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Registration Nos. 333-17217
811-07953
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 16, 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. 8 [X]
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 10 [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:
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Jane A. Kanter Mary P. Breen
Dechert Price & Rhoads Vice President & Associate General Counsel
1775 Eye Street N.W. The Equitable Life Assurance Society of the United States
Washington, D.C. 20006-2401 1290 Avenue of the Americas
New York, New York 10104
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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
May 1, 1999
This Prospectus describes the four (4) new Portfolios offered by EQ Advisors
Trust. EQ Advisors Trust currently has twenty-five (25) Portfolios. Each
Portfolio has its own investment objective and strategies that are designed to
meet different investment goals. This Prospectus contains information you should
know before investing. Please read this Prospectus carefully before investing
and keep it for future reference.
DOMESTIC EQUITY PORTFOLIOS
EQ/Alliance Premier Growth Portfolio
EQ/Capital Research Portfolio
EQ/Capital U.S. Equities Portfolio
INTERNATIONAL PORTFOLIOS
EQ/Capital International Equities Portfolio
You should be aware that the Securities and Exchange Commission has not approved
or disapproved of the investment merit of these Portfolios or determined if this
Prospectus is accurate or complete. Any representation to the contrary is a
criminal offense.
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EQ ADVISORS TRUST
This Prospectus tells you about the four new Portfolios of the EQ Advisors Trust
("Trust") and the Class IA shares offered by the Trust on behalf of each
Portfolio. The Trust is an open-end management investment company currently
consisting of 25 separate Portfolios. Each Portfolio is a separate series of the
Trust with its own investment objective, investment strategies and risks, which
are described in this Prospectus. Each of the current 25 Portfolios of the
Trust, except for the Morgan Stanley Emerging Markets Equity Portfolio, the
Merrill Lynch World Strategy Portfolio and the Lazard Small Cap Value Portfolio,
are diversified for purposes of the Investment Company Act of 1940, as amended
("1940 Act").
The Trust's shares are currently sold only to insurance company separate
accounts in connection with variable life insurance contracts and variable
annuity certificates and contracts (the "Contract" or collectively, the
"Contracts") issued by The Equitable Life Assurance Society of the United States
("Equitable") and Equitable of Colorado, Inc. ("EOC") and to participants in The
Equitable Investment Plan for Employees, Managers and Agents ("Equitable Plan").
The prospectus is designed to help you make informed decisions about four of the
Portfolios that are available under your Contract or under the Equitable Plan.
You will find information about your Contracts and how it works in the
accompanying prospectus for the Contracts if you are a Contract holder or
participant under a Contract.
Each Portfolio is managed by EQ Financial Consultants, Inc. ("Manager") which
directs the day to day operations of each Portfolio. Each of the Portfolios has
its own investment adviser ("Adviser"). Information about the Adviser for each
of the four Portfolios is contained in the description concerning that Portfolio
in the section entitled "About the Investment Portfolios." The Manager has the
ultimate responsibility to oversee each of the Advisers and to recommend their
hiring, termination and replacement. Subject to approval by the Board of
Trustees, the Manager may without obtaining shareholder approval: (i) select
Advisers for each of the Trust's Portfolios; (ii) enter into and materially
modify existing investment advisory agreement; and (iii) terminate and replace
the Advisers.
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TABLE OF CONTENTS
PAGE
SUMMARY INFORMATION CONCERNING EQ ADVISORS TRUST......................4
SUMMARY OF PRINCIPAL RISKS............................................5
ABOUT THE INVESTMENT PORTFOLIOS......................................10
DOMESTIC EQUITY PORTFOLIOS........................................11
EQ/ALLIANCE PREMIER GROWTH PORTFOLIO...........................11
EQ/CAPITAL RESEARCH PORTFOLIO..................................13
EQ/CAPITAL U.S. EQUITIES PORTFOLIO.............................14
INTERNATIONAL PORTFOLIOS..........................................15
EQ/CAPITAL INTERNATIONAL EQUITIES PORTFOLIO....................15
MANAGEMENT OF THE TRUST..............................................17
The Trust.........................................................17
The Manager.......................................................17
Expense Limitation Agreement......................................18
The Advisers......................................................18
The Administrator.................................................19
The Transfer Agent................................................19
Brokerage Practices...............................................19
Brokerage Transactions with Affiliates............................19
FUND DISTRIBUTION ARRANGEMENTS.......................................20
PURCHASE AND REDEMPTION..............................................20
HOW ASSETS ARE VALUED................................................21
TAX INFORMATION......................................................21
PRIOR PERFORMANCE OF EACH ADVISER....................................22
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SUMMARY INFORMATION CONCERNING EQ ADVISORS TRUST
The following chart highlights the four Portfolios described in this Prospectus
that you can choose as investment alternatives under your contracts offered by
Equitable and EOC. The chart and accompanying information identify each
Portfolio's investment objective(s), principal investment strategies and
principal risks. A "Summary of Principal Risks", which describes each of the
principal risks, follows the chart.
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Part A
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PORTFOLIO INVESTMENT OBJECTIVE(S)
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EQ/ALLIANCE PREMIER GROWTH PORTFOLIO Seeks long-term growth of capital by
primarily investing in equity securities
of a limited number of large, carefully
selected, high quality United States
companies that are judged, by the
Adviser, likely to achieve superior
earnings growth
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EQ/CAPITAL RESEARCH PORTFOLIO Seeks long-term growth of capital and
income
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EQ/CAPITAL U.S. EQUITIES PORTFOLIO Seeks long-term growth of capital and
income
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EQ/CAPITAL INTERNATIONAL EQUITIES Seeks long-term growth of capital and future
PORTFOLIO income by investing primarily in non-United
States equity and debt securities
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Part B
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PRINCIPAL INVESTMENT STRATEGIES PRINCIPAL RISKS
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Equity securities of a limited number of General investment, convertible securities,
large, high-quality companies that are derivatives, focused portfolio, foreign
likely to offer superior earnings growth securities, and growth investing risks
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Equity securities of United States issuers General investment, fixed income, foreign
and securities whose principal markets are securities, and growth investing risks
in the United States
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Equity securities of United States companies General investment, foreign securities, and
with market capitalization greater than $500 growth investing risks
million at the time of purchase
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Non-United States equity and debt securities, General investment, convertible securities,
primarily of companies located in Europe, derivatives, foreign securities, and growth
Canada, Australia, and the Far East investing risks
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SUMMARY OF 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 each Portfolio's shares may be affected by
the Portfolio's investment objective(s), principal investment strategies and
particular risk factors. Consequently, each Portfolio may be subject to
different principal risks. Some of the principal risks of investing in the
Portfolios are discussed below. However, other factors may also affect each
Portfolio's net asset value.
There is no guarantee that a Portfolio will achieve its investment objective(s)
or that it will not lose principal value.
GENERAL INVESTMENT RISKS: Each Portfolio is subject to the following risks:
ASSET CLASS RISK: There is the possibility that the returns from the
types of securities in which a Portfolio invests will underperform
returns from the various general securities markets or different asset
classes. Different types of securities tend to go through cycles of
outperformance and underperformance in comparison to the general
securities markets.
MARKET RISK: Each Portfolio's share price moves up and down over the
short term in reaction to stock or bond market movements. This means
that an investor in any of the Portfolios could lose money over short
periods, and perhaps over longer periods during extended market
downturns.
SECURITY SELECTION RISK: The Advisers for each Portfolio rely on the
insights of different specialists in making investment decisions based
on each Portfolio's particular investment objective(s) and investment
strategies. There is the possibility that the specific securities held
by a Portfolio will underperform other funds in the same asset class or
benchmarks that are representative of the general performance of the
asset class because of the Adviser's choice of portfolio securities.
YEAR 2000 RISK: Like other mutual funds, financial and business
organizations and individuals around the world, the Trust and its
Portfolios could be adversely affected if the computer systems used by
the Advisers, other service providers, or persons with whom they deal,
do not properly process and calculate date-related information and data
dated on and after January 1, 2000. This possibility is commonly known
as the "Year 2000 Problem." Virtually all operations of the Trust and
its Portfolios are computer reliant. The Manager, Advisers,
administrator, transfer agent, distributors and custodian have informed
the Trust that they are actively taking steps to address the Year 2000
Problem with regard to their respective computer systems and the
interfaces between their respective computer systems. The Trust is also
taking measures to obtain assurances from necessary persons that
comparable steps are being taken by the key service providers to the
Trust's Advisers, administrator, transfer agent, distributors, and
custodian. There can be no assurance that the Trust and the Portfolios
key service providers will be Year 2000 compliant. If not adequately
addressed, the Year 2000 Problem could result in the inability of the
Trust to perform its mission critical functions, including trading and
settling trades of portfolio securities pricing of portfolio securities
and processing shareholder transactions and the net asset value of its
Portfolio's shares may be materially affected.
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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 those
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's of countries outside the
United States. Additional information on the impact of the Year 2000
Problem on emerging market countries is provided in this section under
"FOREIGN SECURITIES RISKS--EMERGING MARKET RISK."
As indicated in "Summary Information Concerning EQ Advisers Trust" and "About
the Investment Portfolios," a particular Portfolio may also be subject to the
following risks:
CONVERTIBLE SECURITIES RISK: Convertible securities may include both convertible
debt and convertible preferred stock. Such securities may be converted into
shares of the underlying common stock at either a stated price or stated rate.
Therefore, convertible securities enable you to benefit from increases in the
market price of the underlying common stock. Convertible securities provide
higher yields than the underlying common stocks, but generally offer lower
yields than nonconvertible securities of similar quality. Like bonds, the value
of convertible securities fluctuates in relation to changes in interest rates
and, in addition, fluctuates in relation to the underlying common stock.
Subsequent to purchase by a Portfolio, convertible securities may cease to be
rated or a rating may be reduced below the minimum required for purchase by that
Portfolio. Each Adviser will consider such event in its determination of whether
a Portfolio should continue to hold the securities.
DERIVATIVES RISK: Derivatives are financial contracts whose value depends on, or
is derived from the value of an underlying asset, reference rate or index.
Derivatives include stock options, securities index options, currency options,
forward currency exchange contracts, futures contracts, swaps, and options on
futures contracts. Certain Portfolios can use derivatives involving the U.S.
Government and foreign government securities and currencies. Investments in
derivatives can significantly increase an investor's exposure to market risk, or
credit risk of the counterparty. Derivatives also involve the risk of mispricing
or improper valuation and the risk that changes in value of the derivative may
not correlate perfectly with the relevant assets, rates and indices.
FIXED INCOME RISKS: To the extent that any of the Portfolios invest a
substantial amount of its assets in fixed income securities, a Portfolio may be
subject to the following risks:
CREDIT RISK: Credit risk is the risk that the issuer or guarantor of a
debt security or counterparty to a Portfolio's transactions will be
unable or unwilling to make timely principal and/or interest payments,
or otherwise will be unable or unwilling to honor its financial
obligations. Each of the Portfolios may be subject to credit risk to
the extent that it invests in debt securities or engages in
transactions, such as securities loans, which involve a promise by a
third party to honor an obligation to the Portfolio. Credit risk is
particularly significant for the Portfolios that invest a portion of
their assets in "JUNK BONDS" or lower-rated securities.
INTEREST RATE RISK: The price of a bond or a fixed income security is
dependent upon interest rates. Therefore, the share price and total
return of a Portfolio investing a significant portion of its assets in
bonds or fixed income securities will vary in response to changes in
interest rates. A rise in interest rates causes the value of a bond to
decrease, and vice versa. There is the
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possibility that the value of a Portfolio's investment in bonds or
fixed income securities may fall because bonds or fixed income
securities generally fall in value when interest rates rise. The longer
the term of a bond or fixed income instrument, the more sensitive it
will be to fluctuations in value from interest rate changes. Changes in
interest rates may have a significant effect on Portfolios holding a
significant portion of their assets in fixed income securities with
long term maturities.
In the case of mortgage-backed securities, rising interest rates tend
to extend the term to maturity of the securities, making them even more
susceptible to interest rate changes. When interest rates drop, not
only can the value of fixed income securities drop, but the yield can
drop, particularly where the yield on the fixed income securities is
tied to changes in interest rates, such as adjustable mortgages. Also
when interest rates drop, the holdings of mortgage-backed securities by
a Portfolio can reduce returns if the owners of the underlying
mortgages pay off their mortgages sooner than anticipated since the
funds prepaid will have to be reinvested at the then lower prevailing
rates. This is known as prepayment risk. When interest rates rise, the
holdings of mortgage-backed securities by a Portfolio can reduce
returns if the owners of the underlying mortgages pay off their
mortgages later than anticipated. This is known as extension risk.
INVESTMENT-GRADE SECURITIES RISK: Debt securities are rated by national
bond ratings agencies. Securities rated BBB by Standard & Poor ("S&P")
or Baa by Moody's Investors Services, Inc. ("Moody's") are considered
investment grade securities, but are somewhat riskier than higher rated
investment-grade obligations because they are regarded as having only
an adequate capacity to pay principal and interest, and are considered
to lack outstanding investment characteristics and may be speculative.
JUNK BONDS OR LOWER RATED SECURITIES RISK: Bonds rated below investment
grade by S&P and Moody's are speculative in nature, may be subject to
certain risks with respect to the issuing entity and to greater market
fluctuations than higher rated fixed-income securities. They are
usually issued by companies without long track records of sales and
earnings, or by those companies with questionable credit strength.
These bonds are considered "below investment grade." The retail
secondary market for these "junk bonds" may be less liquid than that of
higher rated securities and adverse conditions could make it difficult
at times to sell certain securities or could result in lower prices
than those used in calculating the Portfolio's net asset value.
FOCUSED PORTFOLIO RISK: The EQ/Alliance Premier Growth Portfolio is subject to
focused portfolio risk. Focused portfolios invest in a limited number of
companies, therefore, the Portfolio may incur more risk because changes in the
value of a single security may have a more significant effect, either positive
or negative, on the Portfolio's net asset value.
FOREIGN SECURITIES RISKS: Investing in foreign securities, including depositary
receipts, involves risks not associated with investing in U.S. securities and
can affect a Portfolio's performance. Foreign markets, particularly emerging
markets, may be less liquid, more volatile and subject to less government
supervision than domestic markets. There may be difficulties enforcing
contractual obligations, and it may take more time for trades to clear and
settle. The specific risks of investing in foreign securities, among others,
include:
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CURRENCY RISK: The risk that changes in currency exchange rates will
negatively affect securities denominated in, and/or receiving revenues
in, foreign currencies. Adverse changes in currency exchange rates
(relative to the U.S. dollar) may erode or reverse any potential gains
from a Portfolio's investment in securities denominated in a foreign
currency or may widen existing losses.
EMERGING MARKET RISK: There are greater risks involved in investing in
emerging markets countries and/or their securities markets. Generally,
economic structures in these countries are less diverse and mature than
those in developed countries, and their political systems are less
stable. Investments in emerging markets countries may be affected by
national policies that restrict foreign investment in certain issuers
or industries. The small size of their securities markets and low
trading volumes can make investments illiquid and more volatile than
investments in developed countries and such securities may be subject
to abrupt and severe price declines. As a result, a Portfolio investing
in emerging markets countries may be required to establish special
custody or other arrangements before investing.
The YEAR 2000 PROBLEM may also be especially acute in emerging market
countries. Many emerging market countries are currently lagging behind
more developed countries in their Year 2000 preparedness because they
lack the financial resources to undertake the necessary remedial
actions. A lack of Year 2000 preparedness may adversely impact the
health, security and economic well-being of emerging market countries
and could, obviously, adversely affect the value of a Portfolio's
investments in emerging market countries. More information on the Year
2000 Problem is provided in this section, under "GENERAL INVESTMENT
RISKS--YEAR 2000 RISK."
EURO RISK: Certain of the Portfolios invests in securities issued by
European issuers. On January 1, 1999, 11 of the 15 member states of the
European Monetary Union ("EMU") introduced the "Euro as a common
currency. During a three-year transitional period, the Euro will
coexist with each participating state's currency and, on July 1, 2002,
the Euro is expected to become the sole currency of the participating
states. The introduction of the Euro will result in the redenomination
of European debt and equity securities over a period of time, which may
result in various legal and accounting differences an/or tax treatments
that otherwise would not likely occur. During this period, the creation
and implementation of suitable clearing and settlement systems and
other operational problems may cause market disruptions that could
adversely affect investment quoted in the Euro.
The consequences of the Euro conversion for foreign exchange rates,
interest rates and the value of European securities eligible for
purchase by the Portfolios are presently unclear and it is not possible
to predict the eventual impact of the Euro implementation plan on the
Portfolios. There are a number of significant risks associated with
EMU. Monetary and economic union on this scale has never been attempted
before. There is a significant degree of uncertainty as to whether
participating countries will remain committed to EMU in the face of
changing economic conditions. The conversion may adversely affect a
Portfolio if the Euro does not take effect as planned or it a
participating state withdraws from the EMU. Such actions may adversely
affect the value and/or increase the volatility of securities held by
the Portfolios.
POLITICAL/ECONOMIC RISK: Changes in economic and tax policies,
government instability, war or other political or economic actions or
factors may have an adverse effect on a Portfolio's foreign
investments.
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REGULATORY RISK: Less information may be available about foreign
companies. In general, foreign companies are not subject to uniform
accounting, auditing and financial reporting standards or to other
regulatory practices and requirements as are U.S. companies.
TRANSACTION COSTS RISK: The costs of buying and selling foreign
securities, including tax, brokerage and custody costs, generally are
higher than those involving domestic transactions.
GROWTH INVESTING RISK: Growth investing generally focuses on companies that, due
to their strong earnings and revenue potential, offer above-average prospects
for capital growth, with less emphasis on dividend income. Earnings
predictability and confidence in earnings forecasts are an important part of the
selection process. As a result, the price of growth stocks may be more sensitive
to changes in current or expected earnings than the price 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 Adviser, regardless of movement in the
securities market.
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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ABOUT THE INVESTMENT PORTFOLIOS
This section of the Prospectus provides a more complete description of the
principal investment objectives, strategies and risks of each of the four
Portfolios offered by this Prospectus. Of course, there can be no assurance that
any Portfolio will achieve its investment objective.
Please note that:
o The description of the principal risks for a Portfolio includes risks more
fully described in the "Summary of Principal Risks" in the preceding
section.
o Additional information concerning each Portfolio's strategies, investments
and risks can be found in the Trust's Statement of Additional Information.
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 each 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
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.
THE MORGAN STANLEY CAPITAL INTERNATIONAL EAFE INDEX ("MSCI EAFE") is a market
capitalization weighted equity index composed of a sample of companies
representative of the market structure of Europe, Australia and the Far East.
The MSCI EAFE returns assume dividends reinvested net of withholding tax and do
not reflect any fees or expenses.
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DOMESTIC EQUITY PORTFOLIOS
EQ/ALLIANCE PREMIER GROWTH PORTFOLIO
INVESTMENT OBJECTIVE: To achieve long-term growth of capital by primarily
investing in equity securities of a limited number of large, carefully selected,
high-quality United States companies that are judged, by the Adviser, likely to
achieve superior earnings growth.
THE INVESTMENT STRATEGY
The Portfolio invests primarily (at least 85% of its total assets) in equity
securities of United States companies. The Portfolio is diversified for purposes
of the 1940 Act, however it is still highly concentrated. The Portfolio focuses
on a relatively small number of intensively researched companies. The Adviser
selects the Portfolio's investments from a research universe of more than 600
companies that have strong management, superior industry positions, excellent
balance sheets and superior earnings growth prospects. An emphasis is placed on
identifying securities of companies whose substantially above-average
prospective earnings growth is not fully reflected in current market valuations.
Normally, the Portfolio invests in about 40-50 companies, with the 25 most
highly regarded of these companies usually constituting approximately 70% of the
Portfolio's net assets. In managing the Portfolio, the Adviser seeks to
capitalize on apparently unwarranted price fluctuations both to purchase or
increase positions on weakness and to sell or reduce overpriced holdings. The
Portfolio normally remains nearly fully invested and does not take significant
cash positions for market timing purposes. During market declines, while adding
to positions in favored stocks, the Portfolio becomes somewhat more aggressive,
gradually reducing the number of companies represented in its holdings.
Conversely, in rising markets, while reducing or eliminating fully valued
positions, the Portfolio becomes somewhat more conservative, gradually
increasing the number of companies represented in its holdings. Through this
approach, the Adviser seeks to gain positive returns in good markets while
providing some measure of protection in poor markets.
The Adviser expects the average market capitalization of companies represented
in the Portfolio normally to be in the range, or in excess, of the average
market capitalization of companies included in the S&P 500 Index.
The Portfolio may invest up to 20% of its net assets in convertible securities
and 15% of its total assets in securities of foreign issuers.
The 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.
THE PRINCIPAL RISKS
As you consider an investment in this Portfolio, you should be aware of certain
risks. The principal risks are GENERAL INVESTMENT RISK, CONVERTIBLE SECURITIES
RISK, DERIVATIVES RISK, FOCUSED PORTFOLIO RISK, FOREIGN SECURITIES RISK and
GROWTH INVESTING RISK..
PORTFOLIO PERFORMANCE
The inception date for this Portfolio is May 1, 1999. Therefore, no prior
performance is available.
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WHO MANAGES THE PORTFOLIO
ALLIANCE CAPITAL MANAGEMENT L.P. ("Alliance"), 1345 Avenue of the Americas, New
York, New York 10105. Alliance has been the Adviser to the Portfolio since it
commenced operations. Alliance's sole general partner is Alliance Capital
Management Corporation, which is an indirect wholly-owned subsidiary of
Equitable, one of the largest life insurance companies in the United States and
a wholly-owned subsidiary of The Equitable Companies Incorporated. Therefore,
the Manager and Alliance are affiliates of each other. Alliance, a Delaware
limited partnership, is a leading international investment manager.
