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Registration Nos. 333-17217
811-07953
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 10, 1999
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 /x/
Pre-Effective Amendment No. / /
Post-Effective Amendment No. 12 /x/
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 /x/
Amendment No.14 /x/
(Check appropriate box or boxes)
EQ ADVISORS TRUST
(formerly 787 Trust)
(Exact name of registrant as specified in charter)
1290 Avenue of the Americas
New York, New York 10104
(Address of principal executive offices)
Registrant's Telephone Number, including area code: (212) 554-1234
Peter D. Noris, Executive Vice President and
Chief Investment Officer
The Equitable Life Assurance Society of the United States
1290 Avenue of the Americas
New York, New York 10104
(Name and address of agent for service)
Please send copies of all communications to:
Jane A. Kanter
Dechert Price & Rhoads
1775 Eye Street, N.W.
Washington, D.C. 20006-2401
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b)
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on [date] pursuant to paragraph (b)
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60 days after filing pursuant to paragraph (a)
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on [date] pursuant to paragraph (a) of Rule 485
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X 75 days after filing pursuant to paragraph (a)
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EQ ADVISORS TRUST
PROSPECTUS
September 1, 1999
This Prospectus describes one (1) of the Portfolios offered by EQ Advisors
Trust. The 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 PORTFOLIO
Calvert Socially Responsible Portfolio
You should be aware that the Securities and Exchange Commission has not approved
or disapproved of the investment merit of this Portfolio or determined if this
Prospectus is accurate or complete. Any representation to the contrary is a
criminal offense.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. EQ
ADVISORS TRUST MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS
IS NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY
THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
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EQ ADVISORS TRUST
This Prospectus tells you about one (1) of the Portfolios of the EQ Advisors
Trust ("Trust") and the Class IA shares offered by the Trust on behalf of the
Portfolio. The Trust is an open-end management investment company. The Portfolio
is a separate series of the Trust with its own investment objective, investment
strategies and risks, which are described in this Prospectus. The Portfolio is
diversified for purposes of the Investment Company Act of 1940, as amended
("1940 Act").
The Trust's shares are currently sold (i) to insurance company separate accounts
in connection with variable life insurance contracts and variable annuity
certificates and contracts (the "Contract" or collectively, the "Contracts")
issued by The Equitable Life Assurance Society of the United States
("Equitable") and Equitable of Colorado, Inc. ("EOC") as well as insurance
companies that are not affiliated with Equitable or EOC ("non-affiliated
insurance companies"), and (ii) to The Equitable Investment Plan for Employees,
Managers and Agents ("Equitable Plan"). The prospectus is designed to help you
make informed decisions about the Portfolio that is 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.
The new Portfolio has two investment advisers ("Advisers"), Calvert Asset
Management Company, Inc. ("Calvert") and Brown Capital Management, Inc. ("Brown
Capital"). Information about the Advisers for the Portfolio is contained in the
description in the section entitled "About the Investment Portfolio." The
Manager has the ultimate responsibility to oversee each of the Advisers of the
Trust's Portfolios 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
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PAGE
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SUMMARY INFORMATION CONCERNING EQ ADVISORS TRUST..................................................................4
ABOUT THE INVESTMENT PORTFOLIO....................................................................................5
DOMESTIC EQUITY PORTFOLIO......................................................................................7
CALVERT SOCIALLY RESPONSIBLE PORTFOLIO......................................................................7
MORE INFORMATION ON PRINCIPAL RISKS...............................................................................9
MANAGEMENT OF THE TRUST..........................................................................................11
THE TRUST.....................................................................................................11
THE MANAGER...................................................................................................11
EXPENSE LIMITATION AGREEMENT..................................................................................12
THE ADVISERS..................................................................................................12
THE ADMINISTRATOR.............................................................................................13
THE TRANSFER AGENT............................................................................................13
BROKERAGE PRACTICES...........................................................................................13
BROKERAGE TRANSACTIONS WITH AFFILIATES........................................................................13
FUND DISTRIBUTION ARRANGEMENTS...................................................................................14
PURCHASE AND REDEMPTION..........................................................................................14
HOW ASSETS ARE VALUED............................................................................................14
TAX INFORMATION..................................................................................................15
PRIOR PERFORMANCE OF THE ADVISERS................................................................................15
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SUMMARY INFORMATION CONCERNING EQ ADVISORS TRUST
The following chart highlights the Portfolio described in this Prospectus that
you can choose as an investment alternative under your Contracts offered by
Equitable or EOC and non-affiliated insurance companies. The chart and
accompanying information identify the 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 ___.
[Two-page spread]
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EQ ADVISORS TRUST
DOMESTIC EQUITY PORTFOLIO
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Part A
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PORTFOLIO INVESTMENT OBJECTIVE(S)
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CALVERT SOCIALLY RESPONSIBLE PORTFOLIO Seeks long-term capital appreciation.
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EQ ADVISORS TRUST
DOMESTIC EQUITY PORTFOLIO
Part B
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PRINCIPAL INVESTMENT STRATEGIES PRINCIPAL RISKS
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Common stocks of medium to large U.S. companies General investment, growth investing, small-cap
that meet both investment and social criteria. and mid-cap company, liquidity, and derivatives
risks.
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ABOUT THE INVESTMENT PORTFOLIO
This section of the Prospectus provides a more complete description of the
principal investment objectives, strategies, and risks of the Portfolio offered
by this Prospectus. Of course, there can be no assurance that the 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 the Portfolio in this section of the Prospectus.
o Additional information concerning the Portfolio's strategies, investments,
and risks can also be found in the Trust's Statement of Additional
Information.
GENERAL INVESTMENT RISKS
The Portfolio is subject to the following risks:
ASSET CLASS RISK: The returns from the types of securities in which the
Portfolio invest 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 the 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 the Portfolio's Advisers 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: The Portfolio could be adversely affected if the
computer systems used by the Trust, 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
("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
Portfolio. This risk is greater for a Portfolio that makes 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.
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THE BENCHMARKS
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 the Portfolio is likely to select its
holdings.
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 market. The S&P 500
reflects the reinvestment of dividends, if any, but does not reflect fees,
brokerage commissions or other expenses of investing.
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DOMESTIC EQUITY PORTFOLIO
CALVERT SOCIALLY RESPONSIBLE PORTFOLIO
INVESTMENT OBJECTIVE: Seeks long-term capital appreciation.
THE INVESTMENT STRATEGY
The Portfolio invests primarily in common stocks of medium to large U.S.
companies that meet both investment and social criteria. Potential investments
for the Portfolio are first selected by Brown Capital for financial soundness
and then evaluated by Calvert according to the Portfolio's social criteria.
[Sidebar: For purposes of this Portfolio, companies having market
capitalizations greater than $500 million are considered medium to large
companies.]
Investment Criteria. Brown Capital's investment process balances the growth
potential of investments with the price or value of the investment in order to
identify stocks that offer above average growth potential at reasonable prices.
Brown Capital evaluates each stock in terms of its growth potential, the return
on risk-free investments, and the specific risk features of the company to
determine the reasonable price for the stock.
The Portfolio may invest up to 15% of its net assets in illiquid securities,
which are securities that cannot be readily sold because there is no active
market for them.
The Portfolio may invest in derivative instruments, such as foreign currency
contracts (up to 5% of its total assets), options on securities and indices (up
to 5% of its total assets), and futures contracts (up to 5% of its net assets).
When market or financial conditions warrant, the Portfolio may invest a
substantial portion of its assets in short-term obligations for temporary or
defensive purposes. If such action is taken, it will detract from achievement of
the Portfolio's investment objective during such periods.
Social Criteria. Calvert analyzes investments with the philosophy that long-term
rewards to investors will come from those organizations whose products, services
and methods enhance the human condition and the traditional American values of
individual initiative, equality of opportunity and cooperative effort. These
criteria represent standards of behavior which few, if any, organizations
totally satisfy. As a matter of practice, evaluation of a particular
organization in the context of these criteria will involve subjective judgment
by Calvert.
The Portfolio seeks to invest in companies that:
o deliver safe products and services in ways that sustain our natural
environment. For example, the Portfolio looks for companies that produce
energy from renewable resources, while avoiding consistent polluters;
o manage with participation throughout the organization in defining and
achieving objectives. For example, the Portfolio looks for companies that
offer employee stock ownership or profit-sharing plans;
o negotiate fairly with their workers, provide an environment supportive of
their wellness, do not discriminate on the basis of race, gender, religion,
age, disability, ethnic origin, or sexual orientation, do not consistently
violate regulations of the U.S. Equal Employment Opportunity Commission,
and provide opportunities for women, disadvantaged minorities,
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and others for whom equal opportunities have often been denied. For
example, the Portfolio considers both unionized and non-union firms with
good labor relations; and o foster awareness of a commitment to human
goals, such as creativity, productivity, self-respect and responsibility,
within the organization and the world, and continually recreates a context
within which these goals can be realized. For example, the Portfolio looks
for companies with an above average commitment to community affairs and
charitable giving.
The Portfolio will not invest in companies that Calvert determines to be
significantly engaged in:
o production of or the manufacture of equipment to produce, nuclear energy;
o business activities in support of repressive regimes;
o manufacture of weapon systems;
o manufacture of alcoholic beverages or tobacco products; or
o operation of gambling casinos.
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 markets.
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 of technologies
of such companies may be at a relatively early stage of development or not fully
tested.
LIQUIDITY RISK: Certain securities held by the Portfolio may be difficult (or
impossible) to sell at the time and at the price the seller would like which may
cause the Portfolio to lose money or be prevented from earning capital gains.
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 inception date for this Portfolio is _______ ___, 1999. Therefore, no prior
performance information is available.
WHO MANAGES THE PORTFOLIO
CALVERT ASSET MANAGEMENT COMPANY, INC. ("Calvert"), 4550 Montgomery Avenue,
Suite 1000N, Bethesda, Maryland 20814, a subsidiary of Calvert Group Ltd., which
is a subsidiary of Acacia Mutual Life Insurance Company of Washington, DC
("Acacia Mutual"). On January 1, 1999, Acacia
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Mutual merged with and became a controlled subsidiary of Ameritas Acacia Mutual
Holding Company. Calvert has been the Adviser to the Portfolio since it
commenced operations. It has been managing mutual funds since 1976. Calvert is
the investment adviser for over 25 mutual funds, including the first and largest
family of socially screened funds. Calvert provides the social investment
research for the Portfolio. As of December 31, 1998, Calvert had $6 billion in
assets under management.
BROWN CAPITAL MANAGEMENT, INC. ("Brown Capital"), 809 Cathedral Street,
Baltimore, Maryland 21201. Brown Capital makes the initial investment selections
for the Portfolio, which are then screened by Calvert against the Portfolio's
social criteria. Brown Capital uses a "bottom-up" approach that incorporates
growth-adjusted price earnings, concentrating on mid to large capitalization
domestic growth stocks.
EDDIE C. BROWN, founder and President of Brown Capital, heads the management
team for the Portfolio. He has over 24 years of investment management
experience, and has held positions with T. Rowe Price and Irwing Management
Company. Mr. Brown is a frequent panelist on "Wall Street Week with Louis
Rukeyser" and is a member of the Wall Street Week Hall of Fame.
MORE INFORMATION ON PRINCIPAL RISKS
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 the Portfolio's shares may be affected by the
Portfolio's investment objective(s), principal investment strategies and
particular risk factors. Consequently, the Portfolio may be subject to different
principal risks. Some of the principal risks of investing in the Portfolio are
discussed below. However, other factors may also affect the Portfolio's net
asset value.
There is no guarantee that the Portfolio will achieve its investment
objective(s) or that it will not lose principal value.
GENERAL INVESTMENT RISKS: The Portfolio is subject to the following risks:
ASSET CLASS RISK: There is the possibility that the returns from the
types of securities in which the 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: The 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 the Portfolio rely on the
insights of different specialists in making investment decisions based
on the Portfolio's particular investment objective(s) and investment
strategies. There is the possibility that the specific securities held
by the 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
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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. 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.
As indicated in "Summary Information Concerning EQ Advisors Trust" and "About
the Investment Portfolio," the Portfolio may also be subject to the following
risks:
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. The Portfolio 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.
GROWTH INVESTING RISK: Growth investing generally focuses on companies that, due
to their strong earnings and revenue potential, offer above-average prospects
for capital growth, with less emphasis on dividend income. Earnings
predictability and confidence in earnings forecasts are an important part of the
selection process. As a result, the price of growth stocks may be more sensitive
to changes in current or expected earnings than the prices of other stocks.
Advisers using this approach generally seek out companies experiencing some or
all of the following: high sales growth, high unit growth, high or improving
returns on assets and equity, and a strong balance sheet. Such Advisers also
prefer companies with a competitive advantage such as unique management,
marketing or research and development. Growth investing is also subject to the
risk that the stock price of one or more companies will fall or will fail to
appreciate as anticipated by the Advisers, regardless of movements in the
securities market.
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. The
Portfolio may have to hold these securities longer than it would like and may
forego other investment opportunities. There is the possibility that the
Portfolio may lose money or be prevented from earning capital gains if it can
not sell a security at the time and price that
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is most beneficial to the Portfolio. A Portfolio that invests in
privately-placed securities, high-yield bonds, mortgage-backed securities or
foreign or emerging markets securities, which have all experienced periods of
illiquidity, is subject to liquidity risks.
SMALL-CAP AND MID-CAP COMPANY RISK: The 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.
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.
MANAGEMENT OF THE TRUST
This section gives you information on the Trust, the Manager and the Advisers
for the Portfolio. More detailed information concerning the each of the Advisers
and portfolio manager is included in the description for the Portfolio in the
section "About The Investment Portfolio."
THE TRUST
The Trust is organized as a Delaware business trust and is registered with the
Securities and Exchange Commission ("SEC") as an open-end management investment
company. The Trust issues shares of beneficial interest that are currently
divided among forty (40) Portfolios, each of which has authorized Class IA and
Class IB shares. The 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.
The Manager 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 Portfolio will commence operations on ________ ___, 1999. The table below
shows the annual rate of the management fees (as a percentage of the Portfolio's
average daily net assets) that the Manager is entitled to receive in 1999 for
managing the Portfolio.
ANNUAL RATE OF MANAGEMENT FEES
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PORTFOLIO ANNUAL RATE
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Calvert Socially Responsible Portfolio ___%
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EXPENSE LIMITATION AGREEMENT
In the interest of limiting expenses of the Portfolio, the Manager has entered
into an expense limitation agreement with the Trust with respect to the
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 the 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 the 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 rates:
MANAGEMENT EXPENSE LIMITATION FEES
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AMOUNT EXPENSES LIMITED TO
PORTFOLIO (% of daily net assets)
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Calvert Socially Responsible Portfolio ___%
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The 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 the Portfolio has reached a sufficient
asset size to permit such reimbursement to be made without causing the total
annual expense ratio of the Portfolio to exceed the percentage limits stated
above. Consequently, no reimbursement by the 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
The Portfolio has two Advisers that together furnish an investment program for
the Portfolio pursuant to investment advisory agreements with the Manager. The
Advisers make 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 the Advisers 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 the
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.
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The Manager pays each Adviser a fee based on the Portfolio's average daily net
assets. The Portfolio is not responsible for the fees paid on its behalf to the
relevant Adviser.
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 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.
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<PAGE>
FUND DISTRIBUTION ARRANGEMENTS
The Trust offers two classes of shares on behalf of each Portfolio: Class IA
shares and Class IB shares. The Manager serves as one of the distributors for
the Class IA shares of the Trust offered by this Prospectus as well as one of
the distributors for the Class IB shares. Equitable Distributors, Inc. serves as
the other distributor for the Class IA shares of the Trust as well as the Class
IB shares. Both classes of shares are offered and redeemed at their net asset
value without any sales load.
PURCHASE AND REDEMPTION
The price at which a purchase or redemption is effected is based on the next
calculation of net asset value after an order is placed by an insurance company
or qualified retirement plan investing in or redeeming from the Trust.
Net asset value per share is calculated for purchases and redemption of shares
of each Portfolio by dividing the value of total Portfolio assets, less
liabilities (including Trust expenses and class related expenses, which are
accrued daily), by the total number of outstanding shares of that Portfolio. The
net asset value per share of each Portfolio is determined each business day at
4:00 p.m. Eastern time. Net asset value per share is not calculated on days on
which the New York Stock Exchange ("NYSE") is closed for trading.
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 NYSE is closed or during which trading is restricted by the SEC
or the SEC declares that an emergency exists. Redemption may also be suspended
during other periods permitted by the SEC for the protection of the Trust's
shareholders. If the Board of Trustees determines that it would be detrimental
to the best interest of the Trust's remaining shareholders to make payment in
cash, the Trust may pay redemption proceeds in whole or in part by a
distribution-in-kind of readily marketable securities.
HOW ASSETS ARE VALUED
Values are determined according to accepted 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, or in American Depositary Receipt
or similar form, in the United States are valued at representative quoted
prices in the currency in the country of origin. Foreign currency amounts
are translated into U.S. dollars at the bid price last quoted by a
composite list of major U.S. banks. Because foreign markets may be open at
different times than the NYSE, the value of a Portfolio's share may change
on days when shareholders are not able to buy or sell them. If events
materially affecting the values of the Portfolios' foreign investments
occur between the close of foreign markets and the close of regular trading
on the NYSE, these investments may be valued at their fair value.
o Short-term debt securities in the Portfolios which mature in 60 days or
less are valued at amortized cost, which approximates market value.
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o Other securities and assets for which market quotations are not readily
available or for which valuation cannot be provided are valued in good
faith by the Valuation Committee of the Board of Trustees of the Trust
using its best judgment.
TAX INFORMATION
Each Portfolio of the Trust is a separate regulated investment company for
federal income tax purposes. Regulated investment companies are usually not
taxed at the entity (Portfolio) level. They pass through their income and gains
to their shareholders by paying dividends. Their shareholders include this
income on their respective tax returns. A Portfolio will be treated as a
regulated investment company if it meets specified federal income tax rules,
including types of investments, limits on investments, calculation of income,
and dividend payment requirements. Although the Trust intends that it and each
Portfolio will be operated to have no federal tax liability, if they have any
federal tax liability, that could hurt the investment performance of the
Portfolio in question. Also, any Portfolio investing in foreign securities or
holding foreign currencies could be subject to foreign taxes which could reduce
the investment performance of the Portfolio.
It is important for each Portfolio to maintain its federal income tax regulated
investment company status because the shareholders of the Portfolio that are
insurance company separate accounts will then be able to use a favorable federal
income tax investment diversification testing rule in 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.
PRIOR PERFORMANCE OF THE ADVISERS
The following table provides information concerning the historical performance
of another registered investment company (or series) managed by the Advisers
that has investment objectives, policies, strategies and risks substantially
similar to those of the Portfolio of the Trust for which they serve as Advisers.
The data is provided to illustrate the past performance of the Advisers in
managing a substantially similar investment vehicle as measured against
specified market indices. This data does not represent the past performance of
the Portfolio or the future performance of the Portfolio or its Advisers.
Consequently, potential investors should not consider this performance data as
an indication of the future performance of the Portfolio of the Trust or of its
Advisers.
The Advisers' performance data shown below for another registered investment
company (or series) was calculated in accordance with standards prescribed by
the SEC for the calculation of average annual total return information for
registered investment companies. The performance shown for the multiple-manager
Calvert Social Investment Fund ("CSIF") Balanced Portfolio has been adjusted to
show only that portion of the portfolio for which Brown Capital serves as
sub-adviser (the "Brown Capital Portion"). The investment policies of the Brown
Capital Portion are substantially similar to those of the new Portfolio
described in this Prospectus. Average annual total return reflects changes in
share prices and reinvestment of dividends and distributions and is net of fund
expenses. In each such instance, the share prices and investment returns will
fluctuate, reflecting market conditions as well as changes in company-specific
fundamentals of portfolio securities.
The performance results for the registered investment company presented below
are subject to lower fees and expenses than the Portfolio 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
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<PAGE>
expenses relating to such insurance contracts. The performance results presented
below do not reflect any insurance related expenses and would be reduced if such
charges were reflected.
The investment results presented below are unaudited. For more information on
the specified market indices used below, see the section "The Benchmarks." 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>
- -------------------------------------------------------------------------------------------------------------------------
ANNUAL RATES OF RETURN OF OTHER FUNDS OR ACCOUNTS
MANAGED BY THE ADVISER
AS OF 12/31/98
- ----------------------------------------------------- ------------ -------------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
OTHER FUND OR ACCOUNT MANAGED BY ADVISER 1 5 10 SINCE INCEPTION
(EQAT Portfolio) YEAR YEARS YEARS INCEPTION DATE
- -----------------------------------------------------
Benchmark
- ----------------------------------------------------- ------------ -------------- ------------- ------------ ------------
CSIF BALANCED PORTFOLIO (BROWN CAPITAL PORTION) (1) 31.69% N/A N/A 30.29% 10/1/96 (2)
(Calvert Socially Responsible Portfolio)
- ----------------------------------------------------- ------------ -------------- ------------- ------------ ------------
S&P 500 Index (3) 28.58% N/A N/A 31.69%
- ----------------------------------------------------- ------------ -------------- ------------- ------------ ------------
</TABLE>
1 Performance for the Class A shares of the CSIF Balanced Portfolio (Brown
Capital Portion only). The Class A shares are in many instances subject to
a front-end sales charge of up to 4.75%. Other share classes have different
expenses and their performance will vary. Prior to December 1, 1998, the
Portfolio was known as CSIF Managed Growth Portfolio.
2 The date that Brown Capital began to manage assets for the CSIF Balanced
Portfolio.
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.
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[BACK COVER]
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 September 1, 1999, is incorporated into this Prospectus by
reference and is available upon request free of charge by calling our toll free
number at 1-888-855-5100.
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
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<PAGE>
EQ ADVISORS TRUST
PROSPECTUS
September 1, 1999
This Prospectus describes one (1) of the Portfolios offered by EQ Advisors
Trust. The 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 PORTFOLIO
- -------------------------
Calvert Socially Responsible Portfolio
You should be aware that the Securities and Exchange Commission has not approved
or disapproved of the investment merit of this Portfolio or determined if this
Prospectus is accurate or complete. Any representation to the contrary is a
criminal offense.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. EQ
ADVISORS TRUST MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS
IS NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY
THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
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EQ ADVISORS TRUST
This Prospectus tells you about one (1) of the Portfolios of the EQ Advisors
Trust ("Trust") and the Class IB shares offered by the Trust on behalf of the
Portfolio. The Trust is an open-end management investment company. The Portfolio
is a separate series of the Trust with its own investment objective, investment
strategies and risks, which are described in this Prospectus. The Portfolio is
diversified for purposes of the Investment Company Act of 1940, as amended
("1940 Act").
The Trust's shares are currently sold (i) to insurance company separate accounts
in connection with variable life insurance contracts and variable annuity
certificates and contracts (the "Contract" or collectively, the "Contracts")
issued by The Equitable Life Assurance Society of the United States
("Equitable") and Equitable of Colorado, Inc. ("EOC") as well as insurance
companies that are not affiliated with Equitable or EOC ("non-affiliated
insurance companies"), and (ii) to The Equitable Investment Plan for Employees,
Managers and Agents ("Equitable Plan"). The prospectus is designed to help you
make informed decisions about the Portfolio that is 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.
The new Portfolio has two investment advisers ("Advisers"), Calvert Asset
Management Company, Inc. ("Calvert") and Brown Capital Management, Inc. ("Brown
Capital"). Information about the Advisers for the Portfolio is contained in the
description in the section entitled "About the Investment Portfolio." The
Manager has the ultimate responsibility to oversee each of the Advisers of the
Trust's Portfolios 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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<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY INFORMATION CONCERNING EQ ADVISORS TRUST..................................................................4
ABOUT THE INVESTMENT PORTFOLIO....................................................................................5
DOMESTIC EQUITY PORTFOLIO......................................................................................7
CALVERT SOCIALLY RESPONSIBLE PORTFOLIO......................................................................7
MORE INFORMATION ON PRINCIPAL RISKS...............................................................................9
MANAGEMENT OF THE TRUST..........................................................................................11
THE TRUST.....................................................................................................11
THE MANAGER...................................................................................................11
EXPENSE LIMITATION AGREEMENT..................................................................................12
THE ADVISERS..................................................................................................12
THE ADMINISTRATOR.............................................................................................13
THE TRANSFER AGENT............................................................................................13
BROKERAGE PRACTICES...........................................................................................13
BROKERAGE TRANSACTIONS WITH AFFILIATES........................................................................13
FUND DISTRIBUTION ARRANGEMENTS...................................................................................14
PURCHASE AND REDEMPTION..........................................................................................14
HOW ASSETS ARE VALUED............................................................................................14
TAX INFORMATION..................................................................................................15
PRIOR PERFORMANCE OF THE ADVISERS................................................................................15
</TABLE>
<PAGE>
SUMMARY INFORMATION CONCERNING EQ ADVISORS TRUST
The following chart highlights the Portfolio described in this Prospectus that
you can choose as an investment alternative under your Contracts offered by
Equitable or EOC and non-affiliated insurance companies. The chart and
accompanying information identify the 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 ___.
[Two-page spread]
<TABLE>
<CAPTION>
EQ ADVISORS TRUST
DOMESTIC EQUITY PORTFOLIO
<S> <C> <C>
Part A
--------------------------------------------- -----------------------------------------------------
PORTFOLIO INVESTMENT OBJECTIVE(S)
--------------------------------------------- -----------------------------------------------------
CALVERT SOCIALLY RESPONSIBLE PORTFOLIO Seeks long-term capital appreciation.
--------------------------------------------- -----------------------------------------------------
EQ ADVISORS TRUST
DOMESTIC EQUITY PORTFOLIO
Part B
------------------------------------------------- -------------------------------------------------
PRINCIPAL INVESTMENT STRATEGIES PRINCIPAL RISKS
------------------------------------------------- -------------------------------------------------
Common stocks of medium to large U.S. companies General investment, growth investing, small-cap
that meet both investment and social criteria. and mid-cap company, liquidity, and derivatives
risks.
------------------------------------------------- -------------------------------------------------
</TABLE>
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<PAGE>
ABOUT THE INVESTMENT PORTFOLIO
This section of the Prospectus provides a more complete description of the
principal investment objectives, strategies, and risks of the Portfolio offered
by this Prospectus. Of course, there can be no assurance that the 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 the Portfolio in this section of the Prospectus.
o Additional information concerning the Portfolio's strategies, investments,
and risks can also be found in the Trust's Statement of Additional
Information.
GENERAL INVESTMENT RISKS
The Portfolio is subject to the following risks:
ASSET CLASS RISK: The returns from the types of securities in which the
Portfolio invest 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 the 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 the Portfolio's Advisers 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: The Portfolio could be adversely affected if the
computer systems used by the Trust, 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
("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
Portfolio. This risk is greater for a Portfolio that makes 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.
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<PAGE>
THE BENCHMARKS
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 the Portfolio is likely to select its
holdings.
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 market. The S&P 500
reflects the reinvestment of dividends, if any, but does not reflect fees,
brokerage commissions or other expenses of investing.
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<PAGE>
DOMESTIC EQUITY PORTFOLIO
CALVERT SOCIALLY RESPONSIBLE PORTFOLIO
INVESTMENT OBJECTIVE: Seeks long-term capital appreciation.
THE INVESTMENT STRATEGY
The Portfolio invests primarily in common stocks of medium to large U.S.
companies that meet both investment and social criteria. Potential investments
for the Portfolio are first selected by Brown Capital for financial soundness
and then evaluated by Calvert according to the Portfolio's social criteria.
[Sidebar: For purposes of this Portfolio, companies having market
capitalizations greater than $500 million are considered medium to large
companies.]
Investment Criteria. Brown Capital's investment process balances the growth
potential of investments with the price or value of the investment in order to
identify stocks that offer above average growth potential at reasonable prices.
Brown Capital evaluates each stock in terms of its growth potential, the return
on risk-free investments, and the specific risk features of the company to
determine the reasonable price for the stock.
The Portfolio may invest up to 15% of its net assets in illiquid securities,
which are securities that cannot be readily sold because there is no active
market for them.
The Portfolio may invest in derivative instruments, such as foreign currency
contracts (up to 5% of its total assets), options on securities and indices (up
to 5% of its total assets), and futures contracts (up to 5% of its net assets).
When market or financial conditions warrant, the Portfolio may invest a
substantial portion of its assets in short-term obligations for temporary or
defensive purposes. If such action is taken, it will detract from achievement of
the Portfolio's investment objective during such periods.
Social Criteria. Calvert analyzes investments with the philosophy that long-term
rewards to investors will come from those organizations whose products, services
and methods enhance the human condition and the traditional American values of
individual initiative, equality of opportunity and cooperative effort. These
criteria represent standards of behavior which few, if any, organizations
totally satisfy. As a matter of practice, evaluation of a particular
organization in the context of these criteria will involve subjective judgment
by Calvert.
The Portfolio seeks to invest in companies that:
o deliver safe products and services in ways that sustain our
natural environment. For example, the Portfolio looks for
companies that produce energy from renewable resources, while
avoiding consistent polluters;
o manage with participation throughout the organization in defining
and achieving objectives. For example, the Portfolio looks for
companies that offer employee stock ownership or profit-sharing
plans;
o negotiate fairly with their workers, provide an environment
supportive of their wellness, do not discriminate on the basis of
race, gender, religion, age, disability, ethnic origin, or sexual
orientation, do not consistently violate regulations of the U.S.
Equal Employment Opportunity Commission, and provide opportunities
for women, disadvantaged minorities,
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<PAGE>
and others for whom equal pportunities have often been denied.
For example, the Portfolio considers both unionized and non-union
firms with good labor relations; and
o foster awareness of a commitment to human goals, such as
creativity, productivity, self-respect and responsibility, within
the organization and the world, and continually recreates a
context within which these goals can be realized. For example, the
Portfolio looks for companies with an above average commitment to
community affairs and charitable giving.
The Portfolio will not invest in companies that Calvert determines to be
significantly engaged in:
o production of or the manufacture of equipment to produce, nuclear
energy;
o business activities in support of repressive regimes;
o manufacture of weapon systems;
o manufacture of alcoholic beverages or tobacco products; or
o operation of gambling casinos.
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 markets.
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 of technologies
of such companies may be at a relatively early stage of development or not fully
tested.
LIQUIDITY RISK: Certain securities held by the Portfolio may be difficult (or
impossible) to sell at the time and at the price the seller would like which may
cause the Portfolio to lose money or be prevented from earning capital gains.
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 inception date for this Portfolio is _______ ___, 1999. Therefore, no prior
performance information is available.
WHO MANAGES THE PORTFOLIO
CALVERT ASSET MANAGEMENT COMPANY, INC. ("Calvert"), 4550 Montgomery Avenue,
Suite 1000N, Bethesda, Maryland 20814, a subsidiary of Calvert Group Ltd., which
is a subsidiary of Acacia Mutual Life Insurance Company of Washington, DC
("Acacia Mutual"). On January 1, 1999, Acacia
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<PAGE>
Mutual merged with and became a controlled subsidiary of Ameritas Acacia Mutual
Holding Company. Calvert has been the Adviser to the Portfolio since it
commenced operations. It has been managing mutual funds since 1976. Calvert is
the investment adviser for over 25 mutual funds, including the first and largest
family of socially screened funds. Calvert provides the social investment
research for the Portfolio. As of December 31, 1998, Calvert had $6 billion in
assets under management.
BROWN CAPITAL MANAGEMENT, INC. ("Brown Capital"), 809 Cathedral Street,
Baltimore, Maryland 21201. Brown Capital makes the initial investment selections
for the Portfolio, which are then screened by Calvert against the Portfolio's
social criteria. Brown Capital uses a "bottom-up" approach that incorporates
growth-adjusted price earnings, concentrating on mid to large capitalization
domestic growth stocks.
EDDIE C. BROWN, founder and President of Brown Capital, heads the management
team for the Portfolio. He has over 24 years of investment management
experience, and has held positions with T. Rowe Price and Irwing Management
Company. Mr. Brown is a frequent panelist on "Wall Street Week with Louis
Rukeyser" and is a member of the Wall Street Week Hall of Fame.
MORE INFORMATION ON PRINCIPAL RISKS
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 the Portfolio's shares may be affected by the
Portfolio's investment objective(s), principal investment strategies and
particular risk factors. Consequently, the Portfolio may be subject to different
principal risks. Some of the principal risks of investing in the Portfolio are
discussed below. However, other factors may also affect the Portfolio's net
asset value.
There is no guarantee that the Portfolio will achieve its investment
objective(s) or that it will not lose principal value.
GENERAL INVESTMENT RISKS: The Portfolio is subject to the following risks:
ASSET CLASS RISK: There is the possibility that the returns from the
types of securities in which the 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: The 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 the Portfolio rely on the
insights of different specialists in making investment decisions based
on the Portfolio's particular investment objective(s) and investment
strategies. There is the possibility that the specific securities held
by the 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
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<PAGE>
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. 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.
As indicated in "Summary Information Concerning EQ Advisors Trust" and "About
the Investment Portfolio," the Portfolio may also be subject to the following
risks:
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. The Portfolio 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.
GROWTH INVESTING RISK: Growth investing generally focuses on companies that, due
to their strong earnings and revenue potential, offer above-average prospects
for capital growth, with less emphasis on dividend income. Earnings
predictability and confidence in earnings forecasts are an important part of the
selection process. As a result, the price of growth stocks may be more sensitive
to changes in current or expected earnings than the prices of other stocks.
Advisers using this approach generally seek out companies experiencing some or
all of the following: high sales growth, high unit growth, high or improving
returns on assets and equity, and a strong balance sheet. Such Advisers also
prefer companies with a competitive advantage such as unique management,
marketing or research and development. Growth investing is also subject to the
risk that the stock price of one or more companies will fall or will fail to
appreciate as anticipated by the Advisers, regardless of movements in the
securities market.
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. The
Portfolio may have to hold these securities longer than it would like and may
forego other investment opportunities. There is the possibility that the
Portfolio may lose money or be prevented from earning capital gains if it can
not sell a security at the time and price that
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is most beneficial to the Portfolio. A Portfolio that invests in
privately-placed securities, high-yield bonds, mortgage-backed securities or
foreign or emerging markets securities, which have all experienced periods of
illiquidity, is subject to liquidity risks.
SMALL-CAP AND MID-CAP COMPANY RISK: The 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.
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.
MANAGEMENT OF THE TRUST
This section gives you information on the Trust, the Manager and the Advisers
for the Portfolio. More detailed information concerning the each of the Advisers
and portfolio manager is included in the description for the Portfolio in the
section "About The Investment Portfolio."
THE TRUST
The Trust is organized as a Delaware business trust and is registered with the
Securities and Exchange Commission ("SEC") as an open-end management investment
company. The Trust issues shares of beneficial interest that are currently
divided among forty (40) Portfolios, each of which has authorized Class IA and
Class IB shares. The 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.
The Manager 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 Portfolio will commence operations on ________ ___, 1999. The table below
shows the annual rate of the management fees (as a percentage of the Portfolio's
average daily net assets) that the Manager is entitled to receive in 1999 for
managing the Portfolio.
ANNUAL RATE OF MANAGEMENT FEES
------------------------------------------------ ------------------------
PORTFOLIO ANNUAL RATE
------------------------------------------------ ------------------------
------------------------------------------------ ------------------------
Calvert Socially Responsible Portfolio ___%
------------------------------------------------ ------------------------
EXPENSE LIMITATION AGREEMENT
In the interest of limiting expenses of the Portfolio, the Manager has entered
into an expense limitation agreement with the Trust with respect to the
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 the 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 the 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 rates:
MANAGEMENT EXPENSE LIMITATION FEES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------- ---------------------------------------
AMOUNT EXPENSES LIMITED TO
PORTFOLIO (% of daily net assets)
- ----------------------------------------------------------------------------- ---------------------------------------
<S> <C>
Calvert Socially Responsible Portfolio ___%
- ----------------------------------------------------------------------------- ---------------------------------------
</TABLE>
The 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 the Portfolio has reached a sufficient
asset size to permit such reimbursement to be made without causing the total
annual expense ratio of the Portfolio to exceed the percentage limits stated
above. Consequently, no reimbursement by the 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
The Portfolio has two Advisers that together furnish an investment program for
the Portfolio pursuant to investment advisory agreements with the Manager. The
Advisers make 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 the Advisers 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 the
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.
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The Manager pays each Adviser a fee based on the Portfolio's average daily net
assets. The Portfolio is not responsible for the fees paid on its behalf to the
relevant Adviser.
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 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.
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FUND DISTRIBUTION ARRANGEMENTS
The Trust offers two classes of shares on behalf of each Portfolio: Class IA
shares and Class IB shares. The 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.
PURCHASE AND REDEMPTION
The price at which a purchase or redemption is effected is based on the next
calculation of net asset value after an order is placed by an insurance company
or qualified retirement plan investing in or redeeming from the Trust.
Net asset value per share is calculated for purchases and redemption of shares
of each Portfolio by dividing the value of total Portfolio assets, less
liabilities (including Trust expenses and class related expenses, which are
accrued daily), by the total number of outstanding shares of that Portfolio. The
net asset value per share of each Portfolio is determined each business day at
4:00 p.m. Eastern time. Net asset value per share is not calculated on days on
which the New York Stock Exchange ("NYSE") is closed for trading.
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 NYSE is closed or during which trading is restricted by the SEC
or the SEC declares that an emergency exists. Redemption may also be suspended
during other periods permitted by the SEC for the protection of the Trust's
shareholders. If the Board of Trustees determines that it would be detrimental
to the best interest of the Trust's remaining shareholders to make payment in
cash, the Trust may pay redemption proceeds in whole or in part by a
distribution-in-kind of readily marketable securities.
HOW ASSETS ARE VALUED
Values are determined according to accepted 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, or in American Depositary Receipt
or similar form, in the United States are valued at representative quoted
prices in the currency in the country of origin. Foreign currency amounts
are translated into U.S. dollars at the bid price last quoted by a
composite list of major U.S. banks. Because foreign markets may be open at
different times than the NYSE, the value of a Portfolio's share may change
on days when shareholders are not able to buy or sell them. If events
materially affecting the values of the Portfolios' foreign investments
occur between the close of foreign markets and the close of regular trading
on the NYSE, these investments may be valued at their fair value.
o Short-term debt securities in the Portfolios which mature in 60 days or
less are valued at amortized cost, which approximates market value.
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o Other securities and assets for which market quotations are not readily
available or for which valuation cannot be provided are valued in good
faith by the Valuation Committee of the Board of Trustees of the Trust
using its best judgment.
TAX INFORMATION
Each Portfolio of the Trust is a separate regulated investment company for
federal income tax purposes. Regulated investment companies are usually not
taxed at the entity (Portfolio) level. They pass through their income and gains
to their shareholders by paying dividends. Their shareholders include this
income on their respective tax returns. A Portfolio will be treated as a
regulated investment company if it meets specified federal income tax rules,
including types of investments, limits on investments, calculation of income,
and dividend payment requirements. Although the Trust intends that it and each
Portfolio will be operated to have no federal tax liability, if they have any
federal tax liability, that could hurt the investment performance of the
Portfolio in question. Also, any Portfolio investing in foreign securities or
holding foreign currencies could be subject to foreign taxes which could reduce
the investment performance of the Portfolio.
It is important for each Portfolio to maintain its federal income tax regulated
investment company status because the shareholders of the Portfolio that are
insurance company separate accounts will then be able to use a favorable federal
income tax investment diversification testing rule in 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.
PRIOR PERFORMANCE OF THE ADVISERS
The following table provides information concerning the historical performance
of another registered investment company (or series) managed by the Advisers
that has investment objectives, policies, strategies and risks substantially
similar to those of the Portfolio of the Trust for which they serve as Advisers.
The data is provided to illustrate the past performance of the Advisers in
managing a substantially similar investment vehicle as measured against
specified market indices. This data does not represent the past performance of
the Portfolio or the future performance of the Portfolio or its Advisers.
Consequently, potential investors should not consider this performance data as
an indication of the future performance of the Portfolio of the Trust or of its
Advisers.
The Advisers' performance data shown below for another registered investment
company (or series) was calculated in accordance with standards prescribed by
the SEC for the calculation of average annual total return information for
registered investment companies. The performance shown for the multiple-manager
Calvert Social Investment Fund ("CSIF") Balanced Portfolio has been adjusted to
show only that portion of the portfolio for which Brown Capital serves as
sub-adviser (the "Brown Capital Portion"). The investment policies of the Brown
Capital Portion are substantially similar to those of the new Portfolio
described in this Prospectus. Average annual total return reflects changes in
share prices and reinvestment of dividends and distributions and is net of fund
expenses. In each such instance, the share prices and investment returns will
fluctuate, reflecting market conditions as well as changes in company-specific
fundamentals of portfolio securities.
The performance results for the registered investment company presented below
are subject to lower fees and expenses than the Portfolio 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
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expenses relating to such insurance contracts. The performance results presented
below do not reflect any insurance related expenses and would be reduced if such
charges were reflected.
