------------------------------------------------------------------------------------------------
MFS RESEARCH FUND(2, 6) (MFS RESEARCH PORTFOLIO)
22.92% 20.65% 18.44% 10/13/71
- -----------------------------------------------------------------------------------------------------------------------------------
S&P 500 Index(3) 28.57% 24.06% 19.21%
- -----------------------------------------------------------------------------------------------------------------------------------
MORGAN STANLEY INSTITUTIONAL FUND, INC. - EMERGING MARKETS PORTFOLIO8 (MORGAN STANLEY EMERGING MARKETS
EQUITY PORTFOLIO)
(25.40)% (8.20)% N/A 3.50% 9/25/92
- -----------------------------------------------------------------------------------------------------------------------------------
IFC Global Total Return Composite Index(1) (21.10)% (8.70)% N/A 1.90%
- -----------------------------------------------------------------------------------------------------------------------------------
PUTNAM GROWTH & INCOME FUND II(2) (EQ/PUTNAM GROWTH & INCOME VALUE PORTFOLIO)
12.46% N/A N/A N/A 1/5/95
- -----------------------------------------------------------------------------------------------------------------------------------
S&P 500 Index(3) 28.57% N/A N/A 30.51%
- -----------------------------------------------------------------------------------------------------------------------------------
T. ROWE PRICE EQUITY INCOME FUND (T. ROWE PRICE EQUITY INCOME PORTFOLIO)
9.23% 18.75% 15.18% 10/31/85
- -----------------------------------------------------------------------------------------------------------------------------------
S&P 500 Index(3) 28.57% 24.06% 19.21%
- -----------------------------------------------------------------------------------------------------------------------------------
T. ROWE PRICE INTERNATIONAL STOCK FUND (T. ROWE PRICE INTERNATIONAL STOCK PORTFOLIO)
16.14% 8.87% 10.45% 5/9/80
- -----------------------------------------------------------------------------------------------------------------------------------
MSCI EAFE Inde(5) 20.00% 9.19% 9.50%
- -----------------------------------------------------------------------------------------------------------------------------------
WARBURG PINCUS SMALL COMPANY VALUE FUND(7) (Warburg Pincus Small Company Value Portfolio)
(14.88)% N/A N/A 16.51% 12/29/95
- -----------------------------------------------------------------------------------------------------------------------------------
Russell 2000 Index(4) (2.54)% N/A N/A 11.58%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) 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. 2 Performance for the Class A shares. The Class A shares are in
many instances subject to a front-end sales charge of up to 5.75%. Other
share classes have different expenses and their performance will vary.
(3) The S&P 500 Index ("S&P 500") is an unmanaged index containing common
stocks of 500 industrial, transportation, utility and financial companies,
regarded as generally representative of the larger capitalization portion
of the United States stock market. The S&P 500 reflects the reinvestment of
income dividends and capital gain distributions, if any, but does not
reflect fees, brokerage commissions, or other expenses of investing.
(4) The Russell 2000 Index is an unmanaged index (with no defined investment
objective) composed of approximately 2,000 small-capitalization stocks and
includes reinvestments of dividends. The index does not include fees or
operating expenses and is not available for actual investment. It is
compiled by the Frank Russell Company.
(5) The Morgan Stanley Capital International EAFE Index ("EAFE Index") is an
unmanaged capitalization-weighted measure of stock markets in Europe,
Australia and the Far East. The returns of the EAFE Index assume dividends
are reinvested net of withholding tax and do not reflect any fees or
operating expenses. The index is not available for actual investment.
(6) The results for the MFS Research Fund (Class A shares) and the MFS Emerging
Growth Fund (Class B shares) do not reflect sales charges that may be
imposed on the such shares.