Alfred Harrison is the Portfolio Manager and has been responsible for the day to
day management of the Portfolio since its inception. Mr. Harrison is Vice
Chairman of Alliance Capital Management Corporation.
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EQ/CAPITAL RESEARCH PORTFOLIO
INVESTMENT OBJECTIVE: To achieve long-term growth of capital and income.
THE INVESTMENT STRATEGY
The Portfolio invests primarily in equity securities of United States issuers
and securities whose principal markets are in the United States, including
American Depositary Receipts and other United States registered foreign
securities. The Portfolio invests primarily in common stocks (or securities
convertible or exchangeable into common stocks) of companies with market
capitalization greater than $1 billion at the time of purchase.
The Portfolio may invest up to 10% of its total assets in securities of issuers
domiciled outside the United States and not included in the S&P 500 (i.e.,
foreign securities).
The Portfolio may invest up to 10% of its total assets in debt securities rated
below investment grade (commonly referred to as "junk bonds") or unrated
securities of equivalent quality.
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.
THE PRINCIPAL RISKS
As you consider an investment in this Portfolio, you should be aware of certain
risks. The principal risks are GENERAL INVESTMENT RISK, FIXED INCOME RISK,
FOREIGN SECURITIES RISK and GROWTH INVESTING RISK.
PORTFOLIO PERFORMANCE
The inception date for this Portfolio is May 1, 1999. Therefore, no prior
performance is available.
WHO MANAGES THE PORTFOLIO
CAPITAL GUARDIAN TRUST COMPANY ("Capital Guardian"), 11100 Santa Monica
Boulevard, 17th Floor, Los Angeles, CA 90025. Capital Guardian is a wholly-owned
subsidiary of Capital Group International, Inc., which itself is a wholly owned
subsidiary of The Capital Group Companies, Inc. Capital Guardian has been
providing investment management services since 1968 and manages approximately
$80 billion as of December 31, 1998.
Capital Guardian uses a group of investment research analysts in selecting
securities for the Portfolio. The group is assisted and supported by the
research and input of analysts at Capital Research and Management Company, an
affiliate of Capital Guardian. Capital Guardian allocates the Portfolio's assets
among various industries. Individual analysts then select what they view as the
securities best suited to achieve the Portfolio's investment objective and
investment strategies within their assigned industry responsibilities.
-13-
<PAGE>
EQ/CAPITAL U.S. EQUITIES PORTFOLIO
INVESTMENT OBJECTIVE: To achieve long-term growth of capital and income.
THE INVESTMENT STRATEGY
The Portfolio strives to accomplish its investment objectives through constant
supervision, careful securities selection and broad diversification.
The Portfolio invests primarily in equity securities of United States companies
with market capitalization greater than $500 million at the time of purchase. In
selecting securities for investment, the Adviser focuses primarily on the
potential of capital appreciation and future dividends rather than current
income.
The Portfolio may invest up to 10% of its total assets in securities of issuers
domiciled outside the United States and not included in the S&P 500 (i.e.,
foreign securities).
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.
THE PRINCIPAL RISKS
As you consider an investment in this Portfolio, you should be aware of certain
risks. The principal risks are GENERAL INVESTMENT RISK, FOREIGN SECURITIES RISK
and GROWTH INVESTING RISK.
.
PORTFOLIO PERFORMANCE
The inception date for this Portfolio is May 1, 1999. Therefore, no prior
performance is available.
WHO MANAGES THE PORTFOLIO
CAPITAL GUARDIAN TRUST COMPANY ("Capital Guardian"), 11100 Santa Monica
Boulevard, 17th Floor, Los Angeles, CA 90025. Capital Guardian is a wholly-owned
subsidiary of Capital Group International, Inc., which itself is a wholly owned
subsidiary of The Capital Group Companies, Inc. Capital Guardian has been
providing investment management services since 1968 and manages approximately
$80 billion as of December 31, 1998.
Capital Guardian uses a group of investment research analysts in selecting
securities for the Portfolio. The group is assisted and supported by the
research and input of analysts at Capital Research and Management Company, an
affiliate of Capital Guardian. Capital Guardian allocates the Portfolio's assets
among various industries. Individual analysts then select what they view as the
securities best suited to achieve the Portfolio's investment objective and
investment strategies within their assigned industry responsibilities.
-14-
<PAGE>
INTERNATIONAL PORTFOLIOS
EQ/CAPITAL INTERNATIONAL EQUITIES PORTFOLIO
INVESTMENT OBJECTIVE: To achieve long-term growth of capital and future income
by investing primarily in non-U.S. equity and debt securities.
THE INVESTMENT STRATEGY
The Portfolio invests primarily (at least 80% of its total assets) in securities
of non-U.S. issuers (including American Depositary Receipts and U.S. registered
securities) and securities whose principal markets are outside of the U.S. While
the assets of the Portfolio can be invested with geographic flexibility, the
Portfolio will emphasize investment in securities of companies located in
Europe, Canada, Australia, and the Far East, giving due consideration to
economic, social, and political developments, currency risks and the liquidity
of various national markets. In addition, the Portfolio may invest in securities
of issuers domiciled in other countries including developing countries. In
determining the domicile of an issuer, the Adviser takes into account where the
company is legally organized, the location of its principal corporate offices
and where it conducts its principal operations.
The Portfolio primarily invests in common stocks (or securities convertible into
common stocks) and bonds. However, when the Adviser believes that market and
economic conditions indicate that it is desirable to do so, the Portfolio may
also purchase warrants, rights, non-convertible preferred stock, high-quality
debt securities rated within the top three quality categories by Moody's
Investors Service, Inc. or Standard & Poor's Corporation (or unrated securities
of equivalent quality), repurchase agreements, and U.S. government securities.
Although the Portfolio does not intend to seek short-term profits, securities in
the Portfolio will be sold whenever the Adviser believes it is appropriate to do
so without regard to the length of time a particular security may have been
held.
To the extent the Portfolio invests in non-dollar denominated securities, the
Portfolio may hedge against possible variations in exchange rates between
currencies by purchasing and selling currency futures or put and call options
and may also enter into forward foreign currency exchange contracts to hedge
against changes in currency exchange rates.
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.
THE PRINCIPAL RISKS
As you consider an investment in the Portfolio, you should consider certain
risks. The principal risks are GENERAL INVESTMENT RISK, CONVERTIBLE SECURITIES
RISK, DERIVATIVES RISK, FOREIGN SECURITIES RISK and GROWTH INVESTING RISK.
PORTFOLIO PERFORMANCE
The inception date for this Portfolio is May 1, 1999. Therefore, no prior
performance is available.
-15-
<PAGE>
WHO MANAGES THE PORTFOLIO
CAPITAL GUARDIAN TRUST COMPANY ("Capital Guardian"), 11100 Santa Monica
Boulevard, 17th Floor, Los Angeles, CA 90025. Capital Guardian is a wholly-owned
subsidiary of Capital Group International, Inc., which itself is a wholly owned
subsidiary of The Capital Group Companies, Inc. Capital Guardian has been
providing investment management services since 1968 and manages approximately
$80 billion as of December 31, 1998.
Capital Guardian uses a group of investment research analysts in selecting
securities for the Portfolio. The group is assisted and supported by the
research and input of analysts at Capital Research and Management Company, an
affiliate of Capital Guardian. Capital Guardian allocates the Portfolio's assets
among various industries. Individual analysts then select what they view as the
securities best suited to achieve the Portfolio's investment objective and
investment strategies within their assigned industry responsibilities.
-16-
<PAGE>
MANAGEMENT OF THE TRUST
This section gives you information on the Trust, the Manager and the Advisers
for the four Portfolios. More detailed information concerning each of the
Advisers and portfolio managers is included in the description for each
Portfolio in the section "About The Investment Portfolios."
THE TRUST
The Trust is organized as a Delaware business trust and is registered with the
Securities and Exchange Commission ("SEC") as an open-end management investment
company. The Trust issues shares of beneficial interest that are currently
divided among 25 Portfolios, each of which has authorized Class IA and Class IB
shares. Each of the four Portfolios offered by this Prospectus has its own
objectives, investment strategies and risks, which have been previously
described in this Prospectus.
THE MANAGER
EQ Financial Consultants, Inc., 1290 Avenue of the Americas, New York, New York
10104, serves as the Manager of the Trust, subject to the supervision and
direction of the Board of Trustees. The Manager has overall responsibility for
the general management and administration of the Trust.
In the exercise of that responsibility, the Manager, without obtaining
shareholder approval, but subject to the review and approval by the Board of
Trustees, may: (i) select the Advisers for the Portfolios; (ii) enter into and
materially modify existing investment advisory agreements; and (iii) terminate
and replace the Advisers. The Manager also monitors each Adviser's investment
program and results, reviews brokerage matters, oversees compliance by the Trust
with various federal and state statutes, and carries out the directives of the
Board of Trustees. The Manager also supervises the provision of services by
third parties such as the Trust's custodian and administrator.
The Manager is an investment adviser registered under the 1940 Act and a
broker-dealer registered under the Securities Exchange Act of 1934, as amended.
EQ Financial Consultants, Inc. is a wholly-owned subsidiary of Equitable.
The table below shows the annual rate of the management fees (as a percentage of
each Portfolio's average daily net assets) that the Manager is entitled to
receive in 1999 for managing each of the Portfolios. Please note that the four
Portfolios described herein did not commence operations during 1998.
ANNUAL RATE OF MANAGEMENT FEES
---------------------------------------------- ------------------------
PORTFOLIOS ANNUAL RATE
---------------------------------------------- ------------------------
EQ/Alliance Premier Growth Portfolio _____%
---------------------------------------------- ------------------------
EQ/Capital Research Portfolio _____%
---------------------------------------------- ------------------------
EQ/Capital U.S. Equities Portfolio _____%
---------------------------------------------- ------------------------
EQ/Capital International Equities Portfolio _____%
---------------------------------------------- ------------------------
-17-
<PAGE>
EXPENSE LIMITATION AGREEMENT
In the interest of limiting expenses of each of the four Portfolios, the Manager
has entered into an expense limitation agreement with the Trust with respect to
each Portfolio ("Expense Limitation Agreement"). Pursuant to that Expense
Limitation Agreement, the Manager has agreed to waive or limit its fees and to
assume other expenses so that the total annual operating expenses of each
Portfolio other than interest, taxes, brokerage commissions, other expenditures
which are capitalized in accordance with generally accepted accounting
principles, other extraordinary expenses not incurred in the ordinary course of
each Portfolio's business and amounts payable pursuant to a plan adopted in
accordance with Rule 12b-1 under the 1940 Act, are limited to the following
fees: ____% of the average daily net assets of the EQ/Alliance Premier Growth
Portfolio; _____% of the average daily net assets of the EQ/Capital Research
Portfolio; _____% of the average daily net assets of the EQ/Capital U.S.
Equities Portfolio; and _____% of the average daily net assets of the EQ/Capital
International Equities Portfolio.
Each Portfolio may at a later date reimburse to the Manager the management fees
waived or limited and other expenses assumed and paid by the Manager pursuant to
the Expense Limitation Agreement provided such Portfolio has reached a
sufficient asset size to permit such reimbursement to be made without causing
the total annual expense ratio of each Portfolio to exceed the percentage limits
stated above. Consequently, no reimbursement by a Portfolio will be made unless:
(i) the Portfolio's assets exceed $100 million; (ii) the Portfolio's total
annual expense ratio is less than the respective percentages stated above; and
(iii) the payment of such reimbursement has been approved by the Trust's Board
of Trustees on a quarterly basis.
THE ADVISERS
Each Portfolio has an Adviser that furnishes an investment program for the
Portfolio. Pursuant to an investment advisory agreement with the Manager, each
Adviser to a Portfolio furnishes continuously an investment program for the
Portfolio, makes investment decisions on behalf of the Portfolio, places all
orders for the purchase and sale of investments for the Portfolio's account with
brokers or dealers selected by such Adviser and may perform certain limited
related administrative functions in connection therewith. The Adviser also makes
decisions on behalf of the Portfolio and performs all administrative tasks
involved in maintaining the Portfolio.
The Manager has received an exemptive order from the SEC that permits the
Manager, subject to certain conditions including board approval, and without the
approval of shareholders to: (a) employ a new Adviser or Advisers for any
Portfolio pursuant to the terms of a new Advisory Agreement, in each case either
as a replacement for an existing Adviser or as an additional Adviser; (b) change
the terms of any Advisory Agreement; and (c) continue the employment of an
existing Adviser on the same advisory contract terms where a contract has been
assigned because of a change in control of the Adviser. In such circumstances,
shareholders would receive notice of such action, including the information
concerning the Adviser that normally is provided in the Prospectus.
The Manager pays each Adviser a fee based on the Portfolio's average daily net
assets. No Portfolio is responsible for the fees paid to each of the Advisers.
-18-
<PAGE>
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
first $0.5 billion of the total Trust assets; .035 of 1% of the next $2.0
billion of the total Trust assets; .025 of 1% of the next $1.0 billion of the
total Trust assets; .015 of 1% of the next $2.5 billion of the total Trust
assets; .01 of 1% of the total Trust assets in excess of $8.0 billion; provided,
however, that the annual fee payable to Chase with respect to any Portfolio
which commences operations after July 1, 1997 and whose assets do not exceed
$200 million shall be computed at the annual rate of .0525% of 1% of the
Portfolio's total assets plus $25,000.
THE TRANSFER AGENT
Equitable 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 Portfolios 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.
-19-
<PAGE>
FUND DISTRIBUTION ARRANGEMENTS
The Trust offers two classes of shares on behalf of each Portfolio: Class IA
shares and Class IB shares. EQ Financial Consultants, Inc., the Trust's Manager,
serves as one of the distributors for the Class 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, which are accrued daily), by the total
number of outstanding shares of that Portfolio. The net asset value per share of
each Portfolio is determined each business day at 4:00 p.m. Eastern time. Net
asset value per share is not calculated on national business holidays.
All shares are purchased and redeemed in accordance with the Trust's Amended and
Restated Declaration of Trust and By-Laws. Sales and redemptions of shares of
the same class by the same shareholder on the same day will be netted for each
Portfolio. All redemption requests will be processed and payment with respect
thereto will normally be made within seven days after tenders.
The Trust may suspend redemption, if permitted by the 1940 Act, for any period
during which the New York Stock Exchange is closed or during which trading is
restricted by the SEC or the SEC declares that an emergency exists. Redemption
may also be suspended during other periods permitted by the SEC for the
protection of the Trust's shareholders. If the Board of Trustees determines that
it would be detrimental to the best interest of the Trust's remaining
shareholders to make payment in cash, the Trust may pay redemption proceeds in
whole or in part by a distribution-in-kind of readily marketable securities.
-20-
<PAGE>
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 in the United States are valued at
representative quoted prices in the currency in the country of origin.
Foreign currency amounts are translated into United States dollars at the
bid price last quoted by a composite list of major United States banks.
o Short-term debt securities in the Portfolios which mature in 60 days or
less are valued at amortized cost, which approximates market value.
o Other securities and assets for which market quotations are not readily
available or for which valuation cannot be provided are valued in good
faith by the Valuation Committee of the Board of Trustees of the Trust
using its best judgment.
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 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.
-21-
<PAGE>
PRIOR PERFORMANCE OF EACH ADVISER
The following table provides information concerning the historical performance
of another registered investment company or other institutional private accounts
managed by each Adviser, that has investment objectives, policies, strategies
and risks substantially similar to those of the respective Portfolio(s) of the
Trust for which it serves as Adviser. The data is provided to illustrate the
past performance of each Adviser in managing a substantially similar investment
vehicle as measured against specified market indices and does not represent the
past performance of any of the Portfolios or the future performance of any
Portfolio or its Adviser. Consequently, potential investors should not consider
this performance data as an indication of the future performance of any
Portfolio of the Trust or of its Adviser. The performance data, as shown below,
for each Adviser's substantially similar investment company or institutional
accounts is not the performance data of any Portfolio of the Trust, and should
not be confused with performance data for each of the Trust's Portfolios.
Each Adviser's performance data shown below for other registered investment
companies was calculated in accordance with standards prescribed by the SEC for
the calculation of average annual total return information for registered
investment companies. Share prices and investment returns will fluctuate
reflecting market conditions as well as changes in company-specific fundamentals
of portfolio securities. Composite performance data relating to the historical
performance of institutional private accounts, including common and collective
trust fund accounts, managed by the relevant Adviser was calculated on a total
return basis and include all losses. All returns reflect the deduction of
investment advisory fees, brokerage commissions and execution costs paid by the
relevant Adviser's institutional private accounts, without provision for federal
or state income taxes. Custodial fees, if any, were not included in the
calculation. The Composite includes all actual, fee-paying, discretionary
institutional private accounts managed by the relevant Adviser that have
investment objectives, strategies and risks substantially similar to those of
the relevant Portfolio. Securities transactions are accounted for on the trade
date and accrual accounting is utilized. Cash and equivalents are included in
performance returns. The investment results presented below are unaudited.
For more information on the specified market indices used below, see the section
captioned "The Benchmarks."
-22-
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------- ------------- ------------- -------------- ------------ ------------
OTHER FUND OR ACCOUNT MANAGED BY ADVISER 1 5 10 SINCE INCEPTION
(EQAT Portfolio) YEAR YEARS YEARS INCEPTION DATE
...................................................
<S> <C> <C> <C> <C> <C>
Benchmark (THROUGH (THROUGH (THROUGH (THROUGH
12/31/98) 12/31/98) 12/31/98) 12/31/98)
- --------------------------------------------------- ------------- ------------- -------------- ------------ ------------
ALLIANCE PREMIER GROWTH FUND, INC.-ADVISOR 49.85% ------- ------- 42.97% 10/1/96
CLASS 1,2
(EQ/Alliance Premier Growth Portfolio)
- --------------------------------------------------- ------------- ------------- -------------- ------------ ------------
S&P 500 Index 28.60% ------- -------- 21.60%
- --------------------------------------------------- ------------- ------------- -------------- ------------ ------------
CAPITAL GUARDIAN U.S. EQUITY RESEARCH COMPOSITE 3 __.__% __.__% __.__% __.__%
(EQ/Capital Research Portfolio)
- --------------------------------------------------- ------------- ------------- -------------- ------------ ------------
S&P 500 Index __.__% __.__% __.__% __.__%
- --------------------------------------------------- ------------- ------------- -------------- ------------ ------------
CAPITAL GUARDIAN U.S. EQUITY COMPOSITE 3 __.__% __.__% __.__% __.__%
(EQ/Capital U.S. Equities Portfolio)
- --------------------------------------------------- ------------- ------------- -------------- ------------ ------------
S&P 500 Index __.__% __.__% __.__% __.__%
- --------------------------------------------------- ------------- ------------- -------------- ------------ ------------
CAPITAL GUARDIAN INTERNATIONAL EQUITIES __.__% __.__% __.__% __.__%
COMPOSITE 3
(EQ/Capital International Equities Portfolio)
- --------------------------------------------------- ------------- ------------- -------------- ------------ ------------
MSCI EAFE Index __.__% __.__% __.__% __.__%
- --------------------------------------------------- ------------- ------------- -------------- ------------ ------------
</TABLE>
1 Average annual total return reflects changes in share prices and
reinvestment of dividends and distributions and is net of fund expense.
The registered investment company for which performance results are
presented will be subject to different expenses than the Portfolio. In
addition, holders of Contracts representing interests in the Portfolio
will be subject to charges and expenses relating to such insurance
contracts. The performance results presented above do not reflect any
insurance related expenses.
2 Annualized performance for the Advisor Class shares. The Advisor Class
shares had a total expense ratio of 1.26% of its average daily net
assets for the year ended December 31, 1998. Other share classes have
different expenses and their performance will vary.
3 The institutional private accounts that are included in the Adviser's
composite are not subject to the same types of expenses to which the
Portfolio is subject or to the diversification requirements, specific
tax restrictions and investment limitations imposed on the Portfolio by
the 1940 Act or Subchapter M of the Internal Revenue Code.
Consequently, the performance results for the composite could have been
adversely affected if the institutional private accounts included in
the composite had been regulated as investment companies under the
federal securities laws. Moreover, holders of Contracts representing
interests in the Portfolio will be subject to charges and expenses
relating to such insurance Contracts. The performance results presented
above do not reflect any insurance related charges. Investors should
also be aware that the use of a methodology different form that used
above to calculate performance could result in different performance
data.
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<PAGE>
[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 May 1, 1999, is incorporated into this Prospectus by reference
and is available upon request free of charge.
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
<PAGE>
EQ ADVISORS TRUST
PROSPECTUS
May 1, 1999
This Prospectus describes the four (4) new Portfolios offered by EQ Advisors
Trust. EQ Advisors Trust currently has twenty-five (25) Portfolios. Each
Portfolio has its own investment objective and strategies that are designed to
meet different investment goals. This Prospectus contains information you should
know before investing. Please read this Prospectus carefully before investing
and keep it for future reference.
DOMESTIC EQUITY PORTFOLIOS
EQ/Alliance Premier Growth Portfolio
EQ/Capital Research Portfolio
EQ/Capital U.S. Equities Portfolio
INTERNATIONAL PORTFOLIOS
EQ/Capital International Equities Portfolio
You should be aware that the Securities and Exchange Commission has not approved
or disapproved of the investment merit of these Portfolios or determined if this
Prospectus is accurate or complete. Any representation to the contrary is a
criminal offense.