The investment results presented below are unaudited. For more information on
the specified market indices used below, see the section "The Benchmarks." 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>
- -------------------------------------------------------------------------------------------------------------------------
ANNUAL RATES OF RETURN OF OTHER FUNDS OR ACCOUNTS
MANAGED BY THE ADVISER
AS OF 12/31/98
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------- ------------ -------------- ------------- ------------ ------------
OTHER FUND OR ACCOUNT MANAGED BY ADVISER 1 5 10 SINCE INCEPTION
(EQAT Portfolio) YEAR YEARS YEARS INCEPTION DATE
- -----------------------------------------------------
Benchmark
- ----------------------------------------------------- ------------ -------------- ------------- ------------ ------------
CSIF BALANCED PORTFOLIO (BROWN CAPITAL PORTION) (1) 31.69% N/A N/A 30.29% 10/1/96 (2)
(Calvert Socially Responsible Portfolio)
- ----------------------------------------------------- ------------ -------------- ------------- ------------ ------------
S&P 500 Index (3) 28.58% N/A N/A 31.69%
- ----------------------------------------------------- ------------ -------------- ------------- ------------ ------------
</TABLE>
1 Performance for the Class A shares of the CSIF Balanced Portfolio
(Brown Capital Portion only). The Class A shares are in many instances
subject to a front-end sales charge of up to 4.75%. Other share classes
have different expenses and their performance will vary. Prior to
December 1, 1998, the Portfolio was known as CSIF Managed Growth
Portfolio.
2 The date that Brown Capital began to manage assets for the CSIF Balanced
Portfolio.
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.
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[BACK COVER]
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 September 1, 1999, is incorporated into this Prospectus by
reference and is available upon request free of charge by calling our toll free
number at 1-888-855-5100.
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
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EQ ADVISORS TRUST
STATEMENT OF ADDITIONAL INFORMATION
SEPTEMBER 1, 1999
This Statement of Additional Information is not a prospectus. It should be read
in conjunction with the Prospectus for the EQ Advisors Trust ("Trust") dated
September 1, 1999, which may be obtained without charge by writing to the Trust
at 1290 Avenue of the Americas, New York, New York 10104. Unless otherwise
defined herein, capitalized terms have the meanings given to them in the
Prospectus.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
TRUST HISTORY.....................................................................................................2
DESCRIPTION OF THE TRUST AND ITS INVESTMENTS AND RISKS............................................................2
TRUST POLICIES....................................................................................................3
INVESTMENT STRATEGIES AND RISKS...................................................................................9
MANAGEMENT OF THE TRUST..........................................................................................39
INVESTMENT MANAGEMENT AND OTHER SERVICES.........................................................................44
BROKERAGE ALLOCATION AND OTHER STRATEGIES........................................................................53
PURCHASE AND PRICING OF SHARES...................................................................................57
REDEMPTION OF SHARES.............................................................................................59
TAXATION.........................................................................................................59
PORTFOLIO PERFORMANCE............................................................................................60
Alliance Money Market Portfolio Yield............................................................................60
OTHER SERVICES...................................................................................................62
FINANCIAL STATEMENTS.............................................................................................62
</TABLE>
THE INFORMATION IN THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT COMPLETE AND
MAY BE CHANGED. EQ ADVISORS TRUST MAY NOT SELL THESE SECURITIES UNTIL THE
REGISTATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS
EFFECTIVE. THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT AN OFFER TO SELL
THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITES IN ANY
STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
TRUST HISTORY
EQ Advisors Trust (the "Trust") is an open-end management investment company and
is registered as such under the Investment Company Act of 1940, as amended
("1940 Act"). The Trust is organized as a Delaware business trust and was formed
on October 31, 1996 under the name "787 Trust." The Trust changed its name to
"EQ Advisors Trust" effective November 25, 1996.
DESCRIPTION OF THE TRUST AND ITS INVESTMENTS AND RISKS
The Trust currently offers two classes of shares on behalf of each of the
following Portfolios: the Alliance Aggressive Stock Portfolio, Alliance Balanced
Portfolio, Alliance Common Stock Portfolio, Alliance Conservative Investors
Portfolio, Alliance Equity Index Portfolio, Alliance Global Portfolio, Alliance
Growth and Income Portfolio, Alliance Growth Investors Portfolio, Alliance High
Yield Portfolio, Alliance Intermediate Government Securities Portfolio, Alliance
International Portfolio, Alliance Money Market Portfolio, Alliance Quality Bond
Portfolio, and Alliance Small Cap Growth Portfolio (collectively referred to
herein as the "Alliance Portfolios"), T. Rowe Price International Stock
Portfolio, T. Rowe Price Equity Income Portfolio, EQ/Putnam Growth & Income
Value Portfolio, EQ/Putnam International Equity Portfolio, EQ/Putnam Investors
Growth Portfolio, EQ/Putnam Balanced Portfolio, MFS Research Portfolio, MFS
Emerging Growth Companies Portfolio, MFS Growth with Income Portfolio, Morgan
Stanley Emerging Markets Equity Portfolio, Warburg Pincus Small Company Value
Portfolio, Merrill Lynch World Strategy Portfolio, Merrill Lynch Basic Value
Equity Portfolio, Lazard Large Cap Value Portfolio, Lazard Small Cap Value
Portfolio, JPM Core Bond Portfolio, BT Small Company Index Portfolio, BT
International Equity Index Portfolio, BT Equity 500 Index Portfolio,
EQ/Evergreen Foundation Portfolio, EQ/Evergreen Portfolio, EQ/Alliance Premier
Growth Portfolio, Capital Guardian Research Portfolio, Capital Guardian U.S.
Equity Portfolio, and Capital Guardian International {PORTFOLIO, AND CALVERT
SOCIALLY RESPONSIBLE} Portfolio (collectively, together with the Alliance
Portfolios, referred to herein as the "Portfolios"). Class IA shares are offered
at net asset value and are not subject to distribution fees imposed pursuant to
a distribution plan. Class IB shares are offered at net asset value and are
subject to distribution fees imposed under a distribution plan ("Class IB
Distribution Plan") adopted pursuant to Rule 12b-1 under the 1940 Act.
Both classes of shares are offered under the Trust's multi-class distribution
system, which is designed to allow promotion of insurance products investing in
the Trust through alternative distribution channels. Under the Trust's
multi-class distribution system, shares of each class of a Portfolio represent
an equal pro rata interest in that Portfolio and, generally, will have identical
voting, dividend, liquidation, and other rights, preferences, powers,
restrictions, limitations, qualifications and terms and conditions, except that:
(a) each class shall have a different designation; (b) each class of shares
shall bear its "Class Expenses;" (c) each class shall have exclusive voting
rights on any matter submitted to shareholders that relates solely to its
distribution arrangements; (d) each class shall have separate voting rights on
any matter submitted to shareholders in which the interests of one class differ
from the interests of any other class; (e) each class may have separate exchange
privileges, although exchange privileges are not currently contemplated; and (f)
each class may have different conversion features, although a conversion feature
is not currently contemplated. Expenses currently designated as "Class Expenses"
by the Trust's Board of Trustees under the plan pursuant to Rule 18f-3 are
currently limited to payments made to the Distributors for the Class IB shares
pursuant to the Class IB Distribution Plan adopted pursuant to Rule 12b-1 under
the 1940 Act.
The Trust's shares are currently sold to: (i) insurance company separate
accounts in connection with variable life insurance contracts and variable
annuity certificates and contracts (the "Contract" or collectively, the
"Contracts") issued by The Equitable Life Assurance Society of the United States
("Equitable") and Equitable of Colorado, Inc. ("EOC"); as well as insurance
company separate accounts of: Integrity Life Insurance Company; American
Franklin Life Insurance Company; and Transamerica
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Occidental Life Insurance Company, each of which is unaffiliated with Equitable
and (ii) to The Equitable Investment Plan for Employees, Managers and Agents
("Equitable Plan").
The Trust does not currently foresee any disadvantage to policy owners arising
from offering the Trust's shares to separate accounts of insurance companies
that are unaffiliated with each other. However, it is theoretically possible
that the interests of owners of various policies participating in the Trust
through separate accounts might at some time be in conflict. In the case of a
material irreconcilable conflict, one or more separate accounts might withdraw
their investments in the Trust, which might force the Trust to sell portfolio
securities at disadvantageous prices.
LEGAL CONSIDERATIONS
Under Delaware law, annual election of Trustees is not required, and, in the
normal course, the Trust does not expect to hold annual meetings of
shareholders. There will normally be no meetings of shareholders for the purpose
of electing Trustees unless and until such time as less than a majority of the
Trustees holding office have been elected by shareholders, at which time the
Trustees then in office will call a shareholders' meeting for the election of
Trustees. Pursuant to the procedures set forth in Section 16(c) of the 1940 Act,
shareholders of record of not less than two-thirds of the outstanding shares of
the Trust may remove a Trustee by a vote cast in person or by proxy at a meeting
called for that purpose.
Except as set forth above, the Trustees will continue to hold office and may
appoint successor Trustees. Voting rights are not cumulative, so that the
holders of more than 50% of the shares voting in the election of Trustees can,
if they choose to do so, elect all the Trustees of the Trust, in which event the
holders of the remaining shares will be unable to elect any person as a Trustee.
The Amended and Restated Declaration of Trust of the Trust requires the
affirmative vote of a majority of the outstanding shares of the Trust.
The shares of each Portfolio, when issued, will be fully paid and non-assessable
and will have no preference, preemptive, conversion, exchange or similar rights.
TRUST POLICIES
FUNDAMENTAL RESTRICTIONS
Each Portfolio has also adopted certain investment restrictions that are
fundamental and may not be changed without approval by a "majority" vote of the
Portfolio's shareholders. Such majority is defined in the 1940 Act as the lesser
of: (i) 67% or more of the voting securities of such Portfolio present in person
or by proxy at a meeting, if the holders of more than 50% of the outstanding
voting securities are present or represented by proxy; or (ii) more than 50% of
the outstanding voting securities of such Portfolio. Set forth below are each of
the fundamental restrictions adopted by each of the Portfolios. Fundamental
policies (5) and (6) below shall not apply to the Morgan Stanley Emerging
Markets Equity Portfolio, the Merrill Lynch World Strategy Portfolio and the
Lazard Small Cap Value Portfolio. Certain non-fundamental operating policies are
also described in this section because of their direct relevance to the
fundamental restrictions adopted by the Portfolios.
Each Portfolio, except as described directly above, may not as a matter of
fundamental policy:
(1) Borrow money, except that:
a. each Portfolio may (i) borrow for non-leveraging, temporary or
emergency purposes (except the Lazard Large Cap Value Portfolio,
which may also borrow for leveraging purposes) and (ii) engage in
reverse repurchase agreements, make other investments or engage
in other
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transactions, which may involve a borrowing, in a manner
consistent with the Portfolios' respective investment objective
and program, provided that the combination of (i) and (ii) shall
not exceed 33 1/3% of the value of the Portfolios' respective
total assets (including the amount borrowed) less liabilities
(other than borrowings) or such other percentage permitted by law
(except that the Merrill Lynch World Strategy Portfolio and the
Merrill Lynch Basic Value Equity Portfolio may purchase
securities on margin to the extent permitted by applicable law).
Any borrowings which come to exceed this amount will be reduced
in accordance with applicable law. Each Portfolio may borrow from
banks or other persons to the extent permitted by applicable law.
In addition, the Lazard Large Cap Value Portfolio may borrow for
leveraging purposes (in order to increase its investment in
portfolio securities) to the extent that the amount so borrowed
does not exceed 33 1/3% of the Portfolio's total assets
(including the amount borrowed) less liabilities (other than
borrowings);
b. as a matter of non-fundamental operating policy, no Portfolio,
except the Lazard Large Cap Value Portfolio, will purchase
additional securities when money borrowed exceeds 5% of its total
assets;
c. the EQ/Putnam Growth & Income Value Portfolio, EQ/Putnam
International Equity Portfolio, EQ/Putnam Investors Growth
Portfolio, EQ/Putnam Balanced Portfolio, and Lazard Large Cap
Value Portfolio each, as a matter of non-fundamental operating
policy, may borrow only from banks (i) as a temporary measure to
facilitate the meeting of redemption requests (not for leverage)
which might otherwise require the untimely disposition of
portfolio investments or (ii) for extraordinary or emergency
purposes, provided that the combination of (i) and (ii) shall not
exceed 10% of the applicable Portfolio's net assets (taken at
lower of cost or current value), not including the amount
borrowed, at the time the borrowing is made. Each Portfolio will
repay borrowings made for the purposes specified above before any
additional investments are purchased;
d. the Merrill Lynch World Strategy Portfolio, as a matter of
fundamental policy, and the Merrill Lynch Basic Value Equity
Portfolio, as a matter of non-fundamental operating policy, may,
to the extent permitted by applicable law, borrow up to an
additional 5% of their respective total assets for temporary
purposes;
e. the Lazard Small Cap Value Portfolio, as a matter of
non-fundamental operating policy, may borrow only from banks (i)
as a temporary measure to facilitate the meeting of redemption
requests (not for leverage) which might otherwise require the
untimely disposition of portfolio investments or (ii) for
extraordinary or emergency purposes, provided that the
combination of (i) and (ii) shall not exceed 15% of the
Portfolio's net assets, not including the amount borrowed, at the
time the borrowing is made. The Lazard Small Cap Value Portfolio
will repay borrowings before any additional investments are
purchased;
f. the Warburg Pincus Small Company Value Portfolio and JPM Core
Bond Portfolio, each as a matter of non-fundamental operating
policy, may borrow only from banks for extraordinary or emergency
purposes, provided such amount shall not exceed 30% of the
respective Portfolio's total assets, not including the amount
borrowed, at the time the borrowing is made;
g. EQ/Evergreen Portfolio and EQ/Evergreen Foundation Portfolio,
each as a matter of non-fundamental policy, may, in addition to
the amount specified above, also borrow up to an additional 5% of
its total assets from banks or other lenders;
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<PAGE>
h. the MFS Growth with Income Portfolio, as a matter of
non-fundamental policy, may borrow up to 10% of its total assets
(taken at cost), or its net assets (taken at market value),
whichever is less, but only as a temporary measure for
extraordinary or emergency purposes;
i. the EQ/Alliance Premier Growth Portfolio, Capital Guardian
Research Portfolio, Capital Guardian U.S. Equity Portfolio and
Capital Guardian International Portfolio, as a matter of
non-fundamental operating policy, may only borrow for temporary
or emergency purposes, provided such amount shall not exceed 5%
of the Portfolio's total assets at the time the borrowing is
made;
j. The Alliance Portfolios, as a matter of non-fundamental operating
policy, may borrow money only from banks: (i) for temporary
purposes; (ii) to pledge assets to banks in order to transfer
funds for various purposes as required without interfering with
the orderly liquidation of securities in a Portfolio (but not for
leveraging purposes); (iii) to make margin payments or pledges in
connection with options, futures contracts, options on futures
contracts, forward contracts or options on foreign currencies; or
(iv) with respect to Alliance Quality Bond Portfolio, to
transactions in interest rate swaps, caps and floors.
(2) Purchase or sell physical commodities, except that it may (i) enter into
futures contracts and options thereon in accordance with applicable law and (ii)
purchase or sell physical commodities if acquired as a result of ownership of
securities or other instruments. No Portfolio will consider stock index futures
contracts, currency contracts, hybrid investments, swaps or other similar
instruments to be commodities;
(3) Purchase the securities of any issuer if, as a result, more than 25% of the
value of the Portfolio's total assets would be invested in the securities of
issuers having their principal business activities in the same industry. This
restriction does not apply to investments by the Alliance Money Market Portfolio
in certificates of deposit or securities issued and guaranteed by domestic
banks. In addition, the United States, state or local governments, or related
agencies or instrumentalities are not considered an industry. Industries are
determined by reference to the classifications of industries set forth in each
Portfolio's semi-annual and annual reports;
(4) Make loans, except that:
a. This restriction shall not apply to the Alliance High Yield
Portfolio and Alliance Intermediate Government Securities
Portfolio and each may make secured loans, including lending cash
or portfolio securities without limitation.
b. each other Portfolio may: (i) lend portfolio securities provided
that no such loan may be made if, as a result, the aggregate of
such loans would exceed 33 1/3% (50% in the case of each of the
other Alliance Portfolios) of the value of the Portfolio's total
assets; (ii) purchase money market securities and enter into
repurchase agreements; and (iii) acquire publicly-distributed or
privately-placed debt securities and purchase debt securities.
Each Portfolio will consider the acquisition of a debt security
to include the execution of a note or other evidence of an
extension of credit with a term of more than nine months. For
purposes of this restriction, each Portfolio will treat purchases
of loan participations and other direct indebtedness, including
investments in mortgages, as not subject to this limitation;
c. the EQ/Putnam Growth & Income Value Portfolio and EQ/Putnam
International Equity Portfolio, as a matter of non-fundamental
operating policy, may purchase debt obligations consistent with
the respective investment objectives and policies of each of
those Portfolios: (i) by entering into repurchase agreements with
respect to not more than 25% of the Portfolios' respective total
assets (taken at current value) or (ii) through the lending of
the
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<PAGE>
Portfolios' portfolio securities with respect to not more than
25% of the Portfolios' respective total assets (taken at current
value);
d. the MFS Emerging Growth Companies Portfolio, BT Small Company
Index Portfolio, BT International Equity Index Portfolio, and BT
Equity 500 Index Portfolio, as a matter of non-fundamental
operating policy, may each lend its portfolio securities provided
that no such loan may be made if, as a result, the aggregate of
such loans would exceed 30% of such Portfolio's total assets
(taken at market value); and
e. the Warburg Pincus Small Company Value Portfolio, the Merrill
Lynch World Strategy Portfolio, and the Merrill Lynch Basic Value
Equity Portfolio, as a matter of non-fundamental policy, may each
lend its portfolio securities provided that no such loan may be
made if, as a result, the aggregate of such loans would exceed
20% of such Portfolio's total assets (taken at market value);
f. the Lazard Large Cap Value Portfolio and the Lazard Small Cap
Value Portfolio, as a matter of non-fundamental policy, may each
lend its portfolio securities provided that no such loan may be
made if, as a result, the aggregate of such loans would exceed
10% of such Portfolio's total assets (taken at market value);
g. MFS Growth with Income Portfolio, as a matter of non-fundamental
operating policy, may lend its portfolio securities provided that
no such loan may be made if, as a result, the aggregate of such
loans would exceed 25% of its net assets (taken at market value);
h. the EQ/Alliance Premier Growth Portfolio, as a matter of
non-fundamental policy, may not make loans except through the
purchase of debt obligations in accordance with its investment
objectives, but may lend its portfolio securities to the extent
permitted in (4)(b) above;
i. the Capital Guardian Research Portfolio, Capital Guardian U.S.
Equity Portfolio and Capital Guardian International Portfolio, as
a matter of non-fundamental policy, will not make loans, but each
may lend its portfolio securities to the extent permitted in
(4)(b) above;
j. The Alliance Portfolios, as a matter of non-fundamental policy,
will also treat this restriction as not preventing any such
Portfolio from purchasing debt obligations as consistent with its
investment policies, government obligations, short-term
commercial paper, or publicly-traded debt, including bonds,
notes, debentures, certificates of deposit, and equipment trust
certificates and loans made under insurance policies;
(5) Purchase a security if, as a result, with respect to 75% of the value of its
total assets, more than 5% of the value of the Portfolio's total assets would be
invested in the securities of a single issuer, except securities issued or
guaranteed by the United States Government, its agencies or instrumentalities:*
a. As a matter of operating policy, each Portfolio will not
consider repurchase agreements to be subject to the above
stated 5% limitation if the collateral underlying the
repurchase agreements consists exclusively of obligations
issued or guaranteed by the United States Government, its
agencies or instrumentalities;
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* The Morgan Stanley Emerging Markets Equity, Merrill Lynch World Strategy
and Lazard Small Cap Value Portfolios are classified as non-diversified
investment companies under the 1940 Act and therefore, these restrictions
are not applicable to these Portfolios.
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<PAGE>
b. The Alliance Money Market Portfolio, as a matter of
non-fundamental policy, will not invest more than 5% of its total
assets in securities of any one issuer, other than U.S.
Government securities, except that it may invest up to 25% of its
total assets in First Tier Securities (as defined in Rule 2a-7 of
the 1940 Act) of a single issuer for a period of up to three
business days after the purchase of such security. Further, as a
matter of operating policy, the Alliance Money Market Portfolio
will not invest more than (i) the greater of 1% of its total
assets or $1,000,000 in Second Tier Securities (as defined in
Rule 2a-7 under the Investment Company Act) of a single issuer
and (ii) 5% of its total assets, at the time a Second Tier
Security is acquired, in Second Tier Securities;
(6) Purchase a security if, as a result, with respect to 75% of the value of the
Portfolio's total assets, more than 10% of the outstanding voting securities of
any issuer would be held by the Portfolio (other than obligations issued or
guaranteed by the United States Government, its agencies or instrumentalities);*
(7) Purchase or sell real estate, except that:
a. each Portfolio, except the JPM Core Bond Portfolio, may purchase
securities of issuers which deal in real estate, securities which
are directly or indirectly secured by interests in real estate,
and securities which represent interests in real estate, and each
Portfolio may acquire and dispose of real estate or interests in
real estate acquired through the exercise of its rights as a
holder of debt obligations secured by real estate or interests
therein;
b. the JPM Core Bond Portfolio may (i) invest in securities of
issuers that invest in real estate or interests therein, (ii)
invest in securities that are secured by real estate or interests
therein (iii) make direct investments in mortgages, (iv) purchase
and sell mortgage-related securities and (v) hold and sell real
estate acquired by the Portfolio as a result of the ownership of
securities including mortgages;
(8) Issue senior securities except in compliance with the 1940 Act; or
(9) Underwrite securities issued by other persons, except to the extent that the
Portfolio may be deemed to be an underwriter within the meaning of the
Securities Act of 1933, as amended (the "1933 Act"), in connection with the
purchase and sale of its portfolio securities in the ordinary course of pursuing
its investment objective, policies and program.
NON-FUNDAMENTAL RESTRICTIONS
The following investment restrictions apply to each Portfolio, but are not
fundamental. They may be changed for any Portfolio without a vote of that
Portfolio's shareholders.
Each Portfolio may not:
(1) Purchase a futures contract or an option thereon if, with respect to
positions in futures or options on futures which do not represent bona fide
hedging, the aggregate initial margin and premiums on such options would exceed
5% of the Portfolio's net asset value. As a matter of operating policy, the
Alliance Money Market Portfolio, MFS Research Portfolio, the Lazard Large Cap
Value Portfolio, the Lazard Small Cap Portfolio, the Capital Guardian Research
Portfolio, the Capital Guardian U.S. Equity Portfolio and the Capital Guardian
International Portfolio may not invest in commodities or commodity contracts
including futures contracts. As a matter of operating policy, the Alliance
Aggressive Stock Portfolio, Alliance Balanced Portfolio, Alliance Common Stock
Portfolio, Alliance Conservative Investors Portfolio, Alliance Equity Index
Portfolio, Alliance Global Portfolio, Alliance Growth and Income Portfolio,
Alliance Growth Investors Portfolio, Alliance High Yield Portfolio, Alliance
Intermediate
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<PAGE>
Government Securities Portfolio, Alliance International Portfolio,
Alliance Quality Bond Portfolio, Alliance Small Cap Growth Portfolio, and
EQ/Alliance Premier Growth Portfolio may purchase and sell exchange-traded index
options and stock index futures contracts.
(2) Purchase: (a) illiquid securities; (b) securities restricted as to resale
(excluding securities determined by the Board of Trustees to be readily
marketable); and (c) repurchase agreements maturing in more than seven days if,
as a result, more than 15% of each Portfolio's net assets (10% for the Alliance
Money Market Portfolio, Warburg Pincus Small Company Value Portfolio, Lazard
Large Cap Value Portfolio and Lazard Small Cap Value Portfolio) would be
invested in such securities. Securities purchased in accordance with Rule 144A
under the 1933 Act and determined to be liquid by the Trust's Board are not
subject to the limitations set forth in this investment restriction;
(3) Purchase securities on margin, except that each Portfolio may: (a) make use
of any short-term credit necessary for clearance of purchases and sales of
portfolio securities; and (b) make initial or variation margin deposits in
connection with futures contracts, options, currencies, or other permissible
investments;
(4) Mortgage, pledge, hypothecate or, in any manner, transfer any security owned
by the Portfolio as security for indebtedness, except as may be necessary in
connection with permissible borrowings or investments; and then such mortgaging,
pledging or hypothecating may not exceed 33 1/3% of the respective total assets
of each Portfolio (except as specified below for the EQ/Putnam International
Equity Portfolio, Merrill Lynch World Strategy Portfolio, Merrill Lynch Basic
Value Equity Portfolio and MFS Investor Portfolio). Such mortgaging, pledging or
hypothecating may not exceed 15% of EQ/Putnam International Equity Portfolio's
total assets; 10% of each of the Merrill Lynch World Strategy Portfolio's and
Merrill Lynch Basic Value Equity Portfolio's total assets, (taken at the lower
of cost or market value); and 15% of MFS Investor Portfolio's gross assets
(taken at cost), each taken at the time of the permissible borrowing or
investment. The Alliance Portfolios will not pledge assets for leveraging
purposes. The deposit of underlying securities and other assets in escrow and
collateral arrangements with respect to margin accounts for futures contracts,
options, currencies or other permissible investments are not deemed to be
mortgages, pledges, or hypothecations for these purposes;
(5) Purchase participations or other direct interests in or enter into leases
with respect to, oil, gas, or other mineral exploration or development programs,
except that the MFS Emerging Growth Companies Portfolio, Warburg Pincus Small
Company Value Portfolio, Merrill Lynch World Strategy Portfolio, Merrill Lynch
Basic Value Equity Portfolio, JPM Core Bond Portfolio, EQ/Evergreen Foundation
Portfolio, EQ/Evergreen Portfolio, EQ/Alliance Premier Growth Portfolio, Capital
Guardian Research Portfolio, Capital Guardian U.S. Equity Portfolio and Capital
Guardian International Portfolio may invest in securities issued by companies
that engage in oil, gas or other mineral exploration or development activities
or hold mineral leases acquired as a result of its ownership of securities;
(6) Invest in puts, calls, straddles, spreads, swaps or any combination thereof,
except to the extent permitted by the Portfolio's Prospectus and Statement of
Additional Information, as may be amended from time to time.
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<PAGE>
(7) Effect short sales of securities unless at all times when a short position
is open the Portfolio owns an equal amount of such securities or owns securities
which, without payment of any further consideration, are convertible into or
exchangeable for securities of the same issue as, and at least equal in amount
to, the securities sold short. Permissible futures contracts, options, or
currency transactions will not be deemed to constitute selling securities short.
As a matter of operating policy, the Capital Guardian Research Portfolio,
Capital Guardian U.S. Equity Portfolio and Capital Guardian International
Portfolio will not effect short sales of securities or property.
INVESTMENT STRATEGIES AND RISKS
In addition to the Portfolios' principal investment strategies discussed in the
Prospectus, each Portfolio may engage in other types of investment strategies as
further described in the descriptions below. Each Portfolio may invest in or
utilize any of these investment strategies and instruments or engage in any of
these practices except where otherwise prohibited by law or the Portfolio's own
investment restrictions. Portfolios that anticipate committing 5% or more of
their net assets to a particular type of investment strategy or instrument are
specifically referred to in the descriptions below of such investment strategy
or instrument.
ASSET-BACKED SECURITIES. As indicated in Appendix A, certain of the Portfolios
may invest in asset-backed securities. Asset-backed securities, issued by trusts
and special purpose corporations, are collateralized by a pool of assets, such
as credit card or automobile loans, home equity loans or computer leases, and
represent the obligations of a number of different parties. Asset-backed
securities present certain risks. For instance, in the case of credit card
receivables, these securities are generally unsecured and the debtors are
entitled to the protection of a number of state and federal consumer credit
laws, many of which give such debtors the right to set off certain amounts owed
on the credit cards, thereby reducing the balance due. In the case of automobile
loans, most issuers of automobile receivables permit the servicers to retain
possession of the underlying obligations. If the servicer were to sell these
obligations to another party, there is a risk that the purchaser would acquire
an interest superior to that of the holders of the related automobile
receivables. In addition, because of the large number of vehicles involved in a
typical issuance and technical requirements under state laws, the trustee for
the holders of the automobile receivables may not have a proper security
interest in all of the obligations backing such receivables. Therefore, there is
the possibility that recoveries on repossessed collateral may not, in some
cases, be available to support payments on these securities.
To lessen the effect of failures by obligors on underlying assets to make
payments, the securities may contain elements of credit support which fall into
two categories: (i) liquidity protection and (ii) protection against losses
resulting from ultimate default by an obligor on the underlying assets.
Liquidity protection refers to the provision of advances, generally by the
entity administering the pool of assets, to ensure that the receipt of payments
on the underlying pool occurs in a timely fashion. Protection against losses
resulting from ultimate default ensures payment through insurance policies or
letters of credit obtained by the issuer or sponsor from third parties. A
Portfolio will not pay any additional or separate fees for credit support. The
degree of credit support provided for each issue is generally based on
historical information respecting the level of credit risk associated with the
underlying assets. Delinquency or loss in excess of that anticipated or failure
of the credit support could adversely affect the return on an investment in such
a security.
Due to the possibility that prepayments (on automobile loans and other
collateral) will alter the cash flow on asset-backed securities, it is not
possible to determine in advance the actual final maturity date or average life.
Faster prepayment will shorten the average life and slower prepayments will
lengthen it. However, it is possible to determine what the range of that
movement could be and to calculate the effect that it will have on the price of
the security. In selecting these securities, the Adviser will look for those
securities that offer a higher yield to compensate for any variation in average
maturity.
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<PAGE>
BRADY BONDS. As indicated in Appendix A, certain of the Portfolios may invest in
Brady Bonds. Brady Bonds are fixed income securities created through the
exchange of existing commercial bank loans to foreign entities for new
obligations in connection with debt restructuring under a plan introduced by
Nicholas F. Brady when he was the United States Secretary of the Treasury. Brady
Bonds have been issued only recently, and, accordingly, do not have a long
payment history. They may be collateralized or uncollateralized and issued in
various currencies (although most are United States dollar-denominated) and they
are actively traded in the over-the-counter secondary market. Each Portfolio
will invest in Brady Bonds only if they are consistent with quality
specifications established from time to time by the Adviser to that Portfolio.
CONVERTIBLE SECURITIES. As indicated in Appendix A, certain of the Portfolios
may invest in convertible securities, including both convertible debt and
convertible preferred stock. Such securities may be converted into shares of the
underlying common stock at either a stated price or stated rate, which enable an
investor to benefit from increases in the market price of the underlying common
stock. Convertible securities provide higher yields than the underlying common
stocks, but generally offer lower yields than nonconvertible securities of
similar quality. Like bonds, the value of convertible securities fluctuates in
relation to changes in interest rates and, in addition, fluctuates in relation
to the underlying common stock. Subsequent to purchase by a Portfolio,
convertible securities may cease to be rated or a rating may be reduced below
the minimum required for purchase by that Portfolio. Neither event will require
sale of such securities, although each Adviser will consider such event in its
determination of whether a Portfolio should continue to hold the securities.
DEPOSITARY RECEIPTS. As indicated in Appendix A, certain of the Portfolios may
invest in depositary receipts. Depositary receipts exist for many foreign
securities and are securities representing ownership interests in securities of
foreign companies (an "underlying issuer") and are deposited with a securities
depositary. Depositary receipts are not necessarily denominated in the same
currency as the underlying securities. Depositary receipts include American
Depositary Receipts ("ADRs"), Global Depositary Receipts ("GDRs") and other
types of depositary receipts (which, together with ADRs and GDRs, are
hereinafter collectively referred to as "Depositary Receipts"). ADRs are
dollar-denominated depositary receipts typically issued by a United States
financial institution which evidence ownership interests in a security or pool
of securities issued by a foreign issuer. ADRs are listed and traded in the
United States. GDRs and other types of depositary receipts are typically issued
by foreign banks or trust companies, although they also may be issued by United
States financial institutions, and evidence ownership interests in a security or
pool of securities issued by either a foreign or a United States corporation.
Generally, depositary receipts in registered form are designed for use in the
United States securities market and depositary receipts in bearer form are
designed for use in securities markets outside the United States. Although there
may be more reliable information available regarding issuers of certain ADRs
that are issued under so-called "sponsored" programs and ADRs do not involve
foreign currency risks, ADRs and other depositary receipts are subject to the
risks of other investments in foreign securities, as described directly above.
Depositary receipts may be "sponsored" or "unsponsored". Sponsored depositary
receipts are established jointly by a depositary and the underlying issuer,
whereas unsponsored depositary receipts may be established by a depositary
without participation by the underlying issuer. Holders of an unsponsored
depositary receipt generally bear all the costs associated with establishing the
unsponsored depositary receipt. In addition, the issuers of the securities
underlying unsponsored depositary receipts are not obligated to disclose
material information in the United States and, therefore, there may be less
information available regarding such issuers and there may not be a correlation
between such information and the market value of the depositary receipts. For
purposes of a Portfolio's investment policies, the Portfolio's investment in
depositary receipts will be deemed to be investments in the underlying
securities except as noted.
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DERIVATIVES. Each Portfolio (except the MFS Research Portfolio and the Alliance
Money Market Portfolio) may invest in one or more types of derivatives.
Derivatives are financial products or instruments that derive their value from
the value of one or more underlying assets, reference rates or indices.
Derivatives include, but are not limited to, the following: asset-backed
securities, floaters and inverse floaters, hybrid instruments, mortgage-backed
securities, options and future transactions, stripped mortgage-backed
securities, structured notes and swaps. Further information about these
instruments and the risks involved in their use are contained under the
description of each of these instruments in this section.
EURODOLLAR AND YANKEE DOLLAR OBLIGATIONS. Eurodollar bank obligations are United
States dollar-denominated certificates of deposit and time deposits issued
outside the United States capital markets by foreign branches of United States
banks and by foreign banks. Yankee dollar bank obligations are United States
dollar-denominated obligations issued in the United States capital markets by
foreign banks.
Eurodollar and Yankee dollar obligations are subject to the same risks that
pertain to domestic issues, notably credit risk, market risk and liquidity risk.
Additionally, Eurodollar (and to a limited extent, Yankee dollar) obligations
are subject to certain sovereign risks. One such risk is the possibility that a
sovereign country might prevent capital, in the form of dollars, from flowing
across its borders. Other risks include adverse political and economic
developments; the extent and quality of government regulation of financial
markets and institutions; the imposition of foreign withholding taxes; and the
expropriation or nationalization of foreign issuers.
FLOATERS AND INVERSE FLOATERS. As indicated in Appendix A, certain of the
Portfolios may invest in Floaters and Inverse Floaters. Floaters and Inverse
Floaters are fixed income securities with a floating or variable rate of
interest, i.e., the rate of interest varies with changes in specified market
rates or indices, such as the prime rate, or at specified intervals. Certain
floaters may carry a demand feature that permits the holder to tender them back
to the issuer of the underlying instrument, or to a third party, at par value
prior to maturity. When the demand feature of certain floaters represents an
obligation of a foreign entity, the demand feature will be subject to certain
risks discussed under "Foreign Securities ".
In addition, the Morgan Stanley Emerging Markets Equity Portfolio may invest in
inverse floating rate obligations which are fixed income securities that have
coupon rates that vary inversely at a multiple of a designated floating rate,
such as London Inter-Bank Offered Rate ("LIBOR"). Any rise in the reference rate
of an inverse floater (as a consequence of an increase in interest rates) causes
a drop in the coupon rate while any drop in the reference rate of an inverse
floater causes an increase in the coupon rate. Inverse floaters may exhibit
substantially greater price volatility than fixed rate obligations having
similar credit quality, redemption provisions and maturity, and inverse floater
collateralized mortgage obligations ("CMOs") exhibit greater price volatility
than the majority of mortgage-related securities. In addition, some inverse
floater CMOs exhibit extreme sensitivity to changes in prepayments. As a result,
the yield to maturity of an inverse floater CMO is sensitive not only to changes
in interest rates but also to changes in prepayment rates on the related
underlying mortgage assets.
FOREIGN CURRENCY TRANSACTIONS. As indicated in Appendix A, certain of the
Portfolios may purchase securities denominated in foreign currencies, including
the purchase of foreign currency on a spot (or cash) basis. A change in the
value of any such currency against the United States dollar will result in a
change in the United States dollar value of a Portfolio's assets and income. In
addition, although a portion of a Portfolio's investment income may be received
or realized in such currencies, the Portfolio will be required to compute and
distribute its income in United States dollars. Therefore, if the exchange rate
for any such currency declines after a Portfolio's income has been earned and
computed in United States dollars but before conversion and payment, the
Portfolio could be required to liquidate portfolio securities to make such
distributions.
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<PAGE>
Currency exchange rates may be affected unpredictably by intervention (or the
failure to intervene) by United States or foreign governments or central banks,
by currency controls or political developments in the United States or abroad.
For example, significant uncertainty surrounds the recent introduction of the
Euro (a common currency for the European Union) in January 1999 and its effect
on the value of securities denominated in local European currencies. These and
other currencies in which a Portfolio's assets are denominated may be devalued
against the United States dollar, resulting in a loss to the Portfolio. Certain
Portfolios may also invest in the following types of foreign currency
transactions:
FORWARD FOREIGN CURRENCY TRANSACTIONS. As indicated in Appendix A,
certain of the Portfolios may engage in forward foreign currency exchange
transactions. A forward foreign currency exchange contract ("forward contract")
involves an obligation to purchase or sell a specific currency at a future date,
which may be any fixed number of days from the date of the contract agreed upon
by the parties, at a price set at the time of the contract. These contracts are
principally traded in the interbank market conducted directly between currency
traders (usually large, commercial banks) and their customers. A forward
contract generally has no margin deposit requirement, and no commissions are
charged at any stage for trades.
A Portfolio may enter into forward contracts for a variety of purposes in
connection with the management of the foreign securities portion of its
portfolio. A Portfolio's use of such contracts will include, but not be limited
to, the following situations.
First, when the Portfolio enters into a contract for the purchase or sale of a
security denominated in a foreign currency, it may desire to "lock in" the
United States dollar price of the security. By entering into a forward contract
for the purchase or sale, for a fixed amount of dollars, of the amount of
foreign currency involved in the underlying security transactions, the Portfolio
will be able to protect itself against a possible loss resulting from an adverse
change in the relationship between the United States dollar and the subject
foreign currency during the period between the date the security is purchased or
sold and the date on which payment is made or received.
Second, when a Portfolio's Adviser believes that one currency may experience a
substantial movement against another currency, including the United States
dollar, it may enter into a forward contract to sell or buy the amount of the
former foreign currency, approximating the value of some or all of the
Portfolio's portfolio securities denominated in such foreign currency.
Alternatively, where appropriate, the Portfolio may hedge all or part of its
foreign currency exposure through the use of a basket of currencies,
multinational currency units, or a proxy currency where such currency or
currencies act as an effective proxy for other currencies. In such a case, the
Portfolio may enter into a forward contract where the amount of the foreign
currency to be sold exceeds the value of the securities denominated in such
currency. The use of this basket hedging technique may be more efficient and
economical than entering into separate forward contracts for each currency held
in the Portfolio.
The precise matching of the forward contract amounts and the value of the
securities involved will not generally be possible since the future value of
such securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the forward contract
is entered into and the date it matures. The projection of short-term currency
market movement is extremely difficult, and the successful execution of a
short-term hedging strategy is highly uncertain. Under normal circumstances,
consideration of the prospect for currency parities will be incorporated into
the diversification strategies. However, the Adviser to the Portfolio believes
that it is important to have the flexibility to enter into such forward
contracts when it determines that the best interests of the Portfolio will be
served.
A Portfolio may enter into forward contracts for any other purpose consistent
with the Portfolio's investment objective and program. However, the Portfolio
will not enter into a forward contract, or
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maintain exposure to any such contract(s), if the amount of foreign currency
required to be delivered thereunder would exceed the Portfolio's holdings of
liquid, securities and currency available for cover of the forward contract(s).
In determining the amount to be delivered under a contract, the Portfolio may
net offsetting positions.
At the maturity of a forward contract, a Portfolio may sell the portfolio
security and make delivery of the foreign currency, or it may retain the
security and either extend the maturity of the forward contract (by "rolling"
that contract forward) or may initiate a new forward contract. If a Portfolio
retains the portfolio security and engages in an offsetting transaction, the
Portfolio will incur a gain or a loss (as described below) to the extent that
there has been movement in forward contract prices. If the Portfolio engages in
an offsetting transaction, it may subsequently enter into a new forward contract
to sell the foreign currency.
Should forward prices decline during the period between the Portfolio's entering
into a forward contract for the sale of a foreign currency and the date it
enters into an offsetting contract for the purchase of the foreign currency, the
Portfolio will realize a gain to the extent the price of the currency it has
agreed to sell exceeds the price of the currency it has agreed to purchase.
Should forward prices increase, the Portfolio will suffer a loss to the extent
the price of the currency it has agreed to purchase exceeds the price of the
currency it has agreed to sell.
Although each Portfolio values its assets daily in terms of United States
dollars, it does not intend to convert its holdings of foreign currencies into
United States dollars on a daily basis. A Portfolio will do so from time to
time, and investors should be aware of the costs of currency conversion.
Although foreign exchange dealers do not charge a fee for conversion, they do
realize a profit based on the difference ("spread") between the prices at which
they are buying and selling various currencies. Thus, a dealer may offer to sell
a foreign currency to a Portfolio at one rate, while offering a lesser rate of
exchange should the Portfolio desire to resell that currency to the dealer.