(7) Absent the waiver of fees in 1998 by the Warburg Pincus Small Company Value
Fund's investment adviser and co-administrator, management fees of the
Warburg Pincus Small Company Value Fund would equal 1.00%, other expenses
would equal 0.94% and total operating expenses would equal 2.19%. The
investment adviser and co-administrator of the Warburg Pincus Small Company
Value Fund are under no obligation to continue these waivers.
(8) Performance for the Class A shares of the Morgan Stanley Institutional
Fund, Inc. - Emerging Markets Portfolio. The Class B shares of the Morgan
Stanley Institutional Fund, Inc. - Emerging Markets Portfolio are subject
to a Rule 12b-1 fee equal to 0.25% of the Portfolio's assets. The expense
ratio of Morgan Stanley Institutional Fund, Inc. - Emerging Markets
Portfolio has been capped at 1.75% since inception.
- -------------------------------------------------------------- EQ Advisors Trust
<PAGE>
10
Financial Highlights
66
- --------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the Trust's
financial performance since May 1, 1997. The Trust began to offer Class IA
shares for the T. Rowe Price Equity Income, MFS Emerging Growth Companies,
Warburg Pincus Small Company Value and BT International Equity Portfolios on
November 24, 1998. Except for those four Portfolios, the financial information
in the table below for the period May 1, 1997 to December 31, 1998 relates only
to the Class IB shares. The financial information relating to both the Class IA
shares and the Class IB shares has been derived from the audited financial
statements of the Trust. These financial statements have been audited by
PricewaterhouseCoopers LLP, independent public accountants.
PricewaterhouseCoopers LLP's report on the Trust's financial statements as of
December 31, 1998 appears in the Trust's Annual Report. The information should
be read in conjunction with the financial statements contained in the Trust's
Annual Report which are incorporated by reference into the Trust's Statement of
Additional Information (SAI) and available upon request.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
NET
REALIZED
AND
UNREALIZED
GAIN (LOSS)
NET ASSET ON DIVIDENDS IN
VALUE, INVESTMENTS DIVIDENDS EXCESS OF DISTRIBUTIONS
BEGINNING NET AND FOREIGN TOTAL FROM FROM NET NET FROM
OF INVESTMENT CURRENCY INVESTMENT INVESTMENT INVESTMENT REALIZED
PERIOD INCOME TRANSACTIONS OPERATIONS INCOME INCOME GAINS
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BT EQUITY 500 INDEX PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------------------
Dec. 31, 1998 $ 10.00 $ 0.06 $ 2.45 $ 2.51 $ (0.06) - -
- ---------------------------------------------------------------------------------------------------------------------------------
Dec. 31, 1997 - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------------
BT INTERNATIONAL EQUITY INDEX PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------------------
Class IB Dec. 31, 1998 $ 10.00 $ 0.08 $ 1.92 $ 2.00 $ (0.15) - -
- ---------------------------------------------------------------------------------------------------------------------------------
Class IB Dec. 31, 1997 - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------------
Class IA Nov. 24-Dec. 31, 1998 $ 11.67 $ 0.03 $ 0.31 $ 0.34 $ (0.17) - -
- ---------------------------------------------------------------------------------------------------------------------------------
BT SMALL COMPANY INDEX PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------------------
Dec. 31, 1998 $ 10.00 $ 0.07 $ (0.30) $ (0.23) $ (0.07) - $ (0.13)
- ---------------------------------------------------------------------------------------------------------------------------------
Dec. 31, 1997 - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------------
EQ/PUTNAM BALANCED PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------------------
Dec. 31, 1998 $ 11.21 $ 0.25 $ 1.08 $ 1.33 $ (0.23) - $ (0.15)
- ---------------------------------------------------------------------------------------------------------------------------------
Dec. 31, 1997 $ 10.00 $ 0.14 $ 1.30 $ 1.44 $ (0.13) $ (0.01) $ (0.09)
- ---------------------------------------------------------------------------------------------------------------------------------