-1-
<PAGE>
EQ ADVISORS TRUST
This Prospectus tells you about the four new Portfolios of the EQ Advisors Trust
("Trust") and the Class IB shares offered by the Trust on behalf of each
Portfolio. The Trust is an open-end management investment company currently
consisting of 25 separate Portfolios. Each Portfolio is a separate series of the
Trust with its own investment objective, investment strategies and risks, which
are described in this Prospectus. Each of the current 25 Portfolios of the
Trust, except for the Morgan Stanley Emerging Markets Equity Portfolio, the
Merrill Lynch World Strategy Portfolio and the Lazard Small Cap Value Portfolio,
are diversified for purposes of the Investment Company Act of 1940, as amended
("1940 Act").
The Trust's shares are currently sold only to insurance company separate
accounts in connection with variable life insurance contracts and variable
annuity certificates and contracts (the "Contract" or collectively, the
"Contracts") issued by The Equitable Life Assurance Society of the United States
("Equitable") and Equitable of Colorado, Inc. ("EOC") and to participants in The
Equitable Investment Plan for Employees, Managers and Agents ("Equitable Plan").
The prospectus is designed to help you make informed decisions about four of the
Portfolios that are available under your Contract or under the Equitable Plan.
You will find information about your Contracts and how it works in the
accompanying prospectus for the Contracts if you are a Contract holder or
participant under a Contract.
Each Portfolio is managed by EQ Financial Consultants, Inc. ("Manager") which
directs the day to day operations of each Portfolio. Each of the Portfolios has
its own investment adviser ("Adviser"). Information about the Adviser for each
of the four Portfolios is contained in the description concerning that Portfolio
in the section entitled "About the Investment Portfolios." The Manager has the
ultimate responsibility to oversee each of the Advisers and to recommend their
hiring, termination and replacement. Subject to approval by the Board of
Trustees, the Manager may without obtaining shareholder approval: (i) select
Advisers for each of the Trust's Portfolios; (ii) enter into and materially
modify existing investment advisory agreement; and (iii) terminate and replace
the Advisers.
-2-
<PAGE>
TABLE OF CONTENTS
PAGE
SUMMARY INFORMATION CONCERNING EQ ADVISORS TRUST.........................4
SUMMARY OF PRINCIPAL RISKS...............................................5
ABOUT THE INVESTMENT PORTFOLIOS.........................................10
DOMESTIC EQUITY PORTFOLIOS...........................................11
EQ/ALLIANCE PREMIER GROWTH PORTFOLIO..............................11
EQ/CAPITAL RESEARCH PORTFOLIO.....................................13
EQ/CAPITAL U.S. EQUITIES PORTFOLIO................................14
INTERNATIONAL PORTFOLIOS.............................................15
EQ/CAPITAL INTERNATIONAL EQUITIES PORTFOLIO.......................15
MANAGEMENT OF THE TRUST.................................................17
The Trust............................................................17
The Manager..........................................................17
Expense Limitation Agreement.........................................18
The Advisers.........................................................18
The Administrator....................................................19
The Transfer Agent...................................................19
Brokerage Practices..................................................19
Brokerage Transactions with Affiliates...............................19
FUND DISTRIBUTION ARRANGEMENTS..........................................20
PURCHASE AND REDEMPTION.................................................20
HOW ASSETS ARE VALUED...................................................21
TAX INFORMATION.........................................................21
PRIOR PERFORMANCE OF EACH ADVISER.......................................22
-3-
<PAGE>
SUMMARY INFORMATION CONCERNING EQ ADVISORS TRUST
The following chart highlights the four Portfolios described in this Prospectus
that you can choose as investment alternatives under your contracts offered by
Equitable and EOC. The chart and accompanying information identify each
Portfolio's investment objective(s), principal investment strategies and
principal risks. A "Summary of Principal Risks", which describes each of the
principal risks, follows the chart.
<TABLE>
<CAPTION>
Part A
- ----------------------------------------------- -------------------------------------------
PORTFOLIO INVESTMENT OBJECTIVE(S)
- ----------------------------------------------- -------------------------------------------
<S> <C>
EQ/ALLIANCE PREMIER GROWTH PORTFOLIO Seeks long-term growth of capital by
primarily investing in equity securities
of a limited number of large, carefully
selected, high quality United States
companies that are judged, by the
Adviser, likely to achieve superior
earnings growth
- ----------------------------------------------- -------------------------------------------
EQ/CAPITAL RESEARCH PORTFOLIO Seeks long-term growth of capital and
income
- ----------------------------------------------- -------------------------------------------
EQ/CAPITAL U.S. EQUITIES PORTFOLIO Seeks long-term growth of capital and
income
- ----------------------------------------------- -------------------------------------------
EQ/CAPITAL INTERNATIONAL EQUITIES Seeks long-term growth of capital and future
PORTFOLIO income by investing primarily in non-United
States equity and debt securities
- ----------------------------------------------- -------------------------------------------
Part B
- ----------------------------------------------- -------------------------------------------
PRINCIPAL INVESTMENT STRATEGIES PRINCIPAL RISKS
- ----------------------------------------------- -------------------------------------------
Equity securities of a limited number of General investment, convertible securities,
large, high-quality companies that are derivatives, focused portfolio, foreign
likely to offer superior earnings growth securities, and growth investing risks
- ----------------------------------------------- -------------------------------------------
Equity securities of United States issuers General investment, fixed income, foreign
and securities whose principal markets are securities, and growth investing risks
in the United States
- ----------------------------------------------- -------------------------------------------
Equity securities of United States companies General investment, foreign securities, and
with market capitalization greater than $500 growth investing risks
million at the time of purchase
- ----------------------------------------------- -------------------------------------------
Non-United States equity and debt securities, General investment, convertible securities,
primarily of companies located in Europe, derivatives, foreign securities, and growth
Canada, Australia, and the Far East investing risks
- ----------------------------------------------- -------------------------------------------
</TABLE>
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SUMMARY OF 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 each Portfolio's shares may be affected by
the Portfolio's investment objective(s), principal investment strategies and
particular risk factors. Consequently, each Portfolio may be subject to
different principal risks. Some of the principal risks of investing in the
Portfolios are discussed below. However, other factors may also affect each
Portfolio's net asset value.
There is no guarantee that a Portfolio will achieve its investment objective(s)
or that it will not lose principal value.
GENERAL INVESTMENT RISKS: Each Portfolio is subject to the following risks:
ASSET CLASS RISK: There is the possibility that the returns from the
types of securities in which a Portfolio invests will underperform
returns from the various general securities markets or different asset
classes. Different types of securities tend to go through cycles of
outperformance and underperformance in comparison to the general
securities markets.
MARKET RISK: Each Portfolio's share price moves up and down over the
short term in reaction to stock or bond market movements. This means
that an investor in any of the Portfolios could lose money over short
periods, and perhaps over longer periods during extended market
downturns.
SECURITY SELECTION RISK: The Advisers for each Portfolio rely on the
insights of different specialists in making investment decisions based
on each Portfolio's particular investment objective(s) and investment
strategies. There is the possibility that the specific securities held
by a Portfolio will underperform other funds in the same asset class or
benchmarks that are representative of the general performance of the
asset class because of the Adviser's choice of portfolio securities.
YEAR 2000 RISK: Like other mutual funds, financial and business
organizations and individuals around the world, the Trust and its
Portfolios could be adversely affected if the computer systems used by
the Advisers, other service providers, or persons with whom they deal,
do not properly process and calculate date-related information and data
dated on and after January 1, 2000. This possibility is commonly known
as the "Year 2000 Problem." Virtually all operations of the Trust and
its Portfolios are computer reliant. The Manager, Advisers,
administrator, transfer agent, distributors and custodian have informed
the Trust that they are actively taking steps to address the Year 2000
Problem with regard to their respective computer systems and the
interfaces between their respective computer systems. The Trust is also
taking measures to obtain assurances from necessary persons that
comparable steps are being taken by the key service providers to the
Trust's Advisers, administrator, transfer agent, distributors, and
custodian. There can be no assurance that the Trust and the Portfolios
key service providers will be Year 2000 compliant. If not adequately
addressed, the Year 2000 Problem could result in the inability of the
Trust to perform its mission critical functions, including trading and
settling trades of portfolio securities pricing of portfolio securities
and processing shareholder transactions and the net asset value of its
Portfolio's shares may be materially affected.
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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 those
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's of countries outside the
United States. Additional information on the impact of the Year 2000
Problem on emerging market countries is provided in this section under
"FOREIGN SECURITIES RISKS--EMERGING MARKET RISK."
As indicated in "Summary Information Concerning EQ Advisers Trust" and "About
the Investment Portfolios," a particular Portfolio may also be subject to the
following risks:
CONVERTIBLE SECURITIES RISK: Convertible securities may include both convertible
debt and convertible preferred stock. Such securities may be converted into
shares of the underlying common stock at either a stated price or stated rate.
Therefore, convertible securities enable you to benefit from increases in the
market price of the underlying common stock. Convertible securities provide
higher yields than the underlying common stocks, but generally offer lower
yields than nonconvertible securities of similar quality. Like bonds, the value
of convertible securities fluctuates in relation to changes in interest rates
and, in addition, fluctuates in relation to the underlying common stock.
Subsequent to purchase by a Portfolio, convertible securities may cease to be
rated or a rating may be reduced below the minimum required for purchase by that
Portfolio. Each Adviser will consider such event in its determination of whether
a Portfolio should continue to hold the securities.
DERIVATIVES RISK: Derivatives are financial contracts whose value depends on, or
is derived from the value of an underlying asset, reference rate or index.
Derivatives include stock options, securities index options, currency options,
forward currency exchange contracts, futures contracts, swaps, and options on
futures contracts. Certain Portfolios can use derivatives involving the U.S.
Government and foreign government securities and currencies. Investments in
derivatives can significantly increase an investor's exposure to market risk, or
credit risk of the counterparty. Derivatives also involve the risk of mispricing
or improper valuation and the risk that changes in value of the derivative may
not correlate perfectly with the relevant assets, rates and indices.
FIXED INCOME RISKS: To the extent that any of the Portfolios invest a
substantial amount of its assets in fixed income securities, a Portfolio may be
subject to the following risks:
CREDIT RISK: Credit risk is the risk that the issuer or guarantor of a
debt security or counterparty to a Portfolio's transactions will be
unable or unwilling to make timely principal and/or interest payments,
or otherwise will be unable or unwilling to honor its financial
obligations. Each of the Portfolios may be subject to credit risk to
the extent that it invests in debt securities or engages in
transactions, such as securities loans, which involve a promise by a
third party to honor an obligation to the Portfolio. Credit risk is
particularly significant for the Portfolios that invest a portion of
their assets in "JUNK BONDS" or lower-rated securities.
INTEREST RATE RISK: The price of a bond or a fixed income security is
dependent upon interest rates. Therefore, the share price and total
return of a Portfolio investing a significant portion of its assets in
bonds or fixed income securities will vary in response to changes in
interest rates. A rise in interest rates causes the value of a bond to
decrease, and vice versa. There is the
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possibility that the value of a Portfolio's investment in bonds or
fixed income securities may fall because bonds or fixed income
securities generally fall in value when interest rates rise. The longer
the term of a bond or fixed income instrument, the more sensitive it
will be to fluctuations in value from interest rate changes. Changes in
interest rates may have a significant effect on Portfolios holding a
significant portion of their assets in fixed income securities with
long term maturities.
In the case of mortgage-backed securities, rising interest rates tend
to extend the term to maturity of the securities, making them even more
susceptible to interest rate changes. When interest rates drop, not
only can the value of fixed income securities drop, but the yield can
drop, particularly where the yield on the fixed income securities is
tied to changes in interest rates, such as adjustable mortgages. Also
when interest rates drop, the holdings of mortgage-backed securities by
a Portfolio can reduce returns if the owners of the underlying
mortgages pay off their mortgages sooner than anticipated since the
funds prepaid will have to be reinvested at the then lower prevailing
rates. This is known as prepayment risk. When interest rates rise, the
holdings of mortgage-backed securities by a Portfolio can reduce
returns if the owners of the underlying mortgages pay off their
mortgages later than anticipated. This is known as extension risk.
INVESTMENT-GRADE SECURITIES RISK: Debt securities are rated by national
bond ratings agencies. Securities rated BBB by Standard & Poor ("S&P")
or Baa by Moody's Investors Services, Inc. ("Moody's") are considered
investment grade securities, but are somewhat riskier than higher rated
investment-grade obligations because they are regarded as having only
an adequate capacity to pay principal and interest, and are considered
to lack outstanding investment characteristics and may be speculative.
JUNK BONDS OR LOWER RATED SECURITIES RISK: Bonds rated below investment
grade by S&P and Moody's are speculative in nature, may be subject to
certain risks with respect to the issuing entity and to greater market
fluctuations than higher rated fixed-income securities. They are
usually issued by companies without long track records of sales and
earnings, or by those companies with questionable credit strength.
These bonds are considered "below investment grade." The retail
secondary market for these "junk bonds" may be less liquid than that of
higher rated securities and adverse conditions could make it difficult
at times to sell certain securities or could result in lower prices
than those used in calculating the Portfolio's net asset value.
FOCUSED PORTFOLIO RISK: The EQ/Alliance Premier Growth Portfolio is subject to
focused portfolio risk. Focused portfolios invest in a limited number of
companies, therefore, the Portfolio may incur more risk because changes in the
value of a single security may have a more significant effect, either positive
or negative, on the Portfolio's net asset value.
FOREIGN SECURITIES RISKS: Investing in foreign securities, including depositary
receipts, involves risks not associated with investing in U.S. securities and
can affect a Portfolio's performance. Foreign markets, particularly emerging
markets, may be less liquid, more volatile and subject to less government
supervision than domestic markets. There may be difficulties enforcing
contractual obligations, and it may take more time for trades to clear and
settle. The specific risks of investing in foreign securities, among others,
include:
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<PAGE>
CURRENCY RISK: The risk that changes in currency exchange rates will
negatively affect securities denominated in, and/or receiving revenues
in, foreign currencies. Adverse changes in currency exchange rates
(relative to the U.S. dollar) may erode or reverse any potential gains
from a Portfolio's investment in securities denominated in a foreign
currency or may widen existing losses.
EMERGING MARKET RISK: There are greater risks involved in investing in
emerging markets countries and/or their securities markets. Generally,
economic structures in these countries are less diverse and mature than
those in developed countries, and their political systems are less
stable. Investments in emerging markets countries may be affected by
national policies that restrict foreign investment in certain issuers
or industries. The small size of their securities markets and low
trading volumes can make investments illiquid and more volatile than
investments in developed countries and such securities may be subject
to abrupt and severe price declines. As a result, a Portfolio investing
in emerging markets countries may be required to establish special
custody or other arrangements before investing.
The YEAR 2000 PROBLEM may also be especially acute in emerging market
countries. Many emerging market countries are currently lagging behind
more developed countries in their Year 2000 preparedness because they
lack the financial resources to undertake the necessary remedial
actions. A lack of Year 2000 preparedness may adversely impact the
health, security and economic well-being of emerging market countries
and could, obviously, adversely affect the value of a Portfolio's
investments in emerging market countries. More information on the Year
2000 Problem is provided in this section, under "GENERAL INVESTMENT
RISKS--YEAR 2000 RISK."
EURO RISK: Certain of the Portfolios invests in securities issued by
European issuers. On January 1, 1999, 11 of the 15 member states of the
European Monetary Union ("EMU") introduced the "Euro as a common
currency. During a three-year transitional period, the Euro will
coexist with each participating state's currency and, on July 1, 2002,
the Euro is expected to become the sole currency of the participating
states. The introduction of the Euro will result in the redenomination
of European debt and equity securities over a period of time, which may
result in various legal and accounting differences an/or tax treatments
that otherwise would not likely occur. During this period, the creation
and implementation of suitable clearing and settlement systems and
other operational problems may cause market disruptions that could
adversely affect investment quoted in the Euro.
The consequences of the Euro conversion for foreign exchange rates,
interest rates and the value of European securities eligible for
purchase by the Portfolios are presently unclear and it is not possible
to predict the eventual impact of the Euro implementation plan on the
Portfolios. There are a number of significant risks associated with
EMU. Monetary and economic union on this scale has never been attempted
before. There is a significant degree of uncertainty as to whether
participating countries will remain committed to EMU in the face of
changing economic conditions. The conversion may adversely affect a
Portfolio if the Euro does not take effect as planned or it a
participating state withdraws from the EMU. Such actions may adversely
affect the value and/or increase the volatility of securities held by
the Portfolios.
POLITICAL/ECONOMIC RISK: Changes in economic and tax policies,
government instability, war or other political or economic actions or
factors may have an adverse effect on a Portfolio's foreign
investments.
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<PAGE>
REGULATORY RISK: Less information may be available about foreign
companies. In general, foreign companies are not subject to uniform
accounting, auditing and financial reporting standards or to other
regulatory practices and requirements as are U.S. companies.
TRANSACTION COSTS RISK: The costs of buying and selling foreign
securities, including tax, brokerage and custody costs, generally are
higher than those involving domestic transactions.
GROWTH INVESTING RISK: Growth investing generally focuses on companies that, due
to their strong earnings and revenue potential, offer above-average prospects
for capital growth, with less emphasis on dividend income. Earnings
predictability and confidence in earnings forecasts are an important part of the
selection process. As a result, the price of growth stocks may be more sensitive
to changes in current or expected earnings than the price 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 Adviser, regardless of movement in the
securities market.
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>
ABOUT THE INVESTMENT PORTFOLIOS
This section of the Prospectus provides a more complete description of the
principal investment objectives, strategies and risks of each of the four
Portfolios offered by this Prospectus. Of course, there can be no assurance that
any Portfolio will achieve its investment objective.
Please note that:
o The description of the principal risks for a Portfolio includes risks
more fully described in the "Summary of Principal Risks" in the
preceding section.
o Additional information concerning each Portfolio's strategies,
investments and risks can be found in the Trust's Statement of
Additional Information.
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 each 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
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.
THE MORGAN STANLEY CAPITAL INTERNATIONAL EAFE INDEX ("MSCI EAFE") is a market
capitalization weighted equity index composed of a sample of companies
representative of the market structure of Europe, Australia and the Far East.
The MSCI EAFE returns assume dividends reinvested net of withholding tax and do
not reflect any fees or expenses.
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DOMESTIC EQUITY PORTFOLIOS
EQ/ALLIANCE PREMIER GROWTH PORTFOLIO
INVESTMENT OBJECTIVE: To achieve long-term growth of capital by primarily
investing in equity securities of a limited number of large, carefully selected,
high-quality United States companies that are judged, by the Adviser, likely to
achieve superior earnings growth.
THE INVESTMENT STRATEGY
The Portfolio invests primarily (at least 85% of its total assets) in equity
securities of United States companies. The Portfolio is diversified for purposes
of the 1940 Act, however it is still highly concentrated. The Portfolio focuses
on a relatively small number of intensively researched companies. The Adviser
selects the Portfolio's investments from a research universe of more than 600
companies that have strong management, superior industry positions, excellent
balance sheets and superior earnings growth prospects. An emphasis is placed on
identifying securities of companies whose substantially above-average
prospective earnings growth is not fully reflected in current market valuations.
Normally, the Portfolio invests in about 40-50 companies, with the 25 most
highly regarded of these companies usually constituting approximately 70% of the
Portfolio's net assets. In managing the Portfolio, the Adviser seeks to
capitalize on apparently unwarranted price fluctuations both to purchase or
increase positions on weakness and to sell or reduce overpriced holdings. The
Portfolio normally remains nearly fully invested and does not take significant
cash positions for market timing purposes. During market declines, while adding
to positions in favored stocks, the Portfolio becomes somewhat more aggressive,
gradually reducing the number of companies represented in its holdings.
Conversely, in rising markets, while reducing or eliminating fully valued
positions, the Portfolio becomes somewhat more conservative, gradually
increasing the number of companies represented in its holdings. Through this
approach, the Adviser seeks to gain positive returns in good markets while
providing some measure of protection in poor markets.
The Adviser expects the average market capitalization of companies represented
in the Portfolio normally to be in the range, or in excess, of the average
market capitalization of companies included in the S&P 500 Index.
The Portfolio may invest up to 20% of its net assets in convertible securities
and 15% of its total assets in securities of foreign issuers.
The 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.
THE PRINCIPAL RISKS
As you consider an investment in this Portfolio, you should be aware of certain
risks. The principal risks are GENERAL INVESTMENT RISK, CONVERTIBLE SECURITIES
RISK, DERIVATIVES RISK, FOCUSED PORTFOLIO RISK, FOREIGN SECURITIES RISK and
GROWTH INVESTING RISK.
PORTFOLIO PERFORMANCE
The inception date for this Portfolio is May 1, 1999. Therefore, no prior
performance is available.
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WHO MANAGES THE PORTFOLIO
ALLIANCE CAPITAL MANAGEMENT L.P. ("Alliance"), 1345 Avenue of the Americas, New
York, New York 10105. Alliance has been the Adviser to the Portfolio since it
commenced operations. Alliance's sole general partner is Alliance Capital
Management Corporation, which is an indirect wholly-owned subsidiary of
Equitable, one of the largest life insurance companies in the United States and
a wholly-owned subsidiary of The Equitable Companies Incorporated. Therefore,
the Manager and Alliance are affiliates of each other. Alliance, a Delaware
limited partnership, is a leading international investment manager.
