<PAGE>
Registration Nos. 333-17217
811-07953
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 30, 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. 10 /x/
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 /x/
Amendment No.12 /x/
(Check appropriate box or boxes)
EQ ADVISORS TRUST
(formerly 787 Trust)
(Exact name of registrant as specified in charter)
1290 Avenue of the Americas
New York, New York 10104
(Address of principal executive offices)
Registrant's Telephone Number, including area code: (212) 554-1234
Peter D. Noris, Executive Vice President and
Chief Investment Officer
The Equitable Life Assurance Society of the United States
1290 Avenue of the Americas
New York, New York 10104
(Name and address of agent for service)
Please send copies of all communications to:
Jane A. Kanter
Dechert Price & Rhoads
1775 Eye Street N.W.
Washington, D.C. 20006-2401
It is proposed that this filing will become effective:
[X] immediately upon filing pursuant to paragraph (b)
[ ] on [date] pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)
[ ] on [date] pursuant to paragraph (a) of Rule 485
[ ] 75 days after filing pursuant to paragraph (a)
<PAGE>
EQ ADVISORS TRUST
PROSPECTUS
May 1, 1999
This Prospectus describes the twenty-five (25) Portfolios offered by EQ Advisors
Trust. 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.
FIXED INCOME PORTFOLIOS BALANCED PORTFOLIOS
JPM Core Bond EQ/Evergreen Foundation
EQ/Putnam Balanced
Merrill Lynch World Strategy
DOMESTIC EQUITY PORTFOLIOS AGGRESSIVE EQUITY PORTFOLIOS
BT Equity 500 Index BT Small Company Index
Capital Guardian Research Portfolio Lazard Small Cap Value
Capital Guardian U.S. Equity Portfolio MFS Emerging Growth Companies
EQ/Alliance Premier Growth Portfolio Warburg Pincus Small Company Value
EQ/Evergreen
EQ/Putnam Growth & Income Value
EQ/Putnam Investors Growth
Lazard Large Cap Value
Merrill Lynch Basic Value Equity
MFS Growth with Income
MFS Research
T. Rowe Price Equity Income
INTERNATIONAL PORTFOLIOS
BT International Equity Index
Capital Guardian International Portfolio
EQ/Putnam International Equity
Morgan Stanley Emerging Markets Equity
T. Rowe Price International Stock
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 twenty-five (25) current 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. Each Portfolio is a separate series of the Trust with its own
investment objective, investment strategies and risks, which are described in
this Prospectus. Each of the current Portfolios of the Trust, except for the
Morgan Stanley Emerging Markets Equity Portfolio, 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 The Equitable
Investment Plan for Employees, Managers and Agents ("Equitable Plan"). The
prospectus is designed to help you make informed decisions about the Portfolios
that are available under your Contract or under the Equitable Plan. You will
find information about your Contract and how it works in the accompanying
prospectus for the Contracts if you are a Contractholder or participant under a
Contract.
EQ Financial Consultants, Inc. ("Manager") serves as the Manager of the Trust,
subject to the supervision and direction of the Board of Trustees. The Manager
has overall responsibility for the general management and administration of the
Trust. During 1999, the Manager plans to change its name to AXA Advisors, Inc.
Each of the Portfolios has its own investment adviser ("Adviser"). Information
about the Adviser for each Portfolio is contained in the description concerning
that Portfolio in the section entitled "About the Investment Portfolios." The
Manager has the ultimate responsibility to oversee each of the Advisers and to
recommend their hiring, termination and replacement. Subject to approval by the
Board of Trustees, the Manager may without obtaining shareholder approval: (i)
select Advisers for each of the Trust's Portfolios; (ii) enter into and
materially modify existing investment advisory agreements; and (iii) terminate
and replace the Advisers.
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<TABLE>
<CAPTION>
[2nd right hand page] TABLE OF CONTENTS
PAGE
<S> <C>
SUMMARY INFORMATION CONCERNING EQ ADVISORS TRUST..............................5
ABOUT THE INVESTMENT PORTFOLIOS..............................................11
FIXED INCOME PORTFOLIOS...................................................13
JPM CORE BOND PORTFOLIO.................................................13
BALANCED PORTFOLIOS.......................................................16
EQ/EVERGREEN FOUNDATION PORTFOLIO.......................................16
EQ/PUTNAM BALANCED PORTFOLIO............................................18
MERRILL LYNCH WORLD STRATEGY PORTFOLIO..................................21
DOMESTIC EQUITY PORTFOLIOS................................................25
BT EQUITY 500 INDEX PORTFOLIO...........................................25
CAPITAL GUARDIAN RESEARCH PORTFOLIO.....................................28
CAPITAL GUARDIAN U.S. EQUITY PORTFOLIO..................................30
EQ/ALLIANCE PREMIER GROWTH PORTFOLIO....................................32
EQ/EVERGREEN PORTFOLIO..................................................34
EQ/PUTNAM GROWTH & INCOME VALUE PORTFOLIO...............................36
EQ/PUTNAM INVESTORS GROWTH PORTFOLIO....................................39
LAZARD LARGE CAP VALUE PORTFOLIO........................................42
MERRILL LYNCH BASIC VALUE EQUITY PORTFOLIO..............................45
MFS GROWTH WITH INCOME PORTFOLIO........................................48
MFS RESEARCH PORTFOLIO..................................................50
T. ROWE PRICE EQUITY INCOME PORTFOLIO...................................53
AGGRESSIVE EQUITY PORTFOLIOS..............................................56
BT SMALL COMPANY INDEX PORTFOLIO........................................56
LAZARD SMALL CAP VALUE PORTFOLIO........................................59
MFS EMERGING GROWTH COMPANIES PORTFOLIO.................................62
WARBURG PINCUS SMALL COMPANY VALUE PORTFOLIO............................65
INTERNATIONAL PORTFOLIOS..................................................68
BT INTERNATIONAL EQUITY INDEX PORTFOLIO.................................68
CAPITAL GUARDIAN INTERNATIONAL PORTFOLIO................................71
EQ/PUTNAM INTERNATIONAL EQUITY PORTFOLIO................................75
MORGAN STANLEY EMERGING MARKETS EQUITY PORTFOLIO........................78
T. ROWE PRICE INTERNATIONAL STOCK PORTFOLIO.............................82
MORE INFORMATION ON PRINCIPAL RISKS..........................................86
MANAGEMENT OF THE TRUST......................................................92
The Trust.................................................................92
The Manager...............................................................92
Expense Limitation Agreement..............................................93
The Advisers..............................................................94
The Administrator.........................................................94
The Transfer Agent........................................................95
Brokerage Practices.......................................................95
Brokerage Transactions with Affiliates....................................95
FUND DISTRIBUTION ARRANGEMENTS...............................................95
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PURCHASE AND REDEMPTION......................................................95
HOW ASSETS ARE VALUED........................................................96
TAX INFORMATION..............................................................96
PRIOR PERFORMANCE OF EACH ADVISER............................................97
FINANCIAL HIGHLIGHTS........................................................102
</TABLE>
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[TWO PAGE SPREAD]
SUMMARY INFORMATION CONCERNING EQ ADVISORS TRUST
The following chart highlights the twenty-five (25) Portfolios described in this
Prospectus that you can choose as investment alternatives under your Contracts
offered by Equitable or EOC. The chart and accompanying information identify
each Portfolio's investment objective(s), principal investment strategies, and
principal risks. "More Information on Principal Risks", which more fully
describes each of the principal risks, is provided beginning on page 84.
EQ ADVISORS TRUST
FIXED INCOME PORTFOLIO
Part A
- -------------------------------- -------------------------------------------
PORTFOLIO INVESTMENT OBJECTIVE(S)
- -------------------------------- -------------------------------------------
JPM CORE BOND Seeks to provide a high
total return consistent with
moderate risk of capital and
maintenance of liquidity
- -------------------------------- -------------------------------------------
EQ ADVISORS TRUST
BALANCED PORTFOLIOS
Part A
- -------------------------------- -------------------------------------------
PORTFOLIO INVESTMENT OBJECTIVE(S)
- -------------------------------- -------------------------------------------
EQ/EVERGREEN FOUNDATION Seeks to provide, in order of priority,
reasonable income, conservation of
capital and capital appreciation
- -------------------------------- -------------------------------------------
EQ/PUTNAM BALANCED Seeks to provide a balanced investment
composed of a well-diversified portfolio of
stocks and bonds that will
produce both capital growth and
current income
- -------------------------------- -------------------------------------------
MERRILL LYNCH WORLD STRATEGY Seeks high total investment return by
investing primarily in a portfolio of
equity and fixed income securities,
including convertible securities, of U.S.
and foreign issuers
- -------------------------------- -------------------------------------------
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EQ ADVISORS TRUST
FIXED INCOME PORTFOLIO
Part B
-------------------------------- ------------------------------
PRINCIPAL INVESTMENT STRATEGIES PRINCIPAL RISKS
-------------------------------- ------------------------------
Investment-grade securities General investment, fixed
rated BBB/Baa or better at the income, liquidity, portfolio
time of purchase (including turnover, derivatives, and
foreign issuers) foreign securities risks
-------------------------------- ------------------------------
EQ ADVISORS TRUST
BALANCED PORTFOLIOS
Part B
-------------------------------- ------------------------------
PRINCIPAL INVESTMENT STRATEGIES PRINCIPAL RISKS
-------------------------------- ------------------------------
Common stocks, preferred General investment and fixed
stocks, securities convertible income
risks into or exchangeable for
common stocks, corporate debt
obligations, U.S. Government
securities and short-term debt
instruments
-------------------------------- ------------------------------
Well-diversified portfolio of General investment, fixed
stocks and bonds, and income, derivatives, and
negotiable instruments foreign securities risks
-------------------------------- ------------------------------
Equity and fixed income General investment, foreign
securities of U.S. and foreign securities, fixed income,
companies derivatives,
non-diversification,
liquidity, and portfolio
turnover risks
-------------------------------- ------------------------------
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EQ ADVISORS TRUST
DOMESTIC EQUITY PORTFOLIOS
Part A
- ------------------------------------- -----------------------------------------
PORTFOLIO INVESTMENT OBJECTIVE(S)
- ------------------------------------- -----------------------------------------
BT EQUITY 500 INDEX Seeks to replicate as closely as possible
(before deduction of Portfolio expenses)
the total return of the S&P 500 Index
- ------------------------------------- -----------------------------------------
CAPITAL GUARDIAN RESEARCH PORTFOLIO Seeks long-term growth of capital
- ------------------------------------- -----------------------------------------
CAPITAL GUARDIAN U.S. EQUITY Seeks long-term growth of capital
PORTFOLIO
- ------------------------------------- -----------------------------------------
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/EVERGREEN Seeks capital appreciation
- ------------------------------------- -----------------------------------------
EQ/PUTNAM GROWTH & INCOME VALUE Seeks capital growth. Current income is a
secondary objective
- ------------------------------------- -----------------------------------------
EQ/PUTNAM INVESTORS GROWTH Seeks long-term growth of capital and any
increased income that results from this
growth
- ------------------------------------- -----------------------------------------
LAZARD LARGE CAP VALUE Seeks capital appreciation by investing
primarily in equity securities of
companies with relatively large
capitalizations (i.e., companies having
market capitalizations of at least $3
billion at the time of initial purchase)
that appear to the Adviser to be
inexpensively priced relative to the
return on total capital or equity
- ------------------------------------- -----------------------------------------
MERRILL LYNCH BASIC VALUE EQUITY Seeks capital appreciation and
secondarily, income by investing in
securities, primarily equities, that
the Adviser believes are undervalued
and therefore represent basic
investment value
- ------------------------------------- -----------------------------------------
MFS GROWTH WITH INCOME Seeks to provide reasonable current
income and long-term growth of capital
and income
- ------------------------------------- -----------------------------------------
MFS RESEARCH Seeks to provide long-term growth of
capital and future income
- ------------------------------------- -----------------------------------------
T. ROWE PRICE EQUITY INCOME Seeks to provide substantial dividend
income and also capital appreciation by
investing primarily in dividend-paying
common stocks of established companies
- ------------------------------------- -----------------------------------------
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<PAGE>
EQ ADVISORS TRUST
DOMESTIC EQUITY PORTFOLIOS
Part B
- ---------------------------------------- -----------------------------------
PRINCIPAL INVESTMENT STRATEGIES PRINCIPAL RISKS
- ---------------------------------------- -----------------------------------
Common stocks of companies in the S&P General investment, index-fund,
500 Index and fixed income risks
- ---------------------------------------- -----------------------------------
Equity securities primarily of United General investment, growth
States issuers and securities whose convertible
principal markets are investing, securities, and foreign securities
in the United States risks
- ---------------------------------------- -----------------------------------
Equity securities primarily of United General investment, growth
States companies with market investing, convertible
capitalization greater than securities, and foreign
$1 billion at the time of purchase securities risks
- ---------------------------------------- -----------------------------------
Equity securities of a limited number General investment, focused
of large, high-quality companies that portfolio, growth investing,
are likely to offer superior earnings convertible securities,
growth derivatives, and foreign securities
risks
- ---------------------------------------- -----------------------------------
Common stocks offering potential for General investment, fixed income,
capital growth (plus common stocks small-cap and mid-cap company,
offering potential for current income, and value investing risks
corporate bonds, notes and debentures,
preferred stocks and convertible
securities)
- ---------------------------------------- -----------------------------------
Common stocks (plus convertible bonds, General investment, derivatives,
convertible preferred stocks, foreign securities, value
preferred stocks and debt securities) investing, and fixed income risks
- ---------------------------------------- -----------------------------------