EQ/PUTNAM GROWTH & INCOME VALUE PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------------------
Dec. 31, 1998 $ 11.52 $ 0.11 $ 1.35 $ 1.46 $ (0.11) - $ (0.01)
- ---------------------------------------------------------------------------------------------------------------------------------
Dec. 31, 1997 $ 10.00 $ 0.06 $ 1.56 $ 1.62 $ (0.06) -
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
67
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
RATIO OF
EXPENSES TO
DISTRIBUTIONS TOTAL NET ASSET NET ASSETS, AVERAGE NET
IN EXCESS OF DIVIDENDS AND VALUE, END OF TOTAL RETURN END OF PERIOD ASSETS AFTER
REALIZED GAINS DISTRIBUTIONS PERIOD (B) (000'S) WAIVERS (A)(C)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BT EQUITY 500 INDEX PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------------------
Dec. 31, 1998 - $ (0.06) $ 12.45 25.14% $224,247 0.55%
- ---------------------------------------------------------------------------------------------------------------------------------
Dec. 31, 1997 - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------------
BT INTERNATIONAL EQUITY INDEX PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------------------
Class IB Dec. 31, 1998 - $ (0.15) $ 11.85 20.07% $ 48,075 0.84%(1)
- ---------------------------------------------------------------------------------------------------------------------------------
Class IB Dec. 31, 1997 - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------------
Class IA Nov. 24-Dec. 31, 1998 - $ (0.17) $ 11.84 2.94%(b) $ 735 0.59%(a)(1)
- ---------------------------------------------------------------------------------------------------------------------------------
BT SMALL COMPANY INDEX PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------------------
Dec. 31, 1998 $ (0.01) $ (0.21) $ 9.56 (2.27)% $ 32,609 0.60%
- ---------------------------------------------------------------------------------------------------------------------------------
Dec. 31, 1997 - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------------
EQ/PUTNAM BALANCED PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------------------
Dec. 31, 1998 - $ (0.38) $ 12.16 11.92% $ 75,977 0.90%(a)
- ---------------------------------------------------------------------------------------------------------------------------------
Dec. 31, 1997 - $ (0.23) $ 11.21 14.38% $ 25,854 0.90%
- ---------------------------------------------------------------------------------------------------------------------------------
EQ/PUTNAM GROWTH & INCOME VALUE PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------------------
Dec. 31, 1998 $ (0.10) $ (0.21) $ 12.77 12.75% $460,744 0.85%
- ---------------------------------------------------------------------------------------------------------------------------------
Dec. 31, 1997 $ (0.03) $ (0.10) $ 11.52 16.23% $150,260 0.85%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------- EQ Advisors Trust
<PAGE>
68
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
NET
REALIZED
AND
UNREALIZED
GAIN (LOSS) DIVIDENDS
NET ASSET ON IN
VALUE, INVESTMENTS DIVIDENDS EXCESS OF DISTRIBUTIONS
BEGINNING NET AND FOREIGN TOTAL FROM FROM NET NET FROM
OF INVESTMENT CURRENCY INVESTMENT INVESTMENT INVESTMENT REALIZED
PERIOD INCOME TRANSACTIONS OPERATIONS INCOME INCOME GAINS
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
MERRILL LYNCH BASIC VALUE EQUITY PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------------------------
Dec. 31, 1998 $ 11.58 $ 0.12 $ 1.21 $ 1.33 $ (0.12) - $(0.43)
- ----------------------------------------------------------------------------------------------------------------------------------
Dec. 31, 1997 $ 10.00 $ 0.06 $ 1.64 $ 1.70 $ (0.06) - $(0.05)
- ----------------------------------------------------------------------------------------------------------------------------------
MERRILL LYNCH WORLD STRATEGY PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------------------------
Dec. 31, 1998 $ 10.31 $ 0.15 $ 0.55 $ 0.70 $ (0.04) $ (0.04) -
- ----------------------------------------------------------------------------------------------------------------------------------
Dec. 31, 1997 $ 10.00 $ 0.08 $ 0.39 $ 0.47 $ (0.05) - -
- ----------------------------------------------------------------------------------------------------------------------------------