FOREIGN CURRENCY OPTIONS, FOREIGN CURRENCY FUTURES CONTRACTS AND
OPTIONS ON FUTURES. As indicated in Appendix A, certain of the Portfolios may
also purchase and sell foreign currency futures contracts and may purchase and
write exchange-traded call and put options on foreign currency futures contracts
and on foreign currencies. Each Portfolio, if permitted in the Prospectus, may
purchase or sell exchange-traded foreign currency options, foreign currency
futures contracts and related options on foreign currency futures contracts as a
hedge against possible variations in foreign exchange rates. The Portfolios will
write options on foreign currency or on foreign currency futures contracts only
if they are "covered." A put on a foreign currency or on a foreign currency
futures contract written by a Portfolio will be considered "covered" if, so long
as the Portfolio is obligated as the writer of the put, it segregates with the
Portfolio's custodian cash, United States Government securities or other liquid
high-grade debt securities equal at all times to the aggregate exercise price of
the put. A call on a foreign currency or on a foreign currency futures contract
written by the Portfolio will be considered "covered" only if the Portfolio owns
short term debt securities with a value equal to the face amount of the option
contract and denominated in the currency upon which the call is written. Option
transactions may be effected to hedge the currency risk on non-United States
dollar-denominated securities owned by a Portfolio, sold by a Portfolio but not
yet delivered or anticipated to be purchased by a Portfolio. As an illustration,
a Portfolio may use such techniques to hedge the stated value in United States
dollars of an investment in a Japanese yen-denominated security. In these
circumstances, a Portfolio may purchase a foreign currency put option enabling
it to sell a specified amount of yen for dollars at a specified price by a
future date. To the extent the hedge is successful, a loss in the value of the
dollar relative to the yen will tend to be offset by an increase in the value of
the put option.
OVER THE COUNTER OPTIONS ON FOREIGN CURRENCY TRANSACTIONS. As indicated
in Appendix A certain of the Portfolios may engage in over-the-counter options
on foreign currency transactions. Each
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Alliance Portfolio (other than the Alliance Equity Index Portfolio, Alliance
Money Market Portfolio, and Alliance Intermediate Government Securities
Portfolio) and the Merrill Lynch World Strategy Portfolio will engage in
over-the-counter options on foreign currency transactions only with financial
institutions that have capital of at least $50 million or whose obligations are
guaranteed by an entity having capital of at least $50 million. The MFS Emerging
Growth Companies Portfolio may only enter into forward contracts on currencies
in the over-the-counter market. The Advisers may engage in these transactions to
protect against uncertainty in the level of future exchange rates in connection
with the purchase and sale of portfolio securities ("transaction hedging") and
to protect the value of specific portfolio positions ("position hedging").
Certain differences exist between foreign currency hedging instruments. Foreign
currency options provide the holder the right to buy or to sell a currency at a
fixed price on or before a future date. Listed options are third-party contracts
(performance is guaranteed by an exchange or clearing corporation) which are
issued by a clearing corporation, traded on an exchange and have standardized
prices and expiration dates. Over-the-counter options are two-party contracts
and have negotiated prices and expiration dates. A futures contract on a foreign
currency is an agreement between two parties to buy and sell a specified amount
of the currency for a set price on a future date. Futures contracts and listed
options on futures contracts are traded on boards of trade or futures exchanges.
Options traded in the over-the-counter market may not be as actively traded as
those on an exchange, so it may be more difficult to value such options. In
addition, it may be difficult to enter into closing transactions with respect to
options traded over-the-counter.
Hedging transactions involve costs and may result in losses. As indicated in
Appendix A, certain of the Portfolios may also write covered call options on
foreign currencies to offset some of the costs of hedging those currencies. A
Portfolio will engage in over-the-counter options transactions on foreign
currencies only when appropriate exchange traded transactions are unavailable
and when, in the Adviser's opinion, the pricing mechanism and liquidity are
satisfactory and the participants are responsible parties likely to meet their
contractual obligations. A Portfolio's ability to engage in hedging and related
option transactions may be limited by tax considerations.
Transactions and position hedging do not eliminate fluctuations in the
underlying prices of the securities which the Portfolios own or intend to
purchase or sell. They simply establish a rate of exchange which one can achieve
at some future point in time. Additionally, although these techniques tend to
minimize the risk of loss due to a decline in the value of the hedged currency,
they tend to limit any potential gain which might result from the increase in
the value of such currency.
A Portfolio will not speculate in foreign currency options, futures or related
options. Accordingly, a Portfolio will not hedge a currency substantially in
excess of the market value of the securities denominated in that currency which
it owns or the expected acquisition price of securities which it anticipates
purchasing.
For additional information concerning the risks associated with utilizing
options, forward foreign currency exchange contracts, please see "Risks of
Transactions in Options, Futures Contracts and Forward Currency Contracts" in
this section.
FOREIGN SECURITIES. As indicated in Appendix A, certain of the Portfolios may
also invest in other types of foreign securities or engage in the certain types
of transactions related to foreign securities, such as Brady Bonds, Depositary
Receipts, Eurodollar and Yankee Dollar Obligations and Foreign Currency
Transactions, including forward foreign currency transactions, foreign currency
options and foreign currency futures contracts and options on futures. Further
information about these instruments and the risks involved in their use are
contained under the description of each of these instruments in this section.
Foreign investments involve certain risks that are not present in domestic
securities. For example, foreign securities may be subject to currency risks or
to foreign government taxes which reduce their
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attractiveness. There may be less information publicly available about a foreign
issuer than about a United States issuer, and a foreign issuer is not generally
subject to uniform accounting, auditing and financial reporting standards and
practices comparable to those in the United States. Other risks of investing in
such securities include political or economic instability in the country
involved, the difficulty of predicting international trade patterns and the
possibility of imposition of exchange controls. The prices of such securities
may be more volatile than those of domestic securities. With respect to certain
foreign countries, there is a possibility of expropriation of assets or
nationalization, imposition of withholding taxes on dividend or interest
payments, difficulty in obtaining and enforcing judgments against foreign
entities or diplomatic developments which could affect investment in these
countries. Losses and other expenses may be incurred in converting between
various currencies in connection with purchases and sales of foreign securities.
Foreign stock markets are generally not as developed or efficient as, and may be
more volatile than, those in the United States. While growing in volume, they
usually have substantially less volume than United States markets and a
Portfolio's investment securities may be less liquid and subject to more rapid
and erratic price movements than securities of comparable United States
companies. Equity securities may trade at price/earnings multiples higher than
comparable United States securities and such levels may not be sustainable.
There is generally less government supervision and regulation of foreign stock
exchanges, brokers, banks and listed companies abroad than in the United States.
Moreover, settlement practices for transactions in foreign markets may differ
from those in United States markets. Such differences may include delays beyond
periods customary in the United States and practices, such as delivery of
securities prior to receipt of payment, which increase the likelihood of a
"failed settlement", which can result in losses to a Portfolio.
The value of foreign investments and the investment income derived from them may
also be affected unfavorably by changes in currency exchange control
regulations. Although the Portfolios will invest only in securities denominated
in foreign currencies that are fully exchangeable into United States dollars
without legal restriction at the time of investment, there can be no assurance
that currency controls will not be imposed subsequently. In addition, the value
of foreign fixed income investments may fluctuate in response to changes in
United States and foreign interest rates.
Foreign brokerage commissions, custodial expenses and other fees are also
generally higher than for securities traded in the United States. Consequently,
the overall expense ratios of international or global funds are usually somewhat
higher than those of typical domestic stock funds.
Moreover, investments in foreign government debt securities, particularly those
of emerging market country governments, involve special risks. Certain emerging
market countries have historically experienced, and may continue to experience,
high rates of inflation, high interest rates, exchange rate fluctuations, large
amounts of external debt, balance of payments and trade difficulties and extreme
poverty and unemployment. See "Emerging Market Securities" below for additional
risks.
Fluctuations in exchange rates may also affect the earning power and asset value
of the foreign entity issuing a security, even one denominated in United States
dollars. Dividend and interest payments will be repatriated based on the
exchange rate at the time of disbursement, and restrictions on capital flows may
be imposed.
In less liquid and well developed stock markets, such as those in some Eastern
European, Southeast Asian, and Latin American countries, volatility may be
heightened by actions of a few major investors. For example, substantial
increases or decreases in cash flows of mutual funds investing in these markets
could significantly affect stock prices and, therefore, share prices.
Additionally, investments in emerging market regions or the following geographic
regions are subject to more specific risks, as discussed below:
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EMERGING MARKET SECURITIES. Investments in emerging market country
securities involve special risks. The economies, markets and political
structures of a number of the emerging market countries in which the Portfolios
can invest do not compare favorably with the United States and other mature
economies in terms of wealth and stability. Therefore, investments in these
countries may be riskier, and will be subject to erratic and abrupt price
movements. Some economies are less well developed and less diverse (for example,
Latin America, Eastern Europe and certain Asian countries), and more vulnerable
to the ebb and flow of international trade, trade barriers and other
protectionist or retaliatory measures. Similarly, many of these countries,
particularly in Southeast Asia, Latin America, and Eastern Europe, are grappling
with severe inflation or recession, high levels of national debt, currency
exchange problems and government instability. Investments in countries that have
recently begun moving away from central planning and state-owned industries
toward free markets, such as the Eastern European or Chinese economies, should
be regarded as speculative.
Certain emerging market countries have historically experienced, and may
continue to experience, high rates of inflation, high interest rates, exchange
rate fluctuations, large amounts of external debt, balance of payments and trade
difficulties and extreme poverty and unemployment. The issuer or governmental
authority that controls the repayment of an emerging market country's debt may
not be able or willing to repay the principal and/or interest when due in
accordance with the terms of such debt. A debtor's willingness or ability to
repay principal and interest due in a timely manner may be affected by, among
other factors, its cash flow situation, and, in the case of a government debtor,
the extent of its foreign reserves, the availability of sufficient foreign
exchange on the date a payment is due, the relative size of the debt service
burden to the economy as a whole and the political constraints to which a
government debtor may be subject. Government debtors may default on their debt
and may also be dependent on expected disbursements from foreign governments,
multilateral agencies and others abroad to reduce principal and interest
arrearages on their debt. Holders of government debt may be requested to
participate in the rescheduling of such debt and to extend further loans to
government debtors.
If such an event occurs, a Portfolio may have limited legal recourse against the
issuer and/or guarantor. Remedies must, in some cases, be pursued in the courts
of the defaulting party itself, and the ability of the holder of foreign
government fixed income securities to obtain recourse may be subject to the
political climate in the relevant country. In addition, no assurance can be
given that the holders of commercial bank debt will not contest payments to the
holders of other foreign government debt obligations in the event of default
under their commercial bank loan agreements.
The economies of individual emerging market countries may differ favorably or
unfavorably from the United States economy in such respects as growth of gross
domestic product, rate of inflation, currency depreciation, capital
reinvestment, resource self-sufficiency and balance of payments position.
Further, the economies of developing countries generally are heavily dependent
upon international trade and, accordingly, have been, and may continue to be,
adversely affected by trade barriers, exchange controls, managed adjustments in
relative currency values and other protectionist measures imposed or negotiated
by the countries with which they trade. These economies also have been, and may
continue to be, adversely affected by economic conditions in the countries with
which they trade.
Investing in emerging market countries may entail purchasing securities issued
by or on behalf of entities that are insolvent, bankrupt, in default or
otherwise engaged in an attempt to reorganize or reschedule their obligations,
and in entities that have little or no proven credit rating or credit history.
In any such case, the issuer's poor or deteriorating financial condition may
increase the likelihood that the investing Portfolio will experience losses or
diminution in available gains due to bankruptcy, insolvency or fraud.
EASTERN EUROPEAN AND RUSSIAN SECURITIES. The economies of Eastern
European countries are currently suffering both from the stagnation resulting
from centralized economic planning and control and the higher prices and
unemployment associated with the transition to market economics. Unstable
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economic and political conditions may adversely affect security values. Upon the
accession to power of Communist regimes approximately 40 years ago, the
governments of a number of Eastern European countries expropriated a large
amount of property. The claims of many property owners against those governments
were never finally settled. In the event of the return to power of the Communist
Party, there can be no assurance that a Portfolio's investments in Eastern
Europe would not be expropriated, nationalized or otherwise confiscated.
The registration, clearing and settlement of securities transactions involving
Russian issuers are subject to significant risks not normally associated with
securities transactions in the United States and other more developed markets.
Ownership of equity securities in Russian companies is evidenced by entries in a
company's share register (except where shares are held through depositories that
meet the requirements of the 1940 Act) and the issuance of extracts from the
register or, in certain limited cases, by formal share certificates. However,
Russian share registers are frequently unreliable and a Portfolio could possibly
lose its registration through oversight, negligence or fraud. Moreover, Russia
lacks a centralized registry to record shares and companies themselves maintain
share registers. Registrars are under no obligation to provide extracts to
potential purchasers in a timely manner or at all and are not necessarily
subject to effective state supervision. In addition, while registrars are liable
under law for losses resulting from their errors, it may be difficult for a
Portfolio to enforce any rights it may have against the registrar or issuer of
the securities in the event of loss of share registration. For example, Russian
companies with more than 1,000 shareholders are required by law to employ an
independent company to maintain share registers, in practice, such companies
have not always followed this law. Because of this lack of independence of
registrars, management of a Russian company may be able to exert considerable
influence over who can purchase and sell the company's shares by illegally
instructing the registrar to refuse to record transactions on the share
register. Furthermore, these practices could cause a delay in the sale of
Russian securities by a Portfolio if the company deems a purchaser unsuitable,
which may expose a Portfolio to potential loss on its investment.
In light of the risks described above, the Board of Trustees of the Trust has
approved certain procedures concerning a Portfolio's investments in Russian
securities. Among these procedures is a requirement that a Portfolio will not
invest in the securities of a Russian company unless that issuer's registrar has
entered into a contract with a Portfolio's custodian containing certain
protective conditions, including, among other things, the custodian's right to
conduct regular share confirmations on behalf of a Portfolio. This requirement
will likely have the effect of precluding investments in certain Russian
companies that a Portfolio would otherwise make.
PACIFIC BASIN REGION. Many Asian countries may be subject to a greater
degree of social, political and economic instability than is the case in the
United States and European countries. Such instability may result from (i)
authoritarian governments or military involvement in political and economic
decision-making; (ii) popular unrest associated with demands for improved
political, economic and social conditions; (iii) internal insurgencies; (iv)
hostile relations with neighboring countries; and (v) ethnic, religious and
racial disaffection.
The economies of most of the Asian countries are heavily dependent on
international trade and are accordingly affected by protective trade barriers
and the economic conditions of their trading partners, principally, the United
States, Japan, China and the European Community. The enactment by the United
States or other principal trading partners of protectionist trade legislation,
reduction of foreign investment in the local economies and general declines in
the international securities markets could have a significant adverse effect
upon the securities markets of the Asian countries.
The securities markets in Asia are substantially smaller, less liquid and more
volatile than the major securities markets in the United States. A high
proportion of the shares of many issuers may be held by a limited number of
persons and financial institutions, which may limit the number of shares
available for
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investment by a Portfolio. Similarly, volume and liquidity in the
bond markets in Asia are less than in the United States and, at times, price
volatility can be greater than in the United States. A limited number of issuers
in Asian securities markets may represent a disproportionately large percentage
of market capitalization and trading value. The limited liquidity of securities
markets in Asia may also affect a Portfolio's ability to acquire or dispose of
securities at the price and time it wishes to do so. In addition, the Asian
securities markets are susceptible to being influenced by large investors
trading significant blocks of securities.
Many stock markets are undergoing a period of growth and change which may result
in trading volatility and difficulties in the settlement and recording of
transactions, and in interpreting and applying the relevant law and regulations.
With respect to investments in the currencies of Asian countries, changes in the
value of those currencies against the United States dollar will result in
corresponding changes in the United States dollar value of a Portfolio's assets
denominated in those currencies.
FORWARD COMMITMENTS, WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. Forward
commitments, when-issued and delayed delivery transactions arise when securities
are purchased by a Portfolio with payment and delivery taking place in the
future in order to secure what is considered to be an advantageous price or
yield to the Portfolio at the time of entering into the transaction. However,
the price of or yield on a comparable security available when delivery takes
place may vary from the price of or yield on the security at the time that the
forward commitment or when-issued or delayed delivery transaction was entered
into. Agreements for such purchases might be entered into, for example, when a
Portfolio anticipates a decline in interest rates and is able to obtain a more
advantageous price or yield by committing currently to purchase securities to be
issued later. When a Portfolio purchases securities on a forward commitment,
when-issued or delayed delivery basis it does not pay for the securities until
they are received, and the Portfolio is required to create a segregated account
with the Trust's custodian and to maintain in that account cash or other liquid
securities in an amount equal to or greater than, on a daily basis, the amount
of the Portfolio's forward commitments, when-issued or delayed delivery
commitments.
Each Portfolio (except the Warburg Pincus Small Company Value Portfolio) may
make contracts to purchase forward commitments if it holds, and maintains until
the settlement date in a segregated account, cash or liquid securities in an
amount sufficient to meet the purchase price, or if it enters into offsetting
contracts for the forward sale of other securities it owns. Forward commitments
may be considered securities in themselves and involve a risk of loss if the
value of the security to be purchased declines prior to the settlement date,
which risk is in addition to the risk of decline in value of the Portfolio's
other assets. Where such purchases are made through dealers, a Portfolio relies
on the dealer to consummate the sale. The dealer's failure to do so may result
in the loss to a Portfolio of an advantageous yield or price.
A Portfolio will only enter into forward commitments and make commitments to
purchase securities on a when-issued or delayed delivery basis with the
intention of actually acquiring the securities. However, the Portfolio may sell
these securities before the settlement date if it is deemed advisable as a
matter of investment strategy. Forward commitments and when-issued and delayed
delivery transactions are generally expected to settle within three months from
the date the transactions are entered into, although the Portfolio may close out
its position prior to the settlement date by entering into a matching sales
transaction.
Although none of the Portfolios intends to make such purchases for speculative
purposes and each Portfolio intends to adhere to the policies of the Securities
and Exchange Commission ("SEC"), purchases of securities on such a basis may
involve more risk than other types of purchases. For example, by committing to
purchase securities in the future, a Portfolio subjects itself to a risk of loss
on such commitments as well as on its portfolio securities. Also, a Portfolio
may have to sell assets which have
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been set aside in order to meet redemptions. In addition, if a Portfolio
determines it is advisable as a matter of investment strategy to sell the
forward commitment or when-issued or delayed delivery securities before
delivery, that Portfolio may incur a gain or loss because of market fluctuations
since the time the commitment to purchase such securities was made. Any such
gain or loss would be treated as a capital gain or loss and would be treated for
tax purposes as such. When the time comes to pay for the securities to be
purchased under a forward commitment or on a when-issued or delayed delivery
basis, a Portfolio will meet its obligations from the then available cash flow
or the sale of securities, or, although it would not normally expect to do so,
from the sale of the forward commitment or when-issued or delayed delivery
securities themselves (which may have a value greater or less than a Portfolio's
payment obligation).
FUTURES TRANSACTIONS. For information on "Futures Transactions," see the
discussion in this section under "Options and Futures Transactions."
HYBRID INSTRUMENTS. As indicated in Appendix A, certain of the Portfolios may
invest in hybrid instruments (a type of potentially high-risk derivative).
Hybrid instruments have recently been developed and combine the elements of
futures contracts or options with those of debt, preferred equity or a
depositary instrument. Generally, a hybrid instrument will be a debt security,
preferred stock, depositary share, trust certificate, certificate of deposit or
other evidence of indebtedness on which a portion of or all interest payments,
and/or the principal or stated amount payable at maturity, redemption or
retirement, is determined by reference to prices, changes in prices, or
differences between prices, of securities, currencies, intangibles, goods,
articles or commodities (collectively "Underlying Assets") or by another
objective index, economic factor or other measure, such as interest rates,
currency exchange rates, commodity indices, and securities indices (collectively
"Benchmarks"). Thus, hybrid instruments may take a variety of forms, including,
but not limited to, debt instruments with interest or principal payments or
redemption terms determined by reference to the value of a currency or commodity
or securities index at a future point in time, preferred stock with dividend
rates determined by reference to the value of a currency, or convertible
securities with the conversion terms related to a particular commodity rates.
Under certain conditions, the redemption value of such an instrument could be
zero. Hybrid instruments can have volatile prices and limited liquidity and
their use by a Portfolio may not be successful.
Hybrid instruments may bear interest or pay preferred dividends at below market
(or even relatively nominal) rates. Alternatively, hybrid instruments may bear
interest at above market rates but bear an increased risk of principal loss (or
gain). The latter scenario may result if "leverage" is used to structure the
hybrid instrument. Leverage risk occurs when the hybrid instrument is structured
so that a given change in a Benchmark or Underlying Asset is multiplied to
produce a greater value change in the hybrid instrument, thereby magnifying the
risk of loss as well as the potential for gain.
Hybrid instruments can be an efficient means of creating exposure to a
particular market, or segment of a market, with the objective of enhancing total
return. For example, a Portfolio may wish to take advantage of expected declines
in interest rates in several European countries, but avoid the transaction costs
associated with buying and currency-hedging the foreign bond positions. One
solution would be to purchase a United States dollar-denominated hybrid
instrument whose redemption price is linked to the average three year interest
rate in a designated group of countries. The redemption price formula would
provide for payoffs of greater than par if the average interest rate was lower
than a specified level, and payoffs of less than par if rates were above the
specified level. Furthermore, a Portfolio could limit the downside risk of the
security by establishing a minimum redemption price so that the principal paid
at maturity could not be below a predetermined minimum level if interest rates
were to rise significantly. The purpose of this arrangement, known as a
structured security with an embedded put option, would be to give the Portfolio
the desired European bond exposure while avoiding currency risk, limiting
downside market risk, and lowering transaction costs. Of course, there is no
guarantee that the strategy will be
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successful and a Portfolio could lose money if, for example, interest rates do
not move as anticipated or credit problems develop with the issuer of the hybrid
instrument.
Although the risks of investing in hybrid instruments reflect a combination of
the risks of investing in securities, options, futures and currencies, hybrid
instruments are potentially more volatile and carry greater market risks than
traditional debt instruments. The risks of a particular hybrid instrument will,
of course, depend upon the terms of the instrument, but may include, without
limitation, the possibility of significant changes in the Benchmarks or the
prices of Underlying Assets to which the instrument is linked. Such risks
generally depend upon factors which are unrelated to the operations or credit
quality of the issuer of the hybrid instrument and which may not be readily
foreseen by the purchaser, such as economic and political events, the supply and
demand for the Underlying Assets and interest rate movements. In recent years,
various Benchmarks and prices for Underlying Assets have been highly volatile,
and such volatility may be expected in the future.
Hybrid instruments may also carry liquidity risk since the instruments are often
"customized" to meet the portfolio needs of a particular investor, and
therefore, the number of investors that are willing and able to buy such
instruments in the secondary market may be smaller than that for more
traditional debt securities. In addition, because the purchase and sale of
hybrid instruments could take place in an over-the-counter market without the
guarantee of a central clearing organization or in a transaction between the
portfolio and the issuer of the hybrid instrument, the creditworthiness of the
counter party or issuer of the hybrid instrument would be an additional risk
factor which the Portfolio would have to consider and monitor. Hybrid
instruments also may not be subject to regulation of the CFTC, which generally
regulates the trading of commodity futures by persons in the United States, the
SEC, which regulates the offer and sale of securities by and to persons in the
United States, or any other governmental regulatory authority. The various risks
discussed above, particularly the market risk of such instruments, may in turn
cause significant fluctuations in the net asset value of the Portfolio.
ILLIQUID SECURITIES OR NON-PUBLICLY TRADED SECURITIES. As indicated in Appendix
A, certain Portfolios may invest in illiquid securities or non-publicly traded
securities. The inability of a Portfolio to dispose of illiquid or not readily
marketable investments readily or at a reasonable price could impair a
Portfolio's ability to raise cash for redemptions or other purposes. The
liquidity of securities purchased by a Portfolio which are eligible for resale
pursuant to Rule 144A will be monitored by each Portfolio's Adviser on an
ongoing basis, subject to the oversight of the Board of Trustees of the Trust.
In the event that such a security is deemed to be no longer liquid, a
Portfolio's holdings will be reviewed to determine what action, if any, is
required to ensure that the retention of such security does not result in a
Portfolio's having more than 10% or 15% of its assets invested in illiquid or
not readily marketable securities.
Rule 144A Securities will be considered illiquid and therefore subject to a
Portfolio's limit on the purchase of illiquid securities unless the Board or its
delegates determines that the Rule 144A Securities are liquid. In reaching
liquidity decisions, the Board of Trustees and its delegates may consider, inter
alia, the following factors: (i) the unregistered nature of the security; (ii)
the frequency of trades and quotes for the security; (iii) the number of dealers
wishing to purchase or sell the security and the number of other potential
purchasers; (iv) dealer undertakings to make a market in the security; and (v)
the nature of the security and the nature of the marketplace trades (e.g., the
time needed to dispose of the security, the method of soliciting offers and the
mechanics of the transfer).
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the 1933 Act, securities which are otherwise not readily
marketable and repurchase agreements having a maturity of longer than seven
days. Securities which have not been registered under the 1933 Act are referred
to as private placements or restricted securities and are purchased directly
from the issuer or in the secondary market. Mutual funds do not typically hold a
significant amount of these restricted or other illiquid securities because of
the potential
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for delays on resale and uncertainty in valuation. Limitations on
resale may have an adverse effect on the marketability of portfolio securities
and a mutual fund might be unable to dispose of restricted or other illiquid
securities promptly or at reasonable prices and might thereby experience
difficulty satisfying redemptions within seven days. A mutual fund might also
have to register such restricted securities in order to dispose of them
resulting in additional expense and delay. Adverse market conditions could
impede such a public offering of securities.
In recent years, however, a large institutional market has developed for certain
securities that are not registered under the 1933 Act including repurchase
agreements, commercial paper, foreign securities, municipal securities and
corporate bonds and notes. Institutional investors depend on an efficient
institutional market in which the unregistered security can be readily resold or
on an issuer's ability to honor a demand for repayment. The fact that there are
contractual or legal restrictions on resale to the general public or to certain
institutions may not be indicative of the liquidity of such investments.
INVESTMENT COMPANY SECURITIES. Investment company securities are securities of
other open-end or closed-end investment companies. The 1940 Act generally
prohibits a Portfolio from acquiring more than 3% of the outstanding voting
shares of an investment company and limits such investments to no more than 5%
of the Portfolio's total assets in any investment company and no more than 10%
in any combination of unaffiliated investment companies. The 1940 Act also
prohibits a Portfolio from acquiring shares of an open-end investment company
whose investment manager or investment adviser is the Adviser or an affiliate of
the Adviser to the Portfolio purchasing such securities. The 1940 Act further
prohibits a Portfolio from acquiring in the aggregate more than 10% of the
outstanding voting shares of any registered closed-end investment company.
INVESTMENT GRADE AND LOWER QUALITY FIXED INCOME SECURITIES. As indicated in
Appendix A, certain of the Portfolios may invest in or hold investment grade
securities, but not lower quality fixed income securities. Investment grade
securities are securities rated Baa or higher by Moody's Investors Service Inc.
("Moody's") or BBB or higher by Standard & Poor's Rating Services, a division of
McGraw-Hill Companies, Inc. ("Standard & Poor's") or comparable quality unrated
securities. Investment grade securities while normally exhibiting adequate
protection parameters, have speculative characteristics, and, consequently,
changes in economic conditions or other circumstances are more likely to lead to
a weakened capacity of such issuers to make principal and interest payments than
is the case for higher grade fixed income securities.
Lower quality fixed income securities are securities that are rated in the lower
categories by nationally recognized statistical rating organizations ("NRSRO")
(i.e., Ba or lower by Moody's and BB or lower by Standard & Poor's) or
comparable quality unrated securities. Such lower quality securities are known
as "junk bonds" and are regarded as predominantly speculative with respect to
the issuer's continuing ability to meet principal and interest payments. (Each
NRSRO's descriptions of these bond ratings are set forth in the Appendix to this
Statement of Additional Information.) Because investment in lower quality
securities involves greater investment risk, achievement of a Portfolio's
investment objective will be more dependent on the Adviser's analysis than would
be the case if that Portfolio were investing in higher quality bonds. In
addition, lower quality securities may be more susceptible to real or perceived
adverse economic and individual corporate developments than would investment
grade bonds. Moreover, the secondary trading market for lower quality securities
may be less liquid than the market for investment grade bonds. This potential
lack of liquidity may make it more difficult for an Adviser to value accurately
certain portfolio securities.
It is the policy of each Portfolio's Adviser to not rely exclusively on ratings
issued by credit rating agencies but to supplement such ratings with the
Adviser's own independent and ongoing review of credit quality. Junk bonds may
be issued as a consequence of corporate restructuring, such as leveraged
buyouts, mergers, acquisitions, debt recapitalizations, or similar events or by
smaller or highly leveraged
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companies. When economic conditions appear to be deteriorating, junk bonds may
decline in market value due to investors' heightened concern over credit
quality, regardless of prevailing interest rates. Although the growth of the
high yield securities market in the 1980s had paralleled a long economic
expansion, many issuers have been affected by adverse economic and market
conditions. It should be recognized that an economic downturn or increase in
interest rates is likely to have a negative effect on: (i) the high yield bond
market; (ii) the value of high yield securities; and (iii) the ability of the
securities' issuers to service their principal and interest payment obligations,
to meet their projected business goals or to obtain additional financing. The
market for junk bonds, especially during periods of deteriorating economic
conditions, may be less liquid than the market for investment grade bonds. In
periods of reduced market liquidity, junk bond prices may become more volatile
and may experience sudden and substantial price declines. Also, there may be
significant disparities in the prices quoted for junk bonds by various dealers.
Under such conditions, a Portfolio may find it difficult to value its junk bonds
accurately. Under such conditions, a Portfolio may have to use subjective rather
than objective criteria to value its junk bond investments accurately and rely
more heavily on the judgment of the Trust's Board of Trustees. Prices for junk
bonds also may be affected by legislative and regulatory developments. For
example, federal rules require that savings and loans gradually reduce their
holdings of high-yield securities. Also, from time to time, Congress has
considered legislation to restrict or eliminate the corporate tax deduction for
interest payments or to regulate corporate restructuring such as takeovers,
mergers or leveraged buyouts. Such legislation, if enacted, could depress the
prices of outstanding junk bonds.
LOAN PARTICIPATIONS AND OTHER DIRECT INDEBTEDNESS. As indicated in Appendix A,
certain of the Portfolios may invest a portion of each of their assets in loan
participations and other direct indebtedness. These loans are made generally to
finance internal growth, mergers, acquisitions, stock repurchases, leveraged
buy-outs and other corporate activities. In purchasing a loan, a Portfolio
acquires some or all of the interest of a bank or other lending institution in a
loan to a corporate borrower. Many such loans are secured, although some may be
unsecured. Such loans may be in default at the time of purchase. Loans and other
direct indebtedness that are fully secured offer a Portfolio more protection
than an unsecured loan in the event of non-payment of scheduled interest or
principal. However, there is no assurance that the liquidation of collateral
from a secured loan or other direct indebtedness would satisfy the corporate
borrower's obligation, or that the collateral can be liquidated.
Certain of the loans and other direct indebtedness acquired by the Portfolio may
involve revolving credit facilities or other standby financing commitments which
obligate the Portfolio to pay additional cash on a certain date or on demand.
The highly leveraged nature of many such loans and other direct indebtedness may
make such loans especially vulnerable to adverse changes in economic or market
conditions. Loans and other direct indebtedness may not be in the form of
securities or may be subject to restrictions on transfer, and only limited
opportunities may exist to resell such instruments. As a result, the Portfolio
may be unable to sell such investments at an opportune time or may have to
resell them at less than fair market value. These commitments may have the
effect of requiring a Portfolio to increase its investment in a company at a
time when a Portfolio might not otherwise decide to do so (including at a time
when the company's financial condition makes it unlikely that such amounts will
be repaid). To the extent that a Portfolio is committed to advance additional
funds, it will at all times hold and maintain in a segregated account cash or
assets in an amount sufficient to meet such commitments.
Such loans and other direct indebtedness loans are typically made by a syndicate
of lending institutions, represented by an agent lending institution which has
negotiated and structured the loan and is responsible for collecting interest,
principal and other amounts due on its own behalf and on behalf of the others in
the syndicate, and for enforcing its rights and the rights of other loan
participants against the borrower. Alternatively, such loans and other direct
indebtedness may be structured as a "novation" (i.e., a new loan) pursuant to
which a Portfolio would assume all of the rights of the lending institution in a
loan, or as
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an assignment, pursuant to which a Portfolio would purchase an
assignment of a portion of a lender's interest in a loan or other direct
indebtedness either directly from the lender or through an intermediary. A
Portfolio may also purchase trade or other claims against companies, which
generally represent money owed by the company to a supplier of goods or
services. These claims may also be purchased at a time when the company is in
default.
A Portfolio's ability to receive payment of principal, interest and other
amounts due in connection with these investments will depend primarily on the
financial condition of the borrower. In selecting the loans and other direct
indebtedness that a Portfolio will purchase, the Adviser will rely upon its own
credit analysis of the borrower. As a Portfolio may be required to rely upon
another lending institution to collect and pass on to a Portfolio amounts
payable with respect to the loan and to enforce a Portfolio's rights under the
loan and other direct indebtedness, an insolvency, bankruptcy or reorganization
of the lending institution may delay or prevent a Portfolio from receiving such
amounts. In such cases, a Portfolio will also evaluate the creditworthiness of
the lending institution and will treat both the borrower and the lending
institutions as an "issuer" of the loan for purposes of certain investment
restrictions pertaining to the diversification of a Portfolio's portfolio
investments.
Investments in such loans and other direct indebtedness may involve additional
risks to a Portfolio. For example, if a loan or other direct indebtedness is
foreclosed, a Portfolio could become part owner of any collateral, and would
bear the costs and liabilities associated with owning and disposing of the
collateral. In addition, it is conceivable that under emerging legal theories of
lender liability, a Portfolio could be held liable. It is unclear whether loans
and other forms of direct indebtedness offer securities law protections against
fraud and misrepresentation. In the absence of definitive regulatory guidance, a
Portfolio relies on the Adviser's research in an attempt to avoid situations
where fraud and misrepresentation could adversely affect a Portfolio. In
addition, loans and other direct investments may not be in the form of
securities or may be subject to restrictions on transfer, and only limited
opportunities may exist to resell such instruments. As a result, a Portfolio may
be unable to sell such investments at an opportune time or may have to resell
them at less than fair market value. To the extent that the Adviser determines
that any such investments are illiquid, a Portfolio will include them in the
investment limitations described above.
MORTGAGE-BACKED OR MORTGAGE-RELATED SECURITIES. As indicated in Appendix A,
certain of the Portfolios may invest in mortgage-related securities (i.e.,
mortgage-backed securities). A mortgage-backed security may be an obligation of
the issuer backed by a mortgage or pool of mortgages or a direct interest in an
underlying pool of mortgages. Certain Portfolios may invest in collateralized
mortgage obligations ("CMOs") and stripped mortgage-backed securities that
represent a participation in, or are secured by, mortgage loans. Some
mortgage-backed securities, such as CMOs, make payments of both principal and
interest at a variety of intervals; others make semiannual interest payments at
a predetermined rate and repay principal at maturity (like a typical bond).
Mortgage-backed securities are based on different types of mortgages including
those on commercial real estate or residential properties.
CMOs may be issued by a United States Government agency or instrumentality or by
a private issuer. Although payment of the principal of, and interest on, the
underlying collateral securing privately issued CMOs may be guaranteed by the
United States Government or its agencies or instrumentalities, these CMOs
represent obligations solely of the private issuer and are not insured or
guaranteed by the United States Government, its agencies or instrumentalities or
any other person or entity. Prepayments could cause early retirement of CMOs.
CMOs are designed to reduce the risk of prepayment for investors by issuing
multiple classes of securities (or "tranches"), each having different
maturities, interest rates and payment schedules, and with the principal and
interest on the underlying mortgages allocated among the several classes in
various ways. Payment of interest or principal on some classes or series of CMOs
may be subject to contingencies or some classes or series may bear some or all
of the risk of default on the underlying mortgages. CMOs of different classes or
series are generally retired in sequence as the
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underlying mortgage loans in the mortgage pool are repaid. If enough mortgages
are repaid ahead of schedule, the classes or series of a CMO with the earliest
maturities generally will be retired prior to their maturities. Thus, the early
retirement of particular classes or series of a CMO held by a Portfolio would
have the same effect as the prepayment of mortgages underlying other
mortgage-backed securities. Conversely, slower than anticipated prepayments can
extend the effective maturities of CMOs, subjecting them to a greater risk of
decline in market value in response to rising interest rates than traditional
debt securities, and, therefore, potentially increasing the volatility of a
Portfolio that invests in CMOs.
The value of mortgage-backed securities may change due to shifts in the market's
perception of issuers. In addition, regulatory or tax changes may adversely
affect the mortgage securities market as a whole. Non-government mortgage-backed
securities may offer higher yields than those issued by government entities, but
also may be subject to greater price changes than government issues.
Mortgage-backed securities have yield and maturity characteristics corresponding
to the underlying assets. Unlike traditional debt securities, which may pay a
fixed rate of interest until maturity, when the entire principal amount comes
due, payments on certain mortgage-backed securities include both interest and a
partial repayment of principal. Besides the scheduled repayment of principal,
repayments of principal may result from the voluntary prepayment, refinancing,
or foreclosure of the underlying mortgage loans.
Mortgage-backed securities are subject to prepayment risk. Prepayment, which
occurs when unscheduled or early payments are made on the underlying mortgages,
may shorten the effective maturities of these securities and may lower their
returns. If property owners make unscheduled prepayments of their mortgage
loans, these prepayments will result in early payment of the applicable
mortgage-related securities. In that event, the Portfolios may be unable to
invest the proceeds from the early payment of the mortgage-related securities in
an investment that provides as high a yield as the mortgage-related securities.
Consequently, early payment associated with mortgage-related securities may
cause these securities to experience significantly greater price and yield
volatility than that experienced by traditional fixed-income securities. The
occurrence of mortgage prepayments is affected by factors including the level of
interest rates, general economic conditions, the location and age of the
mortgage and other social and demographic conditions. During periods of falling
interest rates, the rate of mortgage prepayments tends to increase, thereby
tending to decrease the life of mortgage-related securities. During periods of
rising interest rates, the rate of mortgage prepayments usually decreases,
thereby tending to increase the life of mortgage-related securities. If the life
of a mortgage-related security is inaccurately predicted, a Portfolio may not be
liable to realize the rate of return it expected.
Mortgage-backed securities are less effective than other types of securities as
a means of "locking in" attractive long-term interest rates. One reason is the
need to reinvest prepayments of principal; another is the possibility of
significant unscheduled prepayments resulting from declines in interest rates.
Prepayments may cause losses on securities purchased at a premium. At times,
some of the mortgage-backed securities in which a Portfolio may invest will have
higher than market interest rates and, therefore, will be purchased at a premium
above their par value. Unscheduled prepayments, which are made at par, will
cause a Portfolio to experience a loss equal to any unamortized premium.
Stripped mortgage-backed securities are created when a United States government
agency or a financial institution separates the interest and principal
components of a mortgage-backed security and sells them as individual
securities. The securities may be issued by agencies or instrumentalities of the
United States Government and private originators of, or investors in, mortgage
loans, including savings and loan associations, mortgage banks, commercial
banks, investment banks and special purpose entities of the foregoing. Stripped
mortgage-backed securities are usually structured with two classes that receive
different portions of the interest and principal distributions on a pool of
mortgage loans. The holder of the "principal-only" security ("PO") receives the
principal payments made by the underlying mortgage-backed security, while the
holder of the "interest-only" security ("IO") receives interest payments from
the same underlying security. The Portfolios may invest in both the IO class and
the PO class. The prices
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of stripped mortgage-backed securities may be particularly affected by changes
in interest rates. The yield to maturity on an IO class of stripped
mortgage-backed securities is extremely sensitive not only to changes in
prevailing interest rates but also to the rate of principal payments (including
prepayments) on the underlying assets. As interest rates fall, prepayment rates
tend to increase, which tends to reduce prices of IOs and increase prices of
POs. Rising interest rates can have the opposite effect.
Prepayments may also result in losses on stripped mortgage-backed securities. A
rapid rate of principal prepayments may have a measurable adverse effect on a
Portfolio's yield to maturity to the extent it invests in IOs. If the assets
underlying the IO experience greater than anticipated prepayments of principal,
a Portfolio may fail to recoup fully its initial investments in these
securities. Conversely, POs tend to increase in value if prepayments are greater
than anticipated and decline if prepayments are slower than anticipated. The
secondary market for stripped mortgage-backed securities may be more volatile
and less liquid than that for other mortgage-backed securities, potentially
limiting the Portfolios' ability to buy or sell those securities at any
particular time.