Common stocks and convertible General investment, growth
securities of companies whose earnings investing, small-cap and mid-cap
are believed likely to grow faster company, derivatives, foreign
than the economy as a whole securities, and fixed income risks
- ---------------------------------------- -----------------------------------
Equity securities of companies with General investment, value
relatively large capitalizations that investing, derivatives, and fixed
the Adviser believes are undervalued income risks
based on their return on equity or
capital
- ---------------------------------------- -----------------------------------
Equity securities that are undervalued General investment, small-cap and
mid-cap company, value investing,
and foreign securities risks
- ---------------------------------------- -----------------------------------
Equity securities (common stock, General investment, small-cap and
preferred stock, preference stock, mid-cap company, foreign
convertible securities, warrants and securities, and growth investing
depositary receipts) risks
- ---------------------------------------- -----------------------------------
Common stock or securities convertible General investment, small-cap and
into common stock of companies with mid-cap company, foreign
better than average prospects for securities, fixed income, and
long-term growth growth investing risks
- ---------------------------------------- -----------------------------------
Dividend-paying common stocks of General investment, value
established companies investing, foreign securities,
and fixed income risks
- ---------------------------------------- -----------------------------------
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EQ ADVISORS TRUST
AGGRESSIVE EQUITY PORTFOLIOS
Part A
----------------------------------- ---------------------------------
PORTFOLIO INVESTMENT OBJECTIVE(S)
----------------------------------- ---------------------------------
BT SMALL COMPANY INDEX Seeks to replicate as closely as
possible (before the deduction of
Portfolio expenses) the total
return of the Russell 2000 Index
----------------------------------- ---------------------------------
LAZARD SMALL CAP VALUE Seeks capital appreciation by
investing in equity securities
of U.S. companies with small
market capitalizations (i.e.,
companies in the range of
companies represented in the
Russell 2000 Index) that the
Adviser considers inexpensively
priced relative to the return
on total capital or equity
----------------------------------- ---------------------------------
MFS EMERGING GROWTH COMPANIES Seeks to provide long-term
capital growth
----------------------------------- ---------------------------------
WARBURG PINCUS SMALL COMPANY VALUE Seeks long-term capital
appreciation
----------------------------------- ---------------------------------
EQ ADVISORS TRUST
INTERNATIONAL EQUITY PORTFOLIOS
Part A
--------------------------------------- ----------------------------------
PORTFOLIO INVESTMENT OBJECTIVE(S)
--------------------------------------- ----------------------------------
BT INTERNATIONAL EQUITY INDEX Seeks to replicate as closely
as possible (before deduction
of Portfolio expenses) the
total return of the MSCI EAFE
Index
--------------------------------------- ----------------------------------
CAPITAL GUARDIAN INTERNATIONAL Seeks long-term growth of
PORTFOLIO capital by investing primarily
in non-United States equity
securities
--------------------------------------- ----------------------------------
EQ/PUTNAM INTERNATIONAL EQUITY Seeks capital appreciation
--------------------------------------- ----------------------------------
MORGAN STANLEY EMERGING MARKETS Seeks long-term capital
appreciation by investing
primarily in equity
securities of emerging
country issuers
--------------------------------------- ----------------------------------
T. ROWE PRICE INTERNATIONAL STOCK Seeks long-term growth of
capital through investment
primarily in common stocks of
established non-U.S. companies
--------------------------------------- ----------------------------------
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EQ ADVISORS TRUST
AGGRESSIVE EQUITY PORTFOLIOS
Part B
------------------------------------- ---------------------------------
PRINCIPAL INVESTMENT STRATEGIES PRINCIPAL RISKS
------------------------------------- ---------------------------------
Common stocks of small-cap General investment, index-fund,
companies in the Russell 2000 Index small-cap and mid-cap company,
derivatives, and fixed income
risks
------------------------------------- ---------------------------------
Equity securities of small-cap U.S. General investment, small-cap and
companies in the range of companies mid-cap company, value investing,
and in the Russell 2000 Index that non-diversification, and fixed
the Adviser believes are undervalued income risks
based on their return on equity
or capital
------------------------------------- ---------------------------------
Equity securities of emerging General investment, small-cap and
growth companies with the potential mid-cap company, foreign
to become major enterprises securities, and growth investing
risks
------------------------------------- ---------------------------------
Equity securities of U.S. small cap General investment, small-cap
companies and mid-cap company, foreign
securities, fixed income, and
value investing risks
------------------------------------- ---------------------------------
EQ ADVISORS TRUST
INTERNATIONAL/EQUITY PORTFOLIOS
Part B
------------------------------------- ---------------------------------
PRINCIPAL INVESTMENT STRATEGIES PRINCIPAL RISKS
------------------------------------- ---------------------------------
Equity securities of companies in General investment, index-fund,
the MSCI EAFE Index foreign securities, liquidity,
and derivatives risks
------------------------------------- ---------------------------------
Non-United States equity securities General investment, foreign
primarily of companies located in securities, growth investing,
Europe, Canada, Australia, and the convertible securities, and
Far East derivatives risks
------------------------------------- ---------------------------------
Equity securities of foreign General investment, foreign
companies securities, small-cap and
mid-cap company, liquidity, and
derivatives risks
------------------------------------- ---------------------------------
Equity securities of emerging General investment, foreign
market country companies securities, convertible
securities, liquidity,
derivatives, portfolio turnover,
non-diversification, and fixed
income risks
------------------------------------- ---------------------------------
Common stocks of established General investment, foreign
foreign companies securities, liquidity, fixed
income, and growth investing
risks
------------------------------------- ---------------------------------
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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
Portfolios. Of course, there can be no assurance that any Portfolio will achieve
its investment objective.
Please note that:
o A fuller description of each of the principal risks is included in the
section "More Information on Principal Risks," which follows the description
of each Portfolio in this section of the Prospectus.
o Additional information concerning each Portfolio's strategies, investments,
and risks can also be found in the Trust's Statement of Additional
Information.
GENERAL INVESTMENT RISKS
Each of the Portfolios is subject to the following risks:
ASSET CLASS RISK: The returns from the types of securities in which a
Portfolio invest may underperform returns from the various general
securities markets or different asset classes.
MARKET RISK: You could lose money over short periods due to fluctuation
in a Portfolio's share price in reaction to stock or bond market
movements, and over longer periods during extended market downturns.
SECURITY SELECTION RISK: There is the possibility that the specific
securities selected by a Portfolio's Adviser will underperform other
funds in the same asset class or benchmarks that are representative of
the general performance of the asset class.
YEAR 2000 RISK: A Portfolio could be adversely affected if the computer
systems used by the Trust, Adviser, other service providers, or persons
with whom they deal, do not properly process and calculate date-related
information and data dated on and after January 1, 2000 ("Year 2000
Problem"). The extent of such impact cannot be predicted and there can
be no assurances that the Year 2000 Problem will not have an adverse
effect on the issuers whose securities are held by a Portfolio. This
risk is greater for Portfolios that make foreign investments,
particularly in emerging market countries.
The Trust's Portfolios are not insured by the FDIC or any other government
agency. Each Portfolio is not a deposit or other obligation of any financial
institution or bank and is not guaranteed. Each Portfolio is subject to
investment risks and possible loss of principal invested.
THE BENCHMARKS
Performance of each of the Trust's Portfolios, which has been in operation for
more than one full year, as shown on the following pages compares each
Portfolio's performance to that of a broad-based securities index. Each of the
Portfolios' annualized rates of return are net of: (i) its investment management
fees; and (ii) its other expenses. These rates are not representative of the
actual return you would receive under your Equitable Contract.
Broad-based securities indices are unmanaged and are not subject to fees and
expenses typically associated with managed investment company portfolios.
Investments cannot be made directly in a broad-based securities index.
Comparisons with these benchmarks, therefore, are of limited use. They are
included because they are widely known and may help you to understand the
universe of securities from which each Portfolio is likely to select its
holdings. "Blended" performance numbers (e.g., 60% S&P 500/40% Lehman
Gov't/Corp) assume a static mix of the two indices.
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<PAGE>
THE COMPOSITE MARKET BENCHMARK is made up of 36% S&P 500, 24% MSCI EAFE Index,
21% Salomon Brothers U.S. Treasury Bond 1 year and, 14% Salomon Smith Barney
World Government ex U.S., and 5% U.S. Treasury Bill.
THE STANDARD & POOR'S 500 COMPOSITE STOCK PRICE INDEX ("S&P 500") is an
unmanaged index containing common stock of 500 industrial, transportation,
utility and financial companies, regarded as generally representative of the
larger capitalization portion of the United States stock market. The S&P 500
reflects the reinvestment of dividends, if any, but does not reflect fees,
brokerage commissions or other expenses of investing.
THE RUSSELL 2000 INDEX ("Russell 2000") is an unmanaged index (with no defined
investment objective) of 2000 small-cap stocks and reflects reinvestment of
dividends. It is compiled by the Frank Russell Company.
THE MORGAN STANLEY CAPITAL INTERNATIONAL EAFE INDEX ("MSCI EAFE") is a market
capitalization weighted equity index composed of a sample of companies
representative of the market structure of Europe, Australia and the Far East.
MSCI EAFE Index returns assume dividends reinvested net of withholding tax and
do not reflect any fees or expenses.
THE MORGAN STANLEY CAPITAL INTERNATIONAL EMERGING MARKETS FREE PRICE RETURN
INDEX ("MSCI Emerging Markets Free") is a market capitalization weighted equity
index composed of companies that are representative of the market structure of
the following countries: Argentina, Brazil, Chile, China Free, Columbia, Czech
Republic, Greece, Hungary, India, Indonesia, Israel, Jordan, Korea (@ 50%),
Mexico Free, Pakistan, Peru, Philippines Free, Poland, Russia, South Africa, Sri
Lanka, Taiwan (@ 50%), Thailand, Turkey, Venezuela Free. The base date for the
index is December 31, 1987. "Free" MSCI indices exclude those shares not
purchasable by foreign investors. The average size of the emerging market
companies within this index is US $800 million.
LEHMAN GOVERNMENT/CORPORATE BOND INDEX ("Lehman Gov't/Corp") represents an
unmanaged group of securities widely regarded by investors as representative of
the bond market.
SALOMON BROTHERS BROAD INVESTMENT GRADE BOND INDEX is an unmanaged market
weighted index that contains approximately 4,700 individually priced investment
grade bonds.
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FIXED INCOME PORTFOLIOS
JPM CORE BOND PORTFOLIO
INVESTMENT OBJECTIVE: Seeks to provide a high total return consistent with
moderate risk of capital and maintenance of liquidity.
THE INVESTMENT STRATEGY
This Portfolio's total return will consist of income plus realized and
unrealized capital gains and losses. The Portfolio currently invests all of its
assets in investment grade debt securities rated BBB or better by Standard &
Poor's ("S&P") or Baa or better by Moody's Investors Services, Inc. ("Moody's")
or unrated securities of similar quality.
The Adviser actively manages the Portfolio's duration, the allocation of
securities across market sectors and the selection of specific securities within
market sectors. Based on fundamental, economic and capital markets research, the
Adviser adjusts the duration of the Portfolio based on the Adviser's view of the
market and interest rates. The Adviser also actively allocates the Portfolio's
assets among the broad sectors of the fixed income market. These securities
principally include U.S. Government and agency securities, corporate securities,
private placements, asset-backed securities, mortgage-related securities and
direct mortgage obligations. The securities can be of any duration but will
generally mature within one year of the Salomon Brothers Broad Investment Grade
Bond Index (currently about 5 years). The Portfolio may also use futures
contracts to change the duration of the Portfolio's bond holdings.
[SIDEBAR: Duration is a measure of the weighted average maturity of the bonds
held by the Portfolio and can be used by the Adviser as a measure of the
sensitivity of the market value of the Portfolio to changes in interest rates.
Generally, the longer the duration of the Portfolio, the more sensitive its
market value will be to changes in interest rates. ]
The Portfolio may also invest up to 25% of its assets in securities of foreign
issuers, including up to 20% of its assets in debt securities denominated in
currencies of developed foreign countries.
Under normal market conditions, the Portfolio will be primarily invested in
bonds. When market or financial conditions warrant, the Portfolio may invest up
to 100% of its assets in money market securities for temporary or defensive
purposes. Such investment strategies are inconsistent with the Portfolio's
investment objective and could result in the Portfolio not achieving its
investment objective.
THE PRINCIPAL RISKS
FIXED INCOME RISKS: This Portfolio invests primarily in fixed income securities,
therefore, the Portfolio's performance will be affected by changes in interest
rates, credit risks of the issuer, the duration and maturity of the Portfolio's
fixed income holdings, and adverse market and economic conditions.
INTEREST RATE RISK: When interest rates rise, the value (i.e., share
price and total return) of the Portfolio's fixed income securities,
particularly those with longer durations or maturities, will go down.
When interest rates fall, the reverse is true.
INVESTMENT-GRADE SECURITIES RISK: The Portfolio could lose money if the
issuer or guarantor of a debt security or counterparty to a Portfolio's
transaction is unable or unwilling to make timely principal and/or
interest payments, or to honor its financial obligations. Investment
grade securities which are rated BBB by S&P or an equivalent rating by
any other nationally recognized statistical rating organization, are
somewhat riskier than higher rated obligations because they are regarded
as having only an adequate capacity to pay principal and interest, are
considered to lack outstanding investment characteristics, and may be
speculative.