Alfred Harrison is the Portfolio Manager and has been responsible for the day to
day management of the Portfolio since its inception. Mr. Harrison is Vice
Chairman of Alliance Capital Management Corporation.
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EQ/CAPITAL RESEARCH PORTFOLIO
INVESTMENT OBJECTIVE: To achieve long-term growth of capital and income.
THE INVESTMENT STRATEGY
The Portfolio invests primarily in equity securities of United States issuers
and securities whose principal markets are in the United States, including
American Depositary Receipts and other United States registered foreign
securities. The Portfolio invests primarily in common stocks (or securities
convertible or exchangeable into common stocks) of companies with market
capitalization greater than $1 billion at the time of purchase.
The Portfolio may invest up to 10% of its total assets in securities of issuers
domiciled outside the United States and not included in the S&P 500 (i.e.,
foreign securities).
The Portfolio may invest up to 10% of its total assets in debt securities rated
below investment grade (commonly referred to as "junk bonds") or unrated
securities of equivalent quality.
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.
THE PRINCIPAL RISKS
As you consider an investment in this Portfolio, you should be aware of certain
risks. The principal risks are GENERAL INVESTMENT RISK, FIXED INCOME RISK,
FOREIGN SECURITIES RISK and GROWTH INVESTING RISK.
PORTFOLIO PERFORMANCE
The inception date for this Portfolio is May 1, 1999. Therefore, no prior
performance is available.
WHO MANAGES THE PORTFOLIO
CAPITAL GUARDIAN TRUST COMPANY ("Capital Guardian"), 11100 Santa Monica
Boulevard, 17th Floor, Los Angeles, CA 90025. Capital Guardian is a wholly-owned
subsidiary of Capital Group International, Inc., which itself is a wholly owned
subsidiary of The Capital Group Companies, Inc. Capital Guardian has been
providing investment management services since 1968 and manages approximately
$80 billion as of December 31, 1998.
Capital Guardian uses a group of investment research analysts in selecting
securities for the Portfolio. The group is assisted and supported by the
research and input of analysts at Capital Research and Management Company, an
affiliate of Capital Guardian. Capital Guardian allocates the Portfolio's assets
among various industries. Individual analysts then select what they view as the
securities best suited to achieve the Portfolio's investment objective and
investment strategies within their assigned industry responsibilities.
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EQ/CAPITAL U.S. EQUITIES PORTFOLIO
INVESTMENT OBJECTIVE: To achieve long-term growth of capital and income.
THE INVESTMENT STRATEGY
The Portfolio strives to accomplish its investment objectives through constant
supervision, careful securities selection and broad diversification.
The Portfolio invests primarily in equity securities of United States companies
with market capitalization greater than $500 million at the time of purchase. In
selecting securities for investment, the Adviser focuses primarily on the
potential of capital appreciation and future dividends rather than current
income.
The Portfolio may invest up to 10% of its total assets in securities of issuers
domiciled outside the United States and not included in the S&P 500 (i.e.,
foreign securities).
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.
THE PRINCIPAL RISKS
As you consider an investment in this Portfolio, you should be aware of certain
risks. The principal risks are GENERAL INVESTMENT RISK, FOREIGN SECURITIES RISK
and GROWTH INVESTING RISK.
PORTFOLIO PERFORMANCE
The inception date for this Portfolio is May 1, 1999. Therefore, no prior
performance is available.
WHO MANAGES THE PORTFOLIO
CAPITAL GUARDIAN TRUST COMPANY ("Capital Guardian"), 11100 Santa Monica
Boulevard, 17th Floor, Los Angeles, CA 90025. Capital Guardian is a wholly-owned
subsidiary of Capital Group International, Inc., which itself is a wholly owned
subsidiary of The Capital Group Companies, Inc. Capital Guardian has been
providing investment management services since 1968 and manages approximately
$80 billion as of December 31, 1998.
Capital Guardian uses a group of investment research analysts in selecting
securities for the Portfolio. The group is assisted and supported by the
research and input of analysts at Capital Research and Management Company, an
affiliate of Capital Guardian. Capital Guardian allocates the Portfolio's assets
among various industries. Individual analysts then select what they view as the
securities best suited to achieve the Portfolio's investment objective and
investment strategies within their assigned industry responsibilities.
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INTERNATIONAL PORTFOLIOS
EQ/CAPITAL INTERNATIONAL EQUITIES PORTFOLIO
INVESTMENT OBJECTIVE: To achieve long-term growth of capital and future income
by investing primarily in non-U.S. equity and debt securities.
THE INVESTMENT STRATEGY
The Portfolio invests primarily (at least 80% of its total assets) in securities
of non-U.S. issuers (including American Depositary Receipts and U.S. registered
securities) and securities whose principal markets are outside of the U.S. While
the assets of the Portfolio can be invested with geographic flexibility, the
Portfolio will emphasize investment in securities of companies located in
Europe, Canada, Australia, and the Far East, giving due consideration to
economic, social, and political developments, currency risks and the liquidity
of various national markets. In addition, the Portfolio may invest in securities
of issuers domiciled in other countries including developing countries. In
determining the domicile of an issuer, the Adviser takes into account where the
company is legally organized, the location of its principal corporate offices
and where it conducts its principal operations.
The Portfolio primarily invests in common stocks (or securities convertible into
common stocks) and bonds. However, when the Adviser believes that market and
economic conditions indicate that it is desirable to do so, the Portfolio may
also purchase warrants, rights, non-convertible preferred stock, high-quality
debt securities rated within the top three quality categories by Moody's
Investors Service, Inc. or Standard & Poor's Corporation (or unrated securities
of equivalent quality), repurchase agreements, and U.S. government securities.
Although the Portfolio does not intend to seek short-term profits, securities in
the Portfolio will be sold whenever the Adviser believes it is appropriate to do
so without regard to the length of time a particular security may have been
held.
To the extent the Portfolio invests in non-dollar denominated securities, the
Portfolio may hedge against possible variations in exchange rates between
currencies by purchasing and selling currency futures or put and call options
and may also enter into forward foreign currency exchange contracts to hedge
against changes in currency exchange rates.
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.
THE PRINCIPAL RISKS
As you consider an investment in the Portfolio, you should consider certain
risks. The principal risks are GENERAL INVESTMENT RISK, CONVERTIBLE SECURITIES
RISK, DERIVATIVES RISK, FOREIGN SECURITIES RISK and GROWTH INVESTING RISK.
PORTFOLIO PERFORMANCE
The inception date for this Portfolio is May 1, 1999. Therefore, no prior
performance is available.
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WHO MANAGES THE PORTFOLIO
CAPITAL GUARDIAN TRUST COMPANY ("Capital Guardian"), 11100 Santa Monica
Boulevard, 17th Floor, Los Angeles, CA 90025. Capital Guardian is a wholly-owned
subsidiary of Capital Group International, Inc., which itself is a wholly owned
subsidiary of The Capital Group Companies, Inc. Capital Guardian has been
providing investment management services since 1968 and manages approximately
$80 billion as of December 31, 1998.
Capital Guardian uses a group of investment research analysts in selecting
securities for the Portfolio. The group is assisted and supported by the
research and input of analysts at Capital Research and Management Company, an
affiliate of Capital Guardian. Capital Guardian allocates the Portfolio's assets
among various industries. Individual analysts then select what they view as the
securities best suited to achieve the Portfolio's investment objective and
investment strategies within their assigned industry responsibilities.
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MANAGEMENT OF THE TRUST
This section gives you information on the Trust, the Manager and the Advisers
for the four Portfolios. More detailed information concerning each of the
Advisers and portfolio managers is included in the description for each
Portfolio in the section "About The Investment Portfolios."
THE TRUST
The Trust is organized as a Delaware business trust and is registered with the
Securities and Exchange Commission ("SEC") as an open-end management investment
company. The Trust issues shares of beneficial interest that are currently
divided among 25 Portfolios, each of which has authorized Class IA and Class IB
shares. Each of the four Portfolios offered by this Prospectus has its own
objectives, investment strategies and risks, which have been previously
described in this Prospectus.
THE MANAGER
EQ Financial Consultants, Inc., 1290 Avenue of the Americas, New York, New York
10104, serves as the Manager of the Trust, subject to the supervision and
direction of the Board of Trustees. The Manager has overall responsibility for
the general management and administration of the Trust.
In the exercise of that responsibility, the Manager, without obtaining
shareholder approval, but subject to the review and approval by the Board of
Trustees, may: (i) select the Advisers for the Portfolios; (ii) enter into and
materially modify existing investment advisory agreements; and (iii) terminate
and replace the Advisers. The Manager also monitors each Adviser's investment
program and results, reviews brokerage matters, oversees compliance by the Trust
with various federal and state statutes, and carries out the directives of the
Board of Trustees. The Manager also supervises the provision of services by
third parties such as the Trust's custodian and administrator.
The Manager is an investment adviser registered under the 1940 Act and a
broker-dealer registered under the Securities Exchange Act of 1934, as amended.
EQ Financial Consultants, Inc. is a wholly-owned subsidiary of Equitable.
The table below shows the annual rate of the management fees (as a percentage of
each Portfolio's average daily net assets) that the Manager is entitled to
receive in 1999 for managing each of the Portfolios. Please note that the four
Portfolios described herein did not commence operations during 1998.
ANNUAL RATE OF MANAGEMENT FEES
- ---------------------------------------------- ------------------------
PORTFOLIOS ANNUAL RATE
- ---------------------------------------------- ------------------------
EQ/Alliance Premier Growth Portfolio _____%
- ---------------------------------------------- ------------------------
EQ/Capital Research Portfolio _____%
- ---------------------------------------------- ------------------------
EQ/Capital U.S. Equities Portfolio _____%
- ---------------------------------------------- ------------------------
EQ/Capital International Equities Portfolio _____%
- ---------------------------------------------- ------------------------
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<PAGE>
EXPENSE LIMITATION AGREEMENT
In the interest of limiting expenses of each of the four Portfolios, the Manager
has entered into an expense limitation agreement with the Trust with respect to
each Portfolio ("Expense Limitation Agreement"). Pursuant to that Expense
Limitation Agreement, the Manager has agreed to waive or limit its fees and to
assume other expenses so that the total annual operating expenses of each
Portfolio other than interest, taxes, brokerage commissions, other expenditures
which are capitalized in accordance with generally accepted accounting
principles, other extraordinary expenses not incurred in the ordinary course of
each Portfolio's business and amounts payable pursuant to a plan adopted in
accordance with Rule 12b-1 under the 1940 Act, are limited to the following
fees: ____% of the average daily net assets of the EQ/Alliance Premier Growth
Portfolio; _____% of the average daily net assets of the EQ/Capital Research
Portfolio; _____% of the average daily net assets of the EQ/Capital U.S.
Equities Portfolio; and _____% of the average daily net assets of the EQ/Capital
International Equities Portfolio.
Each Portfolio may at a later date reimburse to the Manager the management fees
waived or limited and other expenses assumed and paid by the Manager pursuant to
the Expense Limitation Agreement provided such Portfolio has reached a
sufficient asset size to permit such reimbursement to be made without causing
the total annual expense ratio of each Portfolio to exceed the percentage limits
stated above. Consequently, no reimbursement by a Portfolio will be made unless:
(i) the Portfolio's assets exceed $100 million; (ii) the Portfolio's total
annual expense ratio is less than the respective percentages stated above; and
(iii) the payment of such reimbursement has been approved by the Trust's Board
of Trustees on a quarterly basis.
THE ADVISERS
Each Portfolio has an Adviser that furnishes an investment program for the
Portfolio. Pursuant to an investment advisory agreement with the Manager, each
Adviser to a Portfolio furnishes continuously an investment program for the
Portfolio, makes investment decisions on behalf of the Portfolio, places all
orders for the purchase and sale of investments for the Portfolio's account with
brokers or dealers selected by such Adviser and may perform certain limited
related administrative functions in connection therewith. The Adviser also makes
decisions on behalf of the Portfolio and performs all administrative tasks
involved in maintaining the Portfolio.
The Manager has received an exemptive order from the SEC that permits the
Manager, subject to certain conditions including board approval, and without the
approval of shareholders to: (a) employ a new Adviser or Advisers for any
Portfolio pursuant to the terms of a new Advisory Agreement, in each case either
as a replacement for an existing Adviser or as an additional Adviser; (b) change
the terms of any Advisory Agreement; and (c) continue the employment of an
existing Adviser on the same advisory contract terms where a contract has been
assigned because of a change in control of the Adviser. In such circumstances,
shareholders would receive notice of such action, including the information
concerning the Adviser that normally is provided in the Prospectus.
The Manager pays each Adviser a fee based on the Portfolio's average daily net
assets. No Portfolio is responsible for the fees paid to each of the Advisers.
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<PAGE>
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
first $0.5 billion of the total Trust assets; .035 of 1% of the next $2.0
billion of the total Trust assets; .025 of 1% of the next $1.0 billion of the
total Trust assets; .015 of 1% of the next $2.5 billion of the total Trust
assets; .01 of 1% of the total Trust assets in excess of $8.0 billion; provided,
however, that the annual fee payable to Chase with respect to any Portfolio
which commences operations after July 1, 1997 and whose assets do not exceed
$200 million shall be computed at the annual rate of .0525% of 1% of the
Portfolio's total assets plus $25,000.
THE TRANSFER AGENT
Equitable 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 Portfolios 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. EQ Financial Consultants, Inc., the Trust's Manager,
serves as one of the distributors for the Class IB shares of the Trust offered
by this Prospectus as well as one of the distributors for the Class IA shares.
Equitable Distributors, Inc. serves as the other distributor for the Class IB
shares of the Trust as well as the Class IA shares. Both classes of shares are
offered and redeemed at their net asset value without any sales load.
The Trust has adopted a separate Distribution Plan under Rule 12b-1 under the
1940 Act for the Trust's Class IB shares. Under the 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, which are accrued daily), by the total
number of outstanding shares of that Portfolio. The net asset value per share of
each Portfolio is determined each business day at 4:00 p.m. Eastern time. Net
asset value per share is not calculated on national business holidays.
All shares are purchased and redeemed in accordance with the Trust's Amended and
Restated Declaration of Trust and By-Laws. Sales and redemptions of shares of
the same class by the same shareholder on the same day will be netted for each
Portfolio. All redemption requests will be processed and payment with respect
thereto will normally be made within seven days after tenders.
The Trust may suspend redemption, if permitted by the 1940 Act, for any period
during which the New York Stock Exchange is closed or during which trading is
restricted by the SEC or the SEC declares that an emergency exists. Redemption
may also be suspended during other periods permitted by the SEC for the
protection of the Trust's shareholders. If the Board of Trustees determines that
it would be detrimental to the best interest of the Trust's remaining
shareholders to make payment in cash, the Trust may pay redemption proceeds in
whole or in part by a distribution-in-kind of readily marketable securities.
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<PAGE>
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 in the United States are valued at
representative quoted prices in the currency in the country of origin.
Foreign currency amounts are translated into United States dollars at the
bid price last quoted by a composite list of major United States banks.
o Short-term debt securities in the Portfolios which mature in 60 days or
less are valued at amortized cost, which approximates market value.
o Other securities and assets for which market quotations are not readily
available or for which valuation cannot be provided are valued in good
faith by the Valuation Committee of the Board of Trustees of the Trust
using its best judgment.
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 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.
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<PAGE>
PRIOR PERFORMANCE OF EACH ADVISER
The following table provides information concerning the historical performance
of another registered investment company or other institutional private accounts
managed by each Adviser, that has investment objectives, policies, strategies
and risks substantially similar to those of the respective Portfolio(s) of the
Trust for which it serves as Adviser. The data is provided to illustrate the
past performance of each Adviser in managing a substantially similar investment
vehicle as measured against specified market indices and does not represent the
past performance of any of the Portfolios or the future performance of any
Portfolio or its Adviser. Consequently, potential investors should not consider
this performance data as an indication of the future performance of any
Portfolio of the Trust or of its Adviser. The performance data, as shown below,
for each Adviser's substantially similar investment company or institutional
accounts is not the performance data of any Portfolio of the Trust, and should
not be confused with performance data for each of the Trust's Portfolios.
Each Adviser's performance data shown below for other registered investment
companies was calculated in accordance with standards prescribed by the SEC for
the calculation of average annual total return information for registered
investment companies. Share prices and investment returns will fluctuate
reflecting market conditions as well as changes in company-specific fundamentals
of portfolio securities. Composite performance data relating to the historical
performance of institutional private accounts, including common and collective
trust fund accounts, managed by the relevant Adviser was calculated on a total
return basis and include all losses. All returns reflect the deduction of
investment advisory fees, brokerage commissions and execution costs paid by the
relevant Adviser's institutional private accounts, without provision for federal
or state income taxes. Custodial fees, if any, were not included in the
calculation. The Composite includes all actual, fee-paying, discretionary
institutional private accounts managed by the relevant Adviser that have
investment objectives, strategies and risks substantially similar to those of
the relevant Portfolio. Securities transactions are accounted for on the trade
date and accrual accounting is utilized. Cash and equivalents are included in
performance returns. The investment results presented below are unaudited.
For more information on the specified market indices used below, see the section
captioned "The Benchmarks."
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<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------- ------------- ------------- -------------- ------------ ------------
OTHER FUND OR ACCOUNT MANAGED BY ADVISER 1 5 10 SINCE INCEPTION
(EQAT Portfolio) YEAR YEARS YEARS INCEPTION DATE
..................................................
Benchmark (THROUGH (THROUGH (THROUGH (THROUGH
12/31/98) 12/31/98) 12/31/98) 12/31/98)
- --------------------------------------------------- ------------- ------------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ALLIANCE PREMIER GROWTH FUND, INC.-ADVISOR 49.85% ------- ------- 42.97% 10/1/96
CLASS 1,2
(EQ/Alliance Premier Growth Portfolio)
- --------------------------------------------------- ------------- ------------- -------------- ------------ ------------
S&P 500 Index 28.60% ------- -------- 21.60%
- --------------------------------------------------- ------------- ------------- -------------- ------------ ------------
CAPITAL GUARDIAN U.S. EQUITY RESEARCH COMPOSITE 3 __.__% __.__% __.__% __.__%
(EQ/Capital Research Portfolio)
- --------------------------------------------------- ------------- ------------- -------------- ------------ ------------
S&P 500 Index __.__% __.__% __.__% __.__%
- --------------------------------------------------- ------------- ------------- -------------- ------------ ------------
CAPITAL GUARDIAN U.S. EQUITY COMPOSITE 3 __.__% __.__% __.__% __.__%
(EQ/Capital U.S. Equities Portfolio)
- --------------------------------------------------- ------------- ------------- -------------- ------------ ------------
S&P 500 Index __.__% __.__% __.__% __.__%
- --------------------------------------------------- ------------- ------------- -------------- ------------ ------------
CAPITAL GUARDIAN INTERNATIONAL EQUITIES __.__% __.__% __.__% __.__%
COMPOSITE 3
(EQ/Capital International Equities Portfolio)
- --------------------------------------------------- ------------- ------------- -------------- ------------ ------------
MSCI EAFE Index __.__% __.__% __.__% __.__%
- --------------------------------------------------- ------------- ------------- -------------- ------------ ------------
</TABLE>
1 Average annual total return reflects changes in share prices and
reinvestment of dividends and distributions and is net of fund expense.
The registered investment company for which performance results are
presented will be subject to different expenses than the Portfolio. In
addition, holders of Contracts representing interests in the Portfolio
will be subject to charges and expenses relating to such insurance
contracts. The performance results presented above do not reflect any
insurance related expenses.
2 Annualized performance for the Advisor Class shares. The Advisor Class
shares had a total expense ratio of 1.26% of its average daily net
assets for the year ended December 31, 1998. Other share classes have
different expenses and their performance will vary.
3 The institutional private accounts that are included in the Adviser's
composite are not subject to the same types of expenses to which the
Portfolio is subject or to the diversification requirements, specific
tax restrictions and investment limitations imposed on the Portfolio by
the 1940 Act or Subchapter M of the Internal Revenue Code.
Consequently, the performance results for the composite could have been
adversely affected if the institutional private accounts included in
the composite had been regulated as investment companies under the
federal securities laws. Moreover, holders of Contracts representing
interests in the Portfolio will be subject to charges and expenses
relating to such insurance Contracts. The performance results presented
above do not reflect any insurance related charges. Investors should
also be aware that the use of a methodology different form that used
above to calculate performance could result in different performance
data.
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<PAGE>
[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 May 1, 1999, is incorporated into this Prospectus by reference
and is available upon request free of charge.
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
<PAGE>
EQ ADVISORS TRUST
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1999
This Statement of Additional Information is not a prospectus. It should be read
in conjunction with the Prospectus for the EQ Advisors Trust ("Trust") dated May
1, 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
PAGE
Trust History
Description of the Trust and its Investments and Risks
Trust Policies
Investment Strategies and Risks
Management of the Trust
Investment Management and Other Services
Brokerage Allocation and Other Strategies
Purchase and Pricing of Shares
Redemption of Shares
Taxation
Portfolio Performance
Other Services
Financial Statements
Appendix A: Investment Strategies Summary
Appendix B: Description of Bond Ratings
<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 the T. Rowe Price
International Stock Portfolio, T. Rowe Price Equity Income Portfolio, EQ/Putnam
Growth & Income Value Portfolio, EQ/Putnam International Equity Portfolio,
EQ/Putnam Investors Growth Portfolio, EQ/Putnam Balanced Portfolio, MFS Research
Portfolio, MFS Emerging Growth Companies Portfolio, MFS Growth with Income
Portfolio, Morgan Stanley Emerging Markets Equity Portfolio, Warburg Pincus
Small Company Value Portfolio, Merrill Lynch World Strategy Portfolio, Merrill
Lynch Basic Value Equity Portfolio, Lazard Large Cap Value Portfolio, Lazard
Small Cap Value Portfolio, JPM Core Bond Portfolio, BT Small Company Index
Portfolio, BT International Equity Index Portfolio, BT Equity 500 Index
Portfolio, EQ/Evergreen Foundation Portfolio, EQ/Evergreen Portfolio,
EQ/Alliance Premier Growth Portfolio, EQ/Capital Research Portfolio, EQ/Capital
U.S. Equities Portfolio, and EQ/Capital International Equities Portfolio (each a
"Portfolio," and together the "Portfolios"). Class IA shares are offered at net
asset value and are not subject to distribution fees imposed pursuant to a
distribution plan. Class IB shares are offered at net asset value and are
subject to distribution fees imposed under a distribution plan ("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.