MFS EMERGING GROWTH COMPANIES PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------------------------
Class IB Dec. 31, 1998 $ 11.92 $ (0.03) $ 4.15 $ 4.12 - - -
- ----------------------------------------------------------------------------------------------------------------------------------
Class IB Dec. 31, 1997 $ 10.00 $ 0.02 $ 2.21 $ 2.23 $ (0.02) - $(0.18)
- ----------------------------------------------------------------------------------------------------------------------------------
Class IA Nov. 24-Dec. 31, 1998 $ 14.18 - $ 1.86 $ 1.86 - - -
- ----------------------------------------------------------------------------------------------------------------------------------
MFS RESEARCH PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------------------------
Dec. 31, 1998 $ 11.48 $ 0.04 $ 2.73 $ 2.77 $ (0.04) - -
- ----------------------------------------------------------------------------------------------------------------------------------
Dec. 31, 1997 $ 10.00 $ 0.02 $ 1.58 $ 1.60 $ (0.02) - $(0.01)
- ----------------------------------------------------------------------------------------------------------------------------------
MORGAN STANLEY EMERGING MARKETS EQUITY PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------------------------
Dec. 31, 1998 $ 7.96 $ 0.03 $ (2.18) $ (2.15) $ (0.02) - -
- ----------------------------------------------------------------------------------------------------------------------------------
Dec. 31, 1997 $ 10.00 $ 0.04 $ (2.06) $ (2.02) $ (0.02) - -
- ----------------------------------------------------------------------------------------------------------------------------------
T. ROWE PRICE EQUITY INCOME PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------------------------
Class IB Dec. 31, 1998 $ 12.08 $ 0.22 $ 0.87 $ 1.09 $ (0.22) - $(0.28)
- ----------------------------------------------------------------------------------------------------------------------------------
Class IB Dec. 31, 1997 $ 10.00 $ 0.10 $ 2.11 $ 2.21 $ (0.09) - $(0.04)
- ----------------------------------------------------------------------------------------------------------------------------------
Class IA Nov. 24-Dec. 31, 1998 $ 13.22 $ 0.06 $ (0.09)+ $ (0.03) $ (0.24) - $(0.28)
- ----------------------------------------------------------------------------------------------------------------------------------
T. ROWE PRICE INTERNATIONAL STOC PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------------------------
Dec 31, 1998 $ 9.85 $ 0.06 $ 1.28 $ 1.34 $ (0.07) $ (0.02) -
- ----------------------------------------------------------------------------------------------------------------------------------
Dec. 31, 1997 $ 10.00 $ 0.02 $ (0.17) $ (0.15) - - -
- ----------------------------------------------------------------------------------------------------------------------------------
WARBURG PINCUS SMALL COMPANY VALUE PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------------------------
Class IB Dec. 31, 1998 $ 11.85 $ 0.05 $ (1.24) $ (1.19) $ (0.04) - -
- ----------------------------------------------------------------------------------------------------------------------------------
Class IB Dec. 31, 1997 $ 10.00 $ 0.01 $ 1.90 $ 1.91 $ (0.01) - -
- ----------------------------------------------------------------------------------------------------------------------------------
Class IA Nov. 24-Dec. 31, 1998 $ 10.40 $ 0.03 $ 0.23+ $ 0.26 $ (0.06) - -
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
69
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
RATIO OF
EXPENSES TO
DISTRIBUTIONS TOTAL NET ASSET NET ASSETS, AVERAGE NET
IN EXCESS OF DIVIDENDS AND VALUE, END OF TOTAL RETURN END OF PERIOD ASSETS AFTER
REALIZED GAINS DISTRIBUTIONS PERIOD (B) (000'S) WAIVERS (A)(C)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
MERRILL LYNCH BASIC VALUE EQUITY PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------------------
Dec. 31, 1998 - $ (0.55) $ 12.36 11.59% $174,104 0.85%
- ---------------------------------------------------------------------------------------------------------------------------------
Dec. 31, 1997 $ (0.01) $ (0.12) $ 11.58 16.99% $ 49,495 0.85%
- ---------------------------------------------------------------------------------------------------------------------------------