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MORTGAGE-BACKED SECURITIES RISK: Rising interest rates may cause the
duration of mortgage-backed securities to increase. Falling interest
rates may cause the value and yield of mortgage-backed securities to
fall. Falling interest rates also may encourage borrowers to pay off
their mortgages sooner than anticipated (pre-payment). The Portfolio
would need to reinvest the pre-paid funds at the newer, lower interest
rates.
LIQUIDITY RISK: Certain securities held by the Portfolio may be difficult (or
impossible) to sell at the time and at the price the seller would like which may
cause the Portfolio to lose money or be prevented from earning capital gains.
PORTFOLIO TURNOVER RISK: The Portfolio's turnover rate has been over 100% per
year. Higher portfolio turnover (e.g., over 100% per year) will cause the
Portfolio to incur additional transaction costs and may result in higher taxable
gains that could be passed through to shareholders.
DERIVATIVES RISK: The Portfolio's investments in derivatives can significantly
increase the Portfolio's exposure to market risk or credit risk of the
counterparty. Derivatives also involve the risk of mispricing or improper
valuation and the risk that changes in value of the derivative may not correlate
perfectly with the relevant assets, rates and indices.
FOREIGN SECURITIES RISKS: The Portfolio's investments in foreign securities
involve risks not associated with investing in U.S. securities, which can
adversely affect the Portfolio's performance. Foreign markets, particularly
emerging markets, may be less liquid, more volatile, and subject to less
government supervision than domestic markets. There may be difficulties
enforcing contractual obligations, and it may take more time for trades to clear
and settle. In addition, the value of foreign investments can be adversely
affected by: unfavorable currency exchange rates (relative to the U.S. dollar
for securities denominated in foreign currencies); inadequate or inaccurate
information about foreign companies; higher transaction, brokerage and custody
costs; adverse changes in foreign economic and tax policies; and foreign
government instability, war or other adverse political or economic actions.
PORTFOLIO PERFORMANCE
The bar chart below illustrates the Portfolio's annual total return for 1998,
the Portfolio's first year of existence. The table below shows the Portfolio's
average annual total returns for one year and since inception. The table also
compares the Portfolio's performance to the returns of a broad-based index. Both
the bar chart and table assume reinvestment of dividends and distributions. Past
performance is not an indication of future performance. In addition, holders of
variable insurance contracts representing interests in the Portfolio will be
subject to charges and expenses relating to such insurance contracts. The
performance results presented below do not reflect any insurance related
expenses and if reflected the results would be reduced. The Portfolio commenced
operations on January 1, 1998.
- -------------------------------------------------------------------------------
CALENDAR YEAR ANNUAL TOTAL RETURN
1998
9.02%
- -------------------------------------------------------------------------------
Best quarter (% and time period) Worst quarter (% and time period)
4.72% (1998 3rd Quarter) 0.21% (1998 4th Quarter)
-14-
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR SINCE INCEPTION
<S> <C> <C>
JPM CORE BOND PORTFOLIO 9.02% 9.02%
SALOMON BROTHERS BROAD
INVESTMENT GRADE BOND INDEX* 8.72% 8.72%
- ---------------------------------------------------------------------------------
</TABLE>
* For more information on this index, see the preceding section "The
Benchmarks."
WHO MANAGES THE PORTFOLIO
J.P. MORGAN INVESTMENT MANAGEMENT INC. ("J.P. Morgan"), 522 Fifth Avenue, New
York, New York 10036. J.P. Morgan has been the Adviser to the Portfolio since it
commenced operations. J.P. Morgan is a registered investment adviser and is a
wholly owned subsidiary of J.P. Morgan & Co. Incorporated, a bank holding
company. J.P. Morgan manages portfolios for corporations, governments,
endowments, as well as many of the largest corporate retirements plans in the
nation.
The Portfolio Managers, responsible for the day to day management of the
Portfolio since it commenced operations, are PAUL L. ZEMSKY, a Managing Director
of J.P. Morgan and a portfolio manager specializing in quantitative techniques,
who joined J.P. Morgan in 1985; and ROBERT J. TEATOM, a Managing Director of
J.P. Morgan and co-head of its U.S. Fixed Income Group, who joined J.P. Morgan
in 1975.
-15-
<PAGE>
BALANCED PORTFOLIOS
EQ/EVERGREEN FOUNDATION PORTFOLIO
INVESTMENT OBJECTIVE: Seeks to provide, in order of priority, reasonable income,
conservation of capital and capital appreciation.
[SIDEBAR: For purposes of this Portfolio, the words "reasonable income" mean
moderate income.]
THE INVESTMENT STRATEGY
The Portfolio invests primarily in a combination of common stocks, preferred
stocks, securities that are convertible into or exchangeable for common stocks,
investment-grade corporate debt securities, securities of or guaranteed by the
U.S. Government, its agencies or instrumentalities, and short-term debt
instruments, such as high quality commercial paper, and obligations of
FDIC-member banks. Investments in common stocks focus on those that pay
dividends and have the potential for capital appreciation. Common stocks are
selected based on a combination of financial strength and estimated growth
potential. Bonds are selected based on the Adviser's projections of interest
rates, varying amounts and maturities in order to achieve capital protection
and, when possible, capital appreciation. The asset allocation of the Portfolio
will vary in accordance with changing economic and market conditions.
Under normal market conditions, at least 25% of the Portfolio's net assets will
be invested in fixed income securities. In selecting debt securities, the
Adviser will emphasize securities that the Adviser believes will not be subject
to significant fluctuations in value. The corporate debt obligations purchased
by the Portfolio will be rated A or higher by S&P and Moody's. The Fund is not
managed with a targeted maturity.
When market or financial conditions warrant, the Portfolio may invest 100% of
its assets in short-term obligations for temporary or defensive purposes. Such
investment strategies are inconsistent with the Portfolio's investment
objectives and could result in the Portfolio not achieving its investment
objective.
THE PRINCIPAL RISKS
This Portfolio invests in common stocks, therefore, its performance may go up or
down depending on general market conditions.
FIXED INCOME RISKS: To the extent that a substantial amount of the Portfolio's
assets are invested in fixed income securities, that portion of the Portfolio's
performance will be affected by changes in interest rates, the credit risk of
the issuer, the duration or maturity of the Portfolio's fixed income holdings,
and adverse market or economic conditions. When interest rates rise, the value
of the Portfolio's fixed income securities, particularly those with longer
durations or maturities, will go down. When interest rates fall, the reverse is
true. In addition, to the extent that the Portfolio invests in investment-grade
securities which are rated BBB by S&P or an equivalent rating by any other
nationally recognized statistical rating organization, it will be exposed to
greater risk than if it invested in higher-rated obligations because BBB-rated
securities are regarded as having only an adequate capacity to pay principal and
interest, are considered to lack outstanding investment characteristics, and may
be speculative.
PORTFOLIO PERFORMANCE
The inception date for this Portfolio is January 1, 1999. Therefore, no
performance information is available.
-16-
<PAGE>
WHO MANAGES THE PORTFOLIO
EVERGREEN ASSET MANAGEMENT CORP. ("Evergreen"), 2500 Westchester Avenue,
Purchase, New York 10577. Evergreen has been the Adviser to the Portfolio since
it commenced operations. Evergreen is a registered investment adviser and a
wholly-owned subsidiary of First Union Corporation. Evergreen offers a broad
range of financial services to individuals and businesses throughout the United
States.
STEPHEN A. LIEBER is the Portfolio Manager and has been responsible for the
day-to-day management of the Portfolio since its inception. Mr. Lieber has been
the Chairman and Co-Chief Executive Officer of Evergreen since 1994 and has been
associated with Evergreen and its predecessor (as Chairman) since 1971.
-17-
<PAGE>
EQ/PUTNAM BALANCED PORTFOLIO
INVESTMENT OBJECTIVE: Seeks to provide a balanced investment composed of a
well-diversified portfolio of stocks and bonds that will produce both capital
growth and current income.
THE INVESTMENT STRATEGY
The Portfolio may invest in almost any type of security or negotiable
instrument, including common stocks, corporate bonds, cash and money market
securities. Although the proportion invested in each type of security is not
fixed, generally, no more than 75% of the Portfolio's assets will be invested in
common stocks, securities that are convertible into common stocks and other
equity securities.
The Portfolio uses a value-oriented approach by investing in stocks the Adviser
believes are currently selling below their true worth.
[SIDEBAR: Value-investing attempts to identify strong companies selling at a
discount from their perceived true worth. The Adviser selects stocks for the
Portfolio at prices at which in its view are temporarily low relative to the
company's earnings, assets, cash flow and dividends.]
The Portfolio may also invest in debt securities, issued by the U.S. Government
or by private companies. Most of the Portfolio's debt securities will be
investment-grade (rated at least BBB) and are generally intermediate- to
long-term (with maturities of more than three (3) years). The Portfolio may also
invest in lower-rated debt securities (called "junk bonds").
The Portfolio may also invest up to 20% of its total assets in foreign
securities and may purchase Eurodollar certificates of deposit (i.e., short-term
time deposits issued by European banks) without regard to this 20% limit.
When market or financial conditions warrant, the Portfolio may invest up to 100%
of its assets in short term obligations for temporary or defensive purposes.
Such investment strategies are inconsistent with the Portfolio's investment
objectives and could result in the Portfolio not achieving its investment
objective.
THE PRINCIPAL RISKS
This Portfolio invests in common stocks, therefore, its performance may go up or
down depending on general market conditions. Other principal risks include:
VALUE INVESTING RISK: As noted above, the Portfolio uses a value-oriented
approach to stock selection. Value investing is subject to the risk that a value
stock's intrinsic value may never be fully recognized or realized by the market,
or its price may go down. There is also the risk that a stock judged to be
undervalued may actually be appropriately priced.
FIXED INCOME RISKS: To the extent that a substantial amount of the Portfolio's
assets are invested in fixed income securities, that portion of the Portfolio's
performance will be affected by changes in interest rates, the credit risk of
the issuer, the duration or maturity of the Portfolio's fixed income holdings,
and adverse market or economic conditions. When interest rates rise, the value
of the Portfolio's fixed income securities, particularly those with longer
durations or maturities, will go down. When interest rates fall, the reverse is
true. In addition, to the extent that the Portfolio invests in investment-grade
securities which are rated BBB by S&P or an equivalent rating by any other
nationally recognized statistical rating organization, it will be exposed to
greater risk than if it invested in higher-rated obligations because BBB-rated
securities are regarded as having only an adequate capacity to pay principal and
interest, are considered to lack outstanding investment characteristics, and may
be speculative.
-18-
<PAGE>
DERIVATIVES RISK: The Portfolio's investments in derivatives can significantly
increase the Portfolio's exposure to market risk or credit risk of the
counterparty. Derivatives also involve the risk of mispricing or improper
valuation and the risk that changes in value of the derivative may not correlate
perfectly with the relevant assets, rates and indices.
PORTFOLIO TURNOVER RISK: The Portfolio's turnover rate was over 100% per year.
Higher portfolio turnover (e.g., over 100% per year) will cause the Portfolio to
incur additional transaction costs and may result in higher taxable gains that
could be passed through to shareholders.
FOREIGN SECURITIES RISKS: The Portfolio's investments in foreign securities
involve risks not associated with investing in U.S. securities, which can
adversely affect the Portfolio's performance. Foreign markets, particularly
emerging markets, may be less liquid, more volatile, and subject to less
government supervision than domestic markets. There may be difficulties
enforcing contractual obligations, and it may take more time for trades to clear
and settle. In addition, the value of foreign investments can be adversely
affected by: unfavorable currency exchange rates (relative to the U.S. dollar
for securities denominated in foreign currencies); inadequate or inaccurate
information about foreign companies; higher transaction, brokerage and custody
costs; adverse changes in foreign economic and tax policies; and foreign
government instability, war or other adverse political or economic actions.
PORTFOLIO PERFORMANCE
The bar chart below illustrates the Portfolio's annual total return for 1998,
the Portfolio's first full year of operations. The table below shows the
Portfolio's average annual total returns for the Portfolio for one year and
since inception. The table also compares the Portfolio's performance to the
returns of a broad-based index. Both the bar chart and table assume reinvestment
of dividends and distributions. Past performance is not an indication of future
performance. In addition, holders of variable insurance contracts representing
interests in the Portfolio will be subject to charges and expenses relating to
such insurance contracts. The performance results presented below do not reflect
any insurance related expenses and if reflected the results would be reduced.
The inception date for the Portfolio is May 1, 1997.
- -------------------------------------------------------------------------------
CALENDAR YEAR ANNUAL TOTAL RETURN
1998
11.92%
- -------------------------------------------------------------------------------
Best quarter (% and time period) Worst quarter (% and time period)
9.33% (1998 4th Quarter) (5.24)% (1998 3rd Quarter)
-19-
<PAGE>
- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR SINCE INCEPTION
EQ/PUTNAM BALANCED PORTFOLIO 11.92% 15.93%
60% S&P 500/40% LEHMAN 21.35% 23.48
GOV'T/CORP. INDEX*
- -------------------------------------------------------------------------------
* For more information on this index, see the preceding section "The
Benchmarks."
WHO MANAGES THE PORTFOLIO
PUTNAM INVESTMENT MANAGEMENT, INC. ("Putnam Management"), One Post Office
Square, Boston, MA 02109. Putnam Management has been the Adviser to the
Portfolio since it commenced operations. Putnam Management has been managing
mutual funds since 1937. Putnam Management is a subsidiary of Putnam
Investments, Inc., which is itself a subsidiary of Marsh & McLennan Companies,
Inc.