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.
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<PAGE>
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 which are
fundamental and may not be changed without approval by a "majority" vote of the
Portfolio's shareholders. Such majority is defined in the 1940 Act as the lesser
of: (i) 67% or more of the voting securities of such Portfolio present in person
or by proxy at a meeting, if the holders of more than 50% of the outstanding
voting securities are present or represented by proxy; or (ii) more than 50% of
the outstanding voting securities of such Portfolio. Set forth below are each of
the fundamental restrictions adopted by each of the Portfolios. Fundamental
policies (5) and (6) below shall not apply to the Morgan Stanley Emerging
Markets Equity Portfolio, the Merrill Lynch World Strategy Portfolio and the
Lazard Small Cap Value Portfolio. Certain non-fundamental operating policies are
also described in this section because of their direct relevance to the
fundamental restrictions adopted by the Portfolios.
Each Portfolio, except as described directly above, may not as a matter of
fundamental policy:
(1) Borrow money, except that:
a. each Portfolio may (i) borrow for non-leveraging, temporary or
emergency purposes (except the Lazard Large Cap Value Portfolio,
which may also borrow for leveraging purposes) and (ii) engage in
reverse repurchase agreements, make other investments or engage in
other transactions, which may involve a borrowing, in a manner
consistent with the Portfolios' respective investment objective and
program, provided that the combination of (i) and (ii) shall not
exceed 33 1/3% of the value of the Portfolios' 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
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<PAGE>
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;
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, EQ/Capital Research
Portfolio and the EQ/Capital International Equities 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 EQ/Capital U.S. Equities Portfolio, as a matter of
non-fundamental operating policy, will not borrow money;
(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
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<PAGE>
industry. The United States, state or local governments, or related agencies or
instrumentalities are not considered an industry. Industries are determined by
reference to the classifications of industries set forth in each Portfolio's
semi-annual and annual reports. The EQ/Capital U.S. Equities Portfolio may not
purchase the securities of issuers having their principal business activities in
the same industry in excess of 20% of the value of the Portfolio's total assets;
(4) Make loans, except that:
a. each Portfolio may: (i) lend portfolio securities provided that no
such loan may be made if, as a result, the aggregate of such loans
would exceed 33 1/3% of the value of the Portfolio's total assets;
(ii) purchase money market securities and enter into repurchase
agreements; and (iii) acquire publicly-distributed or
privately-placed debt securities and purchase debt securities. Each
Portfolio will consider the acquisition of a debt security to
include the execution of a note or other evidence of an extension of
credit with a term of more than nine months. For purposes of this
restriction, each Portfolio will treat purchases of loan
participations and other direct indebtedness, including investments
in mortgages, as not subject to this limitation;
b. the EQ/Putnam Growth & Income Value Portfolio and EQ/Putnam
International Equity Portfolio, as a matter of non-fundamental
operating policy, may purchase debt obligations consistent with the
respective investment objectives and policies of each of those
Portfolios: (i) by entering into repurchase agreements with respect
to not more than 25% of the Portfolios' respective total assets
(taken at current value) or (ii) through the lending of the
Portfolios' portfolio securities with respect to not more than 25%
of the Portfolios' respective total assets (taken at current value);
c. the MFS Emerging Growth Companies Portfolio, BT Small Company Index
Portfolio, BT International Equity Index Portfolio, and BT Equity
500 Index Portfolio, as a matter of non-fundamental operating
policy, may each lend its portfolio securities provided that no such
loan may be made if, as a result, the aggregate of such loans would
exceed 30% of such Portfolio's total assets (taken at market value);
and
d. the Warburg Pincus Small Company Value Portfolio, the Merrill Lynch
World Strategy Portfolio, and the Merrill Lynch Basic Value Equity
Portfolio, as a matter of non-fundamental policy, may each lend its
portfolio securities provided that no such loan may be made if, as a
result, the aggregate of such loans would exceed 20% of such
Portfolio's total assets (taken at market value);
e. the Lazard Large Cap Value Portfolio and the Lazard Small Cap Value
Portfolio, as a matter of non-fundamental policy, may each lend its
portfolio securities provided that no such loan may be made if, as a
result, the aggregate of such loans would exceed 10% of such
Portfolio's total assets (taken at market value);
f. MFS Growth with Income Portfolio, as a matter of non-fundamental
operating policy, may lend its portfolio securities provided that no
such loan may be made if, as a result, the aggregate of such loans
would exceed 25% of its net assets (taken at market value);
g. 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;
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<PAGE>
h. the EQ/Capital Research Portfolio and the EQ/Capital International
Equities Portfolio, as a matter of fundamental policy, will not make
loans;
(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.*
(5) 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);*
(6) Purchase or sell real estate, except that:
a. each Portfolio, except the JPM Core Bond Portfolio and the
EQ/Capital Research 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;
c. the EQ/Capital Research Portfolio may purchase real estate if it is
necessary for (i) office space for the Portfolio or (ii) the
protection of investments already made.
(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
- -------------
* 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>
options would exceed 5% of the Portfolio's net asset value. As a matter of
operating policy, the MFS Research Portfolio, the Lazard Large Cap Value
Portfolio, the Lazard Small Cap Portfolio, the EQ/Capital Research Portfolio,
the EQ/Capital U.S. Equities Portfolio and the EQ/Capital International Equities
Portfolio may not invest in commodities or commodity contracts including futures
contracts. As a matter of operating policy, the 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 Warburg
Pincus Small Company Value Portfolio, Lazard Large Cap Value Portfolio, Lazard
Small Cap Value Portfolio and the EQ/Capital International Equities Portfolio)
would be invested in such securities. Securities purchased in accordance with
Rule 144A under the 1933 Act and determined to be liquid by the Trust's Board
are not subject to the limitations set forth in this investment restriction;
(3) Purchase securities on margin, except that each Portfolio may: (a) make use
of any short-term credit necessary for clearance of purchases and sales of
portfolio securities and (b) make initial or variation margin deposits in
connection with futures contracts, options, currencies, or other permissible
investments;
(4) Mortgage, pledge, hypothecate or, in any manner, transfer any security owned
by the Portfolio as security for indebtedness, except as may be necessary in
connection with permissible borrowings or investments; and then such mortgaging,
pledging or hypothecating may not exceed 33 1/3% of the respective total assets
of each Portfolio (except as specified below for the EQ/Putnam International
Equity Portfolio, Merrill Lynch World Strategy Portfolio, Merrill Lynch Basic
Value Equity Portfolio, MFS Investor Portfolio and EQ/Capital International
Equities 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 EQ/Capital
International Equities Portfolio will not mortgage, pledge or hypothecate its
total assets to any extent. 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 and EQ/Alliance Premier Growth 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. As a matter of
operating policy, 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; or
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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 EQ/Capital Research Portfolio and the
EQ/Capital U.S. Equities 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 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 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. Each of the Portfolios may invest in convertible
securities, including both convertible debt and convertible preferred stock.
Such securities may be converted into shares of the underlying common stock at
either a stated price or stated rate, 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 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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<PAGE>
DERIVATIVES. Each Portfolio (except the MFS Research Portfolio) may invest in
one or more types of derivatives. Derivatives are financial products or
instruments that derive their value from the value of one or more underlying
assets, reference rates or indices. Derivatives include, but are not limited to,
the following: asset-backed securities, floaters and inverse floaters, hybrid
instruments, mortgage-backed securities, options 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 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 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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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
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. The Portfolio's use of such contracts will include, but not be
limited to, the following situations.
First, when the Portfolio enters into a contract for the purchase or sale of a
security denominated in a foreign currency, it may desire to "lock in" the
United States dollar price of the security. By entering into a forward contract
for the purchase or sale, for a fixed amount of dollars, of the amount of
foreign currency involved in the underlying security transactions, the Portfolio
will be able to protect itself against a possible loss resulting from an adverse
change in the relationship between the United States dollar and the subject
foreign currency during the period between the date the security is purchased or
sold and the date on which payment is made or received.
Second, when a Portfolio's Adviser believes that one currency may experience a
substantial movement against another currency, including the United States
dollar, it may enter into a forward contract to sell or buy the amount of the
former foreign currency, approximating the value of some or all of the
Portfolio's portfolio securities denominated in such foreign currency.
Alternatively, where appropriate, the Portfolio may hedge all or part of its
foreign currency exposure through the use of a basket of currencies,
multinational currency units, or a proxy currency where such currency or
currencies act as an effective proxy for other currencies. In such a case, the
Portfolio may enter into a forward contract where the amount of the foreign
currency to be sold exceeds the value of the securities denominated in such
currency. The use of this basket hedging technique may be more efficient and
economical than entering into separate forward contracts for each currency held
in the Portfolio.
The precise matching of the forward contract amounts and the value of the
securities involved will not generally be possible since the future value of
such securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the forward contract
is entered into and the date it matures. The projection of short-term currency
market movement is extremely difficult, and the successful execution of a
short-term hedging strategy is highly uncertain. Under normal circumstances,
consideration of the prospect for currency parities will be incorporated into
the diversification strategies. However, the Adviser to the Portfolio believes
that it is important to have the flexibility to enter into such forward
contracts when it determines that the best interests of the Portfolio will be
served.
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<PAGE>
A Portfolio may enter into forward contracts for any other purpose consistent
with the Portfolio's investment objective and program. However, the Portfolio
will not enter into a forward contract, or maintain exposure to any such
contract(s), if the amount of foreign currency required to be delivered
thereunder would exceed the Portfolio's holdings of liquid, securities and
currency available for cover of the forward contract(s). In determining the
amount to be delivered under a contract, the Portfolio may net offsetting
positions.
At the maturity of a forward contract, a Portfolio may sell the portfolio
security and make delivery of the foreign currency, or it may retain the
security and either extend the maturity of the forward contract (by "rolling"
that contract forward) or may initiate a new forward contract. If a Portfolio
retains the portfolio security and engages in an offsetting transaction, the
Portfolio will incur a gain or a loss (as described below) to the extent that
there has been movement in forward contract prices. If the Portfolio engages in
an offsetting transaction, it may subsequently enter into a new forward contract
to sell the foreign currency.
Should forward prices decline during the period between the Portfolio's entering
into a forward contract for the sale of a foreign currency and the date it
enters into an offsetting contract for the purchase of the foreign currency, the
Portfolio will realize a gain to the extent the price of the currency it has
agreed to sell exceeds the price of the currency it has agreed to purchase.
Should forward prices increase, the Portfolio will suffer a loss to the extent
the price of the currency it has agreed to purchase exceeds the price of the
currency it has agreed to sell.
Although the Portfolio values its assets daily in terms of United States
dollars, it does not intend to convert its holdings of foreign currencies into
United States dollars on a daily basis. The Portfolio will do so from time to
time, and investors should be aware of the costs of currency conversion.
Although foreign exchange dealers do not charge a fee for conversion, they do
realize a profit based on the difference ("spread") between the prices at which
they are buying and selling various currencies. Thus, a dealer may offer to sell
a foreign currency to a Portfolio at one rate, while offering a lesser rate of
exchange should the Portfolio desire to resell that currency to the dealer.
FOREIGN CURRENCY OPTIONS, FOREIGN CURRENCY FUTURES CONTRACTS AND OPTIONS
ON FUTURES. As indicated in Appendix A, certain 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 future contract
written by the Portfolio will be considered "covered" only if the Portfolio owns
short term debt securities with a value equal to the face amount of the option
contract and denominated in the currency upon which the call is written. Option
transactions may be effected to hedge the currency risk on non-United States
dollar-denominated securities owned by a Portfolio, sold by a Portfolio but not
yet delivered or anticipated to be purchased by a Portfolio. As an illustration,
a Portfolio may use such techniques to hedge the stated value in United States
dollars of an investment in a Japanese yen-denominated security. In these
circumstances, a Portfolio may purchase a foreign currency put option enabling
it to sell a specified amount of yen for dollars at a specified price by a
future date. To the extent the hedge is successful, a loss in the value of the
dollar relative to the yen will tend to be offset by an increase in the value of
the put option.
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OVER THE COUNTER OPTIONS ON FOREIGN CURRENCY TRANSACTIONS. The Merrill
Lynch World Strategy Portfolio will engage in over-the-counter options on
foreign currency transactions only with financial institutions that have capital
of at least $50 million or whose obligations are guaranteed by an entity having
capital of at least $50 million. The MFS Emerging Growth Companies Portfolio may
only enter into forward contracts on currencies in the over-the-counter market.
The Advisers may engage in these transactions to protect against uncertainty in
the level of future exchange rates in connection with the purchase and sale of
portfolio securities ("transaction hedging") and to protect the value of
specific portfolio positions ("position hedging"). 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 sections.
FOREIGN SECURITIES. As indicated in Appendix A, certain Portfolios may also
invest in other types of 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. 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.
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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:
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. As a result of the foregoing, a
government obligor may default on its obligations. If such an event occurs, a
Portfolio may have limited legal recourse against the issuer and/or guarantor.
Remedies must, in some cases, be pursued in the courts of the defaulting party
itself, and the ability of the holder of foreign government fixed income
securities to obtain recourse may be subject to the political climate in the
relevant country. In addition, no assurance can be given that the holders of
commercial bank debt will not contest payments to the holders of other foreign
government debt obligations in the event of default under their commercial bank
loan agreements.
The economies of individual emerging market countries may differ favorably or
unfavorably from the United States economy in such respects as growth of gross
domestic product, rate of inflation, currency depreciation, capital
reinvestment, resource self-sufficiency and balance of payments position.
Further, the economies of developing countries generally are heavily dependent
upon international trade and, accordingly, have been, and may continue to be,
adversely affected by trade barriers, exchange controls, managed adjustments in
relative currency values and other protectionist measures imposed or negotiated
by the countries with which they trade. These economies also have been, and may
continue to be, adversely affected by economic conditions in the countries with
which they trade.
Investing in emerging market countries may entail purchasing securities issued
by or on behalf of entities that are insolvent, bankrupt, in default or
otherwise engaged in an attempt to reorganize or reschedule their obligations,
and in entities that have little or no proven credit rating or credit history.
In any such case, the
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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 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,
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principally, the United States, Japan, China and the European Community. The
enactment by the United States or other principal trading partners of
protectionist trade legislation, reduction of foreign investment in the local
economies and general declines in the international securities markets could
have a significant adverse effect upon the securities markets of the Asian
countries.
The securities markets in Asia are substantially smaller, less liquid and more
volatile than the major securities markets in the United States. A high
proportion of the shares of many issuers may be held by a limited number of
persons and financial institutions, which may limit the number of shares
available for investment by a Portfolio. Similarly, volume and liquidity in the
bond markets in Asia are less than in the United States and, at times, price
volatility can be greater than in the United States. A limited number of issuers
in Asian securities markets may represent a disproportionately large percentage
of market capitalization and trading value. The limited liquidity of securities
markets in Asia may also affect a Portfolio's ability to acquire or dispose of
securities at the price and time it wishes to do so. In addition, the Asian
securities markets are susceptible to being influenced by large investors
trading significant blocks of securities.
Many stock markets are undergoing a period of growth and change which may result
in trading volatility and difficulties in the settlement and recording of
transactions, and in interpreting and applying the relevant law and regulations.
With respect to investments in the currencies of Asian countries, changes in the
value of those currencies against the United States dollar will result in
corresponding changes in the United States dollar value of a Portfolio's assets
denominated in those currencies.
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
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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 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 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
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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 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. The inability of a
Portfolio to dispose of illiquid or not readily marketable investments readily
or at a reasonable price could impair the Portfolio's ability to raise cash for
redemptions or other purposes. The liquidity of securities purchased by a
Portfolio which are eligible for resale pursuant to Rule 144A will be monitored
by each Portfolio's Adviser on an ongoing basis, subject to the oversight of the
Board of Trustees of the Trust. In the event that such a security is deemed to
be no longer liquid, a Portfolio's holdings will be reviewed to determine what
action, if any, is required to ensure that the retention of such security does
not result in a Portfolio's having more than 10% or 15% of its assets invested
in illiquid or not readily marketable securities.
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
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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 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 Portfolios may invest in or hold investment grade
securities, but not lower quality fixed income securities. Investment grade
securities are securities rated Baa 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. ("S&P") or comparable quality unrated securities.
Investment grade securities while normally exhibiting adequate protection
parameters, have speculative characteristics, and, consequently, changes in
economic conditions or other circumstances are more likely to lead to a weakened
capacity of such issuers to make principal and interest payments than is the
case for higher grade fixed income securities.
Lower quality fixed income securities are securities that are rated in the lower
categories by or higher by nationally recognized statistical rating
organizations ("NRSRO") (i.e., Ba or lower by Moody's and BB or lower by S&P) or
comparable quality unrated securities. Such lower quality securities are known
as "junk bonds" and are regarded as predominantly speculative with respect to
the issuer's continuing ability to meet principal and interest payments. (Each
NRSRO's descriptions of these bond ratings are set forth in the Appendix to 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
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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 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 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.
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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 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 below.
MORTGAGE-BACKED OR MORTGAGE-RELATED SECURITIES. As indicated in Appendix A,
certain 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
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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 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
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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 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
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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 Portfolios may invest
in municipal securities ("municipals"), which are debt obligations issued by
local, state and regional governments that provide interest income that is
exempt from federal income taxes. Municipals include both municipal bonds (those
securities with maturities of five years or more) and municipal notes (those
with maturities of less than five years). Municipal bonds are issued for a wide
variety of reasons: to construct public facilities, such as airports, highways,
bridges, schools, hospitals, mass transportation, streets, water and sewer
works; to obtain funds for operating expenses; to refund outstanding municipal
obligations; and to loan funds to various public institutions and facilities.
Certain industrial development bonds are also considered municipal bonds if
their interest is exempt from federal income tax. Industrial development bonds
are issued by or on behalf of public authorities to obtain funds for various
privately-operated manufacturing facilities, housing, sports arenas, convention
centers, airports, mass transportation systems and water, gas or sewer works.
Industrial development bonds are ordinarily dependent on the credit quality of a
private user, not the public issuer.
OPTIONS AND FUTURES TRANSACTIONS. 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.
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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 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 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
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.
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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.
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
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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 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 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 Portfolios will not commit more than 5% of
its total assets to premiums when purchasing call or put options. In addition,
the total market value of securities against which a Portfolio has written call
or put options may not exceed 25% of its total assets. 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.
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.
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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.
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.
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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, for example, if, so long as the Portfolio is obligated as
the writer of the call, it holds securities the price changes of which are, in
the opinion of a Portfolio's Adviser, expected to replicate substantially the
movement of the index or indexes upon which the options written by the Portfolio
are based. A put on a securities index written by a Portfolio will be considered
covered if, so long as it is obligated as the writer of the put, the Portfolio
segregates with its custodian cash, United States Government securities or other
liquid high-grade debt obligations having a value equal to or greater than the
exercise price of the option. Unlike a stock option, which gives the holder the
right to purchase or sell a specified stock at a specified price, an option on a
securities index gives the holder the right to receive a cash "exercise
settlement amount" equal to (i) the difference between the exercise price of the
option and the value of the underlying stock index on the exercise date,
multiplied by (ii) a fixed "index multiplier."
A securities index fluctuates with changes in the market value of the securities
so included. For example, some securities index options are based on a broad
market index such as the S&P 500 or the NYSE Composite Index, or a narrower
market index such as the S&P 100. Indexes may also be based on an industry or
market segment such as the AMEX Oil and Gas Index or the Computer and Business
Equipment Index.
OVER-THE-COUNTER OPTIONS. As indicated in Appendix A, certain 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
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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.
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
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in a total loss of the margin deposit, before any deduction for the transaction
costs, if the account were then closed out. A 15% decrease would result in a
loss equal to 150% of the original margin deposit, if the contract were closed
out. Thus, a purchase or sale of a futures contract may result in losses in
excess of the amount invested in the futures contract.
A decision of whether, when, and how to hedge involves skill and judgment, and
even a well-conceived hedge may be unsuccessful to some degree because of
unexpected market behavior, market trends or interest rate trends. There are
several risks in connection with the use by a Portfolio of futures contracts as
a hedging device. One risk arises because of the imperfect correlation between
movements in the prices of the futures contracts and movements in the prices of
the underlying instruments which are the subject of the hedge. A Portfolio's
Adviser will, however, attempt to reduce this risk by entering into futures
contracts whose movements, in its judgment, will have a significant correlation
with movements in the prices of the Portfolio's underlying instruments sought to
be hedged.