The JPM Core Bond Portfolio may also invest in directly placed mortgages
including residential mortgages, multifamily mortgages, mortgages on cooperative
apartment buildings, commercial mortgages, and sale-leasebacks. These
investments are backed by assets such as office buildings, shopping centers,
retail stores, warehouses, apartment buildings and single-family dwellings. In
the event that the Portfolio forecloses on any non-performing mortgage, it could
end up acquiring a direct interest in the underlying real property and the
Portfolio would then be subject to the risks generally associated with the
ownership of real property. There may be fluctuations in the market value of the
foreclosed property and its occupancy rates, rent schedules and operating
expenses. Investment in direct mortgages involve many of the same risks as
investments in mortgage-related securities. In addition, in the event that the
Portfolio forecloses on any non-performing mortgage, and acquires a direct
interest in the real property, the Portfolio will be subject to the risks
generally associated with the ownership of real property. There may also be
adverse changes in local, regional or general economic conditions, deterioration
of the real estate market and the financial circumstances of tenants and
sellers, unfavorable changes in zoning, building, environmental and other laws,
increased real property taxes, rising interest rates, reduced availability and
increased cost of mortgage borrowings, the need for anticipated renovations,
unexpected increases in the cost of energy, environmental factors, acts of God
and other factors which are beyond the control of the Portfolio or the Adviser.
Hazardous or toxic substances may be present on, at or under the mortgaged
property and adversely affect the value of the property. In addition, the owners
of the property containing such substances may be held responsible, under
various laws, for containing, monitoring, removing or cleaning up such
substances. The presence of such substances may also provide a basis for other
claims by third parties. Costs of clean-up or of liabilities to third parties
may exceed the value of the property. In addition, these risks may be
uninsurable. In light of these and similar risks, it may be impossible to
dispose profitably of properties in foreclosure.
MORTGAGE DOLLAR ROLLS. The JPM Core Bond Portfolio may enter into mortgage
dollar rolls in which the Portfolio sells securities for delivery in the current
month and simultaneously contracts with the same counterparty to repurchase
similar (same type, coupon and maturity) but not identical securities on a
specified future date. During the roll period, the Portfolio loses the right to
receive principal (including prepayments of principal) and interest paid on the
securities sold. However, the Portfolio may benefit from the interest earned on
the cash proceeds of the securities sold until the settlement date of the
forward purchase. The Portfolio will hold and maintain in a segregated account
until the settlement date cash or liquid securities in an amount equal to the
forward purchase price. The benefits derived from the use of mortgage dollar
rolls depend upon the Adviser's ability to manage mortgage prepayments. There is
no assurance that mortgage dollar rolls can be successfully employed.
MUNICIPAL SECURITIES. As indicated in Appendix A, certain of the Portfolios may
invest in municipal securities ("municipals"), which are debt obligations issued
by local, state and regional governments that
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provide interest income that is exempt from federal income taxes. Municipals
include both municipal bonds (those securities with maturities of five years or
more) and municipal notes (those with maturities of less than five years).
Municipal bonds are issued for a wide variety of reasons: to construct public
facilities, such as airports, highways, bridges, schools, hospitals, mass
transportation, streets, water and sewer works; to obtain funds for operating
expenses; to refund outstanding municipal obligations; and to loan funds to
various public institutions and facilities. Certain industrial development bonds
are also considered municipal bonds if their interest is exempt from federal
income tax. Industrial development bonds are issued by or on behalf of public
authorities to obtain funds for various privately-operated manufacturing
facilities, housing, sports arenas, convention centers, airports, mass
transportation systems and water, gas or sewer works. Industrial development
bonds are ordinarily dependent on the credit quality of a private user, not the
public issuer.
OPTIONS AND FUTURES TRANSACTIONS. As indicated in Appendix A, the BT Small
Company Index Portfolio, BT International Equity Index Portfolio and BT Equity
500 Index Portfolio each may not at any time commit more than 20% of its assets
to options and futures contracts. The MFS Emerging Growth Companies Portfolio
and Morgan Stanley Emerging Markets Equity Portfolio will not enter a futures
contract if the obligations underlying all such futures contracts would exceed
50% of the value of each such Portfolio's total assets.
Each Portfolio may buy and sell futures and options contracts for any number of
reasons, including: to manage its exposure to changes in securities prices and
foreign currencies; as an efficient means of adjusting its overall exposure to
certain markets; in an effort to enhance income; to protect the value of
portfolio securities and to adjust the duration of fixed income investments.
Each Portfolio may purchase, sell, or write call and put options and futures
contracts on securities, financial indices, and foreign currencies and options
on futures contracts.
The risk of loss in trading futures contracts can be substantial because of the
low margin deposits required and the extremely high degree of leveraging
involved in futures pricing. As a result, a relatively small price movement in a
futures contract may cause an immediate and substantial loss or gain. The
primary risks associated with the use of futures contracts and options are: (i)
imperfect correlation between the change in market value of the stocks held by a
Portfolio and the prices of futures contracts and options; and (ii) possible
lack of a liquid secondary market for a futures contract or an over-the-counter
option and the resulting inability to close a futures position or
over-the-counter option prior to its maturity date.
Following is a description of specific Options and Futures Transactions,
followed by a discussion concerning the risks associated with utilizing options,
futures contracts, and forward foreign currency exchange contracts.
FUTURES TRANSACTIONS. As indicated in Appendix A, certain of the
Portfolios may utilize futures contracts. Futures contracts (a type of
potentially high-risk security) enable the investor to buy or sell an asset in
the future at an agreed upon price. A futures contract is a bilateral agreement
to buy or sell a security (or deliver a cash settlement price, in the case of a
contract relating to an index or otherwise not calling for physical delivery at
the end of trading in the contracts) for a set price in the future. Futures
contracts are designated by boards of trade which have been designated
"contracts markets" by the Commodities Futures Trading Commission ("CFTC").
No purchase price is paid or received when the contract is entered into.
Instead, a Portfolio upon entering into a futures contract (and to maintain the
Portfolio's open positions in futures contracts) would be required to deposit
with its custodian in a segregated account in the name of the futures broker an
amount of cash, United States government securities, suitable money market
instruments, or liquid, high-grade debt securities, known as "initial margin."
The margin required for a particular futures contract is set by the exchange on
which the contract is traded, and may be significantly modified from time to
time by the
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exchange during the term of the contract. Futures contracts are customarily
purchased and sold on margin that may range upward from less than 5% of the
value of the contract being traded. By using futures contracts as a risk
management technique, given the greater liquidity in the futures market than in
the cash market, it may be possible to accomplish certain results more quickly
and with lower transaction costs.
If the price of an open futures contract changes (by increase in the case of a
sale or by decrease in the case of a purchase) so that the loss on the futures
contract reaches a point at which the margin on deposit does not satisfy margin
requirements, the broker will require an increase in the margin. However, if the
value of a position increases because of favorable price changes in the futures
contract so that the margin deposit exceeds the required margin, the broker will
pay the excess to the Portfolio. These subsequent payments called "variation
margin," to and from the futures broker, are made on a daily basis as the price
of the underlying assets fluctuate making the long and short positions in the
futures contract more or less valuable, a process known as "marking to the
market. The Portfolios expect to earn interest income on their initial and
variation margin deposits.
A Portfolio will incur brokerage fees when it purchases and sells futures
contracts. Positions taken in the futures markets are not normally held until
delivery or cash settlement is required, but are instead liquidated through
offsetting transactions which may result in a gain or a loss. While futures
positions taken by a Portfolio will usually be liquidated in this manner, the
Portfolio may instead make or take delivery of underlying securities whenever it
appears economically advantageous for the Portfolio to do so. A clearing
organization associated with the exchange on which futures are traded assumes
responsibility for closing out transactions and guarantees that as between the
clearing members of an exchange, the sale and purchase obligations will be
performed with regard to all positions that remain open at the termination of
the contract.
OPTIONS ON FUTURES CONTRACTS. As indicated in Appendix A, certain of
the Portfolios may purchase and write exchange-traded call and put options on
futures contracts of the type which the particular Portfolio is authorized to
enter into. These options are traded on exchanges that are licensed and
regulated by the CFTC for the purpose of options trading. A call option on a
futures contract gives the purchaser the right, in return for the premium paid,
to purchase a futures contract (assume a "long" position) at a specified
exercise price at any time before the option expires. A put option gives the
purchaser the right, in return for the premium paid, to sell a futures contract
(assume a "short" position), for a specified exercise price, at any time before
the option expires.
Options on futures contracts can be used by a Portfolio to hedge substantially
the same risks as might be addressed by the direct purchase or sale of the
underlying futures contracts. If the Portfolio purchases an option on a futures
contract, it may obtain benefits similar to those that would result if it held
the futures position itself. Purchases of options on futures contracts may
present less risk in hedging than the purchase and sale of the underlying
futures contracts since the potential loss is limited to the amount of the
premium plus related transaction costs.
The Portfolios will write only options on futures contracts which are "covered."
A Portfolio will be considered "covered" with respect to a put option it has
written if, so long as it is obligated as a writer of the put, the Portfolio
segregates with its custodian cash, United States Government securities or
liquid securities at all times equal to or greater than the aggregate exercise
price of the puts it has written (less any related margin deposited with the
futures broker). A Portfolio will be considered "covered" with respect to a call
option it has written on a debt security future if, so long as it is obligated
as a writer of the call, the Portfolio owns a security deliverable under the
futures contract. A Portfolio will be considered "covered" with respect to a
call option it has written on a securities index future if the Portfolio owns,
so long as the Portfolio is obligated as the writer of the call, a portfolio of
securities the price changes of which are, in the opinion of its Adviser,
expected to replicate substantially the movement of the index upon which the
futures contract is based.
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Upon the exercise of a call option, the writer of the option is obligated to
sell the futures contract (to deliver a "long" position to the option holder) at
the option exercise price, which will presumably be lower than the current
market price of the contract in the futures market. Upon exercise of a put, the
writer of the option is obligated to purchase the futures contract (deliver a
"short" position to the option holder) at the option exercise price which will
presumably be higher than the current market price of the contract in the
futures market. When the holder of an option exercises it and assumes a long
futures position, in the case of a call, or a short futures position, in the
case of a put, its gain will be credited to its futures margin account, while
the loss suffered by the writer of the option will be debited to its account and
must be immediately paid by the writer. However, as with the trading of futures,
most participants in the options markets do not seek to realize their gains or
losses by exercise of their option rights. Instead, the holder of an option will
usually realize a gain or loss by buying or selling an offsetting option at a
market price that will reflect an increase or a decrease from the premium
originally paid.
If a Portfolio writes options on futures contracts, the Portfolio will receive a
premium but will assume a risk of adverse movement in the price of the
underlying futures contract comparable to that involved in holding a futures
position. If the option is not exercised, the Portfolio will realize a gain in
the amount of the premium, which may partially offset unfavorable changes in the
value of securities held in or to be acquired for the Portfolio. If the option
is exercised, the Portfolio will incur a loss in the option transaction, which
will be reduced by the amount of the premium it has received, but which will
offset any favorable changes in the value of its portfolio securities or, in the
case of a put, lower prices of securities it intends to acquire.
LIMITATIONS ON PURCHASE AND SALE OF FUTURES CONTRACTS AND OPTIONS ON
FUTURES CONTRACTS. The Portfolios will not engage in transactions in futures
contracts and related options for speculation. In addition, the Portfolios will
not purchase or sell futures contracts or related options unless either (1) the
futures contracts or options thereon are purchased for "bona fide hedging"
purposes (as that term is defined under the CFTC regulations) or (2) if
purchased for other purposes, the sum of the amounts of initial margin deposits
on a Portfolio's existing futures and premiums required to establish non-hedging
positions would not exceed 5% of the liquidation value of the Portfolio's total
assets. In instances involving the purchase of futures contracts or the writing
of put options thereon by a Portfolio, an amount of cash and cash equivalents,
equal to the cost of such futures contracts or options written (less any related
margin deposits), will be deposited in a segregated account with its custodian,
thereby insuring that the use of such futures contracts and options is
unleveraged. In instances involving the sale of futures contracts or the writing
of call options thereon by a Portfolio, the securities underlying such futures
contracts or options will at all times be maintained by the Portfolio or, in the
case of index futures and related options, the Portfolio will own securities the
price changes of which are, in the opinion of its Adviser, expected to replicate
substantially the movement of the index upon which the futures contract or
option is based.
For information concerning the risks associated with utilizing options, futures
contracts, and forward foreign currency exchange contracts, please see "Risks of
Transactions in Options, Futures Contracts and Forward Currency Contracts" on
page ____.
As indicated in Appendix A, certain of the Portfolios may also write and
purchase put and call options. Options (another type of potentially high-risk
security) give the purchaser of an option the right, but not the obligation, to
buy or sell in the future an asset at a predetermined price during the term of
the option. (The writer of a put or call option would be obligated to buy or
sell the underlying asset at a predetermined price during the term of the
option.) Each Portfolio will write put and call options only if such options are
considered to be "covered". A call option on a security is covered, for example,
when the writer of the call option owns throughout the option period the
security on which the option is written (or a security convertible into such a
security without the payment of additional consideration). A put option on a
security is covered, for example, when the writer of the put has deposited and
maintained in a
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segregated account throughout the option period sufficient cash
or other liquid assets in an amount equal to or greater than the exercise price
of the put option.
As indicated in Appendix A, certain of the Portfolios will not commit more than
5% of their total assets to premiums when purchasing call or put options. In
addition, the total market value of securities against which a Portfolio has
written call or put options may not exceed 25% of its total assets. The Warburg
Pincus Small Company Value Portfolio may commit up to 10% of its total assets to
premiums when purchasing put or call options. The Merrill Lynch Basic Value
Equity Portfolio will not write covered call options on underlying securities
exceeding 15% of the value of its total assets. The EQ/Alliance Premier Growth
Portfolio may write covered exchange-traded call options on its securities of up
to 15% of its total assets, and purchase and sell exchange-traded call and put
options on common stocks written by others of up to, for all options, 10% of its
total assets.
WRITING CALL OPTIONS. A call option is a contract which gives the
purchaser of the option (in return for a premium paid) the right to buy, and the
writer of the option (in return for a premium received) the obligation to sell,
the underlying security at the exercise price at any time prior to the
expiration of the option, regardless of the market price of the security during
the option period. A call option on a security is covered, for example, when the
writer of the call option owns the security on which the option is written (or
on a security convertible into such a security without additional consideration)
throughout the option period.
The writing of a call option on a futures contract constitutes a partial hedge
against declining prices of the underlying securities. If the futures price at
expiration is below the exercise price, the Portfolio will retain the full
amount of the option premium, which provides a partial hedge against any decline
that may have occurred in the value of the Portfolio's holdings of securities.
The writing of a put option on a futures contract is analogous to the purchase
of a futures contract in that it hedges against an increase in the price of
securities the Portfolio intends to acquire. However, the hedge is limited to
the amount of premium received for writing the put.
A Portfolio will write covered call options both to reduce the risks associated
with certain of its investments and to increase total investment return through
the receipt of premiums. In return for the premium income, the Portfolio will
give up the opportunity to profit from an increase in the market price of the
underlying security above the exercise price so long as its obligations under
the contract continue, except insofar as the premium represents a profit.
Moreover, in writing the call option, the Portfolio will retain the risk of loss
should the price of the security decline. The premium is intended to offset that
loss in whole or in part. Unlike the situation in which the Portfolio owns
securities not subject to a call option, the Portfolio, in writing call options,
must assume that the call may be exercised at any time prior to the expiration
of its obligation as a writer, and that in such circumstances the net proceeds
realized from the sale of the underlying securities pursuant to the call may be
substantially below the prevailing market price.
A Portfolio may terminate its obligation under an option it has written by
buying an identical option. Such a transaction is called a "closing purchase
transaction." The Portfolio will realize a gain or loss from a closing purchase
transaction if the amount paid to purchase a call option is less or more than
the amount received from the sale of the corresponding call option. Also,
because increases in the market price of a call option will generally reflect
increases in the market price of the underlying security, any loss resulting
from the exercise or closing out of a call option is likely to be offset in
whole or part by unrealized appreciation of the underlying security owned by the
Portfolio. When an underlying security is sold from the Portfolio's securities
portfolio, the Portfolio will effect a closing purchase transaction so as to
close out any existing covered call option on that underlying security.
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WRITING PUT OPTIONS. The writer of a put option becomes obligated to
purchase the underlying security at a specified price during the option period
if the buyer elects to exercise the option before its expiration date. A
Portfolio which writes a put option will be required to "cover" it, for example,
by depositing and maintaining in a segregated account with its custodian cash,
United States Government securities or other liquid securities having a value
equal to or greater than the exercise price of the option.
The Portfolios may write put options either to earn additional income in the
form of option premiums (anticipating that the price of the underlying security
will remain stable or rise during the option period and the option will
therefore not be exercised) or to acquire the underlying security at a net cost
below the current value (e.g., the option is exercised because of a decline in
the price of the underlying security, but the amount paid by the Portfolio,
offset by the option premium, is less than the current price). The risk of
either strategy is that the price of the underlying security may decline by an
amount greater than the premium received. The premium which a Portfolio receives
from writing a put option will reflect, among other things, the current market
price of the underlying security, the relationship of the exercise price to that
market price, the historical price volatility of the underlying security, the
option period, supply and demand and interest rates.
A Portfolio may effect a closing purchase transaction to realize a profit on an
outstanding put option or to prevent an outstanding put option from being
exercised.
PURCHASING PUT AND CALL OPTIONS. A Portfolio may purchase put options
on securities to protect their holdings against a substantial decline in market
value. The purchase of put options on securities will enable a Portfolio to
preserve, at least partially, unrealized gains in an appreciated security in its
portfolio without actually selling the security. In addition, the Portfolio will
continue to receive interest or dividend income on the security. The Portfolios
may also purchase call options on securities to protect against substantial
increases in prices of securities that Portfolios intend to purchase pending
their ability to invest in an orderly manner in those securities. The Portfolios
may sell put or call options they have previously purchased, which could result
in a net gain or loss depending on whether the amount received on the sale is
more or less than the premium and other transaction costs paid on the put or
call option which was bought.
SECURITIES INDEX FUTURES CONTRACTS. Purchases or sales of securities
index futures contracts may be used in an attempt to protect a Portfolio's
current or intended investments from broad fluctuations in securities prices. A
securities index futures contract does not require the physical delivery of
securities, but merely provides for profits and losses resulting from changes in
the market value of the contract to be credited or debited at the close of each
trading day to the respective accounts of the parties to the contract. On the
contract's expiration date a final cash settlement occurs and the futures
positions are simply closed out. Changes in the market value of a particular
index futures contract reflect changes in the specified index of securities on
which the future is based.
By establishing an appropriate "short" position in index futures, a Portfolio
may also seek to protect the value of its portfolio against an overall decline
in the market for such securities. Alternatively, in anticipation of a generally
rising market, a Portfolio can seek to avoid losing the benefit of apparently
low current prices by establishing a "long" position in securities index futures
and later liquidating that position as particular securities are in fact
acquired. To the extent that these hedging strategies are successful, the
Portfolio will be affected to a lesser degree by adverse overall market price
movements than would otherwise be the case.
SECURITIES INDEX OPTIONS. A Portfolio may write covered put and call
options and purchase call and put options on securities indexes for the purpose
of hedging against the risk of unfavorable price movements adversely affecting
the value of a Portfolio's securities or securities it intends to purchase. Each
Portfolio writes only "covered" options. A call option on a securities index is
considered covered,
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for example, if, so long as the Portfolio is obligated as the writer of the
call, it holds securities the price changes of which are, in the opinion of a
Portfolio's Adviser, expected to replicate substantially the movement of the
index or indexes upon which the options written by the Portfolio are based. A
put on a securities index written by a Portfolio will be considered covered if,
so long as it is obligated as the writer of the put, the Portfolio segregates
with its custodian cash, United States Government securities or other liquid
high-grade debt obligations having a value equal to or greater than the exercise
price of the option. Unlike a stock option, which gives the holder the right to
purchase or sell a specified stock at a specified price, an option on a
securities index gives the holder the right to receive a cash "exercise
settlement amount" equal to (i) the difference between the exercise price of the
option and the value of the underlying stock index on the exercise date,
multiplied by (ii) a fixed "index multiplier."
A securities index fluctuates with changes in the market value of the securities
so included. For example, some securities index options are based on a broad
market index such as the Standard & Poor's 500 or the NYSE Composite Index, or a
narrower market index such as the Standard & Poor's 100. Indexes may also be
based on an industry or market segment such as the AMEX Oil and Gas Index or the
Computer and Business Equipment Index.
OVER-THE-COUNTER OPTIONS. As indicated in Appendix A, certain of the
Portfolios may engage in over-the-counter put and call option transactions. The
Warburg Pincus Small Company Value Portfolio may utilize up to 10% of its total
assets to purchase exchange-listed and over-the-counter put and call options on
stock indexes. Options traded in the over-the-counter market may not be as
actively traded as those on an exchange, so it may be more difficult to value
such options. In addition, it may be difficult to enter into closing
transactions with respect to such options. Such over-the-counter options, and
the securities used as "cover" for such options, may be considered illiquid
securities. Certain Portfolios may enter into contracts (or amend existing
contracts) with primary dealers with whom they write over-the-counter options.
The contracts will provide that each Portfolio has the absolute right to
repurchase an option it writes at any time at a repurchase price which
represents the fair market value, as determined in good faith through
negotiation between the parties, but which in no event will exceed a price
determined pursuant to a formula contained in the contract. Although the
specific details of the formula may vary between contracts with different
primary dealers, the formula will generally be based on a multiple of the
premium received by each Portfolio for writing the option, plus the amount, if
any, of the option's intrinsic value (i.e., the amount the option is
"in-the-money"). The formula will also include a factor to account for the
difference between the price of the security and the strike price of the option
if the option is written "out-of-the-money." Although the specific details of
the formula may vary with different primary dealers, each contract will provide
a formula to determine the maximum price at which each Portfolio can repurchase
the option at any time. The Portfolios have established standards of
creditworthiness for these primary dealers, although the Portfolios may still be
subject to the risk that firms participating in such transactions will fail to
meet their obligations. In instances in which a Portfolio has entered into
agreements with respect to the over-the-counter options it has written, and such
agreements would enable the Portfolio to have an absolute right to repurchase at
a pre-established formula price the over-the-counter option written by it, the
Portfolio would treat as illiquid only securities equal in amount to the formula
price described above less the amount by which the option is "in-the-money,"
i.e., the amount by which the price of the option exceeds the exercise price.
RISKS OF TRANSACTIONS IN OPTIONS, FUTURES CONTRACTS AND FORWARD CURRENCY
CONTRACTS
OPTIONS. A closing purchase transaction for exchange-traded options may
be made only on a national securities exchange ("exchange"). There is no
assurance that a liquid secondary market on an exchange will exist for any
particular option, or at any particular time, and for some options, such as
over-the-counter options, no secondary market on an exchange may exist. If a
Portfolio is unable to effect a closing purchase transaction, the Portfolio will
not sell the underlying security until the option expires or the Portfolio
delivers the underlying security upon exercise.
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Options traded in the over-the-counter market may not be as actively traded as
those on an exchange. Accordingly, it may be more difficult to value such
options. In addition, it may be difficult to enter into closing transactions
with respect to options traded over-the-counter. The Portfolios will engage in
such transactions only with firms of sufficient credit so as to minimize these
risks. Such options and the securities used as "cover" for such options may be
considered illiquid securities.
The effectiveness of hedging through the purchase of securities index options
will depend upon the extent to which price movements in the portion of the
securities portfolio being hedged correlate with price movements in the selected
securities index. Perfect correlation is not possible because the securities
held or to be acquired by a Portfolio will not exactly match the composition of
the securities indexes on which options are written. In the purchase of
securities index options the principal risk is that the premium and transaction
costs paid by a Portfolio in purchasing an option will be lost if the changes
(increase in the case of a call, decrease in the case of a put) in the level of
the index do not exceed the cost of the option.
FUTURES. The prices of futures contracts are volatile and are influenced, among
other things, by actual and anticipated changes in the market and interest
rates, which in turn are affected by fiscal and monetary policies and national
and international political and economic events.
Most United States futures exchanges limit the amount of fluctuation permitted
in futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of a
trading session. Once the daily limit has been reached in a particular type of
futures contract, no trades may be made on that day at a price beyond that
limit. The daily limit governs only price movement during a particular trading
day and therefore does not limit potential losses, because the limit may prevent
the liquidation of unfavorable positions. Futures contract prices have
occasionally moved to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of futures positions
and subjecting some futures traders to substantial losses.
Because of the low margin deposits required, futures trading involves an
extremely high degree of leverage. As a result, a relatively small price
movement in a futures contract may result in immediate and substantial loss, as
well as gain, to the investor. For example, if at the time of purchase, 10% of
the value of the futures contract is deposited as margin, a subsequent 10%
decrease in the value of the futures contract would result in a total loss of
the margin deposit, before any deduction for the transaction costs, if the
account were then closed out. A 15% decrease would result in a loss equal to
150% of the original margin deposit, if the contract were closed out. Thus, a
purchase or sale of a futures contract may result in losses in excess of the
amount invested in the futures contract.
A decision of whether, when, and how to hedge involves skill and judgment, and
even a well-conceived hedge may be unsuccessful to some degree because of
unexpected market behavior, market trends or interest rate trends. There are
several risks in connection with the use by a Portfolio of futures contracts as
a hedging device. One risk arises because of the imperfect correlation between
movements in the prices of the futures contracts and movements in the prices of
the underlying instruments which are the subject of the hedge. A Portfolio's
Adviser will, however, attempt to reduce this risk by entering into futures
contracts whose movements, in its judgment, will have a significant correlation
with movements in the prices of the Portfolio's underlying instruments sought to
be hedged.
Successful use of futures contracts by a Portfolio for hedging purposes is also
subject to a Portfolio's ability to correctly predict movements in the direction
of the market. It is possible that, when a Portfolio has sold futures to hedge
its portfolio against a decline in the market, the index, indices, or
instruments underlying futures might advance and the value of the underlying
instruments held in the Portfolio's portfolio might decline. If this were to
occur, the Portfolio would lose money on the futures and also would experience a
decline in value in its underlying instruments.
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Positions in futures contracts may be closed out only on an exchange or a board
of trade which provides the market for such futures. Although the Portfolios,
specified in the Prospectus, intend to purchase or sell futures only on
exchanges or boards of trade where there appears to be an active market, there
is no guarantee that such will exist for any particular contract or at any
particular time. If there is not a liquid market at a particular time, it may
not be possible to close a futures position at such time, and, in the event of
adverse price movements, a Portfolio would continue to be required to make daily
cash payments of variation margin. However, in the event futures positions are
used to hedge portfolio securities, the securities will not be sold until the
futures positions can be liquidated. In such circumstances, an increase in the
price of securities, if any, may partially or completely offset losses on the
futures contracts.
FOREIGN OPTIONS AND FUTURES. Participation in foreign futures and
foreign options transactions involves the execution and clearing of trades on or
subject to the rules of a foreign board of trade. Neither the National Futures
Association nor any domestic exchange regulates activities of any foreign boards
of trade, including the execution, delivery and clearing of transactions, or has
the power to compel enforcement of the rules of a foreign board of trade or any
applicable foreign law. This is true even if the exchange is formally linked to
a domestic market so that a position taken on the market may be liquidated by a
transaction on another market. Moreover, such laws or regulations will vary
depending on the foreign country in which the foreign futures or foreign options
transaction occurs. For these reasons, when a Portfolio trades foreign futures
or foreign options contracts, it may not be afforded certain of the protective
measures provided by the Commodity Exchange Act, the CFTC's regulations and the
rules of the National Futures Association and any domestic exchange, including
the right to use reparations proceedings before the CFTC and arbitration
proceedings provided by the National Futures Association or any domestic futures
exchange. In particular, funds received from a Portfolio for foreign futures or
foreign options transactions may not be provided the same protections as funds
received in respect of transactions on United States futures exchanges. In
addition, the price of any foreign futures or foreign options contract and,
therefore, the potential profit and loss thereon, may be affected by any
variance in the foreign exchange rate between the time the Portfolio's order is
placed and the time it is liquidated, offset or exercised.
FOREIGN CURRENCY CONTRACTS. Hedging against a decline in the value of a
currency does not eliminate fluctuations in the prices of portfolio securities
or prevent losses if the prices of such securities decline. These hedging
transactions also preclude the opportunity for gain if the value of the hedged
currency should rise. Whether a currency hedge benefits a Portfolio will depend
on the ability of a Portfolio's Adviser to predict future currency exchange
rates.
The writing of an option on foreign currency will constitute only a partial
hedge, up to the amount of the premium received, and a Portfolio could be
required to purchase or sell foreign currencies at disadvantageous exchange
rates, thereby incurring losses. The purchase of an option on foreign currency
may constitute an effective hedge against fluctuations in exchange rates
although, in the event of rate movements adverse to a Portfolio's position, it
may forfeit the entire amount of the premium plus related transaction costs.
PASSIVE FOREIGN INVESTMENT COMPANIES. As indicated in Appendix A, certain of the
Portfolios may purchase the securities of certain foreign investment funds or
trusts called passive foreign investment companies ("PFICs"). Such entities have
been the only or primary way to invest in certain countries because some foreign
countries limit, or prohibit, all direct foreign investment in the securities of
companies domiciled therein. However, the governments of some countries have
authorized the organization of investment funds to permit indirect foreign
investment in such securities. For tax purposes these funds may be known as
passive foreign investment companies.
The Portfolios are subject to certain percentage limitations under the 1940 Act
relating to the purchase of securities of investment companies, and,
consequently, each Portfolio may have to subject any of its
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investments in other investment companies, including PFICS, to the limitation
that no more than 10% of the value of the Portfolio's total assets may be
invested in such securities. In addition to bearing their proportionate share of
a Portfolio's expenses (management fees and operating expenses), shareholders
will also indirectly bear similar expenses of such entities. Like other foreign
securities, interests in passive foreign investment companies also involve the
risk of foreign securities, as described above.
PAYMENT-IN-KIND BONDS. As indicated in Appendix A, certain of the Portfolios may
invest in payment-in-kind bonds. Payment-in-kind bonds allow the issuer, at its
option, to make current interest payments on the bonds either in cash or in
additional bonds. The value of payment-in-kind bonds is subject to greater
fluctuation in response to changes in market interest rates than bonds which pay
interest in cash currently. Payment-in-kind bonds allow an issuer to avoid the
need to generate cash to meet current interest payments. Accordingly, such bonds
may involve greater credit risks than bonds paying interest currently. Even
though such bonds do not pay current interest in cash, the Portfolios are
nonetheless required to accrue interest income on such investments and to
distribute such amounts at least annually to shareholders. Thus, the Portfolios
could be required, at times, to liquidate other investments in order to satisfy
its distribution requirements.
REPURCHASE AGREEMENTS. Each Portfolio other than the Alliance Equity Index
Portfolio may enter into repurchase agreements with qualified and Board approved
banks, broker-dealers or other financial institutions as a means of earning a
fixed rate of return on its cash reserves for periods as short as overnight. A
repurchase agreement is a contract pursuant to which a Portfolio, against
receipt of securities of at least equal value including accrued interest, agrees
to advance a specified sum to the financial institution which agrees to
reacquire the securities at a mutually agreed upon time (usually one day) and
price. Each repurchase agreement entered into by a Portfolio will provide that
the value of the collateral underlying the repurchase agreement will always be
at least equal to the repurchase price, including any accrued interest. A
Portfolio's right to liquidate such securities in the event of a default by the
seller could involve certain costs, losses or delays and, to the extent that
proceeds from any sale upon a default of the obligation to repurchase are less
than the repurchase price, the Portfolio could suffer a loss.
Under a repurchase agreement, underlying debt instruments are acquired for a
relatively short period (usually not more than one week and never more than a
year) subject to an obligation of the seller to repurchase and the Portfolio to
resell the instrument at a fixed price and time, thereby determining the yield
during the Portfolio's holding period. This results in a fixed rate of return
insulated from market fluctuation during that holding period.
Repurchase agreements may have the characteristics of loans by a Portfolio.
During the term of the repurchase agreement, a Portfolio retains the security
subject to the repurchase agreement as collateral securing the seller's
repurchase obligation, continually monitors on a daily basis the market value of
the security subject to the agreement and requires the seller to deposit with
the Portfolio collateral equal to any amount by which the market value of the
security subject to the repurchase agreements falls below the resale amount
provided under the repurchase agreement. A Portfolio will enter into repurchase
agreements (with respect to United States Government obligations, certificates
of deposit, or bankers' acceptances) with registered brokers-dealers, United
States Government securities dealers or domestic banks whose creditworthiness is
determined to be satisfactory by the Portfolio's Adviser, pursuant to guidelines
adopted by the Board of Trustees. Generally, a Portfolio does not invest in
repurchase agreements maturing in more than seven days. The staff of the SEC
currently takes the position that repurchase agreements maturing in more than
seven days are illiquid securities.
If a seller under a repurchase agreement were to default on the agreement and be
unable to repurchase the security subject to the repurchase agreement, the
Portfolio would look to the collateral underlying the seller's repurchase
agreement, including the security subject to the repurchase agreement, for
satisfaction
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of the seller's obligation to the Portfolio. In the event a repurchase agreement
is considered a loan and the seller defaults, the Portfolio might incur a loss
if the value of the collateral declines and may incur disposition costs in
liquidating the collateral. In addition, if bankruptcy proceedings are commenced
with respect to the seller, realization of the collateral may be delayed or
limited and a loss may be incurred.
REAL ESTATE INVESTMENT TRUSTS. As indicated in Appendix A, certain of the
Portfolios may each invest up to 15% of its respective net assets in investments
related to real estate, including real estate investment trusts ("REITS"). Risks
associated with investments in securities of companies in the real estate
industry include: decline in the value of real estate; risks related to general
and local economic conditions; overbuilding and increased competition; increases
in property taxes and operating expenses; changes in zoning laws; casualty or
condemnation losses; variations in rental income; changes in neighborhood
values; the appeal of properties to tenants; and increases in interest rates. In
addition, equity REITS may be affected by changes in the values of the
underlying property owned by the trusts, while mortgage real estate investment
trusts may be affected by the quality of credit extended. REITS are dependent
upon management skills, may not be diversified and are subject to the risks of
financing projects. Such REITS are also subject to heavy cash flow dependency,
defaults by borrowers, self liquidation and the possibility of failing to
qualify for tax-free pass-through of income under the Code and to maintain
exemption from the 1940 Act. In the event an issuer of debt securities
collateralized by real estate defaults, it is conceivable that the REITS could
end up holding the underlying real estate.
REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS. As indicated in Appendix A,
certain of the Portfolios may each enter into reverse repurchase agreements with
brokers, dealers, domestic and foreign banks or other financial institutions. In
a reverse repurchase agreement, the Portfolio sells a security and agrees to
repurchase it at a mutually agreed upon date and price, reflecting the interest
rate effective for the term of the agreement. It may also be viewed as the
borrowing of money by the Portfolio. The Portfolio's investment of the proceeds
of a reverse repurchase agreement is the speculative factor known as leverage.
The Portfolio may enter into a reverse repurchase agreement only if the interest
income from investment of the proceeds is greater than the interest expense of
the transaction and the proceeds are invested for a period no longer than the
term of the agreement. At the time a Portfolio enters into a reverse repurchase
agreement, it will establish and maintain a segregated account with an approved
custodian containing cash or other liquid securities having a value not less
than the repurchase price (including accrued interest). If interest rates rise
during a reverse repurchase agreement, it may adversely affect the Portfolio's
net asset value. See "Fundamental Restrictions" for more information concerning
restrictions on borrowing by each Portfolio. Reverse repurchase agreements are
considered to be borrowings under the 1940 Act.
The assets contained in the segregated account will be marked-to-market daily
and additional assets will be placed in such account on any day in which the
assets fall below the repurchase price (plus accrued interest). A Portfolio's
liquidity and ability to manage its assets might be affected when it sets aside
cash or portfolio securities to cover such commitments. Reverse repurchase
agreements involve the risk that the market value of the securities retained in
lieu of sale may decline below the price of the securities a Portfolio has sold
but is obligated to repurchase. In the event the buyer of securities under a
reverse repurchase agreement files for bankruptcy or becomes insolvent, such
buyer or its trustee or receiver may receive an extension of time to determine
whether to enforce a Portfolio's obligation to repurchase the securities, and a
Portfolio's use of the proceeds of the reverse repurchase agreement may
effectively be restricted pending such decision.
In "dollar roll" transactions, a Portfolio sells fixed-income securities for
delivery in the current month and simultaneously contracts to repurchase similar
but not identical (same type, coupon and maturity) securities on a specified
future date. During the roll period, a Portfolio would forego principal and
interest paid on such securities. A Portfolio would be compensated by the
difference between the current sales price and the forward price for the future
purchase, as well as by the interest earned on the cash
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proceeds of the initial sale. At the time a Portfolio enters into a dollar roll
transaction, it will place in a segregated account maintained with an approved
custodian cash or other liquid securities having a value not less than the
repurchase price (including accrued interest) and will subsequently monitor the
account to ensure that its value is maintained.
SECURITIES LOANS. All securities loans will be made pursuant to agreements
requiring the loans to be continuously secured by collateral in cash or high
grade debt obligations at least equal at all times to the market value of the
loaned securities. The borrower pays to the Portfolios an amount equal to any
dividends or interest received on loaned securities. The Portfolios retain all
or a portion of the interest received on investment of cash collateral or
receive a fee from the borrower. Lending portfolio securities involves risks of
delay in recovery of the loaned securities or in some cases loss of rights in
the collateral should the borrower fail financially.
Securities loans are made to broker-dealers or institutional investors or other
persons, pursuant to agreements requiring that the loans be continuously secured
by collateral at least equal at all times to the value of the loaned securities
marked to market on a daily basis. The collateral received will consist of cash,
United States Government securities, letters of credit or such other collateral
as may be permitted under a Portfolio's investment program. While the securities
are being loaned, a Portfolio will continue to receive the equivalent of the
interest or dividends paid by the issuer on the securities, as well as interest
on the investment of the collateral or a fee from the borrower. A Portfolio has
a right to call each loan and obtain the securities on five business days'
notice or, in connection with securities trading on foreign markets, within such
longer period for purchases and sales of such securities in such foreign
markets. A Portfolio will generally not have the right to vote securities while
they are being loaned, but its Manager or Adviser will call a loan in
anticipation of any important vote. The risks in lending portfolio securities,
as with other extensions of secured credit, consist of possible delay in
receiving additional collateral or in the recovery of the securities or possible
loss of rights in the collateral should the borrower fail financially. Loans
will only be made to firms deemed by a Portfolio's Adviser to be of good
standing and will not be made unless, in the judgment of the Adviser, the
consideration to be earned from such loans would justify the risk.
SHORT SALES AGAINST THE BOX. As indicated in Appendix A, certain of the
Portfolios may enter into a "short sale" of securities in circumstances in
which, at the time the short position is open, the Portfolio owns an equal
amount of the securities sold short or owns preferred stocks or debt securities,
convertible or exchangeable without payment of further consideration, into an
equal number of securities sold short. This kind of short sale, which is
referred to as one "against the box," may be entered into by each Portfolio to,
for example, lock in a sale price for a security the Portfolio does not wish to
sell immediately. Each Portfolio will deposit, in a segregated account with its
custodian or a qualified subcustodian, the securities sold short or convertible
or exchangeable preferred stocks or debt securities sold in connection with
short sales against the box. Each Portfolio will endeavor to offset transaction
costs associated with short sales against the box with the income from the
investment of the cash proceeds. Not more than 10% of a Portfolio's net assets
(taken at current value) may be held as collateral for short sales against the
box at any one time. The extent to which a Portfolio may make short sales may be
limited by Code requirements for qualification as a regulated investment
company.
SMALL COMPANY SECURITIES. As indicated in Appendix A, certain of the Portfolios
may invest in the securities of smaller capitalization companies. Investing in
securities of small companies may involve greater risks since these securities
may have limited marketability and, thus, may be more volatile. Because smaller
companies normally have fewer shares outstanding than larger companies, it may
be more difficult for a Portfolio to buy or sell significant amounts of shares
without an unfavorable impact on prevailing prices. In addition, small companies
often have limited product lines, markets or financial resources and are
typically subject to greater changes in earnings and business prospects than are
larger, more established companies. There is typically less publicly available
information concerning smaller
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<PAGE>
companies than for larger, more established ones and smaller companies may be
dependent for management on one or a few key persons. Therefore, an investment
in these Portfolios may involve a greater degree of risk than an investment in
other Portfolios that seek capital appreciation by investing in better known,
larger companies.
STRUCTURED NOTES. The Alliance Portfolios and the Morgan Stanley Emerging
Markets Equity Portfolio may invest in structured notes, which are derivatives
on which the amount of principal repayment and/or interest payments is based
upon the movement of one or more factors. Structured notes are interests in
entities organized and operated solely for the purpose of restructuring the
investment characteristics of debt obligations. This type of restructuring
involves the deposit with or purchase by an entity, such as a corporation or
trust, of specified instruments (such as commercial bank loans) and the issuance
by that entity of one or more classes of securities and the issuance by that
entity of one or more classes of securities backed by, or representing interests
in, the underlying instruments. The cash flow on the underlying instruments may
be apportioned among the newly issued structured notes to create securities with
different investment characteristics such as varying maturities, payment
priorities and interest rate provisions, and the extent of the payment made with
respect to structured notes is dependent on the extent of the cash flow on the
underlying instruments. Because structured notes of the type in which the Morgan
Stanley Emerging Markets Equity Portfolio may invest typically involve no credit
enhancement, their credit risk generally will be equivalent to that of the
underlying instruments. The Morgan Stanley Emerging Markets Equity Portfolio may
invest in a class of structured notes that is either subordinated or
unsubordinated to the right of payment of another class. Subordinated structured
notes typically have higher yields and present greater risks than unsubordinated
structured notes. Certain issuers of structured notes may be deemed to be
"investment companies" as defined in the 1940 Act. As a result, the Morgan
Stanley Emerging Markets Equity Portfolio's investment in these structured notes
may be limited by restrictions contained in the 1940 Act. Structured notes are
typically sold in private placement transactions, and there currently is no
active trading market for structured notes.