The Portfolio Managers, responsible for the day-to-day management of the
Portfolio, are: DAVID L. WALDMAN, Managing Director, who has been employed by
Putnam Management as an investment professional* since 1997 and prior to 1997,
Mr. Waldman was a senior Portfolio Manager at Lazard Freres since 1995, and
prior to 1995, he was a Vice President at Goldman Sachs; EDWARD P. BOUSA, Senior
Vice President, who has been employed by Putnam Management as an investment
professional* since October, 1992; JAMES M. PRUSKO, Vice President, who has been
employed by Putnam Management as an investment professional* since 1992; and
KRISHNA K. MEMANI, MANAGING DIRECTOR, Senior Vice President, who has been
employed by Putnam Management as an investment professional* since 1993.
(*Investment professional means that the manager was either a portfolio manager
or analyst.)
-20-
<PAGE>
MERRILL LYNCH WORLD STRATEGY PORTFOLIO
INVESTMENT OBJECTIVE: Seek high total investment return by investing primarily
in a portfolio of equity and fixed income securities, including convertible
securities, of U.S.
and foreign issuers.
[SIDEBAR: For purposes of this Portfolio, "total investment return" consists of
interest, dividends discount accruals, and capital changes, including changes in
the value of non-dollar denominated securities and other assets and liabilities
resulting from currency fluctuations.]
THE INVESTMENT STRATEGY
The Portfolio is a non-diversified Portfolio that invests in both equity
securities and fixed-income securities. The Portfolio may invest entirely in
equity securities, entirely in fixed-income securities, or partly in equity
securities and partly in fixed-income securities.
[SIDEBAR: A Portfolio may be considered to be "non-diversified" for federal
securities law purposes because it invests in a limited number of securities. In
all cases, the Portfolio intends to be diversified for tax purposes so that it
can qualify as a regulated investment company.]
The Portfolio will normally invest a significant portion of its assets in equity
securities of companies throughout the world. The equity securities in which the
Portfolio invests will primarily be common stocks of large companies.
There are no limits on the Portfolio's ability to invest in any country or
geographic region. The Portfolio can invest primarily in U.S. securities,
primarily in foreign securities, or partly in both. It normally invests in at
least three countries at any given time. The Portfolio may invest in companies
in emerging markets, but the Adviser anticipates that a substantially greater
portion of the Portfolio's equity investments will be in companies in developed
countries. At the present time, the Portfolio focuses on investments in Canada,
Western Europe, the Far East, and Latin America, as well as in the United
States.
The Adviser will select the percentage of the Portfolio's assets that will be
invested in equity securities and fixed-income securities, as well as the
geographic allocation of the Portfolio's investments, based on its view of
general economic and financial trends in various countries and industries, such
as inflation, commodity prices, the direction of interest and currency
movements, estimates of growth in industry output and profits, and government
fiscal policies. For example, if the Adviser believes that falling commodity
prices and decreasing estimates of industrial output globally signal low growth
and limited returns from equity securities, the Portfolio may emphasize
fixed-income investments. Similarly, if the Adviser believes that low inflation,
new technologies and improvements in economic productivity in a country or
region signal a promising environment for equity securities in that country or
region the Portfolio may emphasize equity investments in that country or region.
The Portfolio may invest in fixed-income securities of any maturity, including
United States and foreign government securities and corporate debt securities.
The Portfolio will only invest in debt securities that are rated investment
grade by S&P or Moody's or unrated securities that are of comparable quality.
The Portfolio may also invest in securities denominated in currencies other than
the U.S. dollar. The Portfolio may also engage in currency transactions to hedge
against the risk of loss from changes in currency exchange rates. In addition,
the Portfolio may also employ a variety of instruments and techniques to enhance
income and to hedge against market and currency risk.
The Portfolio has no stated minimum holding period for investments, and will buy
or sell securities whenever the Adviser sees an appropriate opportunity.
When market or financial conditions warrant, the Portfolio may invest up to 100%
of its assets in United States Government or Government agency securities, money
market securities, other fixed income securities, or cash for temporary or
defensive purposes. Such investment strategies are inconsistent with
-21-
<PAGE>
the Portfolio's investment objective and could result in the Portfolio not
achieving its investment objective.
THE PRINCIPAL RISKS
This Portfolio invests in common stocks, therefore, its performance may go up or
down depending on general market conditions. Other principal risks include:
FOREIGN SECURITIES RISKS: The Portfolio's investments in foreign securities
involve risks not associated with investing in U.S. securities that can
adversely affect the Portfolio's performance. Foreign markets, particularly
emerging markets, may be less liquid, more volatile and subject to less
government supervision than domestic markets. There may be difficulties
enforcing contractual obligations, and it may take more time for trades to clear
and settle. In addition, foreign investments can be adversely affected by:
unfavorable currency exchange rates (relative to the U.S. dollar for securities
denominated in a foreign currencies); inadequate or inaccurate information about
foreign companies; higher transaction, brokerage and custody costs; adverse
changes in foreign economic and tax policies; and foreign government
instability, war or other adverse political or economic actions. Other specific
risks of investing in foreign securities include:
EURO RISK: The Portfolio invests in securities issued by European
issuers that that may be adversely impacted by the introduction of the
"Euro" as a common currency in 11 European Monetary Union member states.
The Euro may result in various legal and accounting differences, tax
treatments, the creation and implementation of suitable clearing and
settlement systems and other operational problems, that may cause market
disruptions that could adversely affect investments quoted in the Euro.
REGULATORY RISK: In general, foreign companies are also not subject to
uniform accounting, auditing and financial reporting standards or to
other regulatory practices and requirements as are U.S. companies, which
could adversely affect their value.
FIXED INCOME RISKS: To the extent that a substantial amount of the Portfolio's
assets are invested in fixed income securities, that portion of the Portfolio's
performance will be affected by changes in interest rates, the credit risk of
the issuer, the duration or maturity of the Portfolio's fixed income holdings,
and adverse market or economic conditions. When interest rates rise, the value
of the Portfolio's fixed income securities, particularly those with longer
durations or maturities, will go down. When interest rates fall, the reverse is
true. In addition, to the extent that the Portfolio invests in investment-grade
securities which are rated BBB by S&P or an equivalent rating by any other
nationally recognized statistical rating organization, it will be exposed to
greater risk than if it invested in higher-rated obligations because BBB-rated
securities are regarded as having only an adequate capacity to pay principal and
interest, are considered to lack outstanding investment characteristics, and may
be speculative.
DERIVATIVES RISK: The Portfolio's investments in derivatives can significantly
increase the Portfolio's exposure to market risk or credit risk of the
counterparty. Derivatives also involve the risk of mispricing or improper
valuation and the risk that changes in value of the derivative may not correlate
perfectly with the relevant assets, rates and indices.
NON-DIVERSIFICATION RISK: Since a relatively high percentage of the Portfolio's
assets may be invested in the securities of a limited number of issuers, some of
which may be within the same industry, the securities of the Portfolio may be
more sensitive to changes in the market value of a single issuer or industry or
to risks associated with a single economic, political or regulatory event than a
diversified portfolio.
LIQUIDITY RISK: Certain securities held by the Portfolio may be difficult (or
impossible) to sell at the time and at the price the seller would like which may
cause the Portfolio to lose money or be prevented
-22-
<PAGE>
from earning capital gains.
PORTFOLIO TURNOVER RISK: The Portfolio's turnover rate has been over 100% per
year. Higher portfolio turnover (e.g., over 100% per year) will cause the
Portfolio to incur additional transaction costs and may result in higher taxable
gains that could be passed through to shareholders.
PORTFOLIO PERFORMANCE
The bar chart below illustrates the Portfolio's annual total return for 1998,
the Portfolio's first full year of operations. The table below shows the
Portfolio's average annual total returns for the Portfolio for one year and
since inception. The table also compares the Portfolio's performance to the
returns of a broad-based index. Both the bar chart and table assume reinvestment
of dividends and distributions. Past performance is not an indication of future
performance. In addition, holders of variable insurance contracts representing
interests in the Portfolio will be subject to charges and expenses relating to
such insurance contracts. The performance results presented below do not reflect
any insurance related expenses and if reflected the results would be reduced.
The inception date for the Portfolio is May 1, 1997.
- -------------------------------------------------------------------------------
CALENDAR YEAR ANNUAL TOTAL RETURN
1998
6.81%
- -------------------------------------------------------------------------------
Best quarter (% and time period) Worst quarter (% and time period)
10.56% (1998 4th Quarter) (11.15)% (1998 3rd Quarter)
- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR SINCE INCEPTION
MERRILL LYNCH WORLD STRATEGY 6.81% 6.91%
PORTFOLIO
COMPOSITE MARKET BENCHMARK (25.34)% (28.92)%
INDEX*
- -------------------------------------------------------------------------------
* For more information on this index, see the preceding section "The
Benchmarks."
-23-
<PAGE>
WHO MANAGES THE PORTFOLIO
MERRILL LYNCH ASSET MANAGEMENT, L.P. ("MLAM"), 800 Scudders Mill Road,
Plainsboro, New Jersey 08543. MLAM has been the Adviser to the Portfolio since
it commenced operations. MLAM is an indirect wholly-owned subsidiary of Merrill
Lynch & Co., Inc., a financial services holding company. MLAM and its affiliates
act as the manager for more than 100 registered investment companies. MLAM also
offers portfolio management and portfolio analysis services to individuals and
institutions.
THOMAS R. ROBINSON is the Portfolio Manager primarily responsible for the
day-to-day management of the Portfolio since it commenced operations. Mr.
Robinson has served as a First Vice President of MLAM since 1997 and as a Senior
Portfolio Manager of MLAM since 1995. Prior to 1995, Mr. Robinson served as
Manager of International Strategy for Merrill Lynch & Co. Global Securities
Research and Economics Group.
-24-
<PAGE>
DOMESTIC EQUITY PORTFOLIOS
BT EQUITY 500 INDEX PORTFOLIO
INVESTMENT OBJECTIVE: Seeks to replicate as closely as possible (before
deduction of Portfolio expenses) the total return of the S&P 500.
THE INVESTMENT STRATEGY
The Portfolio invests in equity securities of companies included in the S&P 500.
The Adviser seeks to match the risk and return characteristics of the S&P 500 by
investing in a statistically selected sample of the securities found in the S&P
500, using a process known as "optimization". This process selects stocks for
the Portfolio so that industry weightings, market capitalizations and
fundamental characteristics (price to book ratios, price to earnings ratios,
debt to asset ratios and dividend yields) closely match those of the securities
included in the S&P 500. This approach helps to increase the Portfolio's
liquidity and reduce costs. The securities held by the Portfolio are weighted to
make the Portfolio's total investment characteristics similar to those of the
S&P 500 as a whole.
The Adviser generally will seek to match the composition of the S&P 500 but
usually will not invest the Portfolio's stock portfolio to mirror the S&P 500
exactly. Because of the difficulty and cost of executing relatively small stock
transactions, the Portfolio may not always be invested in the less heavily
weighted S&P 500 stocks, and may at times have its portfolio weighted
differently than the S&P 500, particularly if the Portfolio has a low level of
assets. In addition, the Portfolio may omit or remove any S&P 500 stock from the
Portfolio if, following objective criteria, the Adviser judges the stock to be
insufficiently liquid or believes the merit of the investment has been
substantially impaired by extraordinary events or financial conditions. The
Portfolio will not purchase the stock of Bankers Trust New York Corporation,
which is included in the S&P 500, and instead will overweight its holdings of
companies engaged in similar businesses.
[SIDEBAR: For more information on the S&P 500, see the preceding section "The
Benchmarks." The Portfolio is not sponsored, endorsed, sold or promoted by S&P
and S&P makes no guarantee as to the accuracy and/or completeness of the S&P 500
or any data included therein.]
Over time, the correlation between the performance of the Portfolio and the S&P
is expected to be 95% or higher before deduction of Portfolio expenses. The
Portfolio's ability to track the S&P 500 may be affected by, among others,
transaction costs, administration and other expenses incurred by the Portfolio,
changes in either the composition of the S&P 500 or the assets of the Portfolio,
and the timing and amount of Portfolio investor contributions and withdrawals,
if any. The Portfolio seeks securities to track the S&P 500, therefore, the
Adviser generally will not attempt to judge the merits of any particular
security as an investment.
The Portfolio may also invest up to 20% of its assets in short-term debt
securities and money market instruments to meet redemption requests or to
facilitate investment in the securities of the S&P 500. Securities index futures
contracts and related options, warrants and convertible securities may be used
for a number of reasons, including: to simulate full investment in the S&P 500
while retaining a cash balance for Portfolio management purposes; to facilitate
trading; to reduce transaction costs; or to seek higher investment returns when
a future contract, option, warrant or convertible security is priced more
attractively than the underlying equity security or S&P 500. These instruments
are considered to be derivatives.
-25-
<PAGE>
THE PRINCIPAL RISKS
This Portfolio invests in common stocks, therefore, its performance may go up or
down depending on general market conditions. Other principal risks include:
INDEX-FUND RISK: The Portfolio is not actively managed and invests in securities
included in the index regardless of their investment merit. Therefore, the
Portfolio cannot modify its investment strategies to respond to changes in the
economy and may be particularly susceptible to a general decline in the U.S. or
global stock market segment relating to the index.