Successful use of futures contracts by a Portfolio for hedging purposes is also
subject to a Portfolio's ability to correctly predict movements in the direction
of the market. It is possible that, when a Portfolio has sold futures to hedge
its portfolio against a decline in the market, the index, indices, or
instruments underlying futures might advance and the value of the underlying
instruments held in the Portfolio's portfolio might decline If this were to
occur, the Portfolio would lose money on the futures and also would experience a
decline in value in its underlying instruments.
Positions in futures contracts may be closed out only on an exchange or a board
of trade which provides the market for such futures. Although the Portfolios,
specified in the Prospectus, intend to purchase or sell futures only on
exchanges or boards of trade where there appears to be an active market, there
is no guarantee that such will exist for any particular contract or at any
particular time. If there is not a liquid market at a particular time, it may
not be possible to close a futures position at such time, and, in the event of
adverse price movements, a Portfolio would continue to be required to make daily
cash payments of variation margin. However, in the event futures positions are
used to hedge portfolio securities, the securities will not be sold until the
futures positions can be liquidated. In such circumstances, an increase in the
price of securities, if any, may partially or completely offset losses on the
futures contracts.
FOREIGN OPTIONS AND FUTURES. Participation in foreign futures and foreign
options transactions involves the execution and clearing of trades on or subject
to the rules of a foreign board of trade. Neither the National Futures
Association nor any domestic exchange regulates activities of any foreign boards
of trade, including the execution, delivery and clearing of transactions, or has
the power to compel enforcement of the rules of a foreign board of trade or any
applicable foreign law. This is true even if the exchange is formally linked to
a domestic market so that a position taken on the market may be liquidated by a
transaction on another market. Moreover, such laws or regulations will vary
depending on the foreign country in which the foreign futures or foreign options
transaction occurs. For these reasons, when a Portfolio trades foreign futures
or foreign options contracts, it may not be afforded certain of the protective
measures provided by the Commodity Exchange Act, the CFTC's regulations and the
rules of the National Futures Association and any domestic exchange, including
the right to use reparations proceedings before the CFTC and arbitration
proceedings provided by the National Futures Association or any domestic futures
exchange. In particular, funds received from a Portfolio for foreign futures or
foreign options transactions may not be provided the same protections as funds
received in respect of transactions on United States futures exchanges. In
addition, the price of any foreign futures or foreign options contract and,
therefore, the potential profit and loss thereon, may be affected by any
variance in the foreign exchange rate between the time the Portfolio's order is
placed and the time it is liquidated, offset or exercised.
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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
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 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 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 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
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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 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 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 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
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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.
The assets contained in the segregated account will be marked-to-market daily
and additional assets will be placed in such account on any day in which the
assets fall below the repurchase price (plus accrued interest). A Portfolio's
liquidity and ability to manage its assets might be affected when it sets aside
cash or portfolio securities to cover such commitments. Reverse repurchase
agreements involve the risk that the market value of the securities retained in
lieu of sale may decline below the price of the securities a Portfolio has sold
but is obligated to repurchase. In the event the buyer of securities under a
reverse repurchase agreement files for bankruptcy or becomes insolvent, such
buyer or its trustee or receiver may receive an extension of time to determine
whether to enforce a Portfolio's obligation to repurchase the securities, and a
Portfolio's use of the proceeds of the reverse repurchase agreement may
effectively be restricted pending such decision.
In "dollar rolls" transactions, a Portfolio sells fixed-income securities for
delivery in the current month and simultaneously contracts to repurchase similar
but not identical (same type, coupon and maturity) securities on a specified
future date. During the roll period, a Portfolio would forego principal and
interest paid on such securities. A Portfolio would be compensated by the
difference between the current sales price and the forward price for the future
purchase, as well as by the interest earned on the cash proceeds of the initial
sale. At the time a Portfolio enters into a dollar roll transaction, it will
place in a segregated account maintained with an approved custodian cash or
other liquid securities having a value not less than the repurchase price
(including accrued interest) and will subsequently monitor the account to ensure
that its value is maintained. Reverse repurchase agreements are considered to be
borrowings under the 1940 Act.
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
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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 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 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 companies than for larger, more established ones
and smaller companies may be dependent for management on one or a few key
persons. Therefore, an investment in these Portfolios may involve a greater
degree of risk than an investment in other Portfolios that seek capital
appreciation by investing in better known, larger companies.
STRUCTURED NOTES. The Morgan Stanley Emerging Markets Equity Portfolio may
invest in structured notes, which are derivatives on which the amount of
principal repayment and/or interest payments is based upon the movement of one
or more factors. 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
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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 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.
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
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contractually obligated to make. If the other party to a swap defaults,
Portfolio's risk of loss consists of the net amount of payments that the
Portfolio contractually entitled to receive. Currency swaps usually involve the
delivery of the entire principal value of one designated currency in exchange
for the other designated currency. Therefore, the entire principal value of a
currency swap is subject to the risk that the other party to the swap will
default on its contractual delivery obligations. If there is a default by the
counterparty, a Portfolio may have contractual remedies pursuant to the
agreements related to the transaction. The swap market has grown substantially
in recent years with a large number of banks and investment banking firms acting
both as principals and as agents utilizing standardized swap documentation. As a
result, the swap market has become relatively liquid. Certain swap transactions
involve more recent innovations for which standardized documentation has not yet
been fully developed and, accordingly, they are less liquid than traditional
swap transactions.
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).
WARRANTS. Warrants are securities that give the holder the right, but not the
obligation to purchase equity issues of the company issuing the warrants, or a
related company, at a fixed price either on a date certain or during a set
period. At the time of issue, the cost of a warrant is substantially less than
the cost of the underlying security itself, and price movements in the
underlying security are generally magnified in the price movements of the
warrant. This effect enables the investor to gain exposure to the underlying
security with a relatively low capital investment but increases an investor's
risk in the event of a decline in the value of the underlying security and can
result in a complete loss of the amount invested in the warrant. In addition,
the price of a warrant tends to be more volatile than, and may not correlate
exactly to, the price of the underlying security. If the market price of the
underlying security is below the exercise price of the warrant on its expiration
date, the warrant will generally expire without value.
The equity security underlying a warrant is authorized at the time the warrant
is issued or is issued together with the warrant. Investing in warrants can
provide a greater potential for profit or loss than an equivalent investment in
the underlying security, and, thus, can be a speculative investment. The value
of a warrant may decline because of a decline in the value of the underlying
security, the passage of time, changes in interest rates or in the dividend or
other policies of the company whose equity underlies the warrant or a change in
the perception as to the future priced of the underlying security, or any
combination thereof. Warrants generally pay no dividends and confer no voting or
other rights other than to purchase the underlying security.
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<PAGE>
ZERO-COUPON BONDS. As indicated in Appendix A, certain 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 and June 30, 1999 and also see "Dividends, Distributions and
Taxes" below.
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.
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.
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<PAGE>
NAME, ADDRESS AND AGE PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
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
New York, NY 10003-1566 to 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
60 State Street Corporation) since 1996. President and Chief Operating Officer, CVS Corporation
Suite 700 from 1994 to 1996. Prior thereto, he held various positions with CVS division of
Boston, MA 02109 Melville Corporation, 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.
The Trust has a valuation committee consisting of Peter D. Noris, Harvey Blitz,
Norman Abrams, Kevin Byrne, and such other officers of the Trust, the Manager,
and Chase Global Funds Services Company, as well as such officers of any Adviser
to any Portfolio as are deemed necessary by Mr. Noris or Mr. Blitz from time to
time, each of whom shall serve at the pleasure of the Board of Trustees as
members of the Valuation Committee. This committee determines the value of any
of the Trust's securities and assets for which market quotations are not readily
available or for which valuation cannot otherwise be provided.
The Trust has a compensation committee consisting of Jettie M. Edwards, William
K. Kearns, Jr., Christopher P.A. Komisarjevsky and Harvey Rosenthal. The
compensation committee's function is to review the Trustees' compensation
arrangements.
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.
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<PAGE>
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, 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:
<TABLE>
<CAPTION>
NAME, AGE AND POSITION WITH TRUST PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
<S> <C>
Peter D. Noris (43) (see above)
President
Norman Abrams (50) Vice President and Associate General Counsel, Equitable Life since January 1997.
Vice President and Secretary Vice President and Counsel, Equitable Life from October 1991 to December 1996.
Harvey Blitz (52) Senior Vice President, Equitable Life since September 1987. Deputy Chief
Vice President and Chief Financial Officer Financial Officer, Equitable Life since September 1992. Senior Vice President,
The Equitable Companies Incorporated since July 1992. Director, The Equitable of
Colorado, Inc. since September 1992. Director and Chairman, Frontier Trust
Company since April 1993 and September 1995, respectively. Director, Equitable
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<PAGE>
NAME, AGE AND POSITION WITH TRUST PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
Distributors, Inc., February 1995 to May 1996. Director and Senior Vice
President, EquiSource since October 1992 and June 1993, respectively. Director
and Executive Vice President, EQ Financial Consultants, Inc. since September
1992 and November 1996, respectively. Director, Equitable Realty Assets
Corporation since December 1996.
Mary Breen (40) Vice President and Associate General Counsel, Equitable Life since October 1996.
Vice President Vice President and Counsel, Equitable Life, 1992 to 1996. Vice President and
Counsel, EQ Financial Consultants, Inc. since April 1997 and Equitable
Distributors, Inc. since March 1997.
Kevin R. Byrne (42) Vice President and Treasurer, The Equitable Companies Incorporated and Equitable
Vice President and Treasurer Life. Treasurer, Frontier Trust Company and EquiSource. Vice President and
Treasurer, Equitable Casualty Insurance Company.
Robin K. Murray (43) Vice President, Office of the Chief Investment Officer, and First Vice
First Vice President 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 Securities since
Vice President 1993. Director, Royal Alliance.
Mary Joan Hoene (49) Vice President and Counsel, Insurance Division, Equitable Life since 1998.
Vice President Divisional Senior Vice President, Financial Institution and Government Affairs,
AIG Technical Services from 1994 to 1998. General Counsel, Mitchell Hutchins
Asset Management Inc., from 1988 to 1994.
Allen T. Zabusky (47) Vice President and Deputy Controller, Equitable Life since 1990. Controller, The
Vice President and Controller Equitable of Colorado, Inc. since 1996.
Mary E. Cantwell (37) Assistant Vice President, Office of the Chief Investment Officer, Equitable Life
Assistant Vice President since September 1997. Assistant Vice President, Equitable Financial Consultants,
Inc. since September 1997. Marketing Director, Income Management Group,
Equitable Life since 1994. Marketing Manager, Equitable Life since 1991.
Paul Roselli (34) Vice President, Fund Administration, Chase Global Funds Services Company since
Assistant Treasurer March 1997. Assistant Manager of Fund Accounting , Brown Brothers Harriman from
July 1993 to March 1997.
Karl O. Hartmann (43) Senior Vice President and General Counsel, Chase Global Funds Services Company.
Assistant Secretary
Lloyd Lipsett (34) Vice President and Associate General Counsel, Chase Global Funds Services
Assistant Secretary 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. Class IB shares currently are sold only to
separate accounts of The Equitable Life Assurance Society of the United States
("Equitable"). Class IA shares currently are sold only to the Equitable
Investment Plan for Employees, Managers and Agents ("Equitable Plan"). Equitable
may be deemed to be a control person with respect to the Trust by virtue of its
ownership of more than ____% of the Trust's shares as of December 31, 1998.
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.
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
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<PAGE>
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. ("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") (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.
Equitable, which is a New York life insurance company and one of the largest
life insurance companies in the United States, is a wholly-owned subsidiary of
The Equitable Companies Incorporated ("The Equitable Companies"), a
publicly-owned holding company. The principal offices of The Equitable Companies
and Equitable are located at 1290 Avenue of the Americas, New York, New York
10104.
AXA, a French insurance holding company, currently owns approximately 59% of the
outstanding voting shares of common stock of The Equitable Companies. As
majority shareholder of the Equitable Companies, AXA is able to exercise
significant influence over the operations and capital structure of The Equitable
Companies, Equitable and their subsidiaries. AXA is the holding company for an
international group of
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<PAGE>
insurance and related financial services companies. AXA is among the world's
largest insurance groups with worldwide revenues in 1998 of $____ billion. AXA
is also the world's largest insurer-based investment manager with $____ billion
in assets under management as of December 31, 1998. AXA is also engaged in asset
management, investment banking, securities trading and other financial services
activities principally in the United States, as well as in Western Europe and
the Asia Pacific area.
The Trust and Manager have entered into an investment management agreement
("Management Agreement"). This was initially approved by the Board of Trustees
on March 31, 1997. The Management Agreement obligates the Manager to: (i)
provide investment management services to the Trust; (ii) select the Adviser for
each Portfolio; (iii) monitor the Adviser's investment programs and results;
(iv) review brokerage matters; (v) oversee compliance by the Trust with various
federal and state statutes; and (vi) carry out the directives of the Board of
Trustees. The Management Agreement requires the Manager to provide the Trust
with office space, office equipment, and personnel necessary to operate and
administer the Trust's business, and also to supervise the provision of services
by third parties. The continuance of the Management Agreement, with respect to
each Portfolio, after the first two years must be specifically approved at least
annually (i) by the Trust's Board of Trustees or by vote of a majority of the
outstanding voting securities (as defined in the 1940 Act) of such Portfolio and
(ii) by the affirmative vote of a majority of the Trustees who are not parties
to the Management Agreement or "interested persons" (as defined in the 1940 Act)
of any such party by votes cast in person at a meeting called for such purpose.
The Management Agreement with respect to each Portfolio may be terminated (i) at
any time, without the payment of any penalty, by the Trust upon the vote of a
majority of the Trustees or by vote of the majority of the outstanding voting
securities (as defined in the 1940 Act) of such Portfolio upon sixty (60) days'
written notice to the Manager or (ii) by the Manager at any time without penalty
upon sixty (60) days' written notice to the Trust. The Management Agreement will
also terminate automatically in the event of its assignment (as defined in the
1940 Act).
Each Portfolio pays a fee to the Manager as described 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 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 table below shows the fees paid by each Portfolio to the Manager during the
year ended December 31, 1998. The first column shows
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<PAGE>
the method of allocation for calculating the fees, the second column shows each
fee without fee waivers, the third column shows the fees actually paid to the
Manager after fee waivers and the fourth 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>
PORTFOLIO METHOD OF MANAGEMENT FEE MANAGEMENT FEE TOTAL AMOUNT OF
ALLOCATION PAID TO MANAGER FEES WAIVED AND
AFTER FEE WAIVER OTHER EXPENSES
ASSUMED BY MANAGER
<S> <C> <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 Portfolio $788,805 $573,446 $215,359
Warburg Pincus Small Company Value Portfolio $1,012,129 $738,570 $273,559
Morgan Stanley Emerging Markets Equity Portfolio $364,795 $105,117 $259,678
BT Equity 500 Index $210,001 $0 $232,207
BT International Equity Index $98,039 $0 $180,103
BT Small Company Index $45,728 $0 $220,614
JPM Core Bond $172,507 $86,266 $86,241
Lazard Large Cap Value $160,570 $58,717 $101,853
Lazard Small Cap Portfolios $194,797 $97,708 $97,089
</TABLE>
The EQ/Evergreen Foundation, EQ/Evergreen, MFS Growth with Income, EQ/Alliance
Premier Growth, EQ/Capital Research, EQ/Capital U.S. Equities and EQ/Capital
International Equities Portfolios are not included in the above table because
they had no operations during 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 amendment to
the Advisory Agreement on behalf of MFS Research Portfolio, MFS Emerging Growth
Companies Portfolio and MFS Growth with Income Portfolio with MFS. The Manager
has entered into Advisory Agreements on behalf of Morgan Stanley Emerging
Markets Equity Portfolio and Warburg Pincus Small Company Value Portfolio with
MSAM and Warburg, respectively. The Manager has entered into an Advisory
Agreement on behalf of Merrill Lynch World Strategy Portfolio and Merrill Lynch
Basic Value Equity Portfolio with MLAM. The Manager has entered into an Advisory
Agreement on behalf of Lazard Large Cap Value Portfolio and Lazard Small Cap
Value Portfolio with LAM. The Manager has entered into an Advisory Agreement on
behalf of the JPM Core Bond Portfolio with J.P. Morgan. The Manager has entered
into an Advisory Agreement on behalf of BT Small Company Index Portfolio, BT
International Equity Index Portfolio and BT Equity 500 Index Portfolio with
Bankers Trust. The Manager has entered into an Advisory Agreement on behalf of
EQ/Evergreen
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<PAGE>
Foundation Portfolio and EQ/Evergreen Portfolio with EQ/Evergreen. The Manager
has entered into an Advisory Agreement on behalf of EQ/Alliance Premier Growth
Portfolio with Alliance. Finally, the Manager has entered into an Advisory
Agreement on behalf EQ/Capital Research Portfolio, EQ/Capital U.S. Equities
Portfolio, and EQ/Capital International Equities Portfolio with Capital
Guardian. The Advisory Agreements obligate T. Rowe Price, Price Fleming, Putnam
Management, MFS, Warburg, MSAM, MLAM, LAM, J.P. Morgan, Bankers Trust,
Evergreen, Alliance, and Capital Research to: (i) furnish continuously an
investment program for their respective Portfolios; (ii) place all orders for
the purchase and sale of investments for their respective Portfolios with
brokers or dealers selected by the Manager or an Adviser; and (iii) perform
certain limited related administrative functions in connection therewith.
During the year ended December 31, 1998, the Manager paid the following fees to
each Adviser with respect to the Portfolios listed below pursuant to the
Investment Advisory Agreements:
PORTFOLIO ADVISORY FEE PAID
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 $42,047
BT International Equity Index, $42,067
BT Small Company Index $9,143
JPM Core Bond $15,022
Lazard Large Cap Value $123,634
Lazard Small Cap Value $158,214
No advisory fees were paid to Evergreen, MFS on behalf of MFS Growth with Income
Portfolio, Alliance, or Capital Guardian 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
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
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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 year ended December 31, 1998, the Administrator was paid the
following fees, by the Administrator with respect to each Portfolio:
PORTFOLIO ADMINISTRATION FEE
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 $91,209
BT International Equity Index, $89,083
BT Small Company Index $97,220
JPM Core Bond $52,546
Lazard Large Cap Value $48,231
Lazard Small Cap Value $47,708
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The EQ/Evergreen Foundation, EQ/Evergreen, MFS Growth with Income, EQ/Alliance
Premier Growth, EQ/Capital Research, EQ/Capital U.S. Equities and EQ/Capital
International Equities Portfolios did not pay a fee to the Administrator during
the year ended December 31, 1998.
THE DISTRIBUTORS
The Trust has distribution agreements with EQ Financial Consultants, Inc. and
EDI (each also referred to as a "Distributor," and together "Distributors"),
each an indirect wholly-owned subsidiary of Equitable. The address for EDI is
1290 Avenue of the Americas, New York, New York 10104, and that for EQ Financial
Consultants, Inc. is 1290 Avenue of the Americas, New York, New York 10104. EQ
Financial Consultants, Inc. is 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 also
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 __, 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.
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
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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. EQ Financial Consultants, Inc. also serves as the
Distributor for hares 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 __, 1999, the Board of
Trustees of the Trust, including the Independent Trustees, considerd 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. 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
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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 DISTRIBUTION FEE TOTAL
PAID TO EQF PAID TO EDI DISTRIBUTION FEES
<S> <C> <C> <C>
Merrill Lynch Basic Value Equity Portfolio $ $ $
Merrill Lynch World Strategy Portfolio $ $ $
MFS Emerging Growth Companies Portfolio $ $ $
MFS Research Portfolio $ $ $
EQ/Putnam Balanced Portfolio $ $ $
EQ/Putnam Growth & Income Value Portfolio $ $ $
EQ/Putnam International Equity Portfolio $ $ $
EQ/Putnam Investors Growth Portfolio $ $ $
T. Rowe Price Equity Income Portfolio $ $ $
T. Rowe Price International Stock Portfolio $ $ $
Warburg Pincus Small Company Value Portfolio $ $ $
Morgan Stanley Emerging Markets Equity Portfolio $ $ $
BT Equity 500 Index $ $ $
BT International Equity Index, $ $ $
BT Small Company Index $ $ $
JPM Core Bond $ $ $
Lazard Large Cap Value $ $ $
Lazard Small Cap Value $ $ $
</TABLE>
The EQ/Evergreen Foundation, EQ/Evergreen, MFS Growth with Income, EQ/Alliance
Premier Growth, EQ/Capital Research, EQ/Capital U.S. Equities and EQ/Capital
International Equities 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.
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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 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 year ended December 31, 1998, the Portfolios paid the amounts
indicated in brokerage commissions:
PORTFOLIO BROKERAGE COMMISSIONS PAID
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
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PORTFOLIO BROKERAGE COMMISSIONS PAID
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 $ 87,608
BT International Equity Index $ 26,510
BT Small Company Index $ 38,914
JPM Core Bond $ 7,380
Lazard Large Cap Value $ 95,425
Lazard Small Cap Value $ 79,393
The EQ/Evergreen Foundation, EQ/Evergreen, MFS Growth with Income, EQ/Alliance
Premier Growth, EQ/Capital Research, EQ/Capital U.S. Equities and EQ/Capital
International Equities 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, 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 EQ/Capital
Research Portfolio, the EQ/Capital U.S. Equities Portfolio and the EQ/Capital
International Equities Portfolio, may execute portfolio transactions with
certain affiliates of Capital Guardian, including ___________________________.