SWAPS. As indicated in Appendix A, certain of the Portfolios may each invest in
swap contracts, which are derivatives in the form of a contract or other similar
instrument which is an agreement to exchange the return generated by one
instrument for the return generated by another instrument. The payment streams
are calculated by reference to a specified index and agreed upon notional
amount. The term "specified index" includes, but is not limited to, currencies,
fixed interest rates, prices and total return on interest rate indices, fixed
income indices, stock indices and commodity indices (as well as amounts derived
from arithmetic operations on these indices). For example, a Portfolio may agree
to swap the return generated by a fixed income index for the return generated by
a second fixed income index. The currency swaps in which a Portfolio may enter
will generally involve an agreement to pay interest streams in one currency
based on a specified index in exchange for receiving interest streams
denominated in another currency. Such swaps may involve initial and final
exchanges that correspond to the agreed upon notional amount.
A Portfolio will usually enter into swaps on a net basis, i.e., the two payment
streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Portfolio receiving or paying, as the case
may be, only the net amount of the two payments. A Portfolio's obligations under
a swap agreement will be accrued daily (offset against any amounts owing to the
Portfolio) and any accrued but unpaid net amounts owed to a swap counterparty
will be covered by the maintenance of a segregated account consisting of
unencumbered liquid assets, to avoid any potential leveraging of a Portfolio. To
the extent that these swaps are entered into for hedging purposes, the Advisers
believe such obligations do not constitute "senior securities" under the 1940
Act and, accordingly, the Adviser will not treat them as being subject to a
Portfolio's borrowing restrictions. A Portfolio may enter into OTC swap
transactions with counterparties that are approved by the Advisers in accordance
with guidelines established by the Board of Trustees. These guidelines provide
for a minimum credit rating for each counterparty and various credit enhancement
techniques (for example, collateralization of amounts due from counterparties)
to limit exposure to counterparties that have lower credit ratings.
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<PAGE>
The Portfolio will usually enter into swaps on a net basis, i.e., the two return
streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Portfolio receiving or paying, as the case
may be, only the net amount of the two returns. The Portfolio's obligations
under a swap agreement will be accrued daily (offset against any amounts owing
to the Portfolio) and any accrued but unpaid net amounts owed to a swap
counterparty will be covered by the maintenance of a segregated account
consisting of cash, United States Government securities, or high grade debt
obligations. No Portfolio will enter into any swap agreement unless the
counterparty meets the rating requirements set forth in guidelines established
by the Trust's Board of Trustees. The swap market has grown substantially in
recent years with a large number of banks and investment banking firms acting
both as principals and as agents utilizing standardized swap documentation. As a
result, the swap market has become relatively liquid. Swaps that include more
recent innovations for which standardized documentation has not yet been fully
developed are less liquid than "traditional" swaps. The use of swaps is a highly
specialized activity that involves investment techniques and risks different
from those associated with ordinary portfolio securities transactions. If an
Adviser is incorrect in its forecasts of market values, interest rates, and
currency exchange rates, the investment performance of the Portfolio would be
less favorable than it would have been if this investment technique were not
used.
The swaps in which a Portfolio may engage may include instruments under which
one party pays a single or periodic fixed amount(s) (or premium), and the other
party pays periodic amounts based on the movement of a specified index. Swaps do
not involve the delivery of securities, other underlying assets, or principal.
Accordingly, the risk of loss with respect to swaps is limited to the net amount
of payments the Portfolio is contractually obligated to make. If the other party
to a swap defaults, the Portfolio's risk of loss consists of the net amount of
payments that the Portfolio contractually is entitled to receive. Currency swaps
usually involve the delivery of the entire principal value of one designated
currency in exchange for the other designated currency. Therefore, the entire
principal value of a currency swap is subject to the risk that the other party
to the swap will default on its contractual delivery obligations. If there is a
default by the counterparty, a Portfolio may have contractual remedies pursuant
to the agreements related to the transaction. The swap market has grown
substantially in recent years with a large number of banks and investment
banking firms acting both as principals and as agents utilizing standardized
swap documentation. As a result, the swap market has become relatively liquid.
Certain swap transactions involve more recent innovations for which standardized
documentation has not yet been fully developed and, accordingly, they are less
liquid than traditional swap transactions.
The use of swaps is a highly specialized activity which involves investment
techniques and risks different from those associated with ordinary portfolio
securities transactions. If an Adviser is incorrect in its forecasts of market
values, interest rates, and currency exchange rates, the investment performance
of the Portfolio would be less favorable than it would have been if this
investment technique were not used.
UNITED STATES GOVERNMENT SECURITIES. Each Portfolio may invest in debt
obligations of varying maturities issued or guaranteed by the United States
Government, its agencies or instrumentalities ("United States Government
securities"). Direct obligations of the United States Treasury include a variety
of securities that differ in their interest rates, maturities and dates of
issuance. United States Government securities also include securities issued or
guaranteed by government agencies that are supported by the full faith and
credit of the United States (e.g., securities issued by the Federal Housing
Administration, Export-Import Bank of the United States, Small Business
Administration, and Government National Mortgage Association); securities issued
or guaranteed by government agencies that are supported by the ability to borrow
from the United States Treasury (e.g., securities issued by the Federal National
Mortgage Association); and securities issued or guaranteed by government
agencies that are only supported by the credit of the particular agency (e.g.,
Interamerican Development Bank, the International Bank for Reconstruction and
Development, and the Tennessee Valley Authority).
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<PAGE>
WARRANTS. All of the Alliance Portfolios, except the Alliance Money Market
Portfolio, may purchase warrants and similar rights. Warrants are securities
that give the holder the right, but not the obligation to purchase equity issues
of the company issuing the warrants, or a related company, at a fixed price
either on a date certain or during a set period. At the time of issue, the cost
of a warrant is substantially less than the cost of the underlying security
itself, and price movements in the underlying security are generally magnified
in the price movements of the warrant. This effect enables the investor to gain
exposure to the underlying security with a relatively low capital investment but
increases an investor's risk in the event of a decline in the value of the
underlying security and can result in a complete loss of the amount invested in
the warrant. In addition, the price of a warrant tends to be more volatile than,
and may not correlate exactly to, the price of the underlying security. If the
market price of the underlying security is below the exercise price of the
warrant on its expiration date, the warrant will generally expire without value.
The equity security underlying a warrant is authorized at the time the warrant
is issued or is issued together with the warrant. Investing in warrants can
provide a greater potential for profit or loss than an equivalent investment in
the underlying security, and, thus, can be a speculative investment. The value
of a warrant may decline because of a decline in the value of the underlying
security, the passage of time, changes in interest rates or in the dividend or
other policies of the company whose equity underlies the warrant or a change in
the perception as to the future price of the underlying security, or any
combination thereof. Warrants generally pay no dividends and confer no voting or
other rights other than to purchase the underlying security.
ZERO-COUPON BONDS. As indicated in Appendix A, certain of the Portfolios may
invest in zero-coupon bonds. Zero-coupon bonds are issued at a significant
discount from their principal amount and pay interest only at maturity rather
than at intervals during the life of the security. The value of zero-coupon
bonds is subject to greater fluctuation in response to changes in market
interest rates than bonds which pay interest in cash currently. Zero-coupon
bonds allow an issuer to avoid the need to generate cash to meet current
interest payments. Accordingly, such bonds may involve greater credit risks than
bonds paying interest currently. Even though such bonds do not pay current
interest in cash, a Portfolio is nonetheless required to accrue interest income
on such investments and to distribute such amounts at least annually to
investors in such instruments. Thus, each Portfolio could be required, at times,
to liquidate other investments in order to satisfy its distribution
requirements.
PORTFOLIO TURNOVER. The length of time a Portfolio has held a particular
security is not generally a consideration in investment decisions. A change in
the securities held by a Portfolio is known as "portfolio turnover." A high
turnover rate (100% or more) increases transaction costs (e.g., brokerage
commissions) which must be born by the Portfolio and its shareholders and
increases realized gains and losses. See "Financial Highlights" in the
Prospectus for the actual portfolio turnover rates of the Portfolios through
December 31, 1998.
MANAGEMENT OF THE TRUST
The Board has the responsibility for the overall management of the Trust and its
Portfolios, including general supervision and review of the investment
activities and the conformity with Delaware Law and the stated policies of the
Trust's Portfolios. The Board elects the officers of the Trust who are
responsible for administering the Trust's day-to-day operations. Trustees and
officers of the Trust, together with information as to their principal business
occupations during the last five years, and other information are shown below.
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<PAGE>
As of March 31, 1999 the Trustees and officers of the Trust owned Contracts
entitling them to provide voting instructions in the aggregate with respect to
less than one percent of the Trust's shares of beneficial interest.
THE TRUSTEES
<TABLE>
<CAPTION>
NAME, ADDRESS AND AGE PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
<S> <C>
Peter D. Noris* (43) Executive Vice President and Chief Investment Officer, Equitable Life since May
Equitable Life 1995; prior thereto, Vice President, Salomon Brothers Inc., 1992 to 1995.
1290 Avenue of the Americas Principal, Equity Division, Morgan Stanley & Co., Inc., 1984 to 1992. Director,
New York, New York 10104 Alliance Capital Management Co. since July 1995. Trustee, Hudson River Trust
(investment company) since July 1995. Executive Vice President, EQ Financial
Consultants, Inc. since November 1996.
Jettie M. Edwards (52) Partner and Consultant, Syrus Associates since 1986. Trustee, Provident
Syrus Associates Investment Counsel Trust (investment company) since 1992. Director, The PBHG
880 Third Avenue Funds, Inc. (investment company) since 1995.
New York, NY 10022
William M. Kearns, Jr. (63) President, W.M. Kearns & Co., Inc., a private investment company, since 1994;
W.M. Kearns & Co., Inc. Director, Kuhlman Corporation, Malibu Entertainment Worldwide, Inc., Selective
310 South Street Insurance Group, Inc., as well as a number of private and venture-backed
Morristown, NJ 07960 companies; Managing Director, Lehman Brothers, Inc. and predecessor firms,
1969-1992; Advisory Director, Lehman Brothers, Inc. 1992-1994.
Christopher P.A. Komisarjevsky (54) President and Chief Executive Officer, Burson-Marsteller USA since 1996.
Burson-Marsteller President and Chief Executive Officer, Burson-Marsteller New York, 1995 to 1996.
230 Park Avenue South President and Chief Executive Officer, Gavin Anderson & Company New York, 1994 to
New York, NY 10003-1566 1995. Prior thereto, he held various positions with Hill and Knowlton, Inc. for
twenty years.
Harvey Rosenthal (56) Independent Director and Investor, CVS Corporation (formerly Melville Corporation)
60 State Street since 1996. President and Chief Operating Officer, CVS Corporation from 1994 to 1996.
Suite 700 Prior thereto, he held various positions with CVS division of Melville Corporaiton,
Boston, MA 02109 for twenty-seven years.
William T. McCaffrey* (62) Director, Senior Executive Vice President and Chief Operating Officer, Equitable
89-25 63rd Avenue Life, to March 1998. Executive Vice President and Chief Administrative Officer,
Rego Park, NY 11374 The Equitable Companies Incorporated since 1994. Director, Equitable Foundation
and Equitable Distributors, Inc. since May 1996.
Michael Hegarty* (54) Director, President and Chief Operating Officer, Equitable Life since April 1,
Equitable Life 1998. Vice Chairman, Chase Manhattan Corporation from 1996 to 1998. Vice
1290 Avenue of the Americas Chairman, Chemical Bank, 1995 to 1996 (Chase Manhattan Corporation and Chemical
New York, New York 10104 Bank merged in 1996). Senior Executive Vice President, Chemical Bank, 1991-1995.
Executive Vice President, Group Executive and other various positions,
Manufacturers Hanover Trust.
</TABLE>
* Mr. Noris, Mr. McCaffrey and Mr. Hegarty are "interested persons" (as defined
in the 1940 Act) of the Trust. Mr. Noris, Mr. McCaffrey and Mr. Hegarty are
deemed "interested persons" of the Trust by virtue of their position as officers
of Equitable Life.
COMMITTEES OF THE BOARD
The Trust has a standing audit committee consisting of all of the Trust's
disinterested Trustees. The audit committee's function is to recommend to the
Board of Trustees a firm of independent accountants to conduct the annual audit
of the Trust's financial statements; review with such firm the outline, scope
and results of this annual audit; and review the performance and fees charged by
the independent accountants for professional services. In addition, the
committee meets with the independent accountants and representatives of
management to review accounting activities and areas of financial reporting and
control.
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<PAGE>
The Trust has a valuation committee consisting of Peter D. Noris, Harvey Blitz,
Kevin Byrne, Brian O'Neil, and such other officers of the Trust, the Manager,
and Chase Global Funds Services Company, as well as such officers of any Adviser
to any Portfolio as are deemed necessary by Mr. Noris or Mr. Blitz from time to
time, each of whom shall serve at the pleasure of the Board of Trustees as
members of the Valuation Committee. This committee determines the value of any
of the Trust's securities and assets for which market quotations are not readily
available or for which valuation cannot otherwise be provided.
The Trust has a compensation committee consisting of Jettie M. Edwards, William
K. Kearns, Jr., Christopher P.A. Komisarjevsky and Harvey Rosenthal. The
compensation committee's function is to review the Trustees' compensation
arrangements.
The Trust has a conflicts committee consisting of Peter D. Noris and William T.
McCaffrey. The conflicts committee's function is to take any action necessary to
resolve conflicts among shareholders.
COMPENSATION OF THE TRUSTEES
Each Trustee, other than those who are "interested persons" of the Trust (as
defined in the 1940 Act), receives from the Trust an annual fee of $25,000 plus
an additional fee of $1,000 per Board meeting and $500 per committee meeting
attended in person or by telephone.
TRUSTEE COMPENSATION TABLE*
<TABLE>
<CAPTION>
TRUSTEE AGGREGATE PENSION OR TOTAL
COMPENSATION RETIREMENT COMPENSATION
FROM THE TRUST BENEFITS ACCRUED FROM TRUST PAID TO
AS PART OF TRUSTEES
TRUST EXPENSES
<S> <C> <C> <C>
Peter D. Noris $-0- $-0- $-0-
Jettie M. Edwards $30,000 $-0- $30,000
William M. Kearns, Jr. $30,000 $-0- $30,000
Christopher P.A. Komisarjevsky $30,000** $-0- $30,000**
Harvey Rosenthal $30,000 $-0- $30,000
William T. McCaffrey $-0- $-0- $-0-
Michael Hegarty $-0- $-0- $-0-
</TABLE>
*For the initial fiscal year.
**Mr. Komisarjevsky has elected to participate in the Trust's deferred
compensation plan. As of December 31, 1998, Mr. Komisarjevsky had accrued
$32,424 (including interest).
A deferred compensation plan for the benefit of the Trustees has been adopted by
the Trust. Under the deferred compensation plan, each Trustee may defer payment
of all or part of the fees payable for such Trustee's services. Each Trustee may
defer payment of such fees until his or her retirement as a Trustee or until the
earlier attainment of a specified age. Fees deferred under the deferred
compensation plan,
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<PAGE>
together with accrued interest thereon, will be disbursed to a participating
Trustee in monthly installments over a five to twenty year period elected by
such Trustee.
THE TRUST'S OFFICERS
No officer of the Trust receives any compensation paid by the Trust. Each
officer of the Trust is an employee of the Manager, Equitable Distributors, Inc.
("EDI"), Equitable or Chase Global Funds Services Company. The Trust's principal
officers are:
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<TABLE>
<CAPTION>
NAME, AGE AND POSITION WITH TRUST PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
<S> <C>
Peter D. Noris (43) (see above)
President
Harvey Blitz (52) Senior Vice President, Equitable Life since September 1987.
Vice President and Chief Financial Officer Senior Vice President, The Equitable Companies Incorporated since
July 1992. Director, The Equitable of Colorado, Inc. since
September 1992. Director and Chairman, Frontier Trust Company
since April 1993 and September 1995, respectively. Director,
Equitable Distributors, Inc., February 1995 to May 1996. Director
and Senior Vice President, EquiSource since October 1992 and June
1993, respectively. Director and Executive Vice President, EQ
Financial Consultants, Inc. since September 1992 and November
1996, respectively.
Brian O'Neil (47) Executive Vice President, Equitable Life since November 1998.
Vice President Chief Investment Officer, AXA Investment Management Paris since
July 1995. Executive Vice President and Chief Investment Officer,
Equitable Life since 1992.
Kevin R. Byrne (42) Vice President and Treasurer, The Equitable Companies
Vice President and Treasurer Incorporated and Equitable Life. Treasurer, Frontier Trust
Company and EquiSource. Vice President and Treasurer, Equitable
Casualty Insurance Company.
Robin K. Murray (43) Vice President, Office of the Chief Investment Officer, and First
First Vice President Vice President, Equitable Financial Consultants, Inc. since May
1997. Vice President, Office of the President, Equitable Life since 1996. Vice
President, Income Management Group, Equitable Life since 1994; Assistant Vice
President of Marketing, Equitable Life from 1989 to 1994.
Martin J. Telles (50) Executive Vice President and Chief Marketing Officer, Equico
Vice President Securities since 1993. Director, Royal Alliance.
Mary Joan Hoene, Esq. (49) Vice President and Counsel, Insurance Division, Equitable Life
Vice President since 1998. Divisional Senior Vice President, Financial
Institution and Government Affairs, AIG Technical Services from 1994 to 1998.
General Counsel, Mitchell Hutchins Asset Management Inc., from 1988 to 1994.
Allen T. Zabusky (47) Vice President and Deputy Controller, Equitable Life since 1990.
Vice President and Controller Controller, The Equitable of Colorado, Inc. since 1996.
Mary E. Cantwell (37) Assistant Vice President, Office of the Chief Investment Officer,
Assistant Vice President Equitable Life since September 1997. Assistant Vice President,
Equitable Financial Consultants, Inc. since September 1997.
Marketing Director, Income Management Group, Equitable Life since
1994. Marketing Manager, Equitable Life since 1991.
Paul Roselli (34) Vice President, Fund Administration, Chase Global Funds Services
Assistant Treasurer Company since March 1997. Assistant Manager of Fund Accounting ,
Brown Brothers Harriman from July 1993 to March 1997.
Karl O. Hartmann (43) Senior Vice President, Secretary and General Counsel of Chase
Assistant Secretary Global Funds Services Company since November 1991.
Lloyd Lipsett (34) Vice President and Associate General Counsel, Chase Global Funds
Assistant Secretary Services Company since 1997. Associate, Hale and Dorr (law firm),
1995 to 1997. Associate, Choate, Hall & Stewart (law firm), 1993 to 1995.
</TABLE>
CONTROL PERSON AND PRINCIPAL HOLDERS OF SECURITIES
The Trust continuously offers its shares to separate accounts of insurance
companies in connection with variable life insurance contracts and variable
annuity certificates and contracts (the "Contracts") and to participants in
tax-qualified retirement plans. The Trust's shares currently are sold to: (i)
insurance company separate accounts in connection with Contracts issued by
Equitable EOC; (ii) to the Equitable Plan; and (iii) insurance company separate
accounts of: Integrity Life Insurance Company; American Franklin Life Insurance
Company; and Transamerica Occidental Life Insurance Company, each of which is
unaffiliated with Equitable. Equitable may be deemed to be a control person with
respect to the Trust by virtue of its ownership of ___% of the Trust's shares as
of May 1, 1999. Equitable is organized as a New York Stock life insurance
company and is a wholly owned subsidiary of The Equitable Companies,
Incorporated, a subsidiary of AXA, a French insurance holding company. During
1999, The Equitable Companies, Incorporated plans to change its name to AXA
Financial, Inc.
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<PAGE>
As a "series" type of mutual fund, the Trust issues separate series of shares of
beneficial interest with respect to each Portfolio. Each Portfolio resembles a
separate fund issuing a separate class of stock. Because of current federal
securities law requirements, the Trust expects that its shareholders will offer
to owners of the Contracts (the "Contract owners") and participants in the
Equitable Plan the opportunity to instruct them as to how shares allocable to
their Contracts or to the Equitable Plan will be voted with respect to certain
matters, such as approval of investment advisory agreements. To the Trust's
knowledge, as of the date of this Statement of Additional Information ("SAI"),
no Contract owners owned Contracts entitling such persons to give voting
instructions regarding more than 5% of the outstanding shares of any Portfolio.
As of the date of this SAI, no participant in the Equitable Plan had interests
in the Equitable Plan entitling such person to give voting instructions
regarding more than 5% of the outstanding shares of any Portfolio.
The Trust may in the future offer its shares to separate accounts of insurance
companies unaffiliated with Equitable, as well as to tax-qualified retirement
plans in addition to the Equitable Plan. The Trust does not currently foresee
any disadvantages to Contract owners or participants in the Equitable Plan
arising from offering the Trust's shares to separate accounts of insurance
companies that are unaffiliated with each other or to tax-qualified retirement
plans in addition to the Equitable Plan. However, it is theoretically possible
that, at some time, the interests of various Contract owners participating in
the Trust through their separate accounts and tax-qualified retirement plans
might conflict. In the case of a material irreconcilable conflict, one or more
separate accounts or tax-qualified retirement plans might withdraw their
investments in the Trust, which would possibly force the Trust to sell portfolio
securities at disadvantageous prices. The Trustees of the Trust intend to
monitor events for the existence of any material irreconcilable conflicts
between or among such separate accounts and tax-qualified retirement plans and
will take whatever remedial action may be necessary.
INVESTMENT MANAGEMENT AND OTHER SERVICES
THE MANAGER
EQ Financial Consultants, Inc. ("EQFC" or "Manager") is the investment manager
for each Portfolio. T. Rowe Price Associates, Inc. ("T. Rowe Price"), Rowe
Price-Fleming International, Inc. ("Price Fleming"), Putnam Investment
Management, Inc. ("Putnam Management"), Massachusetts Financial Services Company
("MFS"), Morgan Stanley Asset Management Inc. ("MSAM"), Warburg Pincus Asset
Management, Inc. ("Warburg"), Merrill Lynch Asset Management, L.P. ("MLAM"),
Lazard Asset Management ("LAM"), a division of Lazard Freres and Company, LLC,
J.P. Morgan Investment Management Inc. ("J.P. Morgan"), Bankers Trust Company
("Bankers Trust"), Evergreen Asset Management Corp. ("Evergreen"), Alliance
Capital Management, L.P. ("Alliance"), and Capital Guardian Trust Company
("Capital Guardian"){, CALVERT ASSET MANAGEMENT COMPANY, INC. ("CALVERT"), AND
BROWN CAPITAL MANAGEMENT ("BROWN CAPITAL")} (each an "Adviser," and together the
"Advisers") serve as investment advisers to one or more of the Portfolios, as
described more fully in the Prospectus.
The Manager is an investment adviser registered with the SEC under the 1940 Act
and a broker-dealer registered with the SEC under the Securities Exchange Act of
1934, as amended ("1934 Act"). The Manager has served as an investment manager
to each Portfolio of the Trust since its inception. The Manager currently
furnishes specialized investment advice to individuals, pension and profit
sharing plans, trusts, charitable organizations, corporations and other business
entities. The Manager is a wholly-owned subsidiary of Equitable Holding
Corporation, a wholly-owned subsidiary of Equitable. During 1999, the Manager
plans to change its name to AXA Advisors, Inc.
Equitable, which is a New York life insurance company and one of the largest
life insurance companies in the United States, is a wholly-owned subsidiary of
The Equitable Companies Incorporated ("The
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<PAGE>
Equitable Companies"), a publicly-owned holding company. The principal offices
of The Equitable Companies and Equitable are located at 1290 Avenue of the
Americas, New York, New York 10104.
AXA is the largest shareholder of The Equitable Companies. On March 1, 1999, AXA
owned, directly or indirectly through its affiliates, 58.4% of the outstanding
common stock of The Equitable Companies. AXA is the holding company for an
international group of insurance and related financial services companies. AXA's
insurance operations include activities in life insurance, property and casualty
insurance and reinsurance. The insurance operations are diverse geographically,
with activities principally in Western Europe, North America, and the
Asia/Pacific area and, to a lesser extent, in Africa and South America. AXA is
also engaged in asset management, investment banking, securities trading,
brokerage, real estate and other financial services activities principally in
the United States, as well as in Western Europe and the Asia/Pacific area.
The Trust and Manager have entered into an investment management agreement
("Management Agreement"). This was initially approved by the Board of Trustees
on March 31, 1997. The Management Agreement obligates the Manager to: (i)
provide investment management services to the Trust; (ii) select the Adviser for
each Portfolio; (iii) monitor the Adviser's investment programs and results;
(iv) review brokerage matters; (v) oversee compliance by the Trust with various
federal and state statutes; and (vi) carry out the directives of the Board of
Trustees. The Management Agreement requires the Manager to provide the Trust
with office space, office equipment, and personnel necessary to operate and
administer the Trust's business, and also to supervise the provision of services
by third parties. The continuance of the Management Agreement, with respect to
each Portfolio, after the first two years must be specifically approved at least
annually (i) by the Trust's Board of Trustees or by vote of a majority of the
outstanding voting securities (as defined in the 1940 Act) of such Portfolio and
(ii) by the affirmative vote of a majority of the Trustees who are not parties
to the Management Agreement or "interested persons" (as defined in the 1940 Act)
of any such party by votes cast in person at a meeting called for such purpose.
The Management Agreement with respect to each Portfolio may be terminated (i) at
any time, without the payment of any penalty, by the Trust upon the vote of a
majority of the Trustees or by vote of the majority of the outstanding voting
securities (as defined in the 1940 Act) of such Portfolio upon sixty (60) days'
written notice to the Manager or (ii) by the Manager at any time without penalty
upon sixty (60) days' written notice to the Trust. The Management Agreement will
also terminate automatically in the event of its assignment (as defined in the
1940 Act).
Each Portfolio pays a fee to the Manager as described below for the investment
management services the Manager provides each Portfolio. The Manager and the
Trust have also entered into an expense limitation agreement with respect to
each Portfolio ("Expense Limitation Agreement"), pursuant to which the Manager
has agreed to waive or limit its fees and to assume other expenses so that the
total annual operating expenses (with certain exceptions described in the
Prospectus) of each Portfolio are limited to the extent described in the
"Management of the Trust -- Expense Limitation Agreement" section of the
Prospectus.
In addition to the management fees, the Trust pays all expenses not assumed by
the Manager, including, without limitation: the fees and expenses of its
independent accountants and of its legal counsel; the costs of printing and
mailing annual and semi-annual reports to shareholders, proxy statements,
prospectuses, prospectus supplements and statements of additional information,
all to the extent they are sent to existing Contract owners; the costs of
printing registration statements; bank transaction charges and custodian's fees;
any proxy solicitors' fees and expenses; filing fees; any federal, state or
local income or other taxes; any interest; any membership fees of the Investment
Company Institute and similar organizations; fidelity bond and Trustees'
liability insurance premiums; and any extraordinary expenses, such as
indemnification payments or damages awarded in litigation or settlements made.
All general Trust expenses are allocated among and charged to the assets of the
Portfolios of the Trust on a basis that the Trustees deem fair and equitable,
which may be on the basis of relative net assets of each Portfolio or the nature
of the services
-45-
<PAGE>
performed and relative applicability to each Portfolio. As discussed in greater
detail below, under "Distribution of the Trust's Shares," the Class IB shares
may pay for certain distribution related expenses in connection with activities
primarily intended to result in the sale of its shares.
The tables below show the fees paid by each Portfolio to the Manager during the
years ended December 31, 1997 and 1998, respectively. The first column shows
each fee without fee waivers, the second column shows the fees actually paid to
the Manager after fee waivers and the third column shows the total amount of
fees waived by the Manager and other expenses of each Portfolio assumed by the
Manager pursuant to the Expense Limitation Agreement.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31, 1997*
PORTFOLIO MANAGEMENT FEE MANAGEMENT FEE TOTAL AMOUNT OF
PAID TO MANAGER FEES WAIVED AND
AFTER FEE WAIVER OTHER EXPENSES
ASSUMED BY MANAGER
<S> <C> <C> <C>
Merrill Lynch Basic Value Equity Portfolio $73,477 $0 $123,460
Merrill Lynch World Strategy Portfolio $49,425 $0 $115,763
MFS Emerging Growth Companies Portfolio $169,781 $0 $280,111
MFS Research Portfolio $186,533 $0 $292,185
EQ/Putnam Balanced Portfolio $50,946 $0 $137,739
EQ/Putnam Growth & Income Value Portfolio $227,936 $0 $350,861
EQ/Putnam International Equity Portfolio $130,202 $0 $228,427
EQ/Putnam Investors Growth Portfolio $67,578 $0 $141,578
T. Rowe Price Equity Income Portfolio $166,401 $0 $250,098
T. Rowe Price International Stock Portfolio $213,839 $0 $365,096
Warburg Pincus Small Company Value Portfolio $252,178 $5,693 $246,485
Morgan Stanley Emerging Markets Equity Portfolio $66,404 $23,496 $42,908
</TABLE>
* Except for Morgan Stanley Emerging Markets Equity Portfolio, each of the
Portfolios above commenced operations on May 1, 1997. Morgan Stanley Emerging
Markets Equity Portfolio commenced operations on August 20, 1997. The BT
Equity 500 Index, BT International Equity Index, BT Small Company Index, JPM
Core Bond, Lazard Large Cap Value and Lazard Small Cap Portfolios are not
included in the above table because they had no operations during the fiscal
year ended December 31, 1997 except for the issuance of Class IB shares.
<TABLE>
<CAPTION>
CALENDAR YEAR ENDED DECEMBER 31, 1998*
PORTFOLIO MANAGEMENT FEE MANAGEMENT FEE TOTAL AMOUNT OF
PAID TO MANAGER FEES WAIVED AND
AFTER FEE WAIVER OTHER EXPENSES
ASSUMED BY MANAGER
<S> <C> <C> <C>
Merrill Lynch Basic Value Equity Portfolio $632,783 $396,615 $236,168
Merrill Lynch World Strategy Portfolio $179,486 $75,018 $104,468
MFS Emerging Growth Companies Portfolio $1,351,932 $881,342 $470,590
MFS Research Portfolio $1,319,969 $842,389 $477,580
EQ/Putnam Balanced Portfolio $269,939 $99,960 $169,979
EQ/Putnam Growth & Income Value Portfolio $1,654,313 $1,069,169 $585,144
EQ/Putnam International Equity Portfolio $673,315 $421,928 $251,387
EQ/Putnam Investors Growth Portfolio $497,899 $282,976 $214,923
T. Rowe Price Equity Income Portfolio $1,000,224 $661,278 $338,946
T. Rowe Price International Stock $788,805 $573,446 $215,359
Portfolio
Warburg Pincus Small Company Value $1,012,129 $738,570 $273,559
Portfolio
Morgan Stanley Emerging Markets Equity $364,795 $105,117 $259,678
Portfolio
BT Equity 500 Index Portfolio $210,001 $0 $232,207
BT International Equity Index Portfolio $98,039 $0 $180,103
BT Small Company Index Portfolio $45,728 $0 $220,614
JPM Core Bond Portfolio $172,507 $86,266 $86,241
Lazard Large Cap Value Portfolio $160,570 $73,011 $87,559
Lazard Small Cap Portfolio $194,797 $111,500 $83,297
</TABLE>
-46-
<PAGE>
* The Alliance Aggressive Stock, Alliance Balanced, Alliance Common Stock,
Alliance Conservative Investors Portfolio, Alliance Equity Index, Alliance
Global, Alliance Growth and Income, Alliance Growth Investors, Alliance High
Yield, Alliance Intermediate Government Securities Portfolio, Alliance
International, Alliance Money Market, Alliance Quality Bond, Alliance Small
Cap Growth, EQ/Evergreen Foundation, EQ/Evergreen, MFS Growth with Income,
EQ/Alliance Premier Growth, Capital Guardian Research, Capital Guardian U.S.
Equity [strikethrough]and[end strikethrough]{,} Capital Guardian
{DURING}International{, AND CALVERT SOCIALLY RESPONSIBLE} Portfolios are
not included in the above tables because they had no operations before
the year ended December 31, 1998.
THE ADVISERS
On behalf of the T. Rowe Price Equity Income Portfolio and the T. Rowe Price
International Stock Portfolio, the Manager has entered into investment advisory
agreements ("Advisory Agreements") with T. Rowe Price and Price Fleming,
respectively. Additionally, the Manager has entered into an Advisory Agreement
on behalf of EQ/Putnam Growth & Income Value Portfolio, EQ/Putnam International
Equity Portfolio, EQ/Putnam Investors Growth Portfolio and EQ/Putnam Balanced
Portfolio with Putnam Management. The Manager has entered into an Advisory
Agreement on behalf of MFS Research Portfolio, MFS Emerging Growth Companies
Portfolio and MFS Growth with Income Portfolio with MFS. The Manager has entered
into Advisory Agreements on behalf of Morgan Stanley Emerging Markets Equity
Portfolio and Warburg Pincus Small Company Value Portfolio with MSAM and
Warburg, respectively. The Manager has entered into an Advisory Agreement on
behalf of Merrill Lynch World Strategy Portfolio and Merrill Lynch Basic Value
Equity Portfolio with MLAM. The Manager has entered into an Advisory Agreement
on behalf of Lazard Large Cap Value Portfolio and Lazard Small Cap Value
Portfolio with LAM. The Manager has entered into an Advisory Agreement on behalf
of the JPM Core Bond Portfolio with J.P. Morgan. The Manager has entered into an
Advisory Agreement on behalf of BT Small Company Index Portfolio, BT
International Equity Index Portfolio and BT Equity 500 Index Portfolio with
Bankers Trust. The Manager has entered into an Advisory Agreement on behalf of
EQ/Evergreen Foundation Portfolio and EQ/Evergreen Portfolio with Evergreen. The
Manager has entered into an Advisory Agreement on behalf of
[strikethrough]EQ/Alliance Premier Growth Portfolio[end strikethrough] {THE
ALLIANCE PORTFOLIOS} with Alliance. [strikethrough]Finally, the[end
strikethrough] {THE} Manager has entered into an Advisory Agreement on behalf
Capital Guardian Research Portfolio, Capital Guardian U.S. Equity Portfolio, and
Capital Guardian International Portfolio with Capital Guardian. {FINALLY, THE
MANAGER HAS ENTERED INTO ADVISORY AGREEMENTS ON BEHALF OF CALVERT SOCIALLY
RESPONSIBLE PORTFOLIO WITH CALVERT AND BROWN CAPITAL.} The Advisory Agreements
obligate T. Rowe Price, Price Fleming, Putnam Management, MFS, Warburg, MSAM,
MLAM, LAM, J.P. Morgan, Bankers Trust, Evergreen, Alliance,
[strikethrough]and[end strikethrough] Capital GUARDIAN{, CALVERT, AND BROWN
CAPITAL} to: (i) make investment decisions on behalf of their respective
Portfolios; (ii) place all orders for the purchase and sale of investments for
their respective Portfolios with brokers or dealers selected by the Manager or
an Adviser; and (iii) perform certain limited related administrative functions
in connection therewith.
During the years ended December 31, 1997 and 1998, respectively, the Manager
paid the following fees to each Adviser with respect to the Portfolios listed
below pursuant to the Investment Advisory Agreements:
-47-
<PAGE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31, 1997*
PORTFOLIO ADVISORY FEE PAID
<S> <C>
Merrill Lynch Basic Value Equity Portfolio $53,462
Merrill Lynch World Strategy Portfolio $35,301
MFS Emerging Growth Companies Portfolio $123,543
MFS Research Portfolio $135,730
EQ/Putnam Balanced Portfolio $46,342
EQ/Putnam Growth & Income Value Portfolio $207,320
EQ/Putnam International Equity Portfolio $120,864
EQ/Putnam Investors Growth Portfolio $61,471
T. Rowe Price Equity Income Portfolio $121,142
T. Rowe Price International Stock Portfolio $185,338
Warburg Pincus Small Company Value Portfolio $193,934
Morgan Stanley Emerging Markets Equity Portfolio $66,277
</TABLE>
* Except for Morgan Stanley Emerging Markets Equity Portfolio, each of the
Portfolios above commenced operations on May 1, 1997. Morgan Stanley Emerging
Markets Equity Portfolio commenced operations on August 20, 1997. No advisory
fees were paid to Bankers Trust, JP Morgan, LAM, Evergreen, MFS on behalf of
MFS Growth with Income Portfolio, Alliance [strikethrough]or[end
strikethrough]{,} Capital Guardian{, CALVERT, OR BROWN CAPITAL} during
the fiscal year ended December 31, 1997.
<TABLE>
<CAPTION>
CALENDAR YEAR ENDED DECEMBER 31, 1998*
PORTFOLIO ADVISORY FEE PAID
<S> <C>
Merrill Lynch Basic Value Equity Portfolio $454,234
Merrill Lynch World Strategy Portfolio $128,253
MFS Emerging Growth Companies Portfolio $955,058
MFS Research Portfolio $935,189
EQ/Putnam Balanced Portfolio $245,492
EQ/Putnam Growth & Income Value Portfolio $1,395,817
EQ/Putnam International Equity Portfolio $625,984
EQ/Putnam Investors Growth Portfolio $453,137
T. Rowe Price Equity Income Portfolio $727,501
T. Rowe Price International Stock Portfolio $506,294
Warburg Pincus Small Company Value Portfolio $778,163
Morgan Stanley Emerging Markets Equity Portfolio $364,354
BT Equity 500 Index Portfolio $42,047
BT International Equity Index Portfolio $42,067
BT Small Company Index Portfolio $9,143
JPM Core Bond Portfolio $15,022
Lazard Large Cap Value Portfolio $123,634
Lazard Small Cap Value Portfolio $158,214
</TABLE>
* No advisory fees were paid to Evergreen, MFS on behalf of MFS Growth with
Income Portfolio, Alliance, [strikethrough]or[end strikethrough] Capital
Guardian{, CALVERT, OR BROWN CAPITAL} during the year ended December 31,
1998.
The Manager recommends Advisers for each Portfolio to the Trustees based upon
its continuing quantitative and qualitative evaluation of each Adviser's skills
in managing assets pursuant to specific investment styles and strategies. Unlike
many other mutual funds, the Portfolios are not associated with any one
portfolio manager, and benefit from independent specialists carefully selected
from the investment management industry. Short-term investment performance, by
itself, is not a significant factor in selecting or terminating an Adviser, and
the Manager does not expect to recommend frequent changes of Advisers. The Trust
has received an exemptive order from the SEC that permits the Manager, subject
-48-
<PAGE>
to certain conditions, to enter into Advisory Agreements with Advisers approved
by the Trustees, but without the requirement of shareholder approval. Pursuant
to the terms of the SEC order, the Manager is able, subject to the approval of
the Trustees but without shareholder approval, to employ new Advisers for new or
existing Portfolios, change the terms of particular Advisory Agreements or
continue the employment of existing Advisers after events that under the 1940
Act and the Advisory Agreements would cause an automatic termination of the
agreement. Although shareholder approval would not be required for the
termination of Advisory Agreements, shareholders of a Portfolio would continue
to have the right to terminate such agreements for the Portfolio at any time by
a vote of a majority of outstanding voting securities of the Portfolio.
When a Portfolio has more than one Adviser, the assets of each Portfolio are
allocated by the Manager among the Advisers selected for the Portfolio. Each
Adviser has discretion, subject to oversight by the Trustees, and the Manager,
to purchase and sell portfolio assets, consistent with each Portfolio's
investment objectives, policies and restrictions and specific investment
strategies developed by the Manager.
Generally, no Adviser provides any services to any Portfolio except asset
management and related recordkeeping services. However, an Adviser or its
affiliated broker-dealer may execute portfolio transactions for a Portfolio and
receive brokerage commissions in connection therewith as permitted by Section
17(e) of the 1940 Act.
THE ADMINISTRATOR
Pursuant to an administrative agreement ("Mutual Funds Services Agreement"),
Chase Global Funds Services Company ("Administrator") provides the Trust with
necessary administrative services. In addition, the Administrator makes
available the office space, equipment, personnel and facilities required to
provide such administrative services to the Trust.
The Administrator was organized as a Delaware corporation. Its principal place
of business is at 73 Tremont Street, Boston, Massachusetts 02108. The Mutual
Funds Services Agreement was reapproved by the Board of Trustees on March 3,
1998 and will continue in effect from year to year unless terminated by any
party upon not less than ninety (90) days' prior written notice to the other
party.