MERRILL LYNCH WORLD STRATEGY PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------------------
Dec. 31, 1998 - $ (0.08) $ 10.93 6.81% $ 30,631 1.20%
- ---------------------------------------------------------------------------------------------------------------------------------
Dec. 31, 1997 $ (0.11) $ (0.16) $ 10.31 4.70% $ 18,210 1.20%
- ---------------------------------------------------------------------------------------------------------------------------------
MFS EMERGING GROWTH COMPANIES PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------------------
Class IB Dec. 31, 1998 - - $ 16.04 34.57% $461,307 0.85%(1)
- ---------------------------------------------------------------------------------------------------------------------------------
Class IB Dec. 31, 1997 $ (0.11) $ (0.31) $ 11.92 22.42% $ 99,317 0.85%(a)
- ---------------------------------------------------------------------------------------------------------------------------------
Class IA Nov. 24-Dec. 31, 1998 - - $ 16.04 13.12% $ 5,978 0.60%(a)(1)
- ---------------------------------------------------------------------------------------------------------------------------------
MFS RESEARCH PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------------------
Dec. 31, 1998 - $ (0.04) $ 14.21 24.11% $407,619 0.85%
- ---------------------------------------------------------------------------------------------------------------------------------
Dec. 31, 1997 $ (0.09) $ (0.12) $ 11.48 16.07% $114,754 0.85%
- ---------------------------------------------------------------------------------------------------------------------------------
MORGAN STANLEY EMERGING MARKETS EQUITY PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------------------
Dec. 31, 1998 - $ (0.02) $ 5.79 (27.10)% $ 41,359 1.81%
- ---------------------------------------------------------------------------------------------------------------------------------
Dec. 31, 1997 - $ (0.02) $ 7.96 (20.16)% $ 21,433 1.75%
- ---------------------------------------------------------------------------------------------------------------------------------
T. ROWE PRICE EQUITY INCOME PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------------------
Class IB Dec. 31, 1998 - $ (0.50) $ 12.67 9.11% $242,001 0.85%(1)
- ---------------------------------------------------------------------------------------------------------------------------------
Class IB Dec. 31, 1997 - $ (0.13) $ 12.08 22.11% $ 99,947 0.85%(a)
- ---------------------------------------------------------------------------------------------------------------------------------
Class IA Nov. 24-Dec. 31, 1998 - $ (0.52) $ 12.67 (2.21)%(b) $ 2,415 0.60%(a)(1)
- ---------------------------------------------------------------------------------------------------------------------------------
T. ROWE PRICE INTERNATIONAL STOCK PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------------------
Dec. 31, 1998 - $ (0.09) $ 11.10 13.68% $134,653 1.20%
- ---------------------------------------------------------------------------------------------------------------------------------
Dec. 31, 1997 - - $ 9.85 (1.49)% $ 69,572 1.20%
- ---------------------------------------------------------------------------------------------------------------------------------
WARBURG PINCUS SMALL COMPANY VALUE PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------------------
Class IB Dec. 31, 1998 - $ (0.05) $ 10.61 (10.02)% $166,746 1.00%(1)
- ---------------------------------------------------------------------------------------------------------------------------------
Class IB Dec. 31, 1997 $ (0.05) $ (0.06) $ 11.85 19.15% $120,880 1.00%(a)
- ---------------------------------------------------------------------------------------------------------------------------------
Class IA Nov. 24-Dec. 31, 1998 - $ (0.07) $ 10.59 2.63%(b) $ 747 0.75%(a)(1)
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------- EQ Advisors Trust
<PAGE>
- -----
70
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
RATIO OF NET RATIO OF NET
RATIO OF EXPENSES TO INVESTMENT INCOME TO INVESTMENT INCOME TO
AVERAGE NET ASSETS AVERAGE NET ASSETS AVERAGE NET ASSETS PORTFOLIO
BEFORE WAIVERS (A)(C) AFTER WAIVERS (A)(C) BEFORE WAIVERS (A)(C) TURNOVER RATE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