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
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may apply for such exemptive relief. The Trust has adopted procedures,
prescribed by the 1940 Act, which are reasonably designed to provide that any
commissions or other remuneration it pays to brokers that are affiliates of the
Manager and brokers that are affiliates of an Adviser to a Portfolio for which
that Adviser provides investment advice do not exceed the usual and customary
broker's commission. In addition, the Trust will adhere to the requirements
under the 1934 Act governing floor trading. Also, because of securities law
limitations, the Trust will limit purchases of securities in a public offering,
if such securities are underwritten by brokers that are affiliates of the
Manager and Advisers or their affiliates.
During the year ended December 31, 1998, 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>
PORTFOLIO AFFILIATED AGGREGATE PERCENTAGE OF PERCENTAGE OF
BROKER-DEALER BROKERAGE TOTAL BROKERAGE TRANSACTIONS (BASED
COMMISSIONS PAID COMMISSIONS ON DOLLAR AMOUNTS)
<S> <C> <C> <C> <C>
Merrill Lynch Basic Value
Equity Portfolio Donaldson, Lufkin & Jenrette $14,104 3.55% 4.43%
Securities Corporation ("DLJ")
Merrill Lynch, Pierce Fenner & Smith $13,238 3.33% 3.15%
Incorporated ("Merrill Lynch")
Merrill Lynch World Strategy
Portfolio DLJ $ 2,260 2.52% 3.40%
Merrill Lynch $ 5,171 5.76% 7.31%
MFS Research Portfolio DLJ $ 408 .07% .07%
Pershing Trading Company, L.P. $ 48 .01% .01%
MFS Emerging Growth Companies
Portfolio Pershing Trading Company, L.P. $ 600 .10% .12%
T. Rowe Price Equity Income
Portfolio DLJ $ 4,060 2.83% 1.74%
T. Rowe Price International
Stock Portfolio Jardine Fleming Securities Ltd. $ 1,978 1.10% .72%
Robert Fleming Securities Ltd. $ 5,249 2.92% 3.41%
Ord Minnett - New Zealand Ltd. $ 326 .18% .13%
Ord Minnett, Inc. $ 155 .09% .06%
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 EQ/Evergreen Foundation, EQ/Evergreen, MFS Growth with Income, EQ/Alliance
Premier GrowthEQ/Capital Research, EQ/Capital U.S. Equities and EQ/Capital
International Equities 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
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number of outstanding shares of that class of the Portfolio at such time. All
expenses borne by the Trust and each of its Classes, will be accrued daily.
The net asset value per share of each Portfolio will be determined and computed
as follows, in accordance with generally accepted accounting principles, and
consistent with the 1940 Act:
o The assets belonging to each Portfolio will include (i) all
consideration received by the Trust for the issue or sale of shares of that
particular Portfolio, together with all assets in which such consideration is
invested or reinvested, (ii) all income, earnings, profits, and proceeds
thereof, including any proceeds derived from the sale, exchange or liquidation
of such assets, (iii) any funds or payments derived from any reinvestment of
such proceeds in whatever form the same may be, and (iv) "General Items", if
any, allocated to that Portfolio. "General Items" include any assets, income,
earnings, profits, and proceeds thereof, funds, or payments which are not
readily identifiable as belonging to any particular Portfolio. General Items
will be allocated as the Trust's Board of Trustees considers fair and
equitable.
o The liabilities belonging to each Portfolio will include (i) the
liabilities of the Trust in respect of that Portfolio, (ii) all expenses,
costs, changes and reserves attributable to that Portfolio, and (iii) any
general liabilities, expenses, costs, charges or reserves of the Trust which
are not readily identifiable as belonging to any particular Portfolio which
have been allocated as the Trust's Board of Trustees considers fair and
equitable.
The value of each Portfolio will be determined at the close of business on each
"business day." Normally, this would be each day that the New York Stock
Exchange is open and would include some federal holidays. For stocks and
options, the close of trading is 4:00 p.m. and 4:15 p.m. Eastern Time,
respectively; for bonds it is the close of business in New York City, and for
foreign securities it is the close of business in the applicable foreign
country, with exchange rates determined at 12:00 p.m. Eastern Time.
Values are determined according to accepted accounting practices and all laws
and regulations that apply. The assets of each Portfolio are valued as follows:
o Stocks listed on national securities exchanges and certain
over-the-counter issues traded on the NASDAQ national market system are valued
at the last sale price, or, if there is no sale, at the latest available bid
price. Other unlisted stocks are valued at their last sale price or, if there
is no reported sale during the day, at a bid price estimated by a broker.
o Foreign securities not traded directly, or in ADRs or similar form
in the United States, are valued at representative quoted prices in the
currency of the country of origin. Foreign currency is converted into United
States dollar equivalent at current exchange rates.
o United States Treasury securities and other obligations issued or
guaranteed by the United States Government, its agencies or instrumentalities,
are valued at representative quoted prices.
o Long-term corporate bonds are valued at prices obtained from a bond
pricing service of a major dealer in bonds when such prices are available;
however, when such prices are not available, such bonds are valued at a bid
price estimated by a broker.
o Short-term debt securities in the Portfolios which mature in 60 days
or less are valued at amortized cost, which approximates market value.
Short-term debt securities in such Portfolios which mature in more than 60 days
are valued at representative quoted prices.
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o Convertible preferred stocks listed on national securities exchanges
are valued as of their last sale price or, if there is no sale, at the latest
available bid price.
o Convertible bonds, and unlisted convertible preferred stocks, are
valued at bid prices obtained from one or more of the major dealers in such
bonds or stocks. Where there is a discrepancy between dealers, values may be
adjusted based on recent premium spreads to the underlying common stocks.
o Mortgage-backed and asset-backed securities are valued at prices
obtained from a bond pricing service where available, or at a bid price
obtained from one or more of the major dealers in such securities. If a quoted
price is unavailable, an equivalent yield or yield spread quotes will be
obtained from a broker and converted to a price.
o Purchased options, including options on futures, are valued at their
last bid price. Written options are valued at their last asked price.
o Futures contracts are valued as of their last sale price or, if
there is no sale, at the latest available bid price.
o Other securities and assets for which market quotations are not
readily available or for which valuation cannot be provided are valued in good
faith by the valuation committee of the Board of Trustees using its best
judgment.
The market value of a put or call option will usually reflect, among other
factors, the market price of the underlying security.
When the Trust writes a call option, an amount equal to the premium received by
the Trust is included in the Trust's financial statements as an asset and an
equivalent liability. The amount of the liability is subsequently
marked-to-market to reflect the current market value of the option written. When
an option expires on its stipulated expiration date or the Trust enters into a
closing purchase or sale transaction, the Trust realizes a gain (or loss)
without regard to any unrealized gain or loss on the underlying security, and
the liability related to such option is extinguished. When an option is
exercised, the Trust realizes a gain or loss from the sale of the underlying
security, and the proceeds of sale are increased by the premium originally
received, or reduced by the price paid for the option.
The Manager and Advisers may, from time to time, under the general supervision
of the Board of Trustees or its valuation committee, utilize the services of one
or more pricing services available in valuing the assets of the Trust. The
Manager and Advisers will continuously monitor the performance of these
services.
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.
-55-
<PAGE>
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.
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
-56-
<PAGE>
general, for a Portfolio to meet the investment diversification requirements of
Subchapter L of the Code, Treasury regulations require that no more than 55% of
the total value of the assets of the Portfolio may be represented by any one
investment, no more than 70% by two investments, no more than 80% by three
investments and no more than 90% by four investments. Generally, for purposes
of the regulations, all securities of the same issuer are treated as a single
investment. In the context of United States Government securities (including
any security that is issued, guaranteed or insured by the United States or an
instrumentality of the United States) each United States Government agency or
instrumentality is treated as a separate issuer. Compliance with the
regulations is tested on the first day of each calendar year quarter. There is
a thirty (30) day period after the end of each calendar year quarter in which
to cure any non-compliance.
PORTFOLIO PERFORMANCE
COMPUTATION OF TOTAL RETURN
Each Portfolio may provide average annual total return information calculated
according to a formula prescribed by the SEC. According to that formula, average
annual total return figures represent the average annual compounded rate of
return for the stated period. Average annual total return quotations reflect the
percentage change between the beginning value of a static account in the
Portfolio and the ending value of that account measured by the then current net
asset value of that Portfolio assuming that all dividends and capital gains
distributions during the stated period were invested in shares of the Portfolio
when paid. Total return is calculated by finding the average annual compounded
rates of return of a hypothetical investment that would equate the initial
amount invested to the ending redeemable value of such investment, according to
the following formula:
T = (ERV/P)1/n
where "T" equals average annual total return; where "ERV", the ending redeemable
value, is the value at the end of the applicable period of a hypothetical $1,000
investment made at the beginning of the applicable period; where "P" equals a
hypothetical initial investment of $1,000; and where "n" equals the number of
years.
Each Portfolio's total return will vary from time to time depending upon market
conditions, the composition of each Portfolio's investment portfolio and
operating expenses of the Trust allocated to each Portfolio. Total return should
also be considered relative to changes in the value of a Portfolio's shares and
to the relative risks associated with the investment objectives and policies of
the Portfolios. These total return figures do not reflect insurance company
expenses and fees applicable to the Contracts. At any time in the future, total
return may be higher or lower than in the past and there can be no assurance
that any historical results will continue.
NON-STANDARD PERFORMANCE
In addition to the performance information described above, each Portfolio may
provide total return information with respect to the Portfolios for designated
periods, such as for the most recent six months or most recent twelve months.
This total return information is computed as described under "Computation of
Total Return" above except that no annualization is made.
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<PAGE>
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 are incorporated by reference and made a part of this document.
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<PAGE>
<TABLE>
<CAPTION>
EQ ADVISORS TRUST
INVESTMENT STRATEGIES SUMMARY
Borrowings Borrowings
Asset-backed (emergencies, (leveraging Convertible Inverse
PORTFOLIO Securities(A) redemptions) purposes) Securities Floaters(A) Floaters(A)
------------- ------------ --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
T. Rowe Price International Stock N Y - 33.3% N Y N N
T. Rowe Price Equity Income N Y - 33.3% N Y N N
EQ/Putnam Growth & Income Value N Y - 10.0% N Y N N
EQ/Putnam International Equity N Y - 10.0% N Y N N
EQ/Putnam Investors Growth N Y - 10.0% N Y N N
EQ/Putnam Balanced Y Y - 10.0% N Y Y N
MFS Research N Y - 33.3% N Y N N
MFS Emerging Growth Companies Y Y - 33.3% N Y N N
MFS Growth with Income N Y - 10.0% N Y N N
Morgan Stanley Emerging Markets Equity Y Y - 33.3% N Y Y Y
Warburg Pincus Small Company Value N Y - 30.0% N Y N N
Merrill Lynch World Strategy N Y - 33.3% N Y N N
Merrill Lynch Basic Value Equity N Y - 33.3% N Y N N
Lazard Large Cap Value N Y - 10.0% Y - 33.3% Y Y N
Lazard Small Cap Value N Y - 15.0% (E) N Y Y N
JPM Core Bond Y Y - 33.3% N Y N N
BT Small Company Index Y Y - 33.3% N Y N N
BT International Equity Index Y Y - 33.3% N Y N N
BT Equity 500 Index Y Y - 33.3% N Y N N
EQ/Evergreen Portfolio N Y - 33.3% N Y N N
EQ/Evergreen Foundation Portfolio N Y - 33.3% N Y N N
EQ/Alliance Premier Growth Portfolio N Y - 5% N Y N N
EQ/Capital Research Portfolio N Y - 5% N Y N N
EQ/Capital U.S. Equities Portfolio N N N Y N N
EQ/Capital International Equities Portfolio N Y - 5% N Y N N
</TABLE>
<TABLE>
<CAPTION>
Brady Depositary Foreign Foreign Currency
PORTFOLIO Bonds(B) Receipts(B) Securities Spot Trans.
-------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
T. Rowe Price International Stock N Y Y
T. Rowe Price Equity Income N Y Y
EQ/Putnam Growth & Income Value N Y Y
EQ/Putnam International Equity N Y Y
EQ/Putnam Investors Growth N Y Y
EQ/Putnam Balanced Y Y Y
MFS Research N Y Y
MFS Emerging Growth Companies Y Y Y
MFS Growth with Income N Y Y
Morgan Stanley Emerging Markets Equity Y Y Y
Warburg Pincus Small Company Value N Y Y
Merrill Lynch World Strategy N Y Y
Merrill Lynch Basic Value Equity N Y - 10% Y
Lazard Large Cap Value N Y - 10% Y
Lazard Small Cap Value N N N
JPM Core Bond Y Y Y
BT Small Company Index N N N
BT International Equity Index N Y Y
BT Equity 500 Index N N N
EQ/Evergreen Portfolio N N N
EQ/Evergreen Foundation Portfolio N Y Y
EQ/Alliance Premier Growth Portfolio N Y Y
EQ/Capital Research Portfolio N Y Y
EQ/Capital U.S. Equities Portfolio N Y Y
EQ/Capital International Equities Portfolio N Y Y
</TABLE>
<TABLE>
<CAPTION>
Foreign Currency Foreign Currency Options
PORTFOLIO Forward Trans. Futures Trans.(A) (exchange traded)
-------------- ----------------- -----------------
<S> <C> <C> <C>
T. Rowe Price International Stock Y Y Y
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 N N N
MFS Emerging Growth Companies Y Y Y
MFS Growth with Income Y Y Y
Morgan Stanley Emerging Markets Equity Y Y Y
Warburg Pincus Small Company Value Y Y Y
Merrill Lynch World Strategy Y Y Y
Merrill Lynch Basic Value Equity Y Y Y
Lazard Large Cap Value N N N
Lazard Small Cap Value N N N
JPM Core Bond Y Y Y
BT Small Company Index N N N
BT International Equity Index Y Y Y
BT Equity 500 Index N N N
EQ/Evergreen Portfolio N N N
EQ/Evergreen Foundation Portfolio Y Y Y
EQ/Alliance Premier Growth Portfolio Y Y Y
EQ/Capital Research Portfolio Y Y Y
EQ/Capital U.S. Equities Portfolio Y Y Y
EQ/Capital International Equities Portfolio Y Y Y
</TABLE>
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<PAGE>
EQ ADVISORS TRUST
INVESTMENT STRATEGIES SUMMARY
<TABLE>
<CAPTION>
Foreign Currency
Foreign Currency (written, covered Forward Hybrid Illiquid
PORTFOLIO Options (O-T-C) call options) Commitments Instruments(A) Securities
--------------- ------------- ----------- -------------- ----------
<S> <C> <C> <C> <C> <C>
T. Rowe Price International Stock N Y Y Y - 10% Y - 15%
T. Rowe Price Equity Income N Y Y Y - 10% Y - 15%
EQ/Putnam Growth & Income Value Y Y Y N Y - 15%
EQ/Putnam International Equity Y Y Y N Y - 15%
EQ/Putnam Investors Growth Y Y Y N Y - 15%
EQ/Putnam Balanced Y Y Y N Y - 15%
MFS Research N N Y N Y - 15%
MFS Emerging Growth Companies Y Y Y N Y - 15%
MFS Growth with Income Y Y Y N Y - 15%
Morgan Stanley Emerging Markets Equity Y Y Y Y Y - 15%
Warburg Pincus Small Company Value N Y N N Y - 10%
Merrill Lynch World Strategy Y Y Y N Y - 15%
Merrill Lynch Basic Value Equity N Y Y N Y - 15%
Lazard Large Cap Value N Y Y N Y - 10%
Lazard Small Cap Value N N Y N Y - 10%
JPM Core Bond Y Y Y N Y - 15%
0BT Small Company Index N N Y N Y - 15%
BT International Equity Index Y Y Y N Y - 15%
BT Equity 500 Index N N Y N Y - 15%
EQ/Evergreen Portfolio Y Y Y N Y - 15%
EQ/Evergreen Foundation Portfolio N Y Y N Y - 15%
EQ/Alliance Premier Growth Portfolio Y Y Y N Y - 15%
EQ/Capital Research Portfolio Y Y Y N Y - 15%
EQ/Capital U.S. Equities Portfolio Y Y Y N Y - 15%
EQ/Capital International Equities Portfolio Y Y Y N Y - 10%
</TABLE>
<TABLE>
<CAPTION>
Investment Investment Non-Inv.
Company Grade Grade Loan
PORTFOLIO Securities Fixed Income Fixed Income Participations
---------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
T. Rowe Price International Stock Y N N
T. Rowe Price Equity Income Y Y - 10% N
EQ/Putnam Growth & Income Value Y Y N
EQ/Putnam International Equity Y Y N
EQ/Putnam Investors Growth Y Y N
EQ/Putnam Balanced Y Y Y
MFS Research Y Y - 10% N
MFS Emerging Growth Companies Y Y Y
MFS Growth with Income Y Y N
Morgan Stanley Emerging Markets Equity Y Y Y
Warburg Pincus Small Company Value Y Y N
Merrill Lynch World Strategy Y Y N
Merrill Lynch Basic Value Equity Y N N
Lazard Large Cap Value Y N Y
Lazard Small Cap Value Y N Y
JPM Core Bond Y N Y
0BT Small Company Index Y N N
BT International Equity Index Y N N
BT Equity 500 Index Y N N
EQ/Evergreen Portfolio Y N N
EQ/Evergreen Foundation Portfolio N Y N
EQ/Alliance Premier Growth Portfolio Y N N
EQ/Capital Research Portfolio Y Y - 10% N
EQ/Capital U.S. Equities Portfolio Y Y N
EQ/Capital International Equities Portfolio Y N N
</TABLE>
<TABLE>
<CAPTION>
Security
Mortgage Direct Municipal Futures
PORTFOLIO Related(D) Mortgages Securities Trans.(A)
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
T. Rowe Price International Stock N N N Y
T. Rowe Price Equity Income N N N Y
EQ/Putnam Growth & Income Value N N N Y
EQ/Putnam International Equity N N N Y
EQ/Putnam Investors Growth N N N Y
EQ/Putnam Balanced Y N N Y
MFS Research N N N N
MFS Emerging Growth Companies N N N Y
MFS Growth with Income N N N Y
Morgan Stanley Emerging Markets Equity Y N Y Y
Warburg Pincus Small Company Value N N N Y
Merrill Lynch World Strategy N N N Y
Merrill Lynch Basic Value Equity N N N Y
Lazard Large Cap Value Y N N N
Lazard Small Cap Value Y N N N
JPM Core Bond Y Y Y Y
0BT Small Company Index Y N N Y
BT International Equity Index Y N N Y
BT Equity 500 Index Y N N Y
EQ/Evergreen Portfolio N N N Y
EQ/Evergreen Foundation Portfolio Y N N Y
EQ/Alliance Premier Growth Portfolio N N N Y
EQ/Capital Research Portfolio N N N Y
EQ/Capital U.S. Equities Portfolio N N N Y
EQ/Capital International Equities Portfolio N N N Y
</TABLE>
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<PAGE>
EQ ADVISORS TRUST
INVESTMENT STRATEGIES SUMMARY
<TABLE>
<CAPTION>
Security Passive Payment Real Estate
Options Foreign In-Kind Investment Repurchase
PORTFOLIO Trans.(C) Inv. Comp. Bonds Trust Agreements
--------- ---------- ----- ----- ----------
<S> <C> <C> <C> <C> <C>
T. Rowe Price International Stock Y Y N Y
T. Rowe Price Equity Income Y N N Y
EQ/Putnam Growth & Income Value Y N Y Y
EQ/Putnam International Equity Y Y N Y
EQ/Putnam Investors Growth Y N N Y
EQ/Putnam Balanced Y N Y Y
MFS Research N N N Y
MFS Emerging Growth Companies Y N N Y
MFS Growth with Income Y N N Y
Morgan Stanley Emerging Markets Equity Y Y Y Y
Warburg Pincus Small Company Value Y N N Y
Merrill Lynch World Strategy Y N N Y
Merrill Lynch Basic Value Equity Y N N Y
Lazard Large Cap Value N N N Y
Lazard Small Cap Value N N N Y
JPM Core Bond Y N Y Y
BT Small Company Index Y N N Y
BT International Equity Index Y N N Y
BT Equity 500 Index Y N N Y
EQ/Evergreen Portfolio Y N N Y
EQ/Evergreen Foundation Portfolio Y N N Y
EQ/Alliance Premier Growth Portfolio Y N N Y
EQ/Capital Research Portfolio Y N N Y
EQ/Capital U.S. Equities Portfolio Y N N Y
EQ/Capital International Equities Portfolio Y N N Y
</TABLE>
<TABLE>
<CAPTION>
Reverse Short Sales Small
Repurchase Securities Against- Company Structured
PORTFOLIO Agreements Lending the-box Securities Notes(A)
--------- ---------- ------- ------- ---------- --------
<S> <C> <C> <C> <C> <C>
T. Rowe Price International Stock N Y - 33.3% N N N
T. Rowe Price Equity Income N Y - 33.3% N N N
EQ/Putnam Growth & Income Value N Y - 25.0% N N N
EQ/Putnam International Equity N Y - 25.0% N Y N
EQ/Putnam Investors Growth N Y - 25.0% N N N
EQ/Putnam Balanced N Y - 25.0% N Y N
MFS Research N Y - 33.3% N N N
MFS Emerging Growth Companies N Y - 30.0% N N N
MFS Growth with Income N Y - 25.0% N N N
Morgan Stanley Emerging Markets Equity Y Y - 33.3% Y Y Y
Warburg Pincus Small Company Value N Y - 20.0% Y Y N
Merrill Lynch World Strategy N Y - 20.0% N N N
Merrill Lynch Basic Value Equity N Y - 20.0% N N N
Lazard Large Cap Value Y Y - 10.0% N N N
Lazard Small Cap Value N Y - 10.0% N Y N
JPM Core Bond Y Y - 33.3% N N N
BT Small Company Index Y Y - 30.0% N Y N
BT International Equity Index Y Y - 30.0% N N N
BT Equity 500 Index Y Y - 30.0% N N N
EQ/Evergreen Portfolio Y Y - 33.3% Y Y N
EQ/Evergreen Foundation Portfolio Y Y - 33.3% N N N
EQ/Alliance Premier Growth Portfolio N Y - 25% N N N
EQ/Capital Research Portfolio N N N Y N
EQ/Capital U.S. Equities Portfolio N N N N N
EQ/Capital International Equities Portfolio N N N N N
</TABLE>
<TABLE>
<CAPTION>
Zero
Swap U.S. Gov't Coupon
PORTFOLIO Trans.(A) Securities Warrants Bonds
--------- ---------- -------- -----
<S> <C> <C> <C> <C>
T. Rowe Price International Stock N Y N
T. Rowe Price Equity Income N Y N
EQ/Putnam Growth & Income Value N Y Y
EQ/Putnam International Equity N Y N
EQ/Putnam Investors Growth N Y N
EQ/Putnam Balanced N Y Y
MFS Research N Y N
MFS Emerging Growth Companies N Y N
MFS Growth with Income N Y Y
Morgan Stanley Emerging Markets Equity Y Y Y
Warburg Pincus Small Company Value N Y N
Merrill Lynch World Strategy N Y N
Merrill Lynch Basic Value Equity N Y N
Lazard Large Cap Value N Y N
Lazard Small Cap Value N Y N
JPM Core Bond Y Y Y
BT Small Company Index N Y N
BT International Equity Index Y Y N
BT Equity 500 Index N Y N
EQ/Evergreen Portfolio N Y N
EQ/Evergreen Foundation Portfolio N Y N
EQ/Alliance Premier Growth Portfolio N Y N
EQ/Capital Research Portfolio N Y N
EQ/Capital U.S. Equities Portfolio N Y N
EQ/Capital International Equities Portfolio N Y N
</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).