During the years ended December 31, 1997 and 1998, respectively the
Administrator was paid the following fees, by the Trust with respect to each
Portfolio:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31, 1997*
PORTFOLIO ADVISORY FEE PAID
<S> <C>
Merrill Lynch Basic Value Equity Portfolio $11,213
Merrill Lynch World Strategy Portfolio $13,633
MFS Emerging Growth Companies Portfolio $17,902
MFS Research Portfolio $18,033
EQ/Putnam Balanced Portfolio $12,451
EQ/Putnam Growth & Income Value Portfolio $199,904
EQ/Putnam International Equity Portfolio $16,721
EQ/Putnam Investors Growth Portfolio $11,247
T. Rowe Price Equity Income Portfolio $17,376
T. Rowe Price International Stock Portfolio $30,599
Warburg Pincus Small Company Value Portfolio $17,213
Morgan Stanley Emerging Markets Equity Portfolio $9,652
</TABLE>
* Except for Morgan Stanley Emerging Markets Equity Portfolio, each of the
Portfolios above commended operations on May 1, 1997. Morgan Stanley
Emerging Equity Portfolio commenced operations on August 20, 1997. The BT
Equity 500 Index, BT International Equity Index, BT Small
-49-
<PAGE>
Company Index, JPM Core Bond, Lazard Large Cap Value, Lazard Small Cap Value
Portfolios did not pay a fee to the Administrator during the fiscal year ended
December 31, 1997.
<TABLE>
<CAPTION>
CALENDAR YEAR ENDED DECEMBER 31, 1998*
PORTFOLIO ADMINISTRATION FEE
<S> <C>
Merrill Lynch Basic Value Equity Portfolio $92,138
Merrill Lynch World Strategy Portfolio $48,992
MFS Emerging Growth Companies Portfolio $166,093
MFS Research Portfolio $160,767
EQ/Putnam Balanced Portfolio $65,412
EQ/Putnam Growth & Income Value Portfolio $191,609
EQ/Putnam International Equity Portfolio $92,040
EQ/Putnam Investors Growth Portfolio $80,365
T. Rowe Price Equity Income Portfolio $131,283
T. Rowe Price International Stock Portfolio $120,081
Warburg Pincus Small Company Value Portfolio $113,472
Morgan Stanley Emerging Markets Equity Portfolio $58,490
BT Equity 500 Index Portfolio $91,209
BT International Equity Index Portfolio $89,083
BT Small Company Index Portfolio $97,220
JPM Core Bond Portfolio $52,546
Lazard Large Cap Value Portfolio $47,035
Lazard Small Cap Value Portfolio $45,857
</TABLE>
* The Alliance Aggressive Stock, Alliance Balanced , Alliance Common Stock,
Alliance Conservative Investors, Alliance Equity Index, Alliance Global,
Alliance Growth and Income, Alliance Growth Investors, Alliance High Yield,
Alliance Intermediate Government Securities, Alliance International,
Alliance Money Market, Alliance Quality Bond, Alliance Small Cap Growth,
EQ/Evergreen Foundation, EQ/Evergreen, MFS Growth with Income, EQ/Alliance
Premier Growth, Capital Guardian Research, Capital Guardian U.S. Equity
[strikethrough]and[end strikethrough]{,} Capital Guardian International
{AND CALVERT SOCIALLY RESPONSIBLE} Portfolios did not pay a fee to the
Administrator during the year ended December 31, 1998.
THE DISTRIBUTORS
The Trust has distribution agreements with EQFC and EDI (each also referred to
as a "Distributor," and together "Distributors"), each an indirect wholly-owned
subsidiary of Equitable. The address for both EQFC and EDI is 1290 Avenue of the
Americas, New York, New York 10104. EQFC is one of the Distributors for the
Trust's Class IA shares and Class IB shares and also serves as the Manager of
the Trust. EDI serves as one of the Distributors for the Trust's Class IA shares
and Class IB shares.
The Trust's distribution agreements with respect to the Class IA shares and
Class IB shares ("Distribution Agreements") were reapproved by the Board of
Trustees at a Board meeting held on April 12, 1999. The Distribution Agreements
will remain in effect from year to year provided each Distribution Agreement's
continuance is approved annually by (i) a majority of the Trustees who are not
parties to such agreement or "interested persons" (as defined in the 1940 Act)
of the Trust or a Portfolio and, if applicable, who have no direct or indirect
financial interest in the operation of the Class IB Distribution Plan or any
such related agreement ("Independent Trustees") and (ii) either by vote of a
majority of the Trustees or a majority of the outstanding voting securities (as
defined in the 1940 Act) of the Trust.
The Distributors or their affiliates for the Class IA shares will pay for
printing and distributing prospectuses or reports prepared for their use in
connection with the offering of the Class IA shares to prospective Contract
owners and preparing, printing and mailing any other literature or advertising
in connection with the offering of the Class IA shares to prospective Contract
owners.
-50-
<PAGE>
Pursuant to the Class IB Distribution Plan the Trust compensates the
Distributors from assets attributable to the Class IB shares for services
rendered and expenses borne in connection with activities primarily intended to
result in the sale of the Trust's Class IB shares. It is anticipated that a
portion of the amounts received by the Distributors will be used to defray
various costs incurred or paid by the Distributors in connection with the
printing and mailing of Trust prospectuses, statements of additional
information, and any supplements thereto and shareholder reports, and holding
seminars and sales meetings with wholesale and retail sales personnel designed
to promote the distribution of Class IB shares. The Distributors may also use a
portion of the amounts received to provide compensation to financial
intermediaries and third-party broker-dealers for their services in connection
with the distribution of Class IB shares.
The Class IB Distribution Plan provides that the Trust, on behalf of each
Portfolio, may pay annually up to 0.50% of the average daily net assets of a
Portfolio attributable to its Class IB shares in respect of activities primarily
intended to result in the sale of Class IB shares. However, under the
Distribution Agreements, payments to the Distributors for activities pursuant to
the Class IB Distribution Plan are limited to payments at an annual rate equal
to 0.25% of average daily net assets of a Portfolio attributable to its Class IB
shares. Under terms of the Class IB Distribution Plan and the Distribution
Agreements, each Portfolio is authorized to make payments monthly to the
Distributors that may be used to pay or reimburse entities providing
distribution and shareholder servicing with respect to the Class IB shares for
such entities' fees or expenses incurred or paid in that regard.
The Class IB Distribution Plan is of a type known as a "compensation" plan
because payments are made for services rendered to the Trust with respect to
Class IB shares regardless of the level of expenditures by the Distributors. The
Trustees will, however, take into account such expenditures for purposes of
reviewing operations under either the Class IB Distribution Plan and in
connection with their annual consideration of the Class IB Distribution Plan's
renewal. The Distributors have indicated that they expect their expenditures to
include, without limitation: (a) the printing and mailing of Trust prospectuses,
statements of additional information, any supplements thereto and shareholder
reports for prospective Contract owners with respect to the Class IB shares of
the Trust; (b) those relating to the development, preparation, printing and
mailing of advertisements, sales literature and other promotional materials
describing and/or relating to the Class IB shares of the Trust; (c) holding
seminars and sales meetings designed to promote the distribution of Trust Class
IB shares; (d) obtaining information and providing explanations to wholesale and
retail distributors of Contracts regarding Trust investment objectives and
policies and other information about the Trust and its Portfolios, including the
performance of the Portfolios; (e) training sales personnel regarding the Class
IB shares of the Trust; and (f) financing any other activity that the
Distributors determine is primarily intended to result in the sale of Class IB
shares.
The Distributors for each class of shares will pay all fees and expenses in
connection with their respective qualification and registration as a broker or
dealer under federal and state laws. In the capacity of agent, each Distributor
currently offers shares of each Portfolio on a continuous basis to the separate
accounts of insurance companies offering the Contracts in all states in which
the Portfolio or the Trust may from time to time be registered or where
permitted by applicable law. EQFC also serves as the Distributor for shares of
the Trust to the Equitable Plan. Each Distribution Agreement provides that the
Distributors shall accept orders for shares at net asset value without sales
commission or load being charged. The Distributors have made no firm commitment
to acquire shares of any Portfolio.
A description of the Class IB Distribution Plan with respect to the Class IB
shares and related services and fees thereunder is provided in the Prospectus
for the Class IB shares of the Portfolios. On April 12, 1999, the Board of
Trustees of the Trust, including the Independent Trustees, considered the
reapproval of the Class IB Distribution Plan. In connection with its
consideration of the Class IB Distribution Plan, the Board of Trustees was
furnished with a copy of the Class IB Distribution Plan and the related
materials, including information related to the advantages and disadvantages of
the Class IB Distribution Plan.
-51-
<PAGE>
Legal counsel for the Independent Trustees discussed the legal and regulatory
considerations in readopting the Class IB Distribution Plan.
The Board of Trustees considered various factors in connection with its decision
as to whether to reapprove the Class IB Distribution Plan, including: (i) the
nature and causes of the circumstances which makes continuation of the Class IB
Distribution Plan, necessary and appropriate; (ii) the way in which the Class IB
Distribution Plan would continue to address those circumstances, including the
nature and potential amount of expenditures; (iii) the nature of the anticipated
benefits; (iv) the possible benefits of the Class IB Distribution Plan to any
other person relative to those of the Trust; (v) the effect of the Class IB
Distribution Plan on existing owners of Contracts; (vi) the merits of possible
alternative plans or pricing structures; (vii) competitive conditions in the
variable products industry; and (viii) the relationship of the Class IB
Distribution Plan to other distribution efforts of the Trust.
Based upon its review of the foregoing factors and the materials presented to
it, and in light of its fiduciary duties under the 1940 Act, the Board of
Trustees, including the Independent Trustees, unanimously determined, in the
exercise of its business judgment, that the Class IB Distribution Plan is
reasonably likely to continue to benefit the Trust and the shareholders of its
Portfolios and approved its continuance.
The Class IB Distribution Plan and any Rule 12b-1 related agreement that is
entered into by the Trust or the Distributors of the Class IB shares in
connection with the Class IB Distribution Plan will continue in effect for a
period of more than one year only so long as continuance is specifically
approved at least annually by a vote of a majority of the Trust's Board of
Trustees, and of a majority of the Independent Trustees, cast in person at a
meeting called for the purpose of voting on the Class IB Distribution Plan or
any Rule 12b-1 related agreement, as applicable. In addition, the Class IB
Distribution Plan and any Rule 12b-1 related agreement may be terminated as to
Class IB shares of a Portfolio at any time, without penalty, by vote of a
majority of the outstanding Class IB shares of the Portfolio or by vote of a
majority of the Independent Trustees. The Class IB Distribution Plan also
provides that it may not be amended to increase materially the amount (up to
.50% of average daily net assets annually) that may be spent for distribution of
Class IB shares of any Portfolio without the approval of Class IB shareholders
of that Portfolio.
The table below shows the amount paid by each Portfolio to each of the
Distributors pursuant to the Distribution Plan for the year ended December 31,
1998:
<TABLE>
<CAPTION>
PORTFOLIO DISTRIBUTION FEE
PAID TO [strikethrough]EQF DISTRIBUTION FEE TOTAL
[end strikethrough] {EQFC} PAID TO EDI DISTRIBUTION FEES
<S> <C> <C> <C>
Merrill Lynch Basic Value Equity Portfolio $190,254 $97,374 $287,628
Merrill Lynch World Strategy Portfolio $46,865 $17,237 $64,102
MFS Emerging Growth Companies Portfolio $376,888 $236,809 $613,697
MFS Research Portfolio $255,532 $344,454 $599,986
EQ/Putnam Balanced Portfolio $115,264 $7,435 $122,699
EQ/Putnam Growth & Income Value Portfolio $221,883 $530,078 $751,961
EQ/Putnam International Equity Portfolio $0 $240,470 $240,470
EQ/Putnam Investors Growth Portfolio $0 $226,318 $226,318
T. Rowe Price Equity Income Portfolio $433,183 $21,464 $454,647
T. Rowe Price International Stock Portfolio $250,434 $12,461 $262,895
Warburg Pincus Small Company Value Portfolio $364,576 $24,617 $389,193
Morgan Stanley Emerging Markets Equity Portfolio $64,145 $15,158 $79,303
BT Equity 500 Index Portfolio $41,616 $168,385 $210,001
BT International Equity Index Portfolio $4,446 $65,476 $69,922
BT Small Company Index Portfolio $4,113 $41,615 $45,728
JPM Core Bond Portfolio $0 $95,837 $95,837
Lazard Large Cap Value Portfolio $0 $72,986 $72,986
-52-
<PAGE>
Lazard Small Cap Value Portfolio $0 $60,874 $60,874
</TABLE>
The Alliance Aggressive Stock, Alliance Balanced, Alliance Common Stock,
Alliance Conservative Investors, Alliance Equity Index, Alliance Global,
Alliance Growth and Income, Alliance Growth Investors, Alliance High Yield,
Alliance Intermediate Government Securities, Alliance International, Alliance
Money Market, Alliance Quality Bond, Alliance Small Cap Growth, EQ/Evergreen
Foundation, EQ/Evergreen, MFS Growth with Income, EQ/Alliance Premier Growth,
Capital Guardian Research, Capital Guardian U.S. Equity [strikethrough]and[end
strikethrough]{,} Capital Guardian International {AND CALVERT SOCIALLY
RESPONSIBLE} Portfolios did not pay any distribution fees or expenses during
the year ended December 31, 1998.
BROKERAGE ALLOCATION AND OTHER STRATEGIES
BROKERAGE COMMISSIONS
The Portfolios are charged for securities brokers' commissions, transfer taxes
and similar fees relating to securities transactions. The Manager and each of
the Advisers, as appropriate, seek to obtain the best net price and execution on
all orders placed for the Portfolios, considering all the circumstances except
to the extent they may be permitted to pay higher commissions as described
below.
It is expected that securities will ordinarily be purchased in the primary
markets, whether over-the-counter or listed, and that listed securities may be
purchased in the over-the-counter market if that market is deemed the primary
market.
Transactions on stock exchanges involve the payment of brokerage commissions. In
transactions on stock exchanges in the United States, these commissions are
negotiated, whereas on many foreign stock exchanges these commissions are fixed.
However, brokerage commission rates in certain countries in which the Portfolios
may invest may be discounted for certain large domestic and foreign investors
such as the Portfolios. A number of foreign banks and brokers will be used for
execution of each Portfolio's portfolio transactions. In the case of securities
traded in the foreign and domestic over-the-counter markets, there is generally
no stated commission, but the price usually includes an undisclosed commission
or mark-up. In underwritten offerings, the price generally includes a disclosed
fixed commission or discount.
The Manager and Advisers may, as appropriate, in the allocation of brokerage
business, take into consideration research and other brokerage services provided
by brokers and dealers to Equitable, the Manager or Advisers. The research
services include economic, market, industry and company research material. Based
upon an assessment of the value of research and other brokerage services
provided, proposed allocations of brokerage for commission transactions are
periodically prepared internally. In addition, the Manager and Advisers may
allocate brokerage business to brokers and dealers that have made or are
expected to make significant efforts in facilitating the distribution of the
Trust's shares.
Commissions charged by brokers that provide research services may be somewhat
higher than commissions charged by brokers that do not provide research
services. As permitted by Section 28(e) of the 1934 Act and by policies adopted
by the Trustees, the Manager and Advisers may cause the Trust to pay a
broker-dealer that provides brokerage and research services to the Manager and
Advisers an amount of commission for effecting a securities transaction for the
Trust in excess of the commission another broker-dealer would have charged for
effecting that transaction.
The Manager and Advisers do not engage brokers and dealers whose commissions are
believed to be unreasonable in relation to brokerage and research services
provided. The overall reasonableness of commissions paid will be evaluated by
rating brokers on such general factors as execution capabilities, quality of
research (that is, quantity and quality of information provided, diversity of
sources utilized, nature and frequency of communication, professional
experience, analytical ability and professional
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<PAGE>
stature of the broker) and financial standing, as well as the net results of
specific transactions, taking into account such factors as price, promptness,
size of order and difficulty of execution. The research services obtained will,
in general, be used by the Manager and Advisers for the benefit of all accounts
for which the responsible party makes investment decisions. The receipt of
research services from brokers will tend to reduce the Manager's and Advisers'
expenses in managing the Portfolios.
During the years ended December 31, 1997 and 1998 respectively, the Portfolios
paid the amounts indicated in brokerage commissions:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31, 1997*
PORTFOLIO BROKERAGE COMMISSIONS PAID
<S> <C>
Merrill Lynch Basic Value Equity Portfolio $75,654
Merrill Lynch World Strategy Portfolio $43,547
MFS Emerging Growth Companies Portfolio $146,321
MFS Research Portfolio $146,977
EQ/Putnam Balanced Portfolio $15,797
EQ/Putnam Growth & Income Value Portfolio $109,815
EQ/Putnam International Equity Portfolio $164,293
EQ/Putnam Investors Growth Portfolio $25,284
T. Rowe Price Equity Income Portfolio $67,627
T. Rowe Price International Stock Portfolio $244,072
Warburg Pincus Small Company Value Portfolio $220,138
Morgan Stanley Emerging Markets Equity Portfolio $64,176
</TABLE>
* Except for Morgan Stanley Emerging Markets Equity Portfolio, each of the
Portfolios above commenced operations on May 1, 1998. Morgan Stanley Emerging
Markets Equity Portfolio commenced operations on August 20, 1997. The BT
Equity 500 Index, BT International Equity Index, BT Small Company Index, JPM
Core Bond, Lazard Large Cap Value and Lazard Small Cap Portfolios are not
included in the above table because they had no operations during the fiscal
year ended December 31, 1997 except for the issuance of Class IB shares.
<TABLE>
<CAPTION>
CALENDAR YEAR ENDED DECEMBER 31, 1998*
PORTFOLIO BROKERAGE COMMISSIONS PAID
<S> <C>
Merrill Lynch Basic Value Equity Portfolio $397,472
Merrill Lynch World Strategy Portfolio $ 89,702
MFS Emerging Growth Companies Portfolio $572,677
MFS Research Portfolio $602,002
EQ/Putnam Balanced Portfolio $ 62,166
EQ/Putnam Growth & Income Value Portfolio $529,088
EQ/Putnam International Equity Portfolio $502,896
EQ/Putnam Investors Growth Portfolio $141,031
T. Rowe Price Equity Income Portfolio $143,543
T. Rowe Price International Stock Portfolio $179,993
Warburg Pincus Small Company Value Portfolio $690,305
Morgan Stanley Emerging Markets Equity Portfolio $246,559
BT Equity 500 Index Portfolio $ 87,608
BT International Equity Index Portfolio $ 26,510
BT Small Company Index Portfolio $ 38,914
JPM Core Bond Portfolio $ 7,380
Lazard Large Cap Value Portfolio $ 95,425
Lazard Small Cap Value Portfolio $ 79,393
</TABLE>
* The Alliance Aggressive Stock Portfolio, Alliance Balanced Portfolio, Alliance
Common Stock Portfolio, Alliance Conservative Investors Portfolio, Alliance
Equity Index Portfolio, Alliance Global Portfolio, Alliance Growth and Income
Portfolio, Alliance Growth Investors Portfolio, Alliance High Yield Portfolio,
Alliance Intermediate Government Securities Portfolio, Alliance International
Portfolio, Alliance Money Market Portfolio, Alliance Quality Bond Portfolio,
Alliance Small Cap Growth Portfolio, EQ/Evergreen Foundation, EQ/Evergreen, MFS
Growth with Income, EQ/Alliance Premier Growth, Capital Guardian Research,
Capital Guardian U.S. Equity[strikethrough]and[end strikethrough] {,} Capital
Guardian
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<PAGE>
International AND CALVERT SOCIALLY RESPONSIBLE Portfolios did not pay any
brokerage commissions during the year ended December 31, 1998.
BROKERAGE TRANSACTIONS WITH AFFILIATES
In December 1984, Equitable acquired Donaldson, Lufkin & Jenrette, Inc. ("DLJ").
A DLJ subsidiary, Donaldson, Lufkin & Jenrette Securities Corporation, is one of
the nation's largest investment banking and securities firms. Another DLJ
subsidiary, Autranet, Inc., is a securities broker that markets independently
originated research to institutions. Through the Pershing Division of Donaldson,
Lufkin & Jenrette Securities Corporation, DLJ supplies security execution and
clearance services to financial intermediaries including broker-dealers and
banks. To the extent permitted by law, the Trust may engage in securities and
other transactions with those entities or may invest in shares of the investment
companies with which those entities have affiliations. T. Rowe Price and
Price-Fleming, the Advisers to the T. Rowe Price International Stock and T. Rowe
Price Equity Income Portfolios, may execute portfolio transactions through
certain affiliates of Fleming and Jardine Fleming, which are persons indirectly
related to the Advisers, acting as an agent in accordance with procedures
established by the Trust's Board of Trustees. MLAM, the Adviser to the Merrill
Lynch World Strategy Portfolio and Merrill Lynch Basic Value Equity Portfolio,
may execute portfolio transactions through certain affiliates of MLAM. MSAM, the
Adviser to the Morgan Stanley Emerging Markets Equity Portfolio, may execute
portfolio transactions through certain affiliates of MSAM. LAM, the Adviser to
the Lazard Large Cap Value Portfolio, and Lazard Small Cap Value Portfolio, may
execute portfolio transactions through certain affiliates of LAM. J.P. Morgan,
the Adviser to the JPM Core Bond Portfolio, may execute portfolio transactions
through certain affiliates of J.P. Morgan. Bankers Trust, the Adviser to BT
Small Company Index Portfolio, BT International Equity Index Portfolio and BT
Equity 500 Index Portfolio, may execute portfolio transactions through certain
affiliates of Bankers Trust. Evergreen, the Adviser to the EQ/Evergreen
Foundation Portfolio and EQ/Evergreen Portfolio, may execute portfolio
transactions through certain affiliates of Evergreen and First Union, including
Lieber & Company. Alliance, the Adviser to the EQ/Alliance Premier Growth
Portfolio, Alliance Aggressive Stock Portfolio, Alliance Balanced Portfolio,
Alliance Common Stock Portfolio, Alliance Conservative Investors Portfolio,
Alliance Equity Index Portfolio, Alliance Global Portfolio, Alliance Growth and
Income Portfolio, Alliance Growth Investors Portfolio, Alliance High Yield
Portfolio, Alliance Intermediate Government Securities Portfolio, Alliance
International Portfolio, Alliance Money Market Portfolio, Alliance Quality Bond
Portfolio, Alliance Small Cap Growth Portfolio, may execute portfolio
transactions with certain affiliates of Alliance, including DLJ and the Pershing
Division of Donaldson, Lufkin & Jenrette Securities Corporation. Capital
Guardian, the Adviser to the Capital Guardian Research Portfolio, the Capital
Guardian U.S. Equity Portfolio and the Capital Guardian International Portfolio,
does not have an affiliated broker through which it would execute portfolio
transactions. {CALVERT, AN ADVISER TO THE CALVERT SOCIALLY RESPONSIBLE
PORTFOLIO, MAY EXECUTE PORTFOLIO TRANSACTIONS THROUGH CERTAIN AFFILIATES OF
CALVERT, INCLUDING AMERITAS INVESTMENT CORPORATION AND THE ADVISORS GROUP. BROWN
CAPITAL, AN ADVISER TO THE CALVERT SOCIALLY RESPONSIBLE PORTFOLIO, DOES NOT HAVE
AN AFFILIATED BROKER THROUGH WHICH IT WOULD EXECUTE PORTFOLIO TRANSACTIONS.}
To the extent permitted by law, the Trust may engage in brokerage transactions
with brokers that are affiliates of the Manager and Advisers, with brokers who
are affiliates of such brokers, or with unaffiliated brokers who trade or clear
through affiliates of the Manager and Advisers. The 1940 Act generally prohibits
the Trust from engaging in principal securities transactions with brokers that
are affiliates of the Manager and Advisers or affiliates of such brokers, unless
pursuant to an exemptive order from the SEC. The Trust may apply for such
exemptive relief. The Trust has adopted procedures, prescribed by the 1940 Act,
which are reasonably designed to provide that any commissions or other
remuneration it pays to brokers that are affiliates of the Manager and brokers
that are affiliates of an Adviser to a Portfolio for which that Adviser provides
investment advice do not exceed the usual and customary broker's commission. In
addition, the Trust will adhere to the requirements under the 1934 Act
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<PAGE>
governing floor trading. Also, because of securities law limitations, the Trust
will limit purchases of securities in a public offering, if such securities are
underwritten by brokers that are affiliates of the Manager and Advisers or their
affiliates.
During the years ended December 31, 1997 and 1998 respectively, the following
Portfolios paid the amounts indicated to the affiliated broker-dealers of the
Manager or affiliates of the Advisers to each Portfolio.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31, 1997*
PORTFOLIO AFFILIATED AGGREGATE PERCENTAGE OF PERCENTAGE OF
BROKER-DEALER BROKERAGE TOTAL BROKERAGE TRANSACTIONS
COMMISSIONS PAID COMMISSIONS (BASED
ON DOLLAR
AMOUNTS)
<S> <C> <C> <C> <C>
Merrill Lynch Basic Value Equity Donaldson, Lufkin & Jenrette $1,444 1.91% 1.48%
Portfolio Securities Corporation
("DLJ")
Merrill Lynch, Pierce Fenner $7,984 10.55% 10.93%
& Smith Incorporated
("Merrill Lynch")
Merrill Lynch World Strategy Portfolio DLJ $166 0.38% 0.74%
Merrill Lynch $2,622 6.02% 5.72%
MFS Emerging Growth Companies PortfolioPershing Trading Company, L.P. $72 0.05% 0.05%
EQ/Putnam Balanced Portfolios Equico Securities Corp. $75 0.47% 0.33%
EQ/Putnam Growth & Income Value Equico Securities Corporation $363 0.33% 0.23%
Portfolio
T. Rowe Price Equity Income Portfolio DLJ $694 1.03% 0.55%
T. Rowe Price International Stock Jardine Fleming Securities $454 0.19% 0.18%
Portfolio Ltd.
Robert Fleming Securities Ltd. $2,210 0.91% 1.29%
Fleming Martin Limited $69 0.03% 0.04%
</TABLE>
* Except for Morgan Stanley Emerging Markets Equity Portfolio, each of the
Portfolios above commenced operations on May 1, 1997. Morgan Stanley Emerging
Markets Equity Portfolio commenced operations on August 20, 1997. The BT
Equity 500 Index, BT International Equity Index, BT Small Company Index, JPM
Core Bond, Lazard Large Cap Value, Lazard Small Cap Value, Portfolios did not
pay any brokerage commissions during the fiscal year ended December 31, 1997.
<TABLE>
<CAPTION>
CALENDAR YEAR ENDED DECEMBER 31, 1998*
PORTFOLIO AFFILIATED AGGREGATE PERCENTAGE OF PERCENTAGE OF
BROKER-DEALER BROKERAGE TOTAL BROKERAGE TRANSACTIONS
COMMISSIONS PAID COMMISSIONS (BASED
ON DOLLAR
AMOUNTS)
<S> <C> <C> <C> <C>
Merrill Lynch Basic Value Equity Donaldson, Lufkin & $14,104 3.55% 4.43%
Portfolio Jenrette Securities
Corporation ("DLJ")
Merrill Lynch and Co. $13,238 3.33% 3.15%
Merrill Lynch World Strategy Portfolio DLJ $ 2,260 2.52% 3.40%
Merrill Lynch and Co. $ 5,171 5.76% 7.31%
MFS Research Portfolio DLJ $ 408 .07% .07%
Pershing Trading Company, $ 48 .01% .01%
L.P.
MFS Emerging Growth Companies PortfolioPershing Trading Company, $ 600 .10% .12%
L.P.
T. Rowe Price Equity Income Portfolio DLJ $ 3,544 2.47% 1.53%
T. Rowe Price International Stock Jardine Fleming $ 1,978 1.10% .72%
Portfolio Securities Ltd.
Robert Fleming Co. $ 5,249 2.92% 3.41%
Ord Minnett - New Zealand $ 326 .18% .13%
- Ltd.
Ord Minnett Group, Ltd. $ 155 .09% .06%
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<PAGE>
DLJ $ 165 .09% .14%
Morgan Stanley Emerging Markets Equity Morgan Stanley & Co. $ 596 .24% .18%
Portfolio
Lazard Small Cap Value Portfolio DLJ $ 150 .19% .15%
</TABLE>
* The Alliance Aggressive Stock, Alliance Balanced, Alliance Common Stock,
Alliance Conservative Investors, Alliance Equity Index, Alliance Global,
Alliance Growth and Income, Alliance Growth Investors, Alliance High Yield,
Alliance Intermediate Government Securities, Alliance International, Alliance
Money Market, Alliance Quality Bond, Alliance Small Cap Growth, EQ/Evergreen
Foundation, EQ/Evergreen, MFS Growth with Income, EQ/Alliance Premier Growth,
Capital Guardian Research, Capital Guardian U.S. Equity and, Capital
Guardian International AND CALVERT SOCIALLY RESPONSIBLE Portfolios did not
pay any brokerage commissions during the year ended December 31, 1998.
PURCHASE AND PRICING OF SHARES
The Trust will offer and sell its shares at each Portfolio's net asset value per
share, which will be determined in the manner set forth below.
The net asset value of the shares of each class of a Portfolio of the Trust will
be determined once daily, immediately after the declaration of dividends, if
any, at the close of business on each business day. The net asset value per
share of each class of a Portfolio will be computed by dividing the sum of the
investments held by that Portfolio applicable to that class, plus any cash or
other assets, minus all liabilities, by the total number of outstanding shares
of that class of the Portfolio at such time. All expenses borne by the Trust and
each of its Classes, will be accrued daily.
The net asset value per share of each Portfolio will be determined and computed
as follows, in accordance with generally accepted accounting principles, and
consistent with the 1940 Act:
o The assets belonging to each Portfolio will include (i) all
consideration received by the Trust for the issue or sale of shares of that
particular Portfolio, together with all assets in which such consideration is
invested or reinvested, (ii) all income, earnings, profits, and proceeds
thereof, including any proceeds derived from the sale, exchange or liquidation
of such assets, (iii) any funds or payments derived from any reinvestment of
such proceeds in whatever form the same may be, and (iv) "General Items", if
any, allocated to that Portfolio. "General Items" include any assets, income,
earnings, profits, and proceeds thereof, funds, or payments which are not
readily identifiable as belonging to any particular Portfolio. General Items
will be allocated as the Trust's Board of Trustees considers fair and equitable.
o The liabilities belonging to each Portfolio will include (i) the
liabilities of the Trust in respect of that Portfolio, (ii) all expenses, costs,
changes and reserves attributable to that Portfolio, and (iii) any general
liabilities, expenses, costs, charges or reserves of the Trust which are not
readily identifiable as belonging to any particular Portfolio which have been
allocated as the Trust's Board of Trustees considers fair and equitable.
The value of each Portfolio will be determined at the close of business on each
"business day." Normally, this would be each day that the New York Stock
Exchange is open and would include some federal holidays. For stocks and
options, the close of trading is 4:00 p.m. and 4:15 p.m. Eastern Time,
respectively; for bonds it is the close of business in New York City, and for
foreign securities (other than
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<PAGE>
ADRs) it is the close of business in the applicable foreign country, with
exchange rates determined at 12:00 p.m. Eastern Time.
Values are determined according to accepted accounting practices and all laws
and regulations that apply. The assets of each Portfolio are valued as follows:
o Stocks listed on national securities exchanges and certain
over-the-counter issues traded on the NASDAQ national market system are valued
at the last sale price, or, if there is no sale, at the latest available bid
price. Other unlisted stocks are valued at their last sale price or, if there is
no reported sale during the day, at a bid price estimated by a broker.
o Foreign securities not traded directly, or in ADRs or similar form in
the United States, are valued at representative quoted prices in the currency of
the country of origin. Foreign currency is converted into United States dollar
equivalent at current exchange rates.
o United States Treasury securities and other obligations issued or
guaranteed by the United States Government, its agencies or instrumentalities,
are valued at representative quoted prices.
o Long-term corporate bonds are valued at prices obtained from a bond
pricing service of a major dealer in bonds when such prices are available;
however, when such prices are not available, such bonds are valued at a bid
price estimated by a broker.
o Short-term debt securities in the Portfolios other than the Alliance
Money Market Portfolio, which mature in 60 days or less are valued at amortized
cost, which approximates market value. Short-term debt securities in such
Portfolios which mature in more than 60 days are valued at representative quoted
prices. Securities held by the Alliance Money Market Portfolio are valued at
prices based on equivalent yields or yield spreads.
o Convertible preferred stocks listed on national securities exchanges
are valued as of their last sale price or, if there is no sale, at the latest
available bid price.
o Convertible bonds, and unlisted convertible preferred stocks, are
valued at bid prices obtained from one or more of the major dealers in such
bonds or stocks. Where there is a discrepancy between dealers, values may be
adjusted based on recent premium spreads to the underlying common stocks.
o Mortgage-backed and asset-backed securities are valued at prices
obtained from a bond pricing service where available, or at a bid price obtained
from one or more of the major dealers in such securities. If a quoted price is
unavailable, an equivalent yield or yield spread quotes will be obtained from a
broker and converted to a price.
o Purchased options, including options on futures, are valued at their
last bid price. Written options are valued at their last asked price.
o Futures contracts are valued as of their last sale price or, if there
is no sale, at the latest available bid price.
o Other securities and assets for which market quotations are not
readily available or for which valuation cannot be provided are valued in good
faith by the valuation committee of the Board of Trustees using its best
judgment.
The market value of a put or call option will usually reflect, among other
factors, the market price of the underlying security.
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<PAGE>
When the Trust writes a call option, an amount equal to the premium received by
the Trust is included in the Trust's financial statements as an asset and an
equivalent liability. The amount of the liability is subsequently
marked-to-market to reflect the current market value of the option written. When
an option expires on its stipulated expiration date or the Trust enters into a
closing purchase or sale transaction, the Trust realizes a gain (or loss)
without regard to any unrealized gain or loss on the underlying security, and
the liability related to such option is extinguished. When an option is
exercised, the Trust realizes a gain or loss from the sale of the underlying
security, and the proceeds of sale are increased by the premium originally
received, or reduced by the price paid for the option.
The Manager and Advisers may, from time to time, under the general supervision
of the Board of Trustees or its valuation committee, utilize the services of one
or more pricing services available in valuing the assets of the Trust. In
addition, there may be occasions when a different pricing provider or
methodology is used. The Manager and Advisers will continuously monitor the
performance of these services.
REDEMPTION OF SHARES
The Trust may suspend redemption privileges or postpone the date of payment on
shares of the Portfolios for more than seven days during any period (i) when the
New York Stock Exchange is closed or trading on the New York Stock Exchange is
restricted as determined by the SEC, (ii) when an emergency exists, as defined
by the SEC, which makes it not reasonably practicable for a Portfolio to dispose
of securities owned by it or fairly to determine the value of its assets, or
(iii) as the SEC may otherwise permit.
The value of the shares on redemption may be more or less than the shareholder's
cost, depending upon the market value of the portfolio securities at the time of
redemption.
TAXATION
Each Portfolio is treated for federal income tax purposes as a separate
taxpayer. The Trust intends that each Portfolio shall qualify each year and
elect to be treated as a regulated investment company under Subchapter M of the
Code. Such qualification does not involve supervision of management or
investment practices or policies by any governmental agency or bureau.
As a regulated investment company, each Portfolio will not be subject to federal
income or excise tax on any of its net investment income or net realized capital
gains which are timely distributed to shareholders under the Code. A number of
technical rules are prescribed for computing net investment income and net
capital gains. For example, dividends are generally treated as received on the
ex-dividend date. Also, certain foreign currency losses and capital losses
arising after October 31 of a given year may be treated as if they arise on the
first day of the next taxable year.
A Portfolio investing in foreign securities or currencies may be subject to
foreign taxes which could reduce the investment performance of such Portfolio.
However, if foreign securities comprise more than 50% of the year-end value of a
Portfolio, the Portfolio may elect to pass through such foreign taxes as a
deemed dividend to shareholders. In such a case the shareholder and not the
Portfolio would be entitled to claim a federal tax deduction or credit for
foreign taxes, as appropriate. The deduction or credit will not necessarily
result in a direct or immediate benefit to Contract owners.
To qualify for treatment as a regulated investment company, a Portfolio must,
among other things, derive in each taxable year at least 90% of its gross income
from dividends, interest, payments with respect to securities loans, gains from
the sale or other disposition of stock or securities or foreign currencies, or
other income derived with respect to its business of investing. For purposes of
this test, gross income is determined without regard to losses from the sale or
other dispositions of stock or securities.
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<PAGE>
In addition, the Secretary of the Treasury has regulatory authority to exclude
from qualifying income described above foreign currency gains which are not
"directly related" to a regulated investment company's "principal business of
investing" in stock, securities or related options or futures. The Secretary of
the Treasury has not to date exercised this authority.
Generally, in order to avoid a 4% nondeductible excise tax, each Portfolio must
distribute to its shareholders during the calendar year the following amounts:
o 98% of the Portfolio's ordinary income for the calendar year;
o 98% of the Portfolio's capital gain net income (all capital gains,
both long-term and short-term, minus all such capital losses), all computed as
if the Portfolio were on a taxable year ending October 31 of the year in
question and beginning the previous November 1; and
o any undistributed ordinary income or capital gain net income for the
prior year.
The excise tax generally is inapplicable to any regulated investment company
whose sole shareholders are either tax-exempt pension trusts or separate
accounts of life insurance companies funding variable contracts. Although each
Portfolio believes that it is not subject to the excise tax, the Portfolios
intend to make the distributions required to avoid the imposition of such a tax.
Because the Trust is used to fund non-qualified Contracts, each Portfolio must
meet the diversification requirements imposed by the Code or these Contracts
will fail to qualify as life insurance and annuities. In general, for a
Portfolio to meet the investment diversification requirements of Subchapter L of
the Code, Treasury regulations require that no more than 55% of the total value
of the assets of the Portfolio may be represented by any one investment, no more
than 70% by two investments, no more than 80% by three investments and no more
than 90% by four investments. Generally, for purposes of the regulations, all
securities of the same issuer are treated as a single investment. In the context
of United States Government securities (including any security that is issued,
guaranteed or insured by the United States or an instrumentality of the United
States) each United States Government agency or instrumentality is treated as a
separate issuer. Compliance with the regulations is tested on the first day of
each calendar year quarter. There is a thirty (30) day period after the end of
each calendar year quarter in which to cure any non-compliance.
PORTFOLIO PERFORMANCE
Returns and yields shown do not reflect insurance company charges and fees
applicable to the Contracts.
ALLIANCE MONEY MARKET PORTFOLIO YIELD
The Alliance Money Market Portfolio calculates yield information for seven-day
periods and may illustrate that information in advertisements or sales
materials. The seven-day current yield calculation is based on a hypothetical
shareholder account with one share at the beginning of the period. To determine
the seven-day rate of return, the net change in the share value is computed by
subtracting the share value at the beginning of the period from the share value
(exclusive of capital changes) at the end of the period. Th net change is
divided by the share value at the beginning of the period to obtain the base
period rate of return. This seven-day base period return is then multiplied by
365/7 to produce an annualized current yield figure carried to the nearest
one-hundredth of one percent.
Realized capital gains or losses and unrealized appreciation or depreciation of
the Portfolio are excluded from this calculation. The net change in share values
also reflects all accrued expenses of the Alliance
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<PAGE>
Money Market Portfolio as well as the value of additional shares purchased with
dividends from the original shares and any additional shares. The effective
yield is obtained by adjusting the current yield to give effect to the
compounding nature of the Alliance Money Market Portfolio's investments, as
follows: The unannualized base period return is compounded by adding one to the
base period return, raising the sum to a power equal to 365 divided by 7, and
subtracting one from the result--i.e., effective yield = [(base period return +
1)365/7]-1.
Alliance Money Market Portfolio yields will fluctuate daily. Accordingly, yields
for any given period are not necessarily representative of future results. Yield
is a function of the type and quality of the instruments in the Alliance Money
Market Portfolio, maturities and rates of return on investments, among other
factors. In addition, the value of shares of the Alliance Money Market Portfolio
will fluctuate and not remain constant.
The Alliance Money Market Portfolio yield may be compared with yields of other
investments. However, it should not be compared to the return of fixed rate
investments which guarantee rates of interest for specified periods. The yield
also should not be compared to the yield of money market funds made available to
the general public because their yields usually are calculated on the basis of a
constant $1 price per share and they pay out earnings in dividends which accrue
on a daily basis. Investment income of the Alliance Money Market Portfolio,
including any realized gains as well as accrued interest, is not paid out in
dividends but is reflected in the share value. The Alliance Money Market
Portfolio yield also does not reflect insurance company charges and fees
applicable to Contracts.
COMPUTATION OF TOTAL RETURN
Each Portfolio may provide average annual total return information calculated
according to a formula prescribed by the SEC. According to that formula, average
annual total return figures represent the average annual compounded rate of
return for the stated period. Average annual total return quotations reflect the
percentage change between the beginning value of a static account in the
Portfolio and the ending value of that account measured by the then current net
asset value of that Portfolio assuming that all dividends and capital gains
distributions during the stated period were invested in shares of the Portfolio
when paid. Total return is calculated by finding the average annual compounded
rates of return of a hypothetical investment that would equate the initial
amount invested to the ending redeemable value of such investment, according to
the following formula:
T = (ERV/P)1/n
where "T" equals average annual total return; where "ERV", the ending redeemable
value, is the value at the end of the applicable period of a hypothetical $1,000
investment made at the beginning of the applicable period; where "P" equals a
hypothetical initial investment of $1,000; and where "n" equals the number of
years.