**BT EQUITY 500 INDEX PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------------
Dec. 31, 1998 0.83% 1.22% 0.94% 2%
- -------------------------------------------------------------------------------------------------------------------------
Dec. 31, 1997 - - - -
- -------------------------------------------------------------------------------------------------------------------------
**BT INTERNATIONAL EQUITY INDEX PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------------
Class IB Dec. 31, 1998 1.49% 1.11% 0.46% 3%
- -------------------------------------------------------------------------------------------------------------------------
Class IB Dec. 31, 1997 - - - -
- -------------------------------------------------------------------------------------------------------------------------
Class IA Nov. 24-Dec. 31, 1998 1.24%(a)(1) 1.36% 0.71% 3%
- -------------------------------------------------------------------------------------------------------------------------
**BT SMALL COMPANY INDEX PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------------
Dec. 31, 1998 1.81% 1.18% (0.03)% 35%
- -------------------------------------------------------------------------------------------------------------------------
Dec. 31, 1997 - - - -
- -------------------------------------------------------------------------------------------------------------------------
EQ/PUTNAM BALANCED PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------------
Dec. 31, 1998 1.25% 2.88% 2.53% 135%
- -------------------------------------------------------------------------------------------------------------------------
Dec. 31, 1997 2.55% 3.19% 1.54% 117%
- -------------------------------------------------------------------------------------------------------------------------
EQ/PUTNAM GROWTH & INCOME VALUE PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------------
Dec. 31, 1998 1.04% 1.30% 1.11% 74%
- -------------------------------------------------------------------------------------------------------------------------
Dec. 31, 1997 1.75% 1.67% 0.77% 61%
- -------------------------------------------------------------------------------------------------------------------------
MERRILL LYNCH BASIC VALUE EQUITY PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------------
Dec. 31, 1998 1.06% 1.41% 1.20% 83%
- -------------------------------------------------------------------------------------------------------------------------
Dec. 31, 1997 1.89% 1.91% 0.87% 25%
- -------------------------------------------------------------------------------------------------------------------------
MERRILL LYNCH WORLD STRATEGY PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------------
Dec. 31, 1998 1.61% 1.63% 1.22% 115%
- -------------------------------------------------------------------------------------------------------------------------
Dec. 31, 1997 3.05% 1.89% 0.04% 58%
- -------------------------------------------------------------------------------------------------------------------------
MFS EMERGING GROWTH COMPANIES PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------------
Class IB Dec. 31, 1998 1.04%(1) (0.30)%(1) (0.49)%(1) 79%
- -------------------------------------------------------------------------------------------------------------------------
Class IB Dec. 31, 1997 1.82%(a) 0.61 %(a) (0.36)%(a) 116%
- -------------------------------------------------------------------------------------------------------------------------
Class IA Nov. 24-Dec. 31, 1998 79%(a)(1) (0.05)%(a)(1) (0.24)%(a)(1) 79%
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
71
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
RATIO OF NET RATIO OF NET
RATIO OF EXPENSES TO INVESTMENT INCOME TO INVESTMENT INCOME TO
AVERAGE NET ASSETS AVERAGE NET ASSETS AVERAGE NET ASSETS PORTFOLIO
BEFORE WAIVERS (A)(C) AFTER WAIVERS (A)(C) BEFORE WAIVERS (A)(C) TURNOVER RATE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MFS RESEARCH PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------------
Dec. 31, 1998 1.05% 0.44% 0.24% 73%
- -------------------------------------------------------------------------------------------------------------------------
Dec. 31, 1997 1.78% 0.65% (0.28)% 51%
- -------------------------------------------------------------------------------------------------------------------------