FIXED INCOME RISKS: To the extent that a substantial amount of the Portfolio's
assets are invested in fixed income securities, that portion of the Portfolio's
performance will be affected by changes in interest rates, the credit risk of
the issuer, the duration or maturity of the Portfolio's fixed income holdings,
and adverse market or economic conditions. When interest rates rise, the value
of the Portfolio's fixed income securities, particularly those with longer
durations or maturities, will go down. When interest rates fall, the reverse is
true. In addition, to the extent that the Portfolio invests in investment-grade
securities which are rated BBB by S&P or an equivalent rating by any other
nationally recognized statistical rating organization, it will be exposed to
greater risk than if it invested in higher-rated obligations because BBB-rated
securities are regarded as having only an adequate capacity to pay principal and
interest, are considered to lack outstanding investment characteristics, and may
be speculative.
PORTFOLIO PERFORMANCE
The bar chart below illustrates the Portfolio's annual total return for 1998,
the Portfolio's first year of existence. The table below shows the Portfolio's
average annual total returns for the Portfolio for one year and since inception.
The table also compares the Portfolio's performance to the returns of a broad
based index. Both the bar chart and table assume reinvestment of dividends and
distributions. Past performance is not an indication of future performance. In
addition, holders of variable insurance contracts representing interests in the
Portfolio will be subject to charges and expenses relating to such insurance
contracts. The performance results presented below do not reflect any insurance
related expenses and if reflected the results would be reduced. The Portfolio's
inception date was January 1, 1998.
- -------------------------------------------------------------------------------
CALENDAR YEAR ANNUAL TOTAL RETURN
1998
25.14%
- -------------------------------------------------------------------------------
Best quarter (% and time period) Worst quarter (% and time period)
21.26% (1998 4th Quarter) (10.03)% (1998 3rd Quarter)
-26-
<PAGE>
- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR SINCE INCEPTION
BT EQUITY 500 INDEX PORTFOLIO 25.14% 25.14%
S&P 500 INDEX* 28.58% 28.58%
- -------------------------------------------------------------------------------
* For more information on this index, see the preceding section "The
Benchmarks."
WHO MANAGES THE PORTFOLIO
BANKERS TRUST COMPANY ("Bankers Trust"), 130 Liberty Street (One Bankers Trust
Plaza), New York, New York 10006. Bankers Trust has been the Adviser to the
Portfolio since it commenced operations. Bankers Trust is a wholly-owned
subsidiary of Bankers Trust Corporation. Bankers Trust conducts a variety of
general banking and trust activities and is a major wholesale supplier of
financial services, including investment management to the international and
domestic institutional markets. During 1999, Bankers Trust Corporation and a
wholly owned subsidiary of Deutsche Bank AG ("Deutsche Bank") expect to finalize
a merger in which Bankers Trust Corporation will be acquired by and become a
subsidiary of Deutsche Bank.
-27-
<PAGE>
CAPITAL GUARDIAN RESEARCH PORTFOLIO
INVESTMENT OBJECTIVE: To achieve long-term growth of capital.
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, at the time of purchase,
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 high-quality debt securities, including
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
This Portfolio invests in common stocks, therefore, its performance may go up or
down depending on general market conditions. Other principal risks include:
GROWTH INVESTING RISK: As noted above, this Portfolio uses a growth oriented
approach to stock selection. The price of growth stocks may be more sensitive to
changes in current or expected earnings than the prices of other stocks. The
price of growth stocks is also subject to the risk that the stock price of one
or more companies will fall or will fail to appreciate as anticipated by the
Adviser, regardless of movements in the securities markets.
CONVERTIBLE SECURITIES RISK: Convertible securities enable the Portfolio to
benefit from increases in the market price of the underlying common stock and
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 both in relation to changes in
interest rates and changes in the value of the underlying common stock.
FOREIGN SECURITIES RISK: The Portfolio's investments in foreign securities
involve risks not associated with investing in U.S. securities, which can
adversely affect the Portfolio's performance. Foreign markets, particularly
emerging markets, may be less liquid, more volatile, and subject to less
government supervision than domestic markets. There may be difficulties
enforcing contractual obligations, and it may take more time for trades to clear
and settle. In addition, the value of foreign investments can be adversely
affected by: unfavorable currency exchange rates (relative to the U.S. dollar
for securities denominated in foreign currencies); inadequate or inaccurate
information about foreign companies; higher transaction, brokerage and custody
costs; adverse changes in foreign economic and tax policies; and foreign
government instability, war or other adverse political or economic actions.
PORTFOLIO PERFORMANCE
- -------------------------------------------------------------------------------
The inception date for this Portfolio is May 1, 1999. Therefore, no prior
performance information is available.
- -------------------------------------------------------------------------------
-28-
<PAGE>
WHO MANAGES THE PORTFOLIO
CAPITAL GUARDIAN TRUST COMPANY ("Capital Guardian"), 333 South Hope Street, Los
Angeles, CA 90071. 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.
The Portfolio is managed by a group of investment research professionals, led by
the Research Portfolio Coordinator, each of whom has investment discretion over
a segment of the total Portfolio. The size of each segment will vary over time
and may be based upon: (1) the level of conviction of specific research
professionals as to their designated sectors; (2) industry weights within the
relevant benchmark for the Portfolio; and (3) the judgment of the Research
Portfolio Coordinator in assessing the level of conviction of research
professionals compared to industry weights within the relevant benchmark.
Sectors may be overweighted relative to their benchmark weighting if there is a
substantial number of stocks that are judged to be attractive based on the
research professionals research in that sector, or may be underweighted if there
are relatively fewer stocks viewed to be attractive in the sector. The Research
Portfolio Coordinator also coordinates the cash holdings of the Portfolio.
-29-
<PAGE>
CAPITAL GUARDIAN U.S. EQUITY PORTFOLIO
INVESTMENT OBJECTIVE: To achieve long-term growth of capital.
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 $1 billion at the time of purchase. In
selecting securities for investment, the Adviser focuses primarily on the
potential of capital appreciation.
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). These securities may include American Depositary Receipts.
When market or financial conditions warrant, the Portfolio may invest a
substantial portion of its assets in high-quality debt securities, including
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
This Portfolio invests in common stocks, therefore, its performance may go up or
down depending on general market conditions. Other principal risks include:
GROWTH INVESTING RISK: As noted above, this Portfolio uses a growth oriented
approach to stock selection. The price of growth stocks may be more sensitive to
changes in current or expected earnings than the prices of other stocks. The
price of growth stocks is also subject to the risk that the stock price of one
or more companies will fall or will fail to appreciate as anticipated by the
Adviser, regardless of movements in the securities markets.
CONVERTIBLE SECURITIES RISK: Convertible securities enable the Portfolio to
benefit from increases in the market price of the underlying common stock and
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 both in relation to changes in
interest rates and changes in the value of the underlying common stock.
FOREIGN SECURITIES RISK: The Portfolio's investments in foreign securities
involve risks not associated with investing in U.S. securities, which can
adversely affect the Portfolio's performance. Foreign markets, particularly
emerging markets, may be less liquid, more volatile, and subject to less
government supervision than domestic markets. There may be difficulties
enforcing contractual obligations, and it may take more time for trades to clear
and settle. In addition, the value of foreign investments can be adversely
affected by: unfavorable currency exchange rates (relative to the U.S. dollar
for securities denominated in foreign currencies); inadequate or inaccurate
information about foreign companies; higher transaction, brokerage and custody
costs; adverse changes in foreign economic and tax policies; and foreign
government instability, war or other adverse political or economic actions.
-30-
<PAGE>
PORTFOLIO PERFORMANCE
- -------------------------------------------------------------------------------
The inception date for this Portfolio is May 1, 1999. Therefore, no prior
performance information is available.
- -------------------------------------------------------------------------------
WHO MANAGES THE PORTFOLIO
CAPITAL GUARDIAN TRUST COMPANY ("Capital Guardian"), 333 South Hope Street, Los
Angeles, CA 90071. 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 multiple portfolio manager system under which the
Portfolio is divided into several segments. Each segment is individually managed
with the portfolio manager free to decide on company and industry selections as
well as valuation and transaction assessment. An additional portion of the
Portfolio is managed by a group of investment research analysts.
The individual portfolio managers of each segment of the Portfolio, other than
that managed by the group of research analysts, are as follows:
DONNALISA P. BARNUM. Donnalisa Barnum is a Senior Vice President and a portfolio
manager for Capital Guardian. She joined the Capital Guardian organization in
1986.
MICHAEL R. ERICKSON. Michael Erickson is a Senior Vice President and portfolio
manager for Capital Guardian and a Senior Vice President and Director for
Capital International Limited. He joined the Capital Guardian organization in
1987.
DAVID I. FISHER. David Fisher is Chairman of the Board of Capital Group
International, Inc. and Capital Guardian. He joined the Capital Guardian
organization in 1969.
THEODORE R. SAMUELS. Theodore Samuels is a Senior Vice President and a Director
for Capital Guardian, as well as a Director of Capital International Research,
Inc. He joined the Capital Guardian organization in 1981.
EUGENE P. STEIN. Eugene Stein is Executive Vice President, a Director, a
portfolio manager, and Chairman of the Investment Committee for Capital
Guardian. He joined the Capital Guardian organization in 1972.
-31-
<PAGE>
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.
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.
-32-
<PAGE>
THE PRINCIPAL RISKS
This Portfolio invests in common stocks, therefore, its performance may go up or
down depending on general market conditions. Other principal risks include:
FOCUSED PORTFOLIO RISK: The Portfolio invests in the securities of a limited
number of companies. Consequently, 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.
GROWTH INVESTING RISK: As noted above, this Portfolio uses a growth oriented
approach to stock selection. The price of growth stocks may be more sensitive to
changes in current or expected earnings than the prices of other stocks. The
price of growth stocks is also subject to the risk that the stock price of one
or more companies will fall or will fail to appreciate as anticipated by the
Adviser, regardless of movements in the securities markets.
CONVERTIBLE SECURITIES RISK: Convertible securities enable the Portfolio to
benefit from increases in the market price of the underlying common stock and
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 both in relation to changes in
interest rates and changes in the value of the underlying common stock.
DERIVATIVES RISK: The Portfolio's investments in derivatives can significantly
increase the Portfolio's exposure to market risk or credit risk of the
counterparty. Derivatives also involve the risk of mispricing or improper
valuation and the risk that changes in value of the derivative may not correlate
perfectly with the relevant assets, rates and indices.
FOREIGN SECURITIES RISK: The Portfolio's investments in foreign securities
involve risks not associated with investing in U.S. securities, which can
adversely affect the Portfolio's performance. Foreign markets, particularly
emerging markets, may be less liquid, more volatile, and subject to less
government supervision than domestic markets. There may be difficulties
enforcing contractual obligations, and it may take more time for trades to clear
and settle. In addition, the value of foreign investments can be adversely
affected by: unfavorable currency exchange rates (relative to the U.S. dollar
for securities denominated in foreign currencies); inadequate or inaccurate
information about foreign companies; higher transaction, brokerage and custody
costs; adverse changes in foreign economic and tax policies; and foreign
government instability, war or other adverse political or economic actions.
PORTFOLIO PERFORMANCE
- -------------------------------------------------------------------------------
The inception date for this Portfolio is May 1, 1999. Therefore, no prior
performance information is available.
- -------------------------------------------------------------------------------
WHO MANAGES THE PORTFOLIO
ALLIANCE CAPITAL MANAGEMENT L.P. ("Alliance"), 1345 Avenue of the Americas, New
York, New York 10105. 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 and has been with Alliance
since 1978. Prior to 1978, Mr. Harrison was co-founder, President, and Chief
Executive Officer of IDS Advisory Corporation, the pension fund investment
management subsidiary of Investors Diversified Services, Inc.
-33-
<PAGE>
EQ/EVERGREEN PORTFOLIO
INVESTMENT OBJECTIVE: Seeks capital appreciation.
THE INVESTMENT STRATEGY
The Evergreen Portfolio invests primarily in common stocks and convertible
securities of companies that are relatively small or little-known or represent
special situations which the Adviser believes offer potential for capital
appreciation. In addition, the Portfolio may invest in relatively well-known,
large company securities that have the potential for capital appreciation.
Securities are selected based on a combination of comparative undervaluation
relative to growth potential and/or merger/acquisition price.
[SIDEBAR: For purposes of this Portfolio, a "little-known" company is one whose
business is limited to a regional market or whose securities are mainly
privately held. A " relatively small" company is one that has a small share of
the market for its products or services in comparison with other companies in
its field or that provides goods or services for a limited market. A "special
situation" company is one which offers potential for capital appreciation
because of a recent or anticipated change in structure, management, products or
services.
The Portfolio also may invest to a lesser extent in non-convertible debt
securities and preferred stocks that offer an opportunity for capital
appreciation.
When market or financial conditions warrant, the Portfolio may invest up to 100%
of its assets in short-term obligations for temporary or defensive purposes.
Such investment strategies are inconsistent with the Portfolio's investment
objectives and could result in the Portfolio not achieving its investment
objective.
THE PRINCIPAL RISKS
This Portfolio invests in common stocks, therefore, its performance may go up or
down depending on general market conditions. Other principal risks include:
SMALL-CAP AND MID-CAP COMPANY RISK: The Portfolio's investments in small-cap and
mid-cap companies may be subject to more abrupt or erratic movements in price
than are those of larger, more established companies because: the securities of
such companies are less well-known and may trade less frequently and in lower
volume; such companies are more likely to experience greater or more unexpected
changes in their earnings and growth prospects; and the products of technologies
of such companies may be at a relatively early stage of development or not fully
tested.
VALUE INVESTING RISK: As noted above, the Portfolio uses a value-oriented
approach to stock selection. Value investing is subject to the risk that a value
stock's intrinsic value may never be fully recognized or realized by the market,
or its price may go down. There is also the risk that a stock judged to be
undervalued may actually be appropriately priced.