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<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 S&P. Commercial paper rated A-1 by S&P has the following characteristics:
o liquidity ratios are adequate to meet cash requirements;
o long-term senior debt is rated "A" or better;
o the issuer has access to at least two additional channels of
borrowing;
o basic earnings and cash flow have an upward trend with allowance made
for unusual circumstances;
o typically, the issuer's industry is well established and the issuer
has a strong position within the industry; and
o the reliability and quality of management are unquestioned.
Relative strength or weakness of the above factors determines whether the
issuer's commercial paper is rated A-1, A-2 or A-3. Issues rated A-1 that are
determined by S&P to have overwhelming safety characteristics are designated
A-1+.
The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Among the factors considered by Moody's in assigning ratings are the following:
o evaluation of the management of the issuer;
o economic evaluation of the issuer's industry or industries and an
appraisal of speculative-type risks which may be inherent in certain
areas;
o evaluation of the issuer's products in relation to competition and
customer acceptance;
o liquidity;
o amount and quality of long-term debt;
o trend of earnings over a period of ten years;
o financial strength of parent company and the relationships which exist
with the issuer; and
o recognition by the management of obligations which may be present or
may arise as a result of public interest questions and preparations to
meet such obligations.
DESCRIPTION OF BOND RATINGS
Bonds are considered to be "investment grade" if they are in one of the top four
ratings.
S&P's ratings are as follows:
o Bonds rated AAA have the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
o Bonds rated AA have a very strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than bonds in
higher rated categories.
o Bonds rated A have a strong capacity to pay interest and repay principal
although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.
o Bonds rated BBB are regarded as having an adequate capacity to pay interest
and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are
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<PAGE>
more likely to lead to a weakened capacity to pay interest and repay
principal for bonds in this category than in higher rated categories.
o Debt rated BB, B, CCC, CC or C is regarded, on balance, as predominantly
speculative with respect to the issuer's capacity to pay interest and repay
principal in accordance with the terms of the obligation. While such debt
will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse debt
conditions.
o The rating C1 is reserved for income bonds on which no interest is being
paid.
o Debt rated D is in default and payment of interest and/or repayment of
principal is in arrears.
The ratings from AA to CCC may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within the major rating categories.
Moody's ratings are as follows:
o Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as
"gilt-edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to 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.
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<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
C-2
<PAGE>
(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. (to be provided by
amendment)
(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. (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. (to
be provided by amendment)
(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
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(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. (to be provided by amendment)
(d)(13) Form of Investment Advisory Agreement between EQ Financial
Consultants, Inc. and Alliance Capital Management L.P., dated as
of April 30, 1999. (to be provided by amendment)
(d)(14) Form of Investment Advisory Agreement between EQ Financial
Consultants, Inc. and Capital Guardian Trust Company, dated as of
April 30, 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. (to be
provided by amendment)
(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. (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. (to
be provided by amendment)
(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. (to be provided by amendment)
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(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. (to
be provided by amendment)
(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. (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. (to
be provided by amendment)
(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. (to be provided by amendment)
(f) Form of Deferred Compensation Plan.3 (to be provided by amendment)
(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
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(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. (to be provided by amendment)
(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. (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. (to be provided by
amendment)
(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 between EQ
Advisors Trust and EQ Advisers Trust and EQ Financial Consultants,
Inc. dated April, 1998.
(h)(2)(iii) Amended and Restated Expense Limitation Agreement by and between
EQ Financial Consultants, Inc. and EQ Advisors Trust dated as of
December 31, 1998. (to be provided by amendment)
(h)(2)(iv) Form of Amended and Restated Expense Limitation Agreement between
EQ Financial Consultants, Inc. and EQ Advisors Trust dated as of
April 30, 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. (to
be provided by amendment)
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(h)(4)(i) Participation Agreement dated April 14, 1997.4
(h)(4)(ii) Amendment No. 1 dated December 9, 1997 to the Participation
Agreement dated April 14, 1997.7
(h)(4)(iii) Amendment No. 2 dated as of December 31, 1998 to the Participation
Agreement dated April 14, 1997. (to be provided by amendment)
(h)(4)(iv) Form of Amendment No. 3 dated as of April 30, 1999 to the
Participation Agreement dated April 14, 1997. (to be provided by
amendment)
(h)(5) Participation Agreement dated December 1, 1998 with the Equitable
Investment Plan for Employees, Managers and Agents. (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.
(j) Consent of PricewaterhouseCoopers LLP, Independent Public
Accountants.
(k) Omitted Financial Statements: Annual Report of Shareholders for
the year ended December 31, 1998 for each of the Trust's twenty
one current Portfolios.
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(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
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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).
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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).
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 100% of the Trust's shares as
of November 15, 1998. All EQ Advisors Trust shareholders are required to solicit
instructions from their respective contract owners as to certain matters. EQ
Advisors Trust may in the future offer its shares to insurance companies
unaffiliated with Equitable.
On July 22, 1992, Equitable converted from a New York mutual life
insurance company to a publicly-owned New York stock life insurance company. At
that time Equitable became a wholly-owned subsidiary of The Equitable Companies
Incorporated ("Holding Company"). The Holding Company continues to own 100% of
Equitable's common stock as well as approximately 72% of the common stock of
Donaldson, Lufkin & Jenrette, Inc., a registered broker-dealer.
AXA, a French insurance holding company, currently owns approximately
59% of the outstanding voting shares of common stock of The Equitable Companies.
As majority shareholder of the Equitable Companies, AXA is able to exercise
significant influence over the operations and capital structure of The Equitable
Companies, Equitable and their subsidiaries. AXA is the holding company for an
international group of insurance and related financial services companies. AXA
is among the world's largest insurance groups with worldwide revenues in 1998 of
$____ billion and is also the world's largest insurer-based investment manager
with $___ billion in assets under management. AXA is also engaged in asset
management, investment banking, securities trading and other financial services
activities principally in the United States, as well as in Western Europe and
the Asia Pacific area.
ITEM 25. INDEMNIFICATION
Amended and Restated Agreement and Declaration of Trust ("Declaration
of Trust") and By-Laws.
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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
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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
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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 BANKERS TRUST COMPANY IS SET
FORTH BELOW. TO THE KNOWLEDGE OF THE TRUST, NONE OF THE DIRECTORS OR OFFICERS OF
BANKERS TRUST, EXCEPT THOSE SET FORTH BELOW, IS OR HAS BEEN AT ANYTIME DURING
THE PAST TWO FISCAL YEARS ENGAGED IN ANY OTHER BUSINESS, PROFESSION, VOCATION OR
EMPLOYMENT OF A SUBSTANTIAL NATURE, EXCEPT THAT CERTAIN DIRECTORS AND OFFICERS
ALSO HOLD VARIOUS POSITIONS WITH AND ENGAGE IN BUSINESS FOR BANKERS TRUST NEW
YORK CORPORATION. SET FORTH BELOW ARE THE NAMES AND PRINCIPAL BUSINESSES OF THE
DIRECTORS AND OFFICERS OF BANKERS TRUST WHO ARE OR DURING THE PAST TWO FISCAL
YEARS HAVE BEEN ENGAGED IN ANY OTHER BUSINESS, PROFESSION, VOCATION OR
EMPLOYMENT OF A SUBSTANTIAL NATURE.
These persons may be contacted c/o Bankers Trust Company, 130 Liberty Street,
New York, New York 10006.
Lee A. Ault III, 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.;
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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, 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.
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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 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.
C-14
<PAGE>
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.
C-15
<PAGE>
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
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.
C-16
<PAGE>
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.
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.
C-17
<PAGE>
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 FB and Separate Account No. 49 of Equitable.
(b) Set forth below is certain information regarding the directors and
officers of EQ Financial Consultants, Inc., and of Equitable Distributors, Inc.,
the principal underwriters of the Trust's Class IA and Class IB shares. The
business address of the persons whose names are preceded by a single asterisk is
1290 Avenue of the Americas, New York, New York 10104. The business address of
the persons whose names are preceded by a double asterisk is 660 Newport Center
Drive, Suite 1200, Newport Beach, CA 92660. Mr. Laughlin's business address is
1345 Avenue of the Americas, 39th Floor, New York, New York 10105. Mr.
Kornweiss's business address is 4251 Crums Mill Road, Harrisburg, PA 17112. The
business address of Mr. Bullen and Ms. Fazio is 200 Plaza Drive, Secaucus, New
Jersey 07096.
C-18
<PAGE>
<TABLE>
<CAPTION>
=====================================================================================================================
EQ FINANCIAL CONSULTANTS, INC.
=====================================================================================================================
<S> <C> <C>
NAME AND PRINCIPAL POSITIONS AND OFFICES WITH EQ POSITIONS AND OFFICES WITH
BUSINESS ADDRESS FINANCIAL CONSULTANTS, INC. REGISTRANT (EQ ADVISORS TRUST)
- ---------------------------------------------------------------------------------------------------------------------
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
* Mary P. Breen Vice President and Counsel Vice President and Secretary
* Donna M. Dazzo First Vice President
* Robin K. Murray First Vice President
* Michael Brzozowski Vice President and Compliance 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
=====================================================================================================================
C-19
<PAGE>
=====================================================================================================================
* Dan Wiley Vice President
* 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>
C-20
<PAGE>
<TABLE>
<CAPTION>
=====================================================================================================================
EQUITABLE DISTRIBUTORS, INC.
=====================================================================================================================
<S> <C> <C>
POSITIONS AND OFFICES WITH
NAME AND PRINCIPAL BUSINESS ADDRESS POSITIONS AND OFFICES WITH REGISTRANT (EQ
EQUITABLE DISTRIBUTORS, INC. ADVISORS TRUST)
- ---------------------------------------------------------------------------------------------------------------------
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 Vice President and Secretary
** Ken Jaffe Senior Vice President
** Michael McDaniel Senior Vice President
** Debora Buffington Chief Compliance Officer
* Mary P. Breen Vice President and Counsel
* Mark A. Silberman Vice President and Chief Financial
Officer
* Raymond T. Barry Vice President
** Mark Brandenberger Vice President
* Thomas D. Bullen Vice President
** Dave Hughes Vice President
** Marty Krager Vice President
** Michelle O'Haren Vice President
* Ronald R. Quist Treasurer
* Janet Hannon Secretary
* Linda J. Galasso Assistant Secretary
=====================================================================================================================
</TABLE>
(c) Inapplicable.
C-21
<PAGE>
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
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
</TABLE>
C-22
<PAGE>
ITEM 29. MANAGEMENT SERVICES: NONE.
ITEM 30. UNDERTAKINGS
Inapplicable.
C-23
<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. 8 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 16th day of February, 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. 8 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 February 16, 1999
- ------------------------------------
Peter D. Noris
* Trustee February 16, 1999
- ------------------------------------
William T. McCaffrey
* Trustee February 16, 1999
- ------------------------------------
Michael Hegarty
* Trustee February 16, 1999
- ------------------------------------
Jettie M. Edwards
* Trustee February 16, 1999
- ------------------------------------
William M. Kearns, Jr.
* Trustee February 16, 1999
- ------------------------------------
Christopher P.A. Komisarjevsky
* Trustee February 16, 1999
- ------------------------------------
Harvey Rosenthal
* Chief Financial Officer February 16, 1999
- ------------------------------------
Harvey Blitz
</TABLE>
C-24
<PAGE>
* By: /s/
---------------------------
Peter D. Noris
(Attorney-in-Fact)
C-25
<PAGE>
EXHIBIT LIST
EXHIBIT
NUMBER DESCRIPTION
(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.
(j) Consent of PricewaterhouseCoopers LLP, Independent Public
Accountants.
(n) Financial Data Schedule.
C-26
<PAGE>
EXHIBIT (I)(5)
FORM OF OPINION AND CONSENT OF COUNSEL
February 16, 1999
EQ Advisors Trust
1290 Avenue of the Americas
New York, New York 10104
Dear Gentlemen:
This opinion is given in connection with the filing by EQ Advisors
Trust, a Delaware business trust ("Trust"), of Post-Effective Amendment No. 8
to the Registration Statement on Form N-lA ("Registration Statement") under the
Securities Act of 1933 ("1933 Act") and Amendment No. 10 under the Investment
Company Act of 1940 ("1940 Act") relating to an indefinite amount of authorized
shares of beneficial interest, at a par value of $.01 per share, of four new
separate series of the Trust, EQ/Aliance Premier Growth Portfolio, EQ/Capital
Research Portfolio, EQ/Capital U.S. Equities Portfolio and EQ/Capital
International Equities Portfolio (individually "Portfolio" and, together, the
"Portfolios"). The authorized shares of beneficial interest of the Portfolios
are hereinafter referred to as the "Shares."
We have examined the following Trust documents: Certificate of Trust;
Certificate of Amendment; Amended and Restated Agreement and Declaration of
Trust; By-Laws; Registration Statement on Form N-lA filed on December 3, 1996;
Pre-Effective Amendment No. 1 to the Registration Statement on Form N-lA filed
January 23, 1997; Pre-Effective Amendment No. 2 to the Registration Statement on
Form N-lA filed April 7, 1997; PostEffective Amendment No. I to the Registration
Statement on Form N-1 A filed August 28, 1997, Post-Effective Amendment No. 2
to the Registration Statement on Form N-lA filed October 15, 1997;
Post-Effective Amendment No. 3 to the Registration Statement on Form N-lA filed
October 31, 1997; Post-Effective Amendment No. 4 to the Registration Statement
filed December 29, 1997, Post-Effective Amendment No. 5 to the Registration
Statement filed March 5, 1998; Post-Effective Amendment No. 6 to the
Registration Statement filed April 22, 1998; Post-Effective Amendment No. 7 to
the Registration Statement filed October 15, 1998; pertinent provisions of the
laws of the State of Delaware; and such other corporate records, certificates,
documents and statutes that we have deemed relevant in order to render the
opinion expressed herein.
Based on such examination, we are of the opinion that:
1. EQ Advisors Trust is a Delaware business trust duly organized, validly
existing, and in good standing under the laws of the State of Delaware;
and
2. The Shares to be offered for sale by EQ Advisors Trust, when issued in
the manner contemplated by the Registration Statement, will be legally
issued, fully paid and non-assessable.
<PAGE>
This letter expresses our opinion as to the Delaware Business Trust Act
governing matters such as the due organization of EQ Advisors Trust and the
authorization and issuance of the Shares, but does not extend to the securities
or "Blue Sky" laws of the State of Delaware or to federal securities or other
laws.
We consent to the use of this opinion as an exhibit to the Registration
Statement and to the reference to Dechert Price & Rhoads under the caption
"Counsel" in the Statement of Additional Information, which is incorporated by
reference into the Prospectus comprising a part of the Registration Statement.
Very truly yours,
DECHERT PRICE & RHOADS
2
<PAGE>
Consent of Independent Accountants
We hereby consent to the reference to us in the Statement of Additional
Information constituting part of this Post-Effective Amendment No. 8 to the
registration statement on Form N-1A (the "Registration Statement") under the
heading "Other Services--Independent Accountant".
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
February 12, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0001027263
<NAME> EQ ADVISORS TRUST
<SERIES>
<NUMBER> 1
<NAME> T. ROWE PRICE EQUITY INCOME PORTFOLIO
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 190,671,176
<INVESTMENTS-AT-VALUE> 199,205,389
<RECEIVABLES> 2,535,693
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 34,662,625
<TOTAL-ASSETS> 236,403,707
<PAYABLE-FOR-SECURITIES> 1,595,578
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 35,129,685
<TOTAL-LIABILITIES> 36,725,263
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 186,803,782
<SHARES-COMMON-STOCK> 15,546,264
<SHARES-COMMON-PRIOR> 8,272,803
<ACCUMULATED-NII-CURRENT> 1,688,760
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2,651,458
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 8,534,444
<NET-ASSETS> 199,678,444
<DIVIDEND-INCOME> 1,951,320
<INTEREST-INCOME> 369,212
<OTHER-INCOME> 17,435
<EXPENSES-NET> (651,208)
<NET-INVESTMENT-INCOME> 1,686,759
<REALIZED-GAINS-CURRENT> 2,560,333
<APPREC-INCREASE-CURRENT> 3,088,429
<NET-CHANGE-FROM-OPS> 7,335,521
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 8,463,906
<NUMBER-OF-SHARES-REDEEMED> (1,190,445)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 99,731,134
<ACCUMULATED-NII-PRIOR> 2,001
<ACCUMULATED-GAINS-PRIOR> 91,125
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 421,000
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 795,596
<AVERAGE-NET-ASSETS> 154,339,085
<PER-SHARE-NAV-BEGIN> 12.08
<PER-SHARE-NII> 0.11
<PER-SHARE-GAIN-APPREC> 0.65
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.84
<EXPENSE-RATIO> 0.85
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0001027263
<NAME> EQ ADVISORS TRUST
<SERIES>
<NUMBER> 2
<NAME> T. ROWE PRICE INTERNATIONAL STOCK PORTFOLIO
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 104,517,554
<INVESTMENTS-AT-VALUE> 111,253,099
<RECEIVABLES> 1,297,391
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 12,256,386
<TOTAL-ASSETS> 124,806,876
<PAYABLE-FOR-SECURITIES> 6,867,385
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,886,578
<TOTAL-LIABILITIES> 9,753,963
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 109,157,685
<SHARES-COMMON-STOCK> 10,366,644
<SHARES-COMMON-PRIOR> 7,571,312
<ACCUMULATED-NII-CURRENT> 641,355
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,448,982)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 6,702,855
<NET-ASSETS> 115,052,913
<DIVIDEND-INCOME> 1,059,252
<INTEREST-INCOME> 155,012
<OTHER-INCOME> 2,642
<EXPENSES-NET> (555,174)
<NET-INVESTMENT-INCOME> 661,732
<REALIZED-GAINS-CURRENT> (1,223,643)
<APPREC-INCREASE-CURRENT> 10,319,675
<NET-CHANGE-FROM-OPS> 9,757,764
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,726,254
<NUMBER-OF-SHARES-REDEEMED> (3,930,922)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 40,480,944
<ACCUMULATED-NII-PRIOR> (20,377)
<ACCUMULATED-GAINS-PRIOR> (225,339)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 346,500
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 652,971
<AVERAGE-NET-ASSETS> 93,233,155
<PER-SHARE-NAV-BEGIN> 9.85
<PER-SHARE-NII> 0.06
<PER-SHARE-GAIN-APPREC> 1.19
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.10
<EXPENSE-RATIO> 1.20
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0001027263
<NAME> EQ ADVISORS TRUST
<SERIES>
<NUMBER> 3
<NAME> EQ/PUTNAM GROWTH & INCOME VALUE PORTFOLIO
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 309,656,871
<INVESTMENTS-AT-VALUE> 320,504,482
<RECEIVABLES> 9,555,504
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 42,179,229
<TOTAL-ASSETS> 372,239,215
<PAYABLE-FOR-SECURITIES> 7,866,346
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 42,887,782
<TOTAL-LIABILITIES> 50,754,128
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 305,105,103
<SHARES-COMMON-STOCK> 25,774,857
<SHARES-COMMON-PRIOR> 13,045,713
<ACCUMULATED-NII-CURRENT> 1,476,911
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 4,055,462
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 10,847,611
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<NAME> EQ ADVISORS TRUST
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<NAME> BT INTERNATIONAL EQUITY INDEX PORTFOLIO
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<S> <C>
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<NAME> BT SMALL COMPANY INDEX PORTFOLIO
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<NAME> EQ ADVISORS TRUST
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<NAME> EQ ADVISORS TRUST
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