*MORGAN STANLEY EMERGING MARKETS EQUITY PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------------
Dec. 31, 1998 2.63% 0.73% (0.09)% 114%
- -------------------------------------------------------------------------------------------------------------------------
Dec. 31, 1997 2.61% 1.96% 1.10% 25%
- -------------------------------------------------------------------------------------------------------------------------
T. ROWE PRICE EQUITY INCOME PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------------
Class IB Dec. 31, 1998 1.04%(1) 2.20%(1) 2.01%(1) 17%
- -------------------------------------------------------------------------------------------------------------------------
Class IB Dec. 31, 1997 1.74%(a) 2.49%(a) 1.60%(a) 9%
- -------------------------------------------------------------------------------------------------------------------------
Class IA Nov. 24-Dec. 31, 1998 0.79%(a)(1) 2.45%(a)(1) 2.26%(a)(1) 17%
- -------------------------------------------------------------------------------------------------------------------------
T. ROWE PRICE INTERNATIONAL STOCK PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------------
Dec. 31, 1998 1.40% 0.67% 0.47% 22%
- -------------------------------------------------------------------------------------------------------------------------
Dec. 31, 1997 2.56% 0.45% (0.91)% 17%
- -------------------------------------------------------------------------------------------------------------------------
WARBURG PINCUS SMALL COMPANY VALUE PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------------
Class IB Dec. 31, 1998 1.17%(1) 0.47%(1) 0.30%(1) 111%
- -------------------------------------------------------------------------------------------------------------------------
Class IB Dec. 31, 1997 1.70%(a) 0.26%(a) (0.44)%(a) 44%
- -------------------------------------------------------------------------------------------------------------------------
Class IA Nov. 24-Dec. 31, 1998 0.92%(a)(1) 0.72%(a)(1) 0.55%(a)(1) 111%
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
* The Morgan Stanley Emerging Markets Equity Portfolio commenced operations on
August 20, 1997.
** Commencement of operations for the BT Small Company Index Portfolio, BT
International Equity Index Portfolio and BT Equity 500 Index Portfolio was
January 1, 1998. No financial highlights are presented for EQ/Evergreen
Foundation Portfolio, EQ/Evergreen Portfolio and MFS Growth with Income
Portfolio, each of which received initial capital on December 31, 1998.
+ The amount shown for a share outstanding throughout the period does not
accord with the aggregate net gains on investments for that period because
of the timing of sales and repurchases of the Portfolio shares in relation
to fluctuating market value of the investments of the Portfolio.
(a) Annualized.
(b) Total return calculated for a period of less than one year is not
annualized.
(c) For further information concerning fee waivers, see the section entitled
"Expense Limitation Agreement" in the Prospectus.
(1) Reflects overall fund ratios for investment income and non-class specific
expense.
- -------------------------------------------------------------- EQ Advisors Trust
<PAGE>
72
- --------------------------------------------------------------------------------
If you wish to know more, you will find additional information about the Trust
and its Portfolios in the following documents:
ANNUAL REPORTS
The Annual Report includes more information about the Trust's performance and is
available upon request free of charge. The reports usually include performance
information, a discussion of market conditions and the investment strategies
that affected the Portfolios' performance during the last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI, dated May 1, 1999, is incorporated into this Prospectus by reference
and is available upon request free of charge by calling our toll free number at
1-800-789-7771.
You may visit the SEC's website at www.sec.gov to view the SAI and other
information about the Trust. You can also review and copy information about the
Trust, including the SAI, at the SEC's Public Reference Room in Washington, D.C.
You may have to pay a duplicating fee. To find out more about the Public
Reference Room, call the SEC at 800-SEC-0330.
Investment Company Act File Number: 811-07953