FIXED INCOME RISKS: To the extent that a substantial amount of the Portfolio's
assets are invested in fixed income securities, that portion of the Portfolio's
performance will be affected by changes in interest rates, the credit risk of
the issuer, the duration or maturity of the Portfolio's fixed income holdings,
and adverse market or economic conditions. When interest rates rise, the value
of the Portfolio's fixed income securities, particularly those with longer
durations or maturities, will go down. When interest rates fall, the reverse is
true. In addition, to the extent that the Portfolio invests in investment-grade
securities which are rated BBB by S&P or an equivalent rating by any other
nationally recognized statistical rating organization, it will be exposed to
greater risk than if it invested in higher-rated obligations because BBB-rated
securities are regarded as having only an adequate capacity to pay
-34-
<PAGE>
principal and interest, are considered to lack outstanding investment
characteristics, and may be speculative.
PORTFOLIO PERFORMANCE
- -------------------------------------------------------------------------------
The inception date for this Portfolio is January 1, 1999. Therefore, no prior
performance information is available.
- -------------------------------------------------------------------------------
WHO MANAGES THE PORTFOLIO
EVERGREEN ASSET MANAGEMENT CORP. ("Evergreen"), 2500 Westchester Avenue,
Purchase, New York 10577. Evergreen has been the Adviser to the Portfolio since
it commenced operations. Evergreen is a registered investment adviser and a
wholly-owned subsidiary of First Union Corporation. Evergreen offers a broad
range of financial services to individuals and businesses throughout the United
States.
The Portfolio Managers, responsible for the day-to-day management of the
Portfolio since its inception, are STEPHEN A. LIEBER, who has been Chairman and
Co-Chief Executive Officer of Evergreen since 1994 and has been associated with
Evergreen and its predecessor (as Chairman) since 1971; and NOLA MADDOX FALCONE,
C.F.A., who has been President and Co-Chief Executive Officer of Evergreen since
1994. Ms. Falcone has been associated with Evergreen and its predecessor (as
portfolio manager) since 1974.
-35-
<PAGE>
EQ/PUTNAM GROWTH & INCOME VALUE PORTFOLIO
INVESTMENT OBJECTIVE: Seeks capital growth. Current income is a secondary
objective.
THE INVESTMENT STRATEGY
The Portfolio invests primarily in common stocks that offer potential for
capital growth and may invest in stocks that offer potential for current income.
In analyzing companies for investment, the Adviser tries to identify common
stocks of companies that are significantly undervalued compared with their
underlying assets or earnings potential and offer growth and current income
potential.
The Portfolio may also invest in corporate bonds, notes and debentures,
preferred stocks or convertible securities (both debt securities and preferred
stocks) or U.S. Government securities.
It may also invest a portion of its assets in debt securities rated below
investment grade ( commonly referred to as "junk bonds"), zero-coupon bonds and
payment-in-kind bonds, and high quality U.S. and foreign dollar-denominated
money market securities. The Portfolio may invest up to 20% of its total assets
in foreign securities, including transactions involving futures contracts,
forward contracts and options and foreign currency exchange transactions.
There may be times when the Adviser will use additional investment strategies to
achieve a Portfolio's investment objectives. For example, the portfolio may
engage in a variety of investment management practices such as buying and
selling derivatives, including stock index futures contracts and call and put
options.
When market or financial conditions warrant, the Portfolio may invest up to 100%
of its assets in debt securities, preferred stocks or other securities for
temporary or defensive purposes. Such investment strategies are inconsistent
with the Portfolio's investment objectives and could result in the Portfolio not
achieving its investment objective.
THE PRINCIPAL RISKS
This Portfolio invests in common stocks, therefore, its performance may go up or
down depending on general market conditions. Other principal risks include:
VALUE INVESTING RISK: As noted above, the Portfolio uses a value-oriented
approach to stock selection. Value investing is subject to the risk that a value
stock's intrinsic value may never be fully recognized or realized by the market,
or its price may go down. There is also the risk that a stock judged to be
undervalued may actually be appropriately priced.
FOREIGN SECURITIES RISKS: The Portfolio's investments in foreign securities
involve risks not associated with investing in U.S. securities, which can
adversely affect the Portfolio's performance. Foreign markets, particularly
emerging markets, may be less liquid, more volatile, and subject to less
government supervision than domestic markets. There may be difficulties
enforcing contractual obligations, and it may take more time for trades to clear
and settle. In addition, the value of foreign investments can be adversely
affected by: unfavorable currency exchange rates (relative to the U.S. dollar
for securities denominated in foreign currencies); inadequate or inaccurate
information about foreign companies; higher transaction, brokerage and custody
costs; adverse changes in foreign economic and tax policies; and foreign
government instability, war or other adverse political or economic actions.
-36-
<PAGE>
DERIVATIVES RISK: The Portfolio's investments in derivatives can significantly
increase the Portfolio's exposure to market risk or credit risk of the
counterparty. Derivatives also involve the risk of mispricing or improper
valuation and the risk that changes in value of the derivative may not correlate
perfectly with the relevant assets, rates and indices.
FIXED INCOME RISKS: To the extent that a substantial amount of the Portfolio's
assets are invested in fixed income securities, that portion of the Portfolio's
performance will be affected by changes in interest rates, the credit risk of
the issuer, the duration or maturity of the Portfolio's fixed income holdings,
and adverse market or economic conditions. When interest rates rise, the value
of the Portfolio's fixed income securities, particularly those with longer
durations or maturities, will go down. When interest rates fall, the reverse is
true. In addition, to the extent that the Portfolio invests in investment-grade
securities which are rated BBB by S&P or an equivalent rating by any other
nationally recognized statistical rating organization, it will be exposed to
greater risk than if it invested in higher-rated obligations because BBB-rated
securities are regarded as having only an adequate capacity to pay principal and
interest, are considered to lack outstanding investment characteristics, and may
be speculative. The risk that an issuer or guarantor of a fixed income security
or counterparty to the Portfolio's fixed income transaction is unable to meets
its financial obligations is particularly significant for this Portfolio because
this Portfolio invests a portion of its assets in "junk bonds" (i.e., securities
rated below investment grade). Junk bonds are issued by companies with
questionable credit strength and, consequently, are considered to be speculative
in nature and may be subject to greater market fluctuations than investment
grade fixed-income securities.
PORTFOLIO PERFORMANCE
The bar chart below illustrates the Portfolio's annual total return for 1998,
the Portfolio's first full year of operations. The table below shows the
Portfolio's average annual total returns for the Portfolio for one year and
since inception. The table also compares the Portfolio's performance to the
returns of a broad-based index. Both the bar chart and table assume reinvestment
of dividends and distributions. Past performance is not an indication of future
performance. In addition, holders of variable insurance contracts representing
interests in the Portfolio will be subject to charges and expenses relating to
such insurance contracts. The performance results presented below do not reflect
any insurance related expenses and if reflected the results would be reduced.
The inception date for the Portfolio is May 1, 1997.
- -------------------------------------------------------------------------------
CALENDAR YEAR ANNUAL TOTAL RETURN
1998
12.75%
- -------------------------------------------------------------------------------
Best quarter (% and time period) Worst quarter (% and time period)
16.49% (1998 4th Quarter) (10.58)% (1998 3rd Quarter)
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<PAGE>
- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR SINCE INCEPTION
EQ/PUTNAM GROWTH & INCOME VALUE 12.75% 17.56%
PORTFOLIO
S&P 500 INDEX* 28.58% 31.63%
- -------------------------------------------------------------------------------
* For more information on this index, see the preceding section "The
Benchmarks."
WHO MANAGES THE PORTFOLIO
PUTNAM INVESTMENT MANAGEMENT, INC. ("Putnam Management"), One Post Office
Square, Boston, MA 02109. Putnam Management has been the Adviser to the
Portfolio since the Portfolio commenced operations. Putnam Management has been
managing mutual funds since 1937. Putnam Management is a subsidiary of Putnam
Investments, Inc., which is itself a subsidiary of Marsh & McLennan Companies,
Inc.
ANTHONY I. KREISEL is the Portfolio Manager responsible for the day to day
management of the Portfolio since it commenced operations. Mr. Kreisel has been
employed by Putnam Management as either a portfolio manager or analyst since
1986.
-38-
<PAGE>
EQ/PUTNAM INVESTORS GROWTH PORTFOLIO
INVESTMENT OBJECTIVE: Seeks long-term growth of capital and any increased income
that results from this growth.
THE INVESTMENT STRATEGY
The Portfolio invests primarily in common stocks of companies with market
capitalizations of $2 billion or more. The Adviser gives consideration to growth
potential rather than to dividend income. The Portfolio may purchase securities
of medium-sized companies having a proprietary product or profitable market
niches and the potential to grow very rapidly.
The Adviser invests mostly in "growth" stocks whose earnings the Adviser
believes are likely to grow faster than the economy as a whole. The Adviser
evaluates a company's future earnings potential and dividends, financial
strength, working assets and competitive position in its industry.
Although the Portfolio invests primarily in U.S. stocks, the Portfolio may
invest without limit in securities of foreign issuers that are traded in U.S.
public markets. It may also, to a lesser extent, invest in securities of foreign
issuers that are not traded in U.S.
public markets.
The Portfolio may also engage in a variety of transactions involving
derivatives, such as futures, options, warrants and swaps and may also invest in
convertible securities, preferred stocks and debt securities.
When market or financial conditions warrant, the Portfolio may invest without
limit in debt securities, preferred stocks, United States Government and agency
obligations, cash or money market instruments, or any other securities for
temporary or defensive purposes. Such investment strategies are inconsistent
with the Portfolio's investment objectives and could result in the Portfolio not
achieving its investment objective.
THE PRINCIPAL RISKS
This Portfolio invests in common stocks, therefore, its performance may go up or
down depending on general market conditions. Other principal risks include:
GROWTH INVESTING RISK: As noted above, this Portfolio uses a growth oriented
approach to stock selection. The price of growth stocks may be more sensitive to
changes in current or expected earnings than the prices of other stocks. The
price of growth stocks is also subject to the risk that the stock price of one
or more companies will fall or will fail to appreciate as anticipated by the
Adviser, regardless of movements in the securities market.
SMALL-CAP AND MID-CAP COMPANY RISK: The Portfolio's investments in small-cap and
mid-cap companies may be subject to more abrupt or erratic movements in price
than are those of larger, more established companies because: the securities of
such companies are less well-known and may trade less frequently and in lower
volume; such companies are more likely to experience greater or more unexpected
changes in their earnings and growth prospects; and the products of technologies
of such companies may be at a relatively early stage of development or not fully
tested.
DERIVATIVES RISK: The Portfolio's investments in derivatives can significantly
increase the Portfolio's exposure to market risk or credit risk of the
counterparty. Derivatives also involve the risk of mispricing or improper
valuation and the risk that changes in value of the derivative may not correlate
perfectly with the relevant assets, rates and indices.
-39-
<PAGE>
FOREIGN SECURITIES RISKS: The Portfolio's investments in foreign securities
involve risks not associated with investing in U.S. securities, which can
adversely affect the Portfolio's performance. Foreign markets, particularly
emerging markets, may be less liquid, more volatile, and subject to less
government supervision than domestic markets. There may be difficulties
enforcing contractual obligations, and it may take more time for trades to clear
and settle. In addition, the value of foreign investments can be adversely
affected by: unfavorable currency exchange rates (relative to the U.S. dollar
for securities denominated in foreign currencies); inadequate or inaccurate
information about foreign companies; higher transaction, brokerage and custody
costs; adverse changes in foreign economic and tax policies; and foreign
government instability, war or other adverse political or economic actions.
FIXED INCOME RISKS: To the extent that a substantial amount of the Portfolio's
assets are invested in fixed income securities, that portion of the Portfolio's
performance will be affected by changes in interest rates, the credit risk of
the issuer, the duration or maturity of the Portfolio's fixed income holdings,
and adverse market or economic conditions. When interest rates rise, the value
of the Portfolio's fixed income securities, particularly those with longer
durations or maturities, will go down. When interest rates fall, the reverse is
true. In addition, to the extent that the Portfolio invests in investment-grade
securities which are rated BBB by S&P or an equivalent rating by any other
nationally recognized statistical rating organization, it will be exposed to
greater risk than if it invested in higher-rated obligations because BBB-rated
securities are regarded as having only an adequate capacity to pay principal and
interest, are considered to lack outstanding investment characteristics, and may
be speculative.
PORTFOLIO PERFORMANCE
The bar chart below illustrates the Portfolio's annual total return for 1998,
the Portfolio's first full year of operations. The table below shows the
Portfolio's average annual total returns for the Portfolio for one year and
since inception. The table also compares the Portfolio's performance to the
returns of a broad-based index. Both the bar chart and table assume reinvestment
of dividends and distributions. Past performance is not an indication of future
performance. In addition, holders of variable insurance contracts representing
interests in the Portfolio will be subject to charges and expenses relating to
such insurance contracts. The performance results presented below do not reflect
any insurance related expenses and if reflected the results would be reduced.
The inception date for the Portfolio is May 1, 1997.
- -------------------------------------------------------------------------------
CALENDAR YEAR ANNUAL TOTAL RETURN
1998
36.27%
- -------------------------------------------------------------------------------
Best quarter (% and time period) Worst quarter (% and time period)
25.29% (1998 4th Quarter) (11.25)% (1998 3rd Quarter)
-40-
<PAGE>
- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR SINCE INCEPTION
EQ/PUTNAM INVESTORS GROWTH
PORTFOLIO 36.27% 37.34%
S&P 500 INDEX* 28.58% 31.63%
- -------------------------------------------------------------------------------
* For more information on this index, see the preceding section "The
Benchmarks."