Each Portfolio's total return will vary from time to time depending upon market
conditions, the composition of each Portfolio's investment portfolio and
operating expenses of the Trust allocated to each Portfolio. Total return should
also be considered relative to changes in the value of a Portfolio's shares and
to the relative risks associated with the investment objectives and policies of
the Portfolios. These total return figures do not reflect insurance company
expenses and fees applicable to the Contracts. At any time in the future, total
return may be higher or lower than in the past and there can be no assurance
that any historical results will continue.
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<PAGE>
NON-STANDARD PERFORMANCE
In addition to the performance information described above, each Portfolio may
provide total return information with respect to the Portfolios for designated
periods, such as for the most recent six months or most recent twelve months.
This total return information is computed as described under "Computation of
Total Return" above except that no annualization is made.
OTHER SERVICES
INDEPENDENT ACCOUNTANT
PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York, New York
10036, serves as the Trust's independent accountants. PricewaterhouseCoopers LLP
is responsible for auditing the annual financial statements of the Trust.
CUSTODIAN
The Chase Manhattan Bank, 1211 Avenue of the Americas, New York, New York 10036
serves as custodian of the Trust's portfolio securities and other assets. Under
the terms of the custody agreement between the Trust and The Chase Manhattan
Bank, The Chase Manhattan Bank maintains and deposits in separate accounts,
cash, securities and other assets of the Portfolios. The Chase Manhattan Bank is
also required, upon the order of the Trust, to deliver securities held by The
Chase Manhattan Bank, and to make payments for securities purchased by the
Trust. The Chase Manhattan Bank has also entered into sub-custodian agreements
with a number of foreign banks and clearing agencies, pursuant to which
portfolio securities purchased outside the United States are maintained in the
custody of these entities.
TRANSFER AGENT
Equitable serves as the transfer agent and dividend disbursing agent for the
Trust. Equitable receives no compensation for providing such services for the
Trust.
COUNSEL
Dechert Price & Rhoads, 1775 Eye Street, N.W. Washington, D.C. 20006, serves as
counsel to the Trust.
Sullivan & Worcester LLP, 1025 Connecticut Avenue, N.W., Suite 1000, Washington,
D.C. 20036, serves as counsel to the independent Trustees of the Trust.
FINANCIAL STATEMENTS
The audited financial statements for the period ended December 31, 1998,
including the financial highlights, appearing in the Trust's Annual Report to
Shareholders, filed electronically with the SEC on March 16, 1999, is
incorporated by reference and made a part of this document.
-62-
<PAGE>
EQ ADVISORS TRUST
INVESTMENT STRATEGIES SUMMARY
<TABLE>
<CAPTION>
Borrowings Borrowings
Asset-backed (emergencies, (leveraging Convertible Inverse Brady
PORTFOLIO Securities(A) redemptions) purposes) Securities Floaters(A) Floaters(A) Bonds(B)
------------ ----------- ----------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Alliance Aggressive Stock Y Y N Y Y Y Y
Alliance Balanced Y Y N Y Y Y Y
Alliance Common Stock Y Y N Y Y Y Y
Alliance Conservative Investors Y Y N Y Y Y Y
Alliance Equity Index N Y N Y Y Y N
Alliance Global Y Y N Y Y Y Y
Alliance Growth and Income Y Y N Y Y Y Y
Alliance Growth Investors Y Y N Y Y Y Y
Alliance High Yield Y Y N Y Y Y Y
Alliance Intermediate Y Y N Y Y Y Y
Government Securities
Alliance International Y Y N Y Y Y Y
Alliance Money Market Y Y N Y Y Y N
Alliance Quality Bond Y Y N Y Y Y Y
Alliance Small Cap Growth Y Y N Y Y Y Y
T. Rowe Price International N Y - 33.3% N Y N N N
Stock
T. Rowe Price Equity Income N Y - 33.3% N Y N N N
EQ/Putnam Growth & Income Value N Y - 10.0% N Y N N N
EQ/Putnam International Equity N Y - 10.0% N Y N N N
EQ/Putnam Investors Growth N Y - 10.0% N Y N N N
EQ/Putnam Balanced Y Y - 10.0% N Y Y N Y
MFS Research N Y - 33.3% N Y N N N
MFS Emerging Growth Companies Y Y - 33.3% N Y N N Y
MFS Growth with Income N Y - 10.0% N Y N N N
Morgan Stanley Emerging Markets Y Y - 33.3% N Y Y Y Y
Equity
Warburg Pincus Small Company N Y - 30.0% N Y N N N
Value
EQ/Putnam International Equity N Y - 10.0% N Y N N N
EQ/Putnam Investors Growth N Y - 10.0% N Y N N N
EQ/Putnam Balanced Y Y - 10.0% N Y Y N Y
MFS Research N Y - 33.3% N Y N N N
[RESTUBBED TABLE CONTINUED FROM ABOVE}
<CAPTION>
Foreign Foreign Foreign
Currency Currency Currency Options
Depository Spot Forward Futures (exchange
PORTFOLIO Receipts (B) Trans. Trans. Trans.(A) traded)
--------- ------------ ------ --------- --------- --------
<S> <C> <C> <C> <C> <C>
Alliance Aggressive Stock Y Y Y Y Y
Alliance Balanced Y Y Y Y Y
Alliance Common Stock Y Y Y Y Y
Alliance Conservative Investors Y Y Y Y Y
Alliance Equity Index N N N N N
Alliance Global Y Y Y Y Y
Alliance Growth and Income Y Y Y Y Y
Alliance Growth Investors Y Y Y Y Y
Alliance High Yield Y Y Y Y Y
Alliance Intermediate N Y N N Y
Government Securities
Alliance International Y Y Y Y Y
Alliance Money Market Y N N N N
Alliance Quality Bond Y Y Y Y Y
Alliance Small Cap Growth Y Y Y Y Y
T. Rowe Price International Y Y Y
Stock
T. Rowe Price Equity Income Y Y Y
EQ/Putnam Growth & Income Value Y Y Y
EQ/Putnam International Equity Y Y Y
EQ/Putnam Investors Growth Y Y Y
EQ/Putnam Balanced Y Y Y
MFS Research Y Y N
MFS Emerging Growth Companies Y Y Y
MFS Growth with Income Y Y Y Y Y
Morgan Stanley Emerging Markets Y Y Y Y Y
Equity
Warburg Pincus Small Company Y Y Y Y Y
Value
EQ/Putnam International Equity Y Y Y Y Y
EQ/Putnam Investors Growth Y Y Y Y Y
EQ/Putnam Balanced Y Y Y Y Y
MFS Research Y Y N N N
-63-
<PAGE>
<CAPTION>
Borrowings Borrowings
Asset-backed (emergencies, (leveraging Convertible Inverse Brady
PORTFOLIO Securities(A) redemptions) purposes) Securities Floaters(A) Floaters(A) Bonds(B)
------------ ----------- ----------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
MFS Emerging Growth Companies Y Y - 33.3% N Y N N Y
MFS Growth with Income N Y - 10.0% N Y N N N
Morgan Stanley Emerging Markets Y Y - 33.3% N Y Y Y Y
Equity
Warburg Pincus Small Company N Y - 30.0% N Y N N N
Value
Merrill Lynch World Strategy N Y - 33.3% N Y N N N
Merrill Lynch Basic Value Equity N Y - 33.3% N Y N N N
Lazard Large Cap Value N Y - 10.0% Y - 33.3% Y Y N N
Lazard Small Cap Value N Y - 15.0%(E) N Y Y N N
JPM Core Bond Y Y - 33.3% N Y N N Y
BT Small Company Index Y Y - 33.3% N Y N N N
BT International Equity Index Y Y - 33.3% N Y N N N
BT Equity 500 Index Y Y - 33.3% N Y N N N
EQ/Evergreen Portfolio N Y - 33.3% N Y N N N
EQ/Evergreen Foundation N Y - 33.3% N Y N N N
Portfolio
EQ/Alliance Premier Growth N Y - 5.0% N Y N N N
Portfolio
Capital Guardian Research N Y - 5.0% N Y N N N
Capital Guardian U.S. Equity N Y - 5.0% N Y N N N
Portfolio
Capital Guardian International N Y - 5.0% N Y N N N
Portfolio
CALVERT SOCIALLY
{RESPONSIBLE PORTFOLIO Y Y - 33.3% N Y Y Y Y}
- ------------------------------ - --------- - - - - -
Foreign Foreign Foreign
Currency Currency Currency Options
Depository Spot Forward Futures (exchange
PORTFOLIO Receipts (B) Trans. Trans. Trans.(A) traded)
--------- ------------ ------ --------- --------- --------
<S> <C> <C> <C> <C> <C>
MFS Emerging Growth Companies Y Y Y Y Y
MFS Growth with Income Y Y Y Y Y
Morgan Stanley Emerging Markets Y Y Y Y Y
Equity
Warburg Pincus Small Company Y Y Y Y Y
Value
Merrill Lynch World Strategy Y Y Y Y Y
Merrill Lynch Basic Value Equity Y - 10% Y Y Y Y
Lazard Large Cap Value Y - 10% Y N N N
Lazard Small Cap Value N N N N N
JPM Core Bond Y Y Y Y Y
BT Small Company Index N N N N N
BT International Equity Index Y Y Y Y Y
BT Equity 500 Index N N N N N
EQ/Evergreen Portfolio N N N N N
EQ/Evergreen Foundation Y Y Y Y Y
Portfolio
EQ/Alliance Premier Growth Y Y Y Y Y
Portfolio
Capital Guardian Research Y N N N N
Portfolio
Capital Guardian U.S. Equity Y N N N N
Portfolio
Capital Guardian International Y Y Y Y Y
Portfolio
CALVERT SOCIALLY
{RESPONSIBLE PORTFOLIO Y Y Y Y Y
- ------------------------------ - - - - -}
</TABLE>
- -----------------------------------------------------------
(A)Considered a derivative security.
(B)Considered a foreign security.
(C)Written options must be "covered."
(D)Certain mortgages are considered derivatives.
(E)May not exceed 15% for temporary or emergency purposes, including to meet
redemptions (otherwise such borrowings may not exceed 5% of total assets).
-64-
<PAGE>
EQ ADVISORS TRUST
INVESTMENT STRATEGIES SUMMARY
<TABLE>
<CAPTION>
Foreign Currency Investment Non-Inv.
Foreign (Written, Foreign Forward Hybrid Illiquid Grade Grade
Options(OTC) call options) Securities Commitments Instruments(A) Securities Fixed Income Fixed Income
------------ ------------- ---------- ----------- -------------- ---------- ------------ ------------
<C> <C> <C> <C> <C> <C> <C> <C>
Alliance Aggressive Stock Y Y Y - 20% Y Y Y - 15% Y N
Alliance Balanced Y Y Y - 20% Y Y Y - 15% Y N
Alliance Common Stock Y Y Y Y Y Y - 15% Y N
Alliance Conservative Y Y Y - 15% Y Y Y - 15% Y N
Investors
Alliance Equity Index N N N Y Y Y - 15% Y N
Alliance Global Y Y Y Y Y Y - 15% Y N
Alliance Growth and Income Y Y Y Y N Y - 15% Y Y- 30%
Alliance Growth Investors Y Y Y - 30% Y Y Y - 15% Y - 60% Y - 15%
Alliance High Yield Y Y Y Y Y Y - 15% Y Y
Alliance Intermediate Y N N Y Y Y - 15% Y N
government Securities
Alliance International Y Y Y Y Y Y - 15% Y N
Alliance Money Market N N Y - 20% Y N Y - 10% Y N
Alliance Quality Bond Y Y Y Y Y Y - 15% Y N
Alliance Small Cap Growth Y Y Y - 20% Y Y Y - 15% Y N
T. Rowe Price International N Y Y Y Y - 10% Y - 15% Y N
Stock
T. Rowe Price Equity Income N Y Y Y Y - 10% Y - 15% Y Y - 10%
EQ/Putnam Growth & Income Y Y Y Y N Y - 15% Y Y
Value
EQ/Putnam International Y Y Y Y N Y - 15% Y Y
Equity
EQ/Putnam Investors Growth Y Y Y Y N Y - 15% Y Y
EQ/Putnam Balanced Y Y Y Y N Y - 15% Y Y
MFS Research N N Y Y N Y - 15% Y Y - 10%
MFS Emerging Growth Companies Y Y Y Y N Y - 15% Y Y
MFS Growth with Income Y Y Y Y N Y - 15% Y Y
Morgan Stanley Emerging Y Y Y Y Y Y - 15% Y Y
Markets Equity
Warburg Pincus Small Company N Y Y N N Y - 10% Y Y
Value
Merrill Lynch World Strategy Y Y Y Y N Y - 15% Y Y
Merrill Lynch Basic Value N Y Y Y N Y - 15% Y N
Equity
Lazard Large Cap Value N Y Y Y N Y - 10% Y N
Lazard Small Cap Value N N Y Y N Y - 10% Y N
JPM Core Bond Y Y Y Y N Y - 15% Y N
BT Small Company Index N N N Y N Y - 15% Y N
BT International Equity Index Y Y Y Y N Y - 15% Y N
BT Equity 500 Index N N Y Y N Y - 15% Y N
EQ/Evergreen Portfolio Y Y Y Y N Y - 15% Y N
EQ/Evergreen Foundation N Y Y Y N Y - 15% N Y
Portfolio
EQ/Alliance Premier Growth Y Y Y Y N Y - 15% Y N
Portfolio
Capital Guardian Research N N Y Y Y - 10% Y - 15% Y N
Portfolio
Capital Guardian U.S. Equity N N Y Y Y - 10% Y - 15% Y N
Portfolio
Capital Guardian Y Y Y Y Y - 10% Y - 15% Y N
International Portfolio
CALVERT SOCIALLY RESPONSIBLE
{PORTFOLIO Y Y Y - 10% Y Y - 5% Y - 15% Y Y - 20%}
- ----------------------------- - - ------- - ------- ------- - ---------
Security Security
Loan Mortgage Direct Municipal Futures Options
Participation Related (D Mortgages Securities Trans.(A) Trans (C)
------------ ----------- ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Alliance Aggressive Stock Y Y N N Y Y
Alliance Balanced Y Y N N Y Y
Alliance Common Stock Y Y N N Y Y
Alliance Conservative Y Y N N Y Y
Investors
Alliance Equity Index Y N N N Y N
Alliance Global Y Y N N Y Y
Alliance Growth and Income Y Y N N Y Y
Alliance Growth Investors Y Y N N Y Y
Alliance High Yield Y Y N N Y Y
Alliance Intermediate Y Y N N Y Y
Government Securities
Alliance International Y Y N N Y Y
Alliance Money Market N Y N N N N
Alliance Quality Bond Y Y N N Y Y
Alliance Small Cap Growth Y Y N N Y Y
T. Rowe Price International N N N N Y Y
Stock
T. Rowe Price Equity Income N N N N Y Y
EQ/Putnam Growth & Income N N N N Y Y
Value
EQ/Putnam International N N N N Y Y
Equity
EQ/Putnam Investors Growth N N N N Y Y
EQ/Putnam Balanced Y Y N N Y Y
-65-
<PAGE>
MFS Research N N N N N N
MFS Emerging Growth Companies Y N N N Y Y
MFS Growth with Income N N N N Y Y
Morgan Stanley Emerging Y Y N Y Y Y
Markets Equity
Warburg Pincus Small Company N N N N Y Y
Value
Merrill Lynch World Strategy N N N N Y Y
Merrill Lynch Basic Value N N N N Y Y
Equity
Lazard Large Cap Value Y Y N N N N
Lazard Small Cap Value Y Y N N N N
JPM Core Bond Y Y Y Y Y Y
BT Small Company Index N Y N N Y Y
BT International Equity Index N Y N N Y Y
BT Equity 500 Index N Y N N Y Y
EQ/Evergreen Portfolio N N N N Y Y
EQ/Evergreen Foundation N Y N N Y Y
Portfolio
EQ/Alliance Premier Growth N N N N Y Y
Portfolio
Capital Guardian Research N N N N Y Y
Portfolio
Capital Guardian U.S. Equity N N N N Y Y
Portfolio
Capital Guardian N N N N Y Y
International Portfolio
CALVERT SOCIALLY
{RESPONSIBLE PORTFOLIO N N N Y Y Y}
- --------------------- - - - - - -
</TABLE>
- -------------------------------------------------------------------
(A)Considered a derivative security.
(B)Considered a foreign security.
(C)Written options must be "covered."
(D)Certain mortgages are considered derivatives.
(E)May not exceed 15% for temporary or emergency purposes, including to meet
redemptions (otherwise such borrowings may not exceed 5% of total assets).
-66-
<PAGE>
EQ ADVISORS TRUST
INVESTMENT STRATEGIES SUMMARY
<TABLE>
<CAPTION>
Passive Payment Real Estate Reverse Short Sales Small
Foreign In-Kind Investment Repurchase Repurchase Securities Against- Company
PORTFOLIO Inv. Comp. Bonds Trusts Agreements Agreements Lending the-box Securities
---------- ----- ------ ---------- ---------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Alliance Aggressive Stock Y Y Y Y N Y - 50.0% Y Y
Alliance Balanced Y Y Y Y N Y - 50.0% Y Y
Alliance Common Stock Y Y Y Y N Y - 50.0% Y Y
Alliance Conservative Y Y Y Y N Y - 50.0% Y Y
Investors
Alliance Equity Index Y Y Y N N Y - 50.0% Y Y
Alliance Global Y Y Y Y N Y - 50.0% Y Y
Alliance Growth and Income Y Y Y Y N Y - 50.0% Y Y
Alliance Growth Investors Y Y Y Y N Y - 50.0% Y Y
Alliance High Yield Y Y Y Y N Y Y Y
Alliance Intermediate Y Y Y Y N Y Y Y
Government Securities
Alliance International Y Y Y Y N Y - 50.0% Y Y
Alliance Money Market Y Y Y Y N Y - 50.0% Y Y
Alliance Quality Bond Y Y Y Y N Y - 50.0% Y Y
Alliance Small Cap Growth Y Y Y Y N Y - 50.0% Y Y
T. Rowe Price International Y N N Y N Y - 33.3% N N
Stock
T. Rowe Price Equity Income N N N Y N Y - 33.3% N N
EQ/Putnam Growth & Income N Y N Y N Y - 25.0% N N
Value
EQ/Putnam International Equity Y N N Y N Y - 25.0% N Y
EQ/Putnam Investors Growth N N N Y N Y - 25.0% N N
EQ/Putnam Balanced N Y Y Y N Y - 25.0% N Y
MFS Research N N N Y N Y - 33.3% N N
MFS Emerging Growth Companies N N N Y N Y - 30.0% N N
MFS Growth with Income N N N Y N Y - 25.0% N N
Morgan Stanley Emerging Y Y Y Y Y Y - 33.3% Y Y
Markets Equity
Warburg Pincus Small Company N N N Y N Y - 20.0% Y Y
Value
Merrill Lynch World Strategy N N N Y N Y - 20.0% N N
Merrill Lynch Basic Value N N N Y N Y - 20.0% N N
Equity
Lazard Large Cap Value N N Y Y Y Y - 10.0% N N
Lazard Small Cap Value N N Y Y N Y - 10.0% N Y
JPM Core Bond N Y Y Y Y Y - 33.3% N N
BT Small Company Index N N Y Y Y Y - 30.0% N Y
BT International Equity Index N N Y Y Y Y - 30.0% N N
BT Equity 500 Index N N Y Y Y Y - 30.0% N N
EQ/Evergreen Portfolio N N N Y Y Y - 33.3% Y Y
EQ/Evergreen Foundation N N Y Y Y Y - 33.3% N N
Portfolio
EQ/Alliance Premier Growth N N Y Y N Y - 25.0% N N
Portfolio
Capital Guardian Research N N Y Y N Y - 33.3% N Y
Portfolio
Capital Guardian U.S. Equity N N Y Y N Y - 33.3% N Y
Portfolio
Capital Guardian Y N Y Y N Y - 33.3% N Y
International Portfolio
CALVERT SOCIALLY
{RESPONSIBLE PORTFOLIO N N Y Y Y Y - 33.3% Y Y}
- ------------------------------ - - - - - --------- - -
Zero
Structured Swap U.S. Gov't Coupon
PORTFOLIO Notes(A) Trans.(A) Securities Bonds
---------- ----- ----------- --------
<S> <C> <C> <C> <C>
Alliance Aggressive Stock Y Y Y Y
Alliance Balanced Y Y Y Y
Alliance Common Stock Y Y Y Y
Alliance Conservative Y Y Y Y
Investors
Alliance Equity Index Y Y Y Y
Alliance Global Y Y Y Y
Alliance Growth and Income Y Y Y Y
Alliance Growth Investors Y Y Y Y
Alliance High Yield Y Y Y Y
Alliance Intermediate Y Y Y Y
Government Securities
Alliance International Y Y Y Y
Alliance Money Market Y N Y Y
Alliance Quality Bond Y Y Y Y
Alliance Small Cap Growth Y Y Y Y
T. Rowe Price International N N Y N
Stock
T. Rowe Price Equity Income N N Y N
EQ/Putnam Growth & Income N N Y Y
Value
EQ/Putnam International Equity N N Y N
EQ/Putnam Investors Growth N N Y N
-67-
<PAGE>
EQ/Putnam Balanced N N Y Y
MFS Research N N Y N
MFS Emerging Growth Companies N N Y N
MFS Growth with Income N N Y Y
Morgan Stanley Emerging Y Y Y Y
Markets Equity
Warburg Pincus Small Company N N Y N
Value
Merrill Lynch World Strategy N N Y N
Merrill Lynch Basic Value N N Y N
Equity
Lazard Large Cap Value N N Y N
Lazard Small Cap Value N N Y N
JPM Core Bond N Y Y Y
BT Small Company Index N N Y N
BT International Equity Index N Y Y N
BT Equity 500 Index N N Y N
EQ/Evergreen Portfolio N N Y N
EQ/Evergreen Foundation N N Y N
Portfolio
EQ/Alliance Premier Growth N N Y N
Portfolio
Capital Guardian Research N N Y N
Portfolio
Capital Guardian U.S. Equity N N Y N
Portfolio
Capital Guardian N N Y N
International Portfolio
CALVERT SOCIALLY
{RESPONSIBLE PORTFOLIO Y Y Y Y}
- ------------------------------ - - - -
</TABLE>
- ---------------------------------------------------------------------
(A)Considered a derivative security.
(B)Considered a foreign security.
(C)Written options must be "covered."
(D)Certain mortgages are considered derivatives.
(E)May not exceed 15% for temporary or emergency purposes, including to meet
redemptions (otherwise such borrowings may not exceed 5% of total assets).
-68-
<PAGE>
APPENDIX B
DESCRIPTION OF COMMERCIAL PAPER RATINGS
A-1 AND PRIME-1 COMMERCIAL PAPER RATINGS
The rating A-1 (including A-1+) is the highest commercial paper rating assigned
by Standard & Poor's. Commercial paper rated A-1 by Standard & Poor's has the
following characteristics:
o liquidity ratios are adequate to meet cash requirements;
o long-term senior debt is rated "A" or better;
o the issuer has access to at least two additional channels of borrowing;
o basic earnings and cash flow have an upward trend with allowance made
for unusual circumstances;
o typically, the issuer's industry is well established and the issuer
has a strong position within the industry; and
o the reliability and quality of management are unquestioned.
Relative strength or weakness of the above factors determines whether the
issuer's commercial paper is rated A-1, A-2 or A-3. Issues rated A-1 that are
determined by Standard & Poor's to have overwhelming safety characteristics are
designated A-1+.
The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Among the factors considered by Moody's in assigning ratings are the following:
o evaluation of the management of the issuer;
o economic evaluation of the issuer's industry or industries and
an appraisal of speculative-type risks which may be inherent in
certain areas;
o evaluation of the issuer's products in relation to competition and
customer acceptance;
o liquidity;
o amount and quality of long-term debt;
o trend of earnings over a period of ten years;
o financial strength of parent company and the relationships which exist
with the issuer; and
o recognition by the management of obligations which may be
present or may arise as a result of public interest questions and
preparations to meet such obligations.
DESCRIPTION OF BOND RATINGS
Bonds are considered to be "investment grade" if they are in one of the top four
ratings.
Standard & Poor's ratings are as follows:
o Bonds rated AAA have the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
o Bonds rated AA have a very strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than bonds in
higher rated categories.
o Bonds rated A have a strong capacity to pay interest and repay principal
although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.
o Bonds rated BBB are regarded as having an adequate capacity to pay interest
and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal
for bonds in this category than in higher rated categories.
-69-
<PAGE>
o Debt rated BB, B, CCC, CC or C is regarded, on balance, as predominantly
speculative with respect to the issuer's capacity to pay interest and repay
principal in accordance with the terms of the obligation. While such debt
will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse debt
conditions.
o The rating C1 is reserved for income bonds on which no interest is being
paid.
o Debt rated D is in default and payment of interest and/or repayment of
principal is in arrears.
The ratings from AA to CCC may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within the major rating categories.
Moody's ratings are as follows:
o Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as
"gilt-edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
o Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other
elements present which make the long term risks appear somewhat larger than
in Aaa securities.
o Bonds which are rated A possess many favorably investment attributes and
are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may
be present which suggest a susceptibility to impairment some time in the
future.
o Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any
great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
o Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
o Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance
of other terms of the contract over any long period of time may be small.
o Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest.
o Bonds which are rated Ca represent obligations which are speculative to a
high degree. Such issues are often in default or have other marked
shortcomings.
o Bonds which are rated C are the lowest class of bonds and issues so rated
can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Moody's applies modifiers to each rating classification from Aa through B to
indicate relative ranking within its rating categories. The modifier "1"
indicates that a security ranks in the higher end of its rating category; the
modifier "2" indicates a mid-range ranking and the modifier "3" indicates that
the issue ranks in the lower end of its rating category.
70
<PAGE>
PART C: OTHER INFORMATION
ITEM 23. EXHIBITS
(a)(1) Agreement and Declaration of Trust.(1)
(a)(2) Amended and Restated Agreement and Declaration of Trust.(2)
(a)(3) Certificate of Trust.(1)
(a)(4) Certificate of Amendment.(2)
(b)(1)(i) By-Laws of the Trust.(1)
(c)(1)(ii) None other than Exhibit (a)(2) and (b)(1)(i).
(d) Investment Advisory Contracts
(d)(1)(i)
Investment Management Agreement between EQ Advisors Trust and EQ
Financial Consultants, Inc. dated April 14, 1997.(4)
(d)(1)(ii) Amendment No. 1, dated December 9, 1997 to Investment Management
Agreement between EQ Advisors Trust and EQ Financial Consultants,
Inc. dated April 14, 1997.(7)
(d)(1)(iii) Amendment No. 2, dated as of December 31, 1998 to Investment
Management Agreement between EQ Advisors Trust and EQ Financial
Consultants, Inc. dated April 14, 1997.(11)
(d)(1)(iv) Form of Amendment No. 3, dated as of April 30, 1999, to Investment
Management Agreement between EQ Advisors Trust and EQ Financial
Consultants, Inc.(11)
(d)(1)(v) Form of Amendment No. 4, dated as of September 1, 1999, to
Investment Management Agreement between EQ Advisors Trust and EQ
Financial Consultants, Inc.
(D)(1)(VI) FORM OF AGREEMENT NO. 5, DATED AS OF SEPTEMBER 1, 1999, TO
INVESTMENT MANAGEMENT AGREEMENT BETWEEN EQ ADVISORS
TRUST AND EQ FINANCIAL CONSULTANTS, INC. (TO BE PROVIDED BY
AMENDMENT)}
(d)(2) Investment Advisory Agreement between EQ Financial Consultants,
Inc. and T. Rowe Price Associates, Inc. dated April 1997.(4)
(d)(3) Investment Advisory Agreement between EQ Financial Consultants,
Inc. and Rowe Price-Fleming International, Inc. dated April
1997.(4)
(d)(4) Investment Advisory Agreement between EQ Financial Consultants,
Inc. and Putnam Investment Management, Inc. dated April 1997.(4)
(d)(5)(i) Investment Advisory Agreement between EQ Financial Consultants,
Inc. and Massachusetts Financial Services Company dated April
1997.(4)
(d)(5)(ii) Amendment No. 1, dated as of December 31, 1998 to Investment
Advisory Agreement by and between EQ Financial Consultants, Inc.
and Massachusetts Financial Services Company dated April 1997.(11)
(d)(6) Investment Advisory Agreement between EQ Financial Consultants,
Inc. and Morgan Stanley Asset Management Inc. dated April 1997.(4)
(d)(7) Investment Advisory Agreement between EQ Financial Consultants,
Inc. and Warburg, Pincus Counsellors, Inc. dated April 1997.(4)
(d)(8) Investment Advisory Agreement between EQ Financial Consultants,
Inc. and Merrill Lynch Asset Management, L.P. dated April 1997.(4)
(d)(9) Investment Advisory Agreement between EQ Financial Consultants,
Inc. and Lazard Freres & Co. LLC dated December 9, 1997.(7)
(d)(10) Investment Advisory Agreement between EQ Financial Consultants,
Inc. and J.P. Morgan Investment Management, Inc. dated December 9,
1997.(7)
(d)(11) Investment Advisory Agreement between EQ Financial Consultants,
Inc. and Bankers Trust Global Investment Management, a unit of
Bankers Trust Company, dated December 9, 1997.(7)
(d)(12) Investment Advisory Agreement by and between EQ Financial
Consultants, Inc. and Evergreen Asset Management Corp., dated as
of December 31, 1998.(11)
(d)(13)(i) Form of Investment Advisory Agreement between EQ Financial
Consultants, Inc. and Alliance Capital Management L.P., dated as
of April 30, 1999.(11)
(d)(13)(ii) Amendment No. 1, dated as of September 1, 1999 to Investment
Advisory Agreement by and between EQ Financial Consultants, Inc.
and Alliance Capital Management L.P., dated as of April 30, 1999.
(d)(14) Form of Investment Advisory Agreement between EQ Financial
Consultants, Inc. and Capital Guardian Trust Company, dated as of
April 30, 1999.(11)
(D)(15) FORM OF INVESTMENT ADVISORY AGREEMENT BETWEEN EQ
FINANCIAL CONSULTANTS, INC. AND CALVERT ASSET MANAGEMENT COMPANY,
INC., DATED AS OF SEPTEMBER 1, 1999. (TO BE PROVIDED BY AMENDMENT)
(D)(16) FORM OF INVESTMENT ADVISORY AGREEMENT BETWEEN EQ FINANCIAL
CONSULTANTS, INC. AND BROWN CAPITAL MANAGEMENT, DATED AS OF
SEPTEMBER 1, 1999. (TO BE PROVIDED BY AMENDMENT)}
(e) Underwriting Contracts
(e)(1)(i) Distribution Agreement between EQ Advisors Trust and EQ Financial
Consultants, Inc. with respect to the Class IA shares dated April
14, 1997.(4)
(e)(1)(ii) Amendment No. 1 dated December 9, 1997 to the Distribution
Agreement between EQ Advisors Trust and EQ Financial Consultants,
Inc. with respect to the Class IA shares dated April 14, 1997.(7)
(e)(1)(iii) Amendment No. 2 dated as of December 31, 1998 to the Distribution
Agreement between EQ Advisors Trust and EQ Financial Consultants
with respect to the Class 1A shares dated April 14, 1997.(11)
(e)(1)(iv) Form of Amendment No. 3 dated as of April 30, 1999 to the
Distribution Agreement between EQ Advisors Trust and EQ Financial
Consultants with respect to the Class IA shares dated April 14,
1997.(11)
(e)(1)(v) Form of Amendment No. 4 dated as of September 1, 1999 to the
Distribution Agreement between EQ Advisors Trust and EQ Financial
Consultants with respect to the Class IA shares dated April 14,
1997.
**1(E)(1)(VI) Form of Amendment No. 5 dated as of September 1, 1999 to the
Distribution Agreement between EQ Advisors Trust and EQ Financial
Consultants with respect to the Class IA shares dated April 14,
1997. (TO BE PROVIDED BY AMENDMENT)
(e)(2)(i) Distribution Agreement between EQ Advisors Trust and EQ Financial
Consultants, Inc. with respect to the Class IB shares dated April
14, 1997.(4)
(e)(2)(ii) Amendment No. 1 dated December 9, 1997 to the Distribution
Agreement between EQ Advisors Trust and EQ Financial Consultants,
Inc. with respect to the Class IB shares dated April 14, 1997.(7)
(e)(2)(iii) Amendment No. 2 dated as of December 31, 1998 to the Distribution
Agreement between EQ Advisors Trust and EQ Financial Consultants,
Inc. with respect to the Class IB shares dated April 14, 1997.(11)
(e)(2)(iv) Form of Amendment No. 3 dated as of April 30, 1999 to the
Distribution Agreement between EQ Advisors Trust and EQ Financial
Consultants, Inc. with respect to the Class IB shares dated April
14, 1997.(11)
(e)(2)(v) Form of Amendment No. 4 dated as of September 1, 1999 to the
Distribution Agreement between EQ Advisors Trust and EQ Financial
Consultants, Inc. with respect to the Class IB shares dated April
14, 1997.
**2(E)(2)(VI) Form of Amendment No. 5 dated as of September 1, 1999 to the
Distribution Agreement between EQ Advisors Trust and EQ Financial
Consultants, Inc. with respect to the Class IB shares dated April
14, 1997. (TO BE PROVIDED BY AMENDMENT)
(e)(3)(i) Distribution Agreement between EQ Advisors Trust and Equitable
Distributors, Inc. with respect to the Class IA shares dated April
14, 1997.(4)
(e)(3)(ii) Amendment No. 1 dated December 9, 1997 to the Distribution
Agreement between EQ Advisors Trust and Equitable Distributors,
Inc. with respect to the Class IA shares dated April 14, 1997.(7)
(e)(3)(iii) Amendment No. 2 dated as of December 31, 1998 to the Distribution
Agreement between EQ Advisors Trust and Equitable Distributors,
Inc. with respect to the Class IA shares dated April 14, 1997.(11)
(e)(3)(iv) Form of Amendment No. 3 dated as of April 30, 1999 to the
Distribution Agreement between EQ Advisors Trust and Equitable
Distributors, Inc. with respect to the Class IA shares dated April
14, 1997.(11)
(e)(3)(v) Form of Amendment No. 4 dated as of September 1, 1999 to the
Distribution Agreement between EQ Advisors Trust and Equitable
Distributors, Inc. with respect to the Class IA shares dated April
14, 1997.
**3(E)(3)(VI)Form of Amendment No. 5 dated as of September 1, 1999 to the
Distribution Agreement between EQ Advisors Trust and Equitable
Distributors, Inc. with respect to the Class IA shares dated April
14, 1997. (TO BE PROVIDED BY AMENDMENT)
(e)(4)(i) Distribution Agreement between EQ Advisors Trust and Equitable
Distributors, Inc. with respect to the Class IB shares dated April
14, 1997.(4)
(e)(4)(ii) Amendment No. 1 dated December 9, 1997 to the Distribution
Agreement between EQ Advisors Trust and Equitable Distributors,
Inc. with respect to the Class IB shares dated April 14, 1997.(7)
(e)(4)(iii) Amendment No. 2 dated as of December 31, 1998 to the Distribution
Agreement between EQ Advisors Trust and Equitable Distributors,
Inc. with respect to the Class IB shares dated April 14, 1997.(11)
(e)(4)(iv) Form of Amendment No. 3 dated as of April 30, 1999 to the
Distribution Agreement between EQ Advisors Trust and Equitable
Distributors, Inc. with respect to the Class IB shares dated April
14, 1997.(11)
(e)(4)(v) Form of Amendment No. 4 dated as of September 1, 1999 to the
Distribution Agreement between EQ Advisors Trust and Equitable
Distributors, Inc. with respect to the Class IB shares dated April
14, 1997.
**4(E)(4)(VI) Form of Amendment No. 5 dated as of September 1, 1999 to the
Distribution Agreement between EQ Advisors Trust and Equitable
Distributors, Inc. with respect to the Class IB shares dated April
14, 1997. (TO BE PROVIDED BY AMENDMENT)
(f) Form of Deferred Compensation Plan.3
(g) Custodian Agreements
(g)(1)(i) Custodian Agreement between EQ Advisors Trust and The Chase
Manhattan Bank dated April 17, 1997 and Global Custody Rider.(4)
(g)(1)(ii) Amendment No. 1 dated December 9, 1997 to the Custodian Agreement
between EQ Advisors Trust and The Chase Manhattan Bank dated April
17, 1997.(7)
(g)(1)(iii) Amendment No. 2 dated as of December 31, 1998 to the Custodian
Agreement between EQ Advisors Trust and The Chase Manhattan Bank
dated April 17, 1997.(11)
(g)(1)(iv) Form of Amendment No. 3 dated as of April 30, 1999 to the
Custodian Agreement between EQ Advisors Trust and The Chase
Manhattan Bank dated April 17, 1997.(11)
(g)(1)(v) Form of Amendment No. 4 dated as of September 1, 1999 to the
Custodian Agreement between EQ Advisors Trust and The Chase
Manhattan Bank dated April 17, 1997.
**5(G)(1)(VI) Form of Amendment No. 5 dated as of September 1, 1999 to the
Custodian Agreement between EQ Advisors Trust and The Chase
Manhattan Bank dated April 17, 1997. (TO BE PROVIDED BY AMENDMENT)
(g)(2)(i) Amended and Restated Global Custody Rider to the Domestic Custody
Agreement for Mutual Funds between The Chase Manhattan Bank and EQ
Advisors Trust dated August 31, 1998.(11)
(h) Other Material Contracts
(h)(1) Mutual Fund Services Agreement between EQ Advisors Trust and Chase
Global Funds Services Company dated April 25, 1997.(4)
(h)(2)(i) Amended and Restated Expense Limitation Agreement between EQ
Advisors Trust and EQ Financial Consultants, Inc. dated March 3,
1998.(8)
(h)(2)(ii) Amended and Restated Expense Limitation Agreement by and between
EQ Financial Consultants, Inc. and EQ Advisors Trust dated as of
December 31, 1998.(11)
(h)(2)(iii) Form of Amended and Restated Expense Limitation Agreement between
EQ Financial Consultants, Inc. and EQ Advisors Trust dated as of
April 30, 1999.(11)
(h)(2)(iv) Form of Amended and Restated Expense Limitation Agreement between
EQ Financial Consultants, Inc. and EQ Advisors Trust dated as of
September 1, 1999.
**6(H)(2)(V) Form of Amended and Restated Expense Limitation Agreement between
EQ Financial Consultants, Inc. and EQ Advisors Trust dated as of
September 1, 1999. (TO BE PROVIDED BY AMENDMENT)
(h)(3)(i) Organizational Expense Reimbursement Agreement by and between EQ
Financial Consultants, Inc. and EQ Advisors Trust, on behalf of
each series of the Trust except for the Lazard Large Cap Value
Portfolio, Lazard Small Cap Value Portfolio, the JPM Core Bond
Portfolio, BT Small Company Index Portfolio, BT International
Equity Index Portfolio and BT Equity 500 Index Portfolio and EQ
Financial Consultants, Inc. dated April 14, 1997.(4)
(h)(3)(ii) Organizational Expense Reimbursement Agreement by and between EQ
Financial Consultants, Inc. and EQ Advisors Trust, on behalf of
the Lazard Large Cap Value Portfolio, Lazard Small Cap Value
Portfolio, JPM Core Bond Portfolio, BT Small Company Index
Portfolio, BT International Equity Index Portfolio, and BT Equity
500 Index Portfolio and EQ Financial Consultants, Inc. dated
December 9, 1997.(7)
(h)(3)(iii) Organizational Expense Reimbursement Agreement by and between EQ
Financial Consultants, Inc. and EQ Advisors Trust, on behalf of
the MFS Income with Growth Portfolio, EQ/Evergreen Foundation
Portfolio and EQ/Evergreen Portfolio dated December 31, 1998.(11)
(h)(4)(i) Participation Agreement by and among EQ Advisors Trust, The
Equitable Life Assurance Society of the United States, Equitable
Distributors, Inc., and EQ Financial Consultants Inc. dated April
14, 1997.(4)
(h)(4)(ii) Amendment No. 1 dated December 9, 1997 to the Participation
Agreement by and among EQ Advisors Trust, The Equitable Life
Assurance Society of the United States, Equitable Distributors,
Inc., and EQ Financial Consultants Inc. dated April 14, 1997.(7)
(h)(4)(iii) Amendment No. 2 dated as of December 31, 1998 to the Participation
Agreement by and among EQ Advisors Trust, The Equitable Life
Assurance Society of the United States, Equitable Distributors,
Inc., and EQ Financial Consultants Inc. dated April 14, 1997.(11)
(h)(4)(iv) Form of Amendment No. 3 dated as of April 30, 1999 to the
Participation Agreement among EQ Advisors Trust, The Equitable
Life Assurance Society of the United States, Equitable
Distributors, Inc., and EQ Financial Consultants Inc. dated April
14, 1997.(11)
(h)(4)(v) Form of Amendment No. 4 dated as of September 1, 1999 to the
Participation Agreement among EQ Advisors Trust, The Equitable
Life Assurance Society of the United States, Equitable
Distributors, Inc., and EQ Financial Consultants Inc. dated April
14, 1997.