WHO MANAGES THE PORTFOLIO
PUTNAM INVESTMENT MANAGEMENT, INC. ("Putnam Management"), One Post Office
Square, Boston, MA 02109. Putnam Management has been the Adviser to the
Portfolio since the Portfolio commenced operations. Putnam Management has been
managing mutual funds since 1937. Putnam Management is a subsidiary of Putnam
Investments, Inc., which is itself a subsidiary of Marsh & McLennan Companies,
Inc.
The Portfolio Managers, responsible for the day to day management of the
Portfolio since its inception, are: C. BETH COTNER, who has been employed by
Putnam Management as an investment professional* since 1995, and prior to 1995,
was a Portfolio Manager and Executive Vice President of Kemper Financial
Services; RICHARD B. ENGLAND, who has been employed by Putnam Management as an
investment professional* since 1992; and MANUAL WEISS HERRERRO, who has been
employed by Putnam Management as investment professional* since 1987.
(*Investment professional means that the manager was either a portfolio manager
or analyst.)
-41-
<PAGE>
LAZARD LARGE CAP VALUE PORTFOLIO
INVESTMENT OBJECTIVE: Seeks capital appreciation by investing primarily in
equity securities of companies with relatively large capitalizations (i.e.,
companies having market capitalizations of at least $3 billion at the time of
initial purchase) that appear to the Adviser to be inexpensively priced relative
to the return on total capital or equity.
THE INVESTMENT STRATEGY
The Portfolio normally invests at least 80% of its total assets primarily in
equity securities of large capitalization companies. Equity securities include
common stocks, preferred stocks and securities convertible into or exchangeable
for common stocks.
The Portfolio uses a value-oriented approach in searching for securities. The
Adviser uses a "bottom-up" approach (individual stock selection) to find
companies that have:
o low price to earnings ratios
o high yield
o unrecognized assets
o the possibility of management change
o the prospect of improved profitability.
The Portfolio may also invest up to 20% of its assets in U.S. Government
securities and investment grade debt securities of domestic corporations rated
BBB or better by S&P or Baa or better by Moody's.
The Portfolio may also invest up to 10% of its assets in foreign equity or debt
securities, or depositary receipts.
The Portfolio may also invest without limitation in high-quality short-term
money market instruments. The Portfolio may engage in options transactions,
including writing covered call options or foreign currencies to offset costs of
hedging and writing and purchasing put and call options on securities. Although
the Portfolio will engage in options transactions primarily to hedge its
Portfolio, it may use options to increase returns and there is the risk that
these transactions sometimes may reduce returns or increase volatility.
When market or financial conditions warrant, the Portfolio may invest, without
limit, in money market securities for temporary or defensive purposes. Such
investment strategies could have the effect of reducing the benefit of any
upswing in the market. Such investment strategies are inconsistent with the
Portfolio's investment objectives and could result in the Portfolio not
achieving its investment objective.
THE PRINCIPAL RISKS
This Portfolio invests in common stocks, therefore, its performance may go up or
down depending on general market conditions. Other principal risks include:
VALUE INVESTING RISK: As noted above, the Portfolio uses a value-oriented
approach to stock selection. Value investing is subject to the risk that a value
stock's intrinsic value may never be fully recognized or realized by the market,
or its price may go down. There is also the risk that a stock judged to be
undervalued may actually be appropriately priced.
-42-
<PAGE>
DERIVATIVES RISK: The Portfolio's investments in derivatives can significantly
increase the Portfolio's exposure to market risk or credit risk of the
counterparty. Derivatives also involve the risk of mispricing or improper
valuation and the risk that changes in value of the derivative may not correlate
perfectly with the relevant assets, rates and indices.
FIXED INCOME RISKS: To the extent that a substantial amount of the Portfolio's
assets are invested in fixed income securities, that portion of the Portfolio's
performance will be affected by changes in interest rates, the credit risk of
the issuer, the duration or maturity of the Portfolio's fixed income holdings,
and adverse market or economic conditions. When interest rates rise, the value
of the Portfolio's fixed income securities, particularly those with longer
durations or maturities, will go down. When interest rates fall, the reverse is
true. In addition, to the extent that the Portfolio invests in investment-grade
securities which are rated BBB by S&P or an equivalent rating by any other
nationally recognized statistical rating organization, it will be exposed to
greater risk than if it invested in higher-rated obligations because BBB-rated
securities are regarded as having only an adequate capacity to pay principal and
interest, are considered to lack outstanding investment characteristics, and may
be speculative.
PORTFOLIO PERFORMANCE
The bar chart below illustrates the Portfolio's average annual total return for
1998, the Portfolio's first year of existence. The table below shows the
Portfolio's average annual total returns for the Portfolio for one year and
since inception. The table also compares the Portfolio's performance to the
returns of a broad based index. Both the bar chart and table assume reinvestment
of dividends and distributions. Past performance is not an indication of future
performance. In addition, holders of variable insurance contracts representing
interests in the Portfolio will be subject to charges and expenses relating to
such insurance contracts. The performance results presented below do not reflect
any insurance related expenses and if reflected the results would be reduced.
The Portfolio's inception date was January 1, 1998.
- -------------------------------------------------------------------------------
CALENDAR YEAR ANNUAL TOTAL RETURN
1998
20.01%
- -------------------------------------------------------------------------------
Best quarter (% and time period) Worst quarter (% and time period)
23.34% (1998 4th Quarter) (13.43)% (1998 3rd Quarter)
- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR SINCE INCEPTION
LAZARD LARGE CAP VALUE PORTFOLIO
20.01% 20.01%
S&P 500 INDEX* 28.58% 28.58%
- -------------------------------------------------------------------------------
* For more information on this index, see the preceding section "The
Benchmarks."
-43-
<PAGE>
WHO MANAGES THE PORTFOLIO
LAZARD ASSET MANAGEMENT ("LAM"), 30 Rockefeller Plaza, New York, New York 10112.
LAM has been the Adviser to the Portfolio since it commenced operations. LAM is
a division of Lazard Freres & Co. LLC ("Lazard Freres"), a New York limited
liability company, which is registered as an investment adviser with the SEC.
Lazard Freres provides its clients with a wide variety of investment banking,
brokerage and related services, including investment management.
The Portfolio Managers, responsible for the day to day management since the
inception of the Portfolio are HERBERT W. GULLQUIST, a Vice-Chairman, Managing
Director and Chief Investment Officer of LAM, who has been with LAM since 1982;
and MICHAEL S. ROME, a Managing Director of LAM and a U.S./Global Equity
Portfolio Manager since 1991.
-44-
<PAGE>
MERRILL LYNCH BASIC VALUE EQUITY PORTFOLIO
INVESTMENT OBJECTIVE: Seeks capital appreciation and secondarily, income by
investing in securities, primarily equities, that the Adviser of the Portfolio
believes are undervalued and therefore represent basic investment value.
THE INVESTMENT STRATEGY
The Portfolio chooses securities for capital appreciation that are expected to
increase in value. In selecting securities the Adviser emphasizes stocks that
are undervalued, are selling at a discount, or seem capable of recovering from
being temporarily out of favor. The Adviser places particular emphasis on
securities with statistical characteristics associated with undervaluation.
The Adviser follows a contrary opinion/out-of-favor investment style. The
Adviser believes that favorable changes in market prices are more likely to
occur when:
o stocks are out of favor
o company earnings are depressed
o price/earnings ratios are relatively low
o investment expectations are limited
o there is no general interest in a security or industry.
On the other hand, the Adviser believes that negative developments are more
likely to occur when:
o investment expectations are high
o stock prices are advancing or have advanced rapidly
o price/earnings ratios have been inflated
o an industry or security continues to become popular among investors.
In other words, the Adviser believes that stocks with relatively high
price/earnings ratios are more vulnerable to price declines from unexpected
adverse developments. At the same time, stocks with relatively low
price/earnings ratios are more likely to benefit from favorable but generally
unanticipated events. Thus, the Portfolio may invest a large part of its net
assets in stocks that have weak research ratings.
The Portfolio invests primarily in common stocks of U.S. companies, but may buy
equity securities other than common stock and may also invest up to 10% of its
total assets in securities issued by foreign companies. The Portfolio may also
invest a substantial portion of its assets in companies with market
capitalizations below the largest companies. The Adviser believes that large
institutional investors may overlook these companies, making them undervalued.
The Portfolio has no minimum holding period for investments, and will buy or
sell securities whenever the Portfolio's management sees an appropriate
opportunity.
When market or financial conditions warrant, the Portfolio may invest in U.S.
Government and agency securities, money market securities and other fixed-income
securities for temporary or defensive purposes. Such investment strategies are
inconsistent with the Portfolio's investment objectives and could result in the
Portfolio not achieving its investment objective.
-45-
<PAGE>
THE PRINCIPAL RISKS
This Portfolio invests in common stocks, therefore, its performance may go up or
down depending on general market conditions. Other principal risks include:
VALUE INVESTING RISK: As noted above, the Portfolio uses a value-oriented
approach to stock selection. Value investing is subject to the risk that a value
stock's intrinsic value may never be fully recognized or realized by the market,
or its price may go down. There is also the risk that a stock judged to be
undervalued may actually be appropriately priced.
SMALL-CAP AND MID-CAP COMPANY RISK: The Portfolio's investments in small-cap and
mid-cap companies may be subject to more abrupt or erratic movements in price
than are those of larger, more established companies because: the securities of
such companies are less well-known and may trade less frequently and in lower
volume; such companies are more likely to experience greater or more unexpected
changes in their earnings and growth prospects; and the products of technologies
of such companies may be at a relatively early stage of development or not fully
tested.
FOREIGN SECURITIES RISKS: The Portfolio's investments in foreign securities
involve risks not associated with investing in U.S. securities, which can
adversely affect the Portfolio's performance. Foreign markets, particularly
emerging markets, may be less liquid, more volatile, and subject to less
government supervision than domestic markets. There may be difficulties
enforcing contractual obligations, and it may take more time for trades to clear
and settle. In addition, the value of foreign investments can be adversely
affected by: unfavorable currency exchange rates (relative to the U.S. dollar
for securities denominated in foreign currencies); inadequate or inaccurate
information about foreign companies; higher transaction, brokerage and custody
costs; adverse changes in foreign economic and tax policies; and foreign
government instability, war or other adverse political or economic actions.
PORTFOLIO PERFORMANCE
The bar chart below illustrates the Portfolio's annual total return for 1998,
the Portfolio's first full year of operations. The table below shows the
Portfolio's average annual total returns for the Portfolio for one year and
since inception. The table also compares the Portfolio's performance to the
returns of a broad-based index. Both the bar chart and table assume reinvestment
of dividends and distributions. Past performance is not an indication of future
performance. In addition, holders of variable insurance contracts representing
interests in the Portfolio will be subject to charges and expenses relating to
such insurance contracts. The performance results presented below do not reflect
any insurance related expenses and if reflected the results would be reduced.
The inception date for the Portfolio is May 1, 1997.
- -------------------------------------------------------------------------------
CALENDAR YEAR ANNUAL TOTAL RETURN
1998
11.59%
- -------------------------------------------------------------------------------
Best quarter (% and time period) Worst quarter (% and time period)
11.20% (1997 3rd Quarter) (10.91)% (1998 3rd Quarter)
-46-
<PAGE>
- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR SINCE INCEPTION
MERRILL LYNCH BASIC VALUE
EQUITY PORTFOLIO 11.59% 17.29%
S&P 500 INDEX* 28.58% 31.63%
- -------------------------------------------------------------------------------
* For more information on this index, see the preceding section "The
Benchmarks."
WHO MANAGES THE PORTFOLIO
MERRILL LYNCH ASSET MANAGEMENT, L.P. ("MLAM"), 800 Scudders Mill Road,
Plainsboro, NJ 08543. MLAM has been the Adviser to the Portfolio since it
commenced operations. MLAM is an indirect wholly-owned subsidiary of Merrill
Lynch & Co., Inc., a financial services holding company. The general partner of
MLAM is Princeton Services, Inc., a wholly-owned subsidiary of Merrill Lynch &
Co., Inc. MLAM and its affiliates act as the manager for more than 100
registered investment companies. MLAM also offers portfolio management and
portfolio analysis services to individuals and institutions.
KEVIN RENDINO, a First Vice President of MLAM since 1997, has been the Portfolio
Manager responsible for the day to day management of the Portfolio since it
commenced operations. Mr. Rendino was a Vice President of MLAM from 1993 to
1997.
-47-
<PAGE>
MFS GROWTH WITH INCOME PORTFOLIO
INVESTMENT OBJECTIVE: Seeks to provide reasonable current income and long-term
growth of capital and income.
[SIDEBAR: For purposes of this Portfolio, the words "reasonable current income"
mean moderate income.]
THE INVESTMENT STRATEGY
The Portfolio invests, under normal market conditions, primarily (at least 65%
of its total assets) in equity securities, including common stocks, preferred
stocks, convertible securities, warrants and depositary receipts for those
securities. Equity securities may be listed on a securities exchange or traded
in the over-the-counter markets. While the Portfolio may invest in companies of
any size, the Portfolio generally focuses on companies with larger market
capitalizations that the Adviser believes have sustainable growth prospects and
attractive valuations based on current and expected earnings or cash flow.
The Adviser uses a "bottom-up" investment style in managing the Portfolio. This
means that securities are selected based upon fundamental analysis performed by
the Adviser's large group of equity research analysts.