**7(H)(4)(VI) Form of Amendment No. 5 dated as of September 1, 1999 to the
Participation Agreement among EQ Advisors Trust, The Equitable
Life Assurance Society of the United States, Equitable
Distributors, Inc., and EQ Financial Consultants Inc. dated April
14, 1997. (TO BE PROVIDED BY AMENDMENT)
(h)(5) Retirement Plan Participation Agreement dated December 1, 1998
among EQ Advisors Trust, EQ Financial Consultants, Inc., with The
Equitable Investment Plan for Employees, Managers and Agents and
The Equitable Life Assurance Society of the United States.(11)
(h)(5)(i) Form of Amendment No. 1 to the Retirement Plan Participation
Agreement dated April 30, 1999 among EQ Advisors Trust, EQ
Financial Consultants, Inc., with The Equitable Investment Plan
for Employees, Managers and Agents and The Equitable Life
Assurance Society of the United States.(11)
(h)(5)(ii) Form of Amendment No. 2 to the Retirement Plan Participation
Agreement dated September 1, 1999 among EQ Advisors Trust, EQ
Financial Consultants, Inc., with The Equitable Investment Plan
for Employees, Managers and Agents and The Equitable Life
Assurance Society of the United States.
**8(H)(5)(III) Form of Amendment No. 2 to the Retirement Plan Participation
Agreement dated September 1, 1999 among EQ Advisors Trust, EQ
Financial Consultants, Inc., with The Equitable Investment Plan
for Employees, Managers and Agents and The Equitable Life
Assurance Society of the United States. (TO BE PROVIDED BY
AMENDMENT)
(H)(6) License Agreement Relating to Use of Name between Merrill Lynch &
Co., Inc., and EQ Advisors Trust dated April 28, 1997.(4)
(i)(1) Opinion and Consent of Katten Muchin & Zavis regarding the
legality of the securities being registered.(1)
(i)(2) Opinion and Consent of Dechert Price & Rhoads regarding the
legality of the securities being registered with respect to the
Lazard Large Cap Value Portfolio, Lazard Small Cap Value
Portfolio, and JPM Core Bond Portfolio.(5)
(i)(3) Opinion and Consent of Dechert Price & Rhoads regarding the
legality of the securities being registered with respect to the BT
Small Company Index Portfolio, BT International Equity Index
Portfolio, and BT Equity 500 Index Portfolio.(6)
(i)(4) Opinion and Consent of Dechert Price & Rhoads regarding the
legality of the securities being registered with respect to the
EQ/Evergreen Foundation Portfolio, EQ/Evergreen Portfolio, and MFS
Growth with Income Portfolio.(9)
(i)(5) Opinion and Consent of Dechert Price & Rhoads regarding the
legality of the securities being registered with respect to the
EQ/Alliance Premier Growth Portfolio, EQ/Capital Research
Portfolio, EQ/Capital U.S. Equities Portfolio and EQ/Capital
International Equities Portfolio.(10)
(i)(6) Form of Opinion and Consent of Dechert Price & Rhoads regarding
the legality of the securities being registered with respect to
the Alliance Money Market Portfolio, Alliance Intermediate
Government Securities Portfolio, Alliance Quality Bond Portfolio,
Alliance High Yield Portfolio, Alliance Balanced Portfolio,
Alliance Conservative Investors Portfolio, Alliance Growth
Investors Portfolio, Alliance Common Stock Portfolio, Alliance
Equity Index Portfolio, Alliance Growth and Income Portfolio,
Alliance Aggressive Stock Portfolio, Alliance Small Cap Growth
Portfolio, Alliance Global Portfolio, and Alliance International
Portfolio.
(I)(7) FORM OF OPINION AND CONSENT OF DECHERT PRICE & RHOADS REGARDING
THE LEGALITY OF THE SECURITIES BEING REGISTERED WITH RESPECT TO
THE CALVERT SOCIALLY RESPONSIBLE PORTFOLIO. (TO BE PROVIDED BY
AMENDMENT)
(j) Consent of PricewaterhouseCoopers LLP, Independent Public
Accountants. (TO BE PROVIDED BY AMENDMENT)
(k) None
(l) Stock Subscription Agreement between the Trust, on behalf of the
T. Rowe Price Equity Income Portfolio, and Separate Account FP.(3)
(m) Distribution Plan Pursuant to Rule 12b-1 for the Trust's Class IB shares.(4)
(n) Financial Data Schedule
(o) Plan Pursuant to Rule 18f-3 under the 1940 Act.(4)
Other Exhibits:
Power of Attorney.(3)
Power of Attorney for Michael Hegarty.8
- ---------------
1 Incorporated herein by reference to Registrant's Registration Statement
on Form N-1A filed on December 3, 1996 (File No.333-17217).
2 Incorporated herein by reference to Registrant's Registration Statement
on Form N-1A filed on January 23, 1997 (File No. 333-17217).
3 Incorporated herein by reference to Registrant's Registration Statement
on Form N-1A filed on April 7, 1997 (File No. 333-17217).
4 Incorporated herein by reference to Registrant's Registration Statement
on Form N-1A filed on August 28, 1997 (File No. 333-17217).
5 Incorporated herein by reference to Registrant's Registration Statement
on Form N-1A filed on October 15, 1997 (File No. 333-17217).
6 Incorporated herein by reference to Registrant's Registration Statement
on Form N-1A filed on October 31, 1997 (File No. 333-17217).
7 Incorporated herein by reference to Registrant's Registration Statement
on Form N-1A filed on December 29, 1997 (File No. 333-17217).
8 Incorporated herein by reference to Registrant's Registration Statement
on Form N-1A filed on March 5, 1998 (File No. 333-17217).
9. Incorporated herein by reference to Registrant's Registration Statement
on Form N-1A filed on October 15, 1998 (File No. 333-17217).
10. Incorporated herein by reference to Registrant's Registration Statement
on Form N-1A filed on February 16, 1999 (File No. 333-17217).
11. Incorporated herein by reference to Registrant's Registration Statement
on Form N-1A filed on April 29, 1999 (File No. 333-17217).
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE TRUST
The Equitable Life Assurance Society of the United States ("Equitable")
controls the Trust by virtue of its ownership of ___% of the Trust's shares as
of May 1, 1999. All EQ Advisors Trust shareholders are required to solicit
instructions from their respective contract owners as to certain matters. EQ
Advisors Trust may in the future offer its shares to insurance companies
unaffiliated with Equitable.
On July 22, 1992, Equitable converted from a New York mutual life
insurance company to a publicly-owned New York stock life insurance company. At
that time Equitable became a wholly-owned subsidiary of The Equitable Companies
Incorporated ("Equitable Companies"). Equitable Companies continues to own 100%
of Equitable's common stock as well as approximately 72% of the common stock of
Donaldson, Lufkin & Jenrette, Inc., a registered broker-dealer.
AXA is the largest shareholder of Equitable Companies. On March 1,
1999, AXA owned, directly or indirectly through its affiliates, 58.4% of the
outstanding common stock of Equitable Companies. AXA is the holding company for
an international group of insurance and related financial services companies.
AXA's insurance operations include activities in life insurance, property and
casualty insurance and reinsurance. The insurance operations are diverse
geographically, with activities principally in Western Europe, North America,
and the Asia/Pacific area and, to a lesser extent, in Africa and South America.
AXA is also engaged in asset management, investing banking, securities trading,
brokerage, real estate and other financial services activities principally in
the United States, as well as in Western Europe and the Asia/Pacific area.
ITEM 25. INDEMNIFICATION
Amended and Restated Agreement and Declaration of Trust ("Declaration
of Trust") and By-Laws.
Article VII, Section 2 of the Trust's Declaration of Trust of EQ
Advisors Trust ("Trust") states, in relevant part, that a "Trustee, when acting
in such capacity, shall not be personally liable to any Person, other than the
Trust or a Shareholder to the extent provided in this Article VII, for any act,
omission or obligation of the Trust, of such Trustee or of any other Trustee.
The Trustees shall not be responsible or liable in any event for any neglect or
wrongdoing of any officer, agent, employee, Manager, or Principal Underwriter of
the Trust. The Trust shall indemnify each Person who is serving or has served at
the Trust's request as a director, officer, trustee, employee, or agent of
another organization in which the Trust has any interest as a shareholder,
creditor, or otherwise to the extent and in the manner provided in the By-Laws."
Article VII, Section 4 of the Trust's Declaration of Trust further states, in
relevant part, that the "Trustees shall be entitled and empowered to the fullest
extent permitted by law to purchase with Trust assets insurance for liability
and for all expenses reasonably incurred or paid or expected to be paid by a
Trustee, officer, employee, or agent of the Trust in connection with any claim,
action, suit, or proceeding in which he or she may become involved by virtue of
his or her capacity or former capacity as a Trustee of the Trust."
Article VI, Section 2 of the Trust's By-Laws states, in relevant part,
that "[s]ubject to the exceptions and limitations contained in Section 3 of this
Article VI, every [Trustee, officer, employee or other agent of the Trust] shall
be indemnified by the Trust to the fullest extent permitted by law against all
liabilities and against all expenses reasonably incurred or paid by him or her
in connection with any proceeding in which he or she becomes involved as a party
or otherwise by virtue of his or her being or having been an agent." Article VI,
Section 3 of the Trust's By-Laws further states, in relevant part, that "[n]o
indemnification shall be provided hereunder to [a Trustee, officer, employee or
other agent of the Trust]: (a) who shall have been adjudicated, by the court or
other body before which the proceeding was brought, to be liable to the Trust or
its Shareholders by reason of willful misfeasance, bad faith, gross negligence
or reckless disregard of the duties involved in the conduct of his or her office
(collectively, "disabling conduct"); or (b) with respect to any proceeding
disposed of (whether by settlement, pursuant to a consent decree or otherwise)
without an adjudication by the court or other body before which the proceeding
was brought that such [Trustee, officer, employee or other agent of the Trust]
was liable to the Trust or its Shareholders by reason of disabling conduct,
unless there has been a determination that such [Trustee, officer, employee or
other agent of the Trust] did not engage in disabling conduct: (i) by the court
or other body before which the proceeding was brought; (ii) by at least a
majority of those Trustees who are neither Interested Persons of the Trust nor
are parties to the proceeding based upon a review of readily available facts (as
opposed to a full trial-type inquiry); or (iii) by written opinion of
independent legal counsel based upon a review of readily available facts (as
opposed to a full trial-type inquiry); provided, however, that indemnification
shall be provided hereunder to [a Trustee, officer, employee or other agent of
the Trust] with respect to any proceeding in the event of (1) a final decision
on the merits by the court or other body before which the proceeding was brought
that the [Trustee, officer, employee or other agent of the Trust] was not liable
by reason of disabling conduct, or (2) the dismissal of the proceeding by the
court or other body before which it was brought for insufficiency of evidence of
any disabling conduct with which such [Trustee, officer, employee or other agent
of the Trust] has been charged." Article VI, Section 4 of the Trust's By-Laws
also states that the "rights of indemnification herein provided (i) may be
insured against by policies maintained by the Trust on behalf of any [Trustee,
officer, employee or other agent of the Trust], (ii) shall be severable, (iii)
shall not be exclusive of or affect any other rights to which any [Trustee,
officer, employee or other agent of the Trust] may now or hereafter be entitled
and (iv) shall inure to the benefit of [such party's] heirs, executors and
administrators."
UNDERTAKING
Insofar as indemnification for liability arising under the Securities
Act of 1933 (the "Act") may be permitted to trustees, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a trustee, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such trustee, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF THE MANAGER AND ADVISERS
The description of EQ Financial Consultants, Inc. under the caption of
"Management of the Trust" in the Prospectus and under the caption "Investment
Management and Other Services" in the Statement of Additional Information
constituting Parts A and B, respectively, of this Registration Statement are
incorporated by reference herein.
The information as to the directors and officers of EQ Financial Consultants,
Inc. is set forth in EQ Financial Consultants, Inc.'s Form ADV filed with the
Securities and Exchange Commission on July 1, 1996 (File No.
801-14065) and amended through the date hereof, is incorporated by reference.
The information as to the directors and officers of T. Rowe Price Associates,
Inc., is set forth in T. Rowe Price Associates, Inc.'s Form ADV filed with the
Securities and Exchange Commission on March 31, 1997 (File No.
801-00856) and amended through the date hereof, is incorporated by reference.
The information as to the directors and officers of Rowe Price-Fleming
International, Inc. is set forth in Rowe Price-Fleming International, Inc.'s
Form ADV filed with the Securities and Exchange Commission on March 31, 1997
(File No. 801-14713) and amended through the date hereof, is incorporated by
reference.
The information as to the directors and officers of Putnam Investment
Management, Inc. is set forth in Putnam Investment Management, Inc.'s Form ADV
filed with the Securities and Exchange Commission on April 2, 1996 (File No.
801-07974) and amended through the date hereof, is incorporated by reference.
The information as to the directors and officers of Massachusetts Financial
Services Company is set forth in Massachusetts Financial Services Company's Form
ADV filed with the Securities and Exchange Commission on March 31, 1998 (File
No. 801-17352) and amended through the date hereof, is incorporated by
reference.
The information as to the directors and officers of Morgan Stanley Asset
Management Inc. is set forth in Morgan Stanley Asset Management Inc.'s Form ADV
filed with the Securities and Exchange Commission on August 1, 1997 (File No.
801-15757) and amended through the date hereof, is incorporated by reference.
The information as to the directors and officers of Warburg Pincus Asset
Management is set forth in Warburg Pincus Asset Management, Inc.'s Form ADV
filed with the Securities and Exchange Commission on March 31, 1997 (File No.
801-07321) and amended through the date hereof, is incorporated by reference.
The information as to the directors and officers of Merrill Lynch Asset
Management, L.P. is set forth in Merrill Lynch Asset Management, L.P.'s Form ADV
filed with the Securities and Exchange Commission on March 25, 1998 (File No.
801-11583) and amended through the date hereof, is incorporated by reference.
The information as to the directors and officers of Lazard Asset Management (a
division of Lazard Freres & Co. LLC) is set forth in Lazard Freres & Co. LLC's
Form ADV filed with the Securities and Exchange Commission on June 9, 1997 (File
No. 801-6568) and amended through the date hereof, is incorporated by reference.
The information as to the directors and officers of J. P. Morgan Investment
Management Inc. is set forth in J.P. Morgan Investment Management Inc.'s Form
ADV filed with the Securities and Exchange Commission on March 27, 1998 (File
No. 801-21011) and amended through the date hereof, is incorporated by
reference.
The information as to the directors and officers of Evergreen Asset Management
Corp. is set forth in Evergreen Asset Management Corp.'s Form ADV filed with the
Securities and Exchange Commission on March 31, 1998 (File No.
801-46522) and amended through the date hereof, is incorporated by reference.
The information as to the directors and officers of Alliance Capital Management
Corporation, the general partner of Alliance Capital Management L.P., is set
forth in Alliance Capital Management Corporation's Form ADV filed with the SEC
on April 21, 1998 (File No. 801-32361) and as amended through the date hereof,
is incorporated by reference.
THE INFORMATION AS TO THE DIRECTORS AND OFFICERS OF CALVERT ASSET MANAGEMENT
COMPANY, INC. IS SET FORTH IN CALVERT ASSET MANAGEMENT COMPANY'S FORM ADV FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 12, 1999 (FILE NO. 801-17044)
AND AMENDED THROUGH THE DATE HEREOF, IS INCORPORATED BY REFERENCE.
THE INFORMATION AS TO THE DIRECTORS AND OFFICERS OF BROWN CAPITAL MANAGEMENT IS
SET FORTH IN BROWN CAPITAL MANAGEMENT'S FORM ADV FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION ON MAY 30, 1995 (FILE NO. 801-19287) AND AMENDED THROUGH THE
DATE HEREOF, IS INCORPORATED BY REFERENCE.
THE INFORMATION AS TO THE DIRECTORS AND OFFICERS OF BANKERS TRUST COMPANY IS SET
FORTH BELOW. TO THE KNOWLEDGE OF THE TRUST, NONE OF THE DIRECTORS OR OFFICERS OF
BANKERS TRUST, EXCEPT THOSE SET FORTH BELOW, IS OR HAS BEEN AT ANYTIME DURING
THE PAST TWO FISCAL YEARS ENGAGED IN ANY OTHER BUSINESS, PROFESSION, VOCATION OR
EMPLOYMENT OF A SUBSTANTIAL NATURE, EXCEPT THAT CERTAIN DIRECTORS AND OFFICERS
ALSO HOLD VARIOUS POSITIONS WITH AND ENGAGE IN BUSINESS FOR BANKERS TRUST NEW
YORK CORPORATION. SET FORTH BELOW ARE THE NAMES AND PRINCIPAL BUSINESSES OF THE
DIRECTORS AND OFFICERS OF BANKERS TRUST WHO ARE OR DURING THE PAST TWO FISCAL
YEARS HAVE BEEN ENGAGED IN ANY OTHER BUSINESS, PROFESSION, VOCATION OR
EMPLOYMENT OF A SUBSTANTIAL NATURE.
<PAGE>
These persons may be contacted c/o Bankers Trust Company, 130 Liberty Street,
New York, New York 10006.
Lee A. Ault III, Director of Bankers Trust Company. Private Investor. Former
Chairman and Chief Executive Officer, Telecredit, Inc. Also a director of
Equifax, Inc., Sunrise Medical Inc., Viking Office Products, Inc., Pacific Crest
Outward Bound School, Saltec International, Inc. and Chief Executives
Organization. President of Lee Ault & Company. General Partner of Badger Ridge
Farm.
Neil R. Austrian, Director of Bankers Trust Company. President and Chief
Operating Officer, National Football League. Also a director of Rafac Technology
and Viking Office Products, Inc., and trustee of Swarthmore College.
George B. Beitzel, Director of Bankers Trust Company. Director of Various
Corporations. Retired Senior Vice President and director, International Business
Machines Corporation. Also a director of Computer Task Group, Phillips Petroleum
Company, Rohm and Haas Company TIG Holdings, chairman emeritus of Amherst
College; and chairman of the Colonial Williamsburg Foundation and Director of
Caliber Systems, Inc.;
Richard H. Daniel, Bankers Trust Company, 130 Liberty Street, New York, New York
10006. Vice chairman and chief financial officer, Bankers Trust Company and
Bankers Trust New York Corporation; Beneficial owner, general partner, Daniel
Brothers, Daniel Lingo & Assoc., Daniel Pelt & Assoc.; and Beneficial owner,
Rhea C. Daniel Trust.
Phillip A. Griffiths, Director of Bankers Trust Company. Director, Institute for
Advanced Study. Chairman, Committee on Science, Engineering and Public Policy of
the National Academies of Sciences and Engineering & the Institute of Medicine;
member, National Academy of Sciences, American Academy of Arts and Sciences and
American Philosophical Society; and trustee of North Carolina School of Science
and Mathematics and member of the Board of Trustees of Woodward Academy. Former
member of the board of director, Research Triangle Institute. Chairman and
member of Nominations Committee and Committee on Science and Engineering
Indicators, National Science Board.
William R. Howell, . Director of Bankers Trust Company. Chairman Emeritus, J.C.
Penney Company, Inc. Also a director of Exxon Corporation, Halliburton Company,
Warner-Lambert Company, Williams, Inc., Central & South West Corp.; and the
National Retail Federation, and National Organization on Disability. Member of
the American Society of Corporation Executives, Beta Gamma Sigma, Directors
Table, the Business Council, Delta Sigma Pi, University of Oklahoma, Dean's
Advisory Board, College of Business Administration. Chairman of Southern
Methodist University Board of Trustees.
Vernon E. Jordan, Jr., Director of Bankers Trust Company. Senior Partner, Akin,
Gump, Strauss, Hauer & Feld, LLP, Attorneys-at-law, Washington, D.C. and Dallas,
Texas. Former President of the National Urban League, Inc. Also a director of
American Express Company, Chancellor Media Corporation, Dow Jones, Inc., J.C.
Penney Company, Inc., Revlon Group Incorporated, Ryder System, Inc., Sara Lee
Corporation, Union Carbide Corporation and Xerox Corporation; and a trustee of
Brookings Institution, The Ford Foundation and Howard University. Director of
National Academy Foundation and Governor for Joint Center for Political and
Economic Studies.
David Marshall, 130 Liberty Street, New York, New York 10006. Chief Information
Officer and Executive Vice President, Bankers Trust New York Corporation; and
Senior Managing Director, Bankers Trust Company.
Hamish Maxwell, Director of Bankers Trust Company. Retired Chairman and Chief
Executive Officer,
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<PAGE>
Philip Morris Companies Inc. Also a director of Sola International Inc., and
chairman of WPP Group plc. Director of AEA Investors Inc., American Friends of
Cambridge University, Cambridge University Development Office in the United
States and the Norton Gallery & School of Art, and a trustee of Cambridge
University Foundation, trustee emeritus of the Institute for Advance Study, and
honorary trustee of The New York Public Library.
Frank N. Newman, Chairman of the Board, Chief Executive Officer and President of
the Bankers Trust New York Corporation and Bankers Trust Company. Former Deputy
Secretary of the United States Treasury and former Vice Chairman of the Board
and director of BankAmerica Corporation and Bank of America NT&SA. Also a
director of Dow Jones, Inc.; Alvin Alley Dance Theatre and Carnegie Hall; and
member, Board of Overseers of Cornell University Medical College and the
Graduate School of Medical Sciences.
N.J. Nicholas Jr., Director of Bankers Trust Company. Investor. Former Co-chief
Executive Officer of Time Warner Inc. Also a director of Boston Scientific
Corporation, Vail Valley Institute, and Xerox Corporation; Chairman of the
Advisory Board of Columbia University Graduate School of Journalism.
Russell E. Palmer, Director of Bankers Trust Company. Chairman and Chief
Executive Officer, The Palmer Group. Former Dean of the Wharton School,
University of Pennsylvania and former Chief Executive Officer of Touche Ross &
Co. (now Deloitte & Touche). Also a director of Allied-Signal Inc., Federal Home
Loan Mortgage Corporation, GTE Corporation, The May Department Stores Company
and Safeguard Scientifics, Inc.; and a trustee, the University of Pennsylvania.
Member of the Conference Board; public member of Hudson Institute; member of
Radnor Ventures Partner Advisory Board and member of Advisory Board of the
Comptroller General of the U.S.
Donald L. Staheli, Director of Bankers Trust Company. Retired Chairman of the
Board and Chief Executive Officer, Continental Grain Company. Also a director of
Continental Grain Company, ContiFinancial Corporation, Prudential Insurance
Company of America, Fresenius Medical Care, A.G., National Committee on United
States-China Relations and America's Promise; member, Council on Foreign
Relations; and director and chairman of The Points of Light Foundation. Chairman
of National Advisory Council of Brigham Young University's Marriott School of
Management.
Patricia Carry Stewart, Director of Bankers Trust Company. Former Vice
President, The Edna McConnell Clark Foundation (a charitable foundation). Also a
director of CVS Corporation and of the Community Foundation for Palm Beach and
Martin Counties; and a trustee emerita of Cornell University.
G. Richard Thoman, Director of Bankers Trust Company. President, Chief Operating
Officer and Director, Xerox Corporation. Also a director of Fuji Xerox Company,
Ltd. and Union Bancaire Privee (Switzerland); member, General Electric
Investments Equity Advisory Board, Yale School of Management Advisory Board,
Fletcher School of Law and Diplomacy Advisory Board, and the INSEAD U.S.
Advisory Board; director, The Americas Society; and member, Council on Foreign
Relations. Director of Chrysler Corporation.
George J. Vojta, Vice Chairman of the Board of the Corporation and Bankers Trust
Company. Also a director of Alicorp, S.A., Northwest Airlines and Private Export
Funding Corp.; member of the New York State Banking Board; vice chairman of the
Board of Trustees of St. Luke's-Roosevelt Hospital Center; a partner of New York
City Partnership; chairman, Wharton Financial Services Center; and a member of
the Bretton Woods Committee. and New York City Partnership's Housing and
Economic Development Committees.
Paul A. Volcker, Director of Bankers Trust Company. Director of Various
Corporations. Former
C-13
<PAGE>
Chairman and Chief Executive Officer of Wolfensohn & Co., Inc. and former
Chairman of the Board of Governors of the Federal Reserve System. Also a
director of the American Stock Exchange, Nestle S.A., Prudential Insurance
Company of America and UAL Corporation and an overseer of TIAA-CREF; director of
American Council on Germany, Council on Foreign Relations and The Japan Society;
trustee of The American Assembly; and member of the advisory boards of several
international corporations.
Melvin A. Yellin, Bankers Trust Company, 130 Liberty Street, New York, New York
10006. Senior Managing Director and General Counsel of Bankers Trust New York
Corporation and Bankers Trust Company; Director, 1136 Tenants Corporation; and
Director, ABA Securities Association.
THE INFORMATION AS TO THE DIRECTORS AND OFFICERS OF CAPITAL GUARDIAN TRUST
COMPANY IS SET FORTH BELOW. TO THE KNOWLEDGE OF THE TRUST, NONE OF THE DIRECTORS
OR OFFICERS OF CAPITAL GUARDIAN IS OR HAS BEEN AT ANYTIME DURING THE PAST TWO
FISCAL YEARS ENGAGED IN ANY OTHER BUSINESS, PROFESSION, VOCATION OR EMPLOYMENT
OF A SUBSTANTIAL NATURE, EXCEPT AS SET FORTH BELOW.
These persons may be contacted c/o Capital Guardian Trust Company, 333 South
Hope Street, Los Angeles, California 90071.
Donnalisa Barnum, Senior Vice President of Capital Guardian Trust Company. Vice
President, Capital International Limited.
Andrew F. Barth, Director of Capital Guardian Trust Company. Executive Vice
President and Research Manager, Capital Guardian Research Company.
Michael D. Beckman, Senior Vice President, Treasurer and Director of Capital
Guardian Trust Company. Director, Capital Guardian Trust Company of Nevada; and
Treasurer, Capital Guardian Research Company.
Elizabeth A. Burns, Senior Vice President of Capital Guardian Trust Company.
Lary P. Clemmensen, Director of Capital Guardian Trust Company and American
Funds Distributors, Inc. Chairman of the Board, American Funds Service Company;
Director and President, The Capital Group Companies, Inc.; Senior Vice President
and Director, Capital Research and Management Company; President and Director,
Capital Management Services, Inc.; Treasurer, Capital Strategy Research, Inc.;
and Senior Vice President, Capital Income Builder, Inc. and Capital World Growth
& Income Fund, Inc.
Roberta A. Conroy, Senior Vice President, Director and Counsel of Capital
Guardian Trust Company. Senior Vice President and Secretary, Capital
International, Inc. and Emerging Markets Growth Fund, Inc.; Assistant General
Counsel, The Capital Group Companies, Inc.; and Secretary. Capital Management
Services, Inc.
John B. Emerson, Senior Vice President of Capital Guardian Trust Company. Deputy
Assistant to the President for Intergovernmental Affairs and Deputy Director of
Presidential Personnel, The White House.
Michael E. Ericksen, Senior Vice President of Capital Guardian Trust Company.
Senior Vice President, Capital International, Limited.
David I. Fisher, Chairman and Director of The Capital Group Companies, Inc. and
Capital Guardian Trust Company. Vice Chairman and Director, Capital
International, Inc., Capital International K.K., Capital International Limited
and Emerging Markets Growth Fund, Inc.; President and Director, Capital Group
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<PAGE>
International, Inc. and Capital International Limited (Bermuda); Presidente du
Conseil, Capital International S.A.; and Director, Capital Group Research, Inc.,
Capital Research International, EuroPacific Growth Fund and New Perspective
Fund.
William Flumenbaum, Senior Vice President of Capital Guardian Trust Company
Personal Investment Management Division. Vice President, Capital Guardian Trust
Company, a Nevada Corporation; Director, Principal Gifts - UCLA Development;
Executive Director, UCLA Jonsson Cancer Center Foundation; and Deputy Director,
UCLA Health Science Development.
Richard N. Havas, Senior Vice President of Capital Guardian Trust Company,
Capital International Limited, Capital Research International and Capital
Guardian Canada, Inc.
Frederick M. Hughes, Jr., Senior Vice President of Capital Guardian Trust
Company.
William H. Hurt, Senior Vice President and Director of Capital Guardian Trust
Company. Chairman, Capital Guardian Trust Company of Nevada and Capital Strategy
Research, Inc.
Robert G. Kirby, Chairman Emeritus of Capital Guardian Trust Company. Senior
Partner, The Capital Group Partners L.P.
Nancy J. Kyle, Senior Vice President and Director of Capital Guardian Trust
Company. President, Capital Guardian Canada, Inc. and Vice President, Emerging
Markets Growth Fund, Inc.
Karin L. Larson, Director of Capital Guardian Trust Company and The Capital
Group Companies, Inc. President, Director and Director of Research, Capital
Guardian Research Company; Chairperson, President and Director, Capital Group
Research, Inc.; and President, Director and Director of International Research,
Capital Research International.
D. James Martin, Director of Capital Guardian Trust Company. Senior Vice
President and Director, Capital Guardian Research Company.
John R. McIlwraith, Senior Vice President and Director of Capital Guardian Trust
Company. Senior Vice President and Director, Capital International Limited.
James R. Mulally, Senior Vice President and Director of Capital Guardian Trust
Company. Senior Vice President, Capital International Limited; Director, Capital
Guardian Research Company; and Vice President, Capital Research Company.
Shelby Notkin, Senior Vice President of Capital Guardian Trust Company.
Director, Capital Guardian Trust Company of Nevada.
Mary M. O'Hern, Senior Vice President of Capital Guardian Trust Company and
Capital International Limited; Vice President, Capital International, Inc.
Jeffrey C. Paster, Senior Vice President of Capital Guardian Trust Company.
Robert V. Pennington, Senior Vice President of Capital Guardian Trust Company;
President, Capital Guardian Trust Company of Nevada.
Jason M. Pilalas, Director of Capital Guardian Trust Company. Senior Vice
President and Director, Capital Guardian Research Company.
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<PAGE>
Robert Ronus, President and Director of Capital Guardian Trust Company. Chairman
and Director, Capital Guardian Canada, Inc., Capital Guardian Research Company
and Capital Research International; Director, The Capital Group Companies, Inc.,
Capital Group International, Inc. and Capital International Fund S.A.;
Directeur, Capital International S.A.; and Senior Vice President, Capital
International Limited.
Theodore R. Samuels, Senior Vice President and Director of Capital Guardian
Trust Company. Director, Capital Guardian Research Company.
Lionel A. Sauvage, Senior Vice President of Capital Guardian Trust Company.
Director, Capital Guardian Research Company; and Vice President, Capital
International Research, Inc.
John H. Seiter, Executive Vice President of Client Relations & Marketing and
Director of Capital Guardian Trust Company. Senior Vice President, Capital Group
International, Inc.; and Vice President, The Capital Group Companies, Inc.
Robert L. Spare, Senior Vice President of Capital Guardian Trust Company.
Eugene P. Stein, Executive Vice President and Director of Capital Guardian Trust
Company. Director, Capital Guardian Research Company.
Bente L. Strong, Senior Vice President of Capital Guardian Trust Company
Personal Investment Management Division. Publisher, Capital Publishing's The
American Benefactor Magazine.
Philip A. Swan, Senior Vice President of Capital Guardian Trust Company.
Shaw B. Wagener, Director of Capital Guardian Trust Company, Capital
International Asia Pacific Management Company, S.A., Capital International
Management Company, Capital International Emerging Countries Fund and Capital
International Latin American Fund. President and Director, Capital
International, Inc.; and Senior Vice President, Capital Group International,
Inc. and Emerging Markets Growth Fund, Inc.
Eugene M. Waldron, Senior Vice President of Capital Guardian Trust Company. Vice
President, Loomis, Sayles & Company.
N. Dexter Williams, Senior Vice President of Capital Guardian Trust Company
Personal Investment Management Division. Senior Vice President, American Funds
Distributors, Inc.
ITEM 27. PRINCIPAL UNDERWRITERS.
(a) EQ Financial Consultants, Inc. is a principal underwriter of the
Trust's Class IA shares and Class IB shares. Equitable Distributors, Inc. is
also a principal underwriter of the Trust's Class IA shares and Class IB shares.
EQ Financial Consultants Inc. also serves as a principal underwriter for the
following entities: the Class IA and IB shares of The Hudson River Trust;
Separate Account Nos. 45, 66 and 301 of Equitable; and Separate Accounts A, I
and FP of Equitable. Equitable Distributors, Inc. serves as the principal
underwriter for the Class IB shares of The Hudson River Trust and Separate
Account [strikethrough]FB[end strikethrough] {FP} and Separate Account No. 49
of Equitable.
(b) Set forth below is certain information regarding the directors and
officers of EQ Financial Consultants, Inc., and of Equitable Distributors, Inc.,
the principal underwriters of the Trust's Class IA and Class IB shares. The
business address of the persons whose names are preceded by a single asterisk
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<PAGE>
is 1290 Avenue of the Americas, New York, New York 10104. The business address
of the persons whose names are preceded by a double asterisk is 660 Newport
Center Drive, Suite 1200, Newport Beach, CA 92660. Mr. Laughlin's business
address is 1345 Avenue of the Americas, 39th Floor, New York, New York 10105.
Mr. Kornweiss's business address is 4251 Crums Mill Road, Harrisburg, PA 17112.
The business address of Mr. Bullen and Ms. Fazio is 200 Plaza Drive, Secaucus,
New Jersey 07096.
C-17
<PAGE>
EQ FINANCIAL CONSULTANTS, INC.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
NAME AND PRINCIPAL POSITIONS AND OFFICES WITH EQ POSITIONS AND OFFICES WITH
BUSINESS ADDRESS FINANCIAL CONSULTANTS, INC. REGISTRANT (EQ
ADVISORS TRUST)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
DIRECTORS
* Derry E. Bishop Director
* Harvey E. Blitz Director Chief Financial Officer and
Vice President
Michael J. Laughlin Director
* Michael S. Martin Director Vice President
* Michael F. McNelis Director
* Richard V. Silver Director
* Mark R. Wutt Director
- ----------------------------------------------------------------------------------------------------------------------
OFFICERS
* Michael S. Martin Chairman of the Board and Chief Vice President
Executive Officer
* Michael F. McNelis President and Chief Operating
Officer
* Martin J. Telles Executive Vice President and Chief Vice President
Marketing Officer
* Derry E. Bishop Executive Vice President
* Harvey Blitz Executive Vice President Chief Financial Officer and
Vice President
* Thomas J. Duddy, Jr. Executive Vice President
* Fred A. Folco Executive Vice President
* William J. Green Executive Vice President
* Edward J. Hayes Executive Vice President
* Craig A. Junkins Executive Vice President
* Peter D. Noris Executive Vice President President
* Mark A. Silberman Senior Vice President and Chief
Financial Officer
* Theresa A. Nurge-Alws Senior Vice President
* Donna M. Dazzo First Vice President
* Robin K. Murray First Vice President
* Michael Brzozowski Vice President and Compliance First Vice President
Director
* Raymond T. Barry Vice President
* Claire A. Comerford Vice President
* Amy Franceschini Vice President
* Linda Funigiello Vice President
* Mark Generales Vice President
Peter R. Kornweiss Vice President
* Frank Lupo Vice President
* Rosemary Magee Vice President
* Michael McBryan Vice President
* T.S. Narayanan Vice President
* Bill Nestel Vice President
* Laura A. Pellegrini Vice President
* Dan Roebuck Vice President
* Sid Smith Vice President
* Dan Wiley Vice President
C-18
<PAGE>
* Mike Woodhead Vice President
* Mary E. Cantwell Assistant Vice President Assistant Vice President
* Tom C. Gosnell Assistant Vice President
* Ara Klidjian Assistant Vice President
* John T. McCabe Assistant Vice President
* Janet E. Hannon Secretary
* Linda J. Galasso Assistant Secretary
</TABLE>
EQUITABLE DISTRIBUTORS, INC.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
POSITIONS AND OFFICES WITH
NAME AND PRINCIPAL BUSINESS ADDRESS POSITIONS AND OFFICES WITH REGISTRANT (EQ
EQUITABLE DISTRIBUTORS, INC. ADVISORS TRUST)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
DIRECTORS
** Greg Brakovich Director
* Edward J. Hayes Director
** James A. Shepherdson, III Director
* Jose S. Suquet Director
* Charles Wilder Director
============================================== ==================================== =================================
OFFICERS
* Jose S. Suquet Chairman of the Board
** Greg Brakovich Co-President and Co-Chief
Executive Officer and
Managing Director
** James A. Shepherdson, III Co-President and Co-Chief
Executive Officer and Managing
Director
** Hunter Allen Senior Vice President
* Elizabeth Forget Senior Vice President
** Jennifer Hall Senior Vice President
** Al Haworth Senior Vice President
** Stuart Hutchins Senior Vice President
** Ken Jaffe Senior Vice President
** Michael McDaniel Senior Vice President
** Debora Buffington Chief Compliance Officer
* Mark A. Silberman Vice President and Chief Financial
Officer
* Raymond T. Barry Vice President
** Mark Brandenberger Vice President
* Thomas D. Bullen Vice President
** Dave Hughes Vice President
** Marty Krager Vice President
** Michelle O'Haren Vice President
C-19
<PAGE>
* Ronald R. Quist Treasurer
* Janet Hannon Secretary
* Linda J. Galasso Assistant Secretary
</TABLE>
(c) Inapplicable.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
Books or other documents required to be maintained by Section 31(a) of
the Investment Company Act of 1940, and the Rules promulgated thereunder, are
maintained as follows:
(a) With respect to Rules 31a-1(a); 31a-1(b)(1); (2)(a) and (b); (3); (6);
(8); (12); and 31a-1(d), the required books and records are maintained
at the offices of Registrant's Custodian:
1211 Avenue of the Americas
New York, New York 10036
(b) With respect to Rules 31a-1(a); 31a-1(b)(1), (4); (2)(C) and (D); (4);
(5); (6); (8); (9); (10); (11) and 31a-1(f), the required books and
records are currently maintained at the offices of the Registrant's
Administrator:
73 Tremont Street
Boston, Massachusetts 02108
(c) With respect to Rules 31a-1(b)(5), (6), (9) and (10) and 31a-1(f), the
required books and records are maintained at the principal offices of
the Registrant's Manager or Advisers:
<TABLE>
<CAPTION>
<S> <C>
EQ Financial Consultants, Inc. T. Rowe Price Associates, Inc.
1290 Avenue of the Americas 100 East Pratt St.
New York, NY 10104 Baltimore, MD 21202
Rowe Price-Fleming International, Inc. Putnam Investment Management, Inc.
100 East Pratt Street One Post Office Square
Baltimore, MD 21202 Boston, MA 02109
Massachusetts Financial Services Company Merrill Lynch Asset Management, L.P.
500 Boylston Street 800 Scudders Mill Road
Boston, MA 02116 Plainsboro, NJ 08543-9011
Warburg Pincus Asset Management, Inc. Morgan Stanley Asset Management Inc.
466 Lexington Avenue 1221 Avenue of the Americas
New York, NY 10017-3147 New York, NY 10020
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<PAGE>
Lazard Asset Management J.P Morgan Investment Management Inc.
30 Rockefeller Plaza 522 Fifth Avenue
New York, NY 10020 New York, NY 10036
Bankers Trust Company Evergreen Asset Management Corp.
130 Liberty Street 2500 Westchester Avenue
One Bankers Trust Plaza Purchase, NY 10577
New York, NY 10006
Alliance Capital Management L.P. Capital Guardian Trust Company
1345 Avenue of the Americas 11100 Santa Monica Boulevard
New York, NY 10105 17th Floor
Los Angeles, CA 90025
CALVERT ASSET MANAGEMENT COMPANY, INC. BROWN CAPITAL MANAGEMENT, INC.
4550 MONTGOMERY AVENUE 809 CATHEDRAL STREET
SUITE 1000N BALTIMORE, MD 21201
BETHESDA, MD 20814
</TABLE>
ITEM 29. MANAGEMENT SERVICES: NONE.
ITEM 30. UNDERTAKINGS
Inapplicable.
C-21
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, ("1933
Act") and the Investment Company Act of 1940, as amended, the Registrant has
duly caused this Post-Effective Amendment No. 12 to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, and the State of New York on the ___ day of
JUNE, 1999.
EQ ADVISORS TRUST
By: /s/
--------------------------
Peter D. Noris
President
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Post-Effective Amendment No. 12 to the Registration Statement has been
signed below by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- -----
<S> <C> <C>
/s/ President and Trustee JUNE ___, 1999
- ------------------------------------
Peter D. Noris
* Trustee JUNE ___,1999
- ------------------------------------
William T. McCaffrey
* Trustee JUNE ___,1999
- -------------------------------------
Michael Hegarty
* Trustee JUNE ____,1999
- -------------------------------------
Jettie M. Edwards
* Trustee JUNE ___,1999
- -------------------------------------
William M. Kearns, Jr.
* Trustee JUNE ___,1999
- -------------------------------------
Christopher P.A. Komisarjevsky
* Trustee JUNE ___,1999
- --------------------------------------
Harvey Rosenthal
* Chief Financial Officer JUNE ___,1999
- --------------------------------------
Harvey Blitz
* By: /s/
----------------------------------------
Peter D. Noris
(Attorney-in-Fact)
</TABLE>
C-22