The Portfolio may invest in foreign securities and may have exposure to foreign
currencies through its investment in these securities, its direct holdings of
foreign currencies or through its use of forward foreign currency exchange
contracts for the purchase or sale of a fixed quantity of foreign currency at a
future date.
When adverse market, financial or political conditions warrant, the Portfolio
may depart from its principal strategies for temporary or defensive purposes.
Such investment strategies are inconsistent with the Portfolio's investment
objective and could result in the Portfolio not achieving its investment
objective.
THE PRINCIPAL RISKS
This Portfolio invests in common stocks, therefore, its performance may go up or
down depending on general market conditions. Other principal risks include:
GROWTH INVESTING RISK: As noted above, this Portfolio uses a growth oriented
approach to stock selection. The price of growth stocks may be more sensitive to
changes in current or expected earnings than the prices of other stocks. The
price of growth stocks is also subject to the risk that the stock price of one
or more companies will fall or will fail to appreciate as anticipated by the
Adviser, regardless of movements in the securities market.
SMALL-CAP AND MID-CAP COMPANY RISK: The Portfolio's investments in small-cap and
mid-cap companies may be subject to more abrupt or erratic movements in price
than are those of larger, more established companies because: the securities of
such companies are less well-known and may trade less frequently and in lower
volume; such companies are more likely to experience greater or more unexpected
changes in their earnings and growth prospects; and the products of technologies
of such companies may be at a relatively early stage of development or not fully
tested.
-48-
<PAGE>
FOREIGN SECURITIES RISKS: The Portfolio's investments in foreign securities
involve risks not associated with investing in U.S. securities, which can
adversely affect the Portfolio's performance. Foreign markets, particularly
emerging markets, may be less liquid, more volatile, and subject to less
government supervision than domestic markets. There may be difficulties
enforcing contractual obligations, and it may take more time for trades to clear
and settle. In addition, the value of foreign investments can be adversely
affected by: unfavorable currency exchange rates (relative to the U.S. dollar
for securities denominated in foreign currencies); inadequate or inaccurate
information about foreign companies; higher transaction, brokerage and custody
costs; adverse changes in foreign economic and tax policies; and foreign
government instability, war or other adverse political or economic actions.
PORTFOLIO PERFORMANCE
- -------------------------------------------------------------------------------
The inception date for this Portfolio is January 1, 1999. Therefore, no prior
performance information is available.
- -------------------------------------------------------------------------------
WHO MANAGES THE PORTFOLIO
MASSACHUSETTS FINANCIAL SERVICES COMPANY ("MFS"), 500 Boylston Street, Boston,
MA 02116. MFS has been the Adviser to the Portfolio since it commenced
operations. MFS is America's oldest mutual fund organization. MFS and its
predecessor organizations have a history of money management dating from 1924
and the founding of the first mutual fund in the United States, Massachusetts
Investors Trust. MFS is a subsidiary of Sun Life of Canada (United States)
Financial Services Holdings Inc., which, in turn, is an indirect wholly-owned
subsidiary of Sun Life Assurance Company of Canada.
The Portfolio Managers are JOHN D. LAUPHEIMER, JR., Senior Vice President of
MFS, who has been employed as a portfolio manager by MFS since 1986; and
MITCHELL D. DYNAN, a Vice President of MFS, who has been employed as a portfolio
manager by MFS since 1981.
-49-
<PAGE>
MFS RESEARCH PORTFOLIO
INVESTMENT OBJECTIVE: Seeks to provide long-term growth of capital and future
income.
THE INVESTMENT STRATEGY
The Portfolio invests primarily in equity securities, such as common stocks,
securities convertible into common stocks, preferred stocks and depositary
receipts of companies believed by the Adviser to have:
o favorable prospects for long-term growth,
o attractive valuations based on current and expected earnings or cash flow,
o dominant or growing market share, and
o superior management.
The Portfolio may invest in securities of companies of any size. The Portfolio's
investments may include securities traded on securities exchanges or in the
over-the-counter markets.
The Portfolio may invest in foreign equity securities, and may have exposure to
foreign currencies through its investment in these securities, its direct
holdings of foreign currencies or through its use of foreign currency exchange
contracts for the purchase or sale of a fixed quantity of foreign currency at a
future date.
When adverse market, financial or political conditions warrant, the Portfolio
may depart from its principal investment strategies for temporary or defensive
purposes. Such investment strategies are inconsistent with the Portfolio's
investment objectives and could result in the Portfolio not achieving its
investment objective.
The Portfolio may invest up to 10% of its assets in high yielding debt
securities rated below investment grade ("junk bonds").
THE PRINCIPAL RISKS
This Portfolio invests in common stocks, therefore, its performance may go up or
down depending on general market conditions. Other principal risks include:
GROWTH INVESTING RISK: As noted above, this Portfolio uses a growth oriented
approach to stock selection. The price of growth stocks may be more sensitive to
changes in current or expected earnings than the prices of other stocks. The
price of growth stocks is also subject to the risk that the stock price of one
or more companies will fall or will fail to appreciate as anticipated by the
Adviser, regardless of movements in the securities market.
SMALL-CAP AND MID-CAP COMPANY RISK: The Portfolio's investments in small-cap and
mid-cap companies may be subject to more abrupt or erratic movements in price
than are those of larger, more established companies because: the securities of
such companies are less well-known and may trade less frequently and in lower
volume; such companies are more likely to experience greater or more unexpected
changes in their earnings and growth prospects; and the products of technologies
of such companies may be at a relatively early stage of development or not fully
tested.
-50-
<PAGE>
FIXED INCOME RISKS: To the extent that a substantial amount of the Portfolio's
assets are invested in fixed income securities, that portion of the Portfolio's
performance will be affected by changes in interest rates, the credit risk of
the issuer, the duration or maturity of the Portfolio's fixed income holdings,
and adverse market or economic conditions. When interest rates rise, the value
of the Portfolio's fixed income securities, particularly those with longer
durations or maturities, will go down. When interest rates fall, the reverse is
true. In addition, to the extent that the Portfolio invests in investment-grade
securities which are rated BBB by S&P or an equivalent rating by any other
nationally recognized statistical rating organization, it will be exposed to
greater risk than if it invested in higher-rated obligations because BBB-rated
securities are regarded as having only an adequate capacity to pay principal and
interest, are considered to lack outstanding investment characteristics, and may
be speculative. The risk that an issuer or guarantor of a fixed income security
or counterparty to the Portfolio's fixed income transaction is unable to meets
its financial obligations is particularly significant for this Portfolio because
this Portfolio invests a portion of its assets in "junk bonds" (i.e., securities
rated below investment grade). Junk bonds are issued by companies with
questionable credit strength and, consequently, are considered to be speculative
in nature and may be subject to greater market fluctuations than investment
grade fixed-income securities.
FOREIGN SECURITIES RISKS: The Portfolio's investments in foreign securities
involve risks not associated with investing in U.S. securities, which can
adversely affect the Portfolio's performance. Foreign markets, particularly
emerging markets, may be less liquid, more volatile, and subject to less
government supervision than domestic markets. There may be difficulties
enforcing contractual obligations, and it may take more time for trades to clear
and settle. In addition, the value of foreign investments can be adversely
affected by: unfavorable currency exchange rates (relative to the U.S. dollar
for securities denominated in foreign currencies); inadequate or inaccurate
information about foreign companies; higher transaction, brokerage and custody
costs; adverse changes in foreign economic and tax policies; and foreign
government instability, war or other adverse political or economic actions.
PORTFOLIO PERFORMANCE
The bar chart below illustrates the Portfolio's annual total return for 1998,
the Portfolio's first full year of operations. The table below shows the
Portfolio's average annual total returns for the Portfolio for one year and
since inception. The table also compares the Portfolio's performance to the
returns of a broad-based index. Both the bar chart and table assume reinvestment
of dividends and distributions. Past performance is not an indication of future
performance. In addition, holders of variable insurance contracts representing
interests in the Portfolio will be subject to charges and expenses relating to
such insurance contracts. The performance results presented below do not reflect
any insurance related expenses and if reflected the results would be reduced.
The inception date for the Portfolio is May 1, 1997.
- -------------------------------------------------------------------------------
CALENDAR YEAR ANNUAL TOTAL RETURN
1998
24.11%
- -------------------------------------------------------------------------------
Best quarter (% and time period) Worst quarter (% and time period)
21.36% (1998 4th Quarter) (17.35)% (1997 4th Quarter)
-51-
<PAGE>
- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR SINCE INCEPTION
MFS RESEARCH PORTFOLIO 24.11% 24.41%
S&P 500 INDEX* 28.58% 31.63%
- -------------------------------------------------------------------------------
* For more information on this index, see the preceding section "The
Benchmarks."
WHO MANAGES THE PORTFOLIO
MASSACHUSETTS FINANCIAL SERVICES COMPANY ("MFS"), 500 Boylston Street, Boston,
MA 02116. MFS has been the Adviser to the Portfolio since it commenced
operations. MFS is America's oldest mutual fund organization. MFS and its
predecessor organizations have a history of money management dating from 1924
and the founding of the first mutual fund in the United States, Massachusetts
Investors Trust. MFS is a subsidiary of Sun Life of Canada (United States)
Financial Services Holdings Inc., which, in turn, is an indirect wholly-owned
subsidiary of Sun Life Assurance Company of Canada.
A committee of investment research analysts selects portfolio securities for the
Portfolio. This committee includes investment analysts employed not only by MFS,
but also by MFS International (U.K.) Limited, a wholly owned subsidiary of MFS.
The committee allocates the Portfolio's assets among various industries.
Individual analysts then select what they view as the securities best suited to
achieve the Portfolio's investment objective within their assigned industry
responsibility.
-52-
<PAGE>
T. ROWE PRICE EQUITY INCOME PORTFOLIO
INVESTMENT OBJECTIVE: Seeks to provide substantial dividend income and also
capital appreciation by investing primarily in dividend-paying common stocks of
established companies.
THE INVESTMENT STRATEGY
The Portfolio invests primarily in dividend-paying common stocks of established
companies that have favorable prospects for increasing dividend income and
capital appreciation. The Portfolio's yield as a result of that dividend income
is expected to be significantly above the average yield of the companies of the
S&P 500.
The Adviser bases its investment decisions on three premises: (1) over time,
dividend income can account for a significant portion of the Portfolio's return;
(2) dividends are a more stable and predictable source of return; and (3) prices
of stocks that pay a high current income level tend to be less volatile than
those paying below average dividends.
The Adviser uses a "value" approach in choosing securities. It looks for common
stocks of companies that have:
o established operating histories;
o above-average dividend yields relative to the S&P 500;
o low price to earnings ratios relative to the S&P 500;
o sound balance sheets; and
o low stock price relative to the company's asset value, earnings and
cash flow.
[SIDEBAR: Equity income investing involves finding common stocks that pay
dividend income. As an example, utility company stocks often provide dividend
income while a shareholder waits for the stock price to move. Dividends can help
reduce the Portfolio's volatility during turbulent markets and help offset
losses when stock prices are falling.]
The Portfolio may invest up to 25% of its total assets in foreign securities.
These securities include non-dollar-denominated securities traded outside the
United States and dollar-denominated securities such as American Depositary
Receipts. The Portfolio may also purchase preferred stocks, convertible
securities, warrants, U.S. Government securities, high-quality money market
securities, as well as investment grade debt securities and high yielding debt
securities ("junk bonds").
When market or financial conditions warrant, the Portfolio may invest without
limitation in high quality money market securities, and United States Government
debt securities for temporary or defensive purposes. Such investment strategies
are inconsistent with the Portfolio's investment objectives and could result in
the Portfolio not achieving its investment objective.
THE PRINCIPAL RISKS
This Portfolio invests in common stocks, therefore, its performance may go up or
down depending on general market conditions. Other principal risks include:
VALUE INVESTING RISK: As noted above, the Portfolio uses a value-oriented
approach to stock selection. Value investing is subject to the risk that a value
stock's intrinsic value may never be fully recognized or realized by the market,
or its price may go down. There is also the risk that a stock judged to be
undervalued may actually be appropriately priced.
-53-
<PAGE>
FOREIGN SECURITIES RISKS: The Portfolio's investments in foreign securities
involve risks not associated with investing in U.S. securities, which can
adversely affect the Portfolio's performance. Foreign markets, particularly
emerging markets, may be less liquid, more volatile, and subject to less
government supervision than domestic markets. There may be difficulties
enforcing contractual obligations, and it may take more time for trades to clear
and settle. In addition, the value of foreign investments can be adversely
affected by: unfavorable currency exchange rates (relative to the U.S. dollar
for securities denominated in foreign currencies); inadequate or inaccurate
information about foreign companies; higher transaction, brokerage and custody
costs; adverse changes in foreign economic and tax policies; and foreign
government instability, war or other adverse political or economic actions.
FIXED INCOME RISKS: To the extent that a substantial amount of the Portfolio's
assets are invested in fixed income securities, that portion of the Portfolio's
performance will be affected by changes in interest rates, the credit risk of
the issuer, the duration or maturity of the Portfolio's fixed income holdings,
and adverse market or economic conditions. When interest rates rise, the value
of the Portfolio's fixed income securities, particularly those with longer
durations or maturities, will go down. When interest rates fall, the reverse is
true. In addition, to the extent that the Portfolio invests in investment-grade
securities which are rated BBB by S&P or an equivalent rating by any other
nationally recognized statistical rating organization, it will be exposed to
greater risk than if it invested in higher-rated obligations because BBB-rated
securities are regarded as having only an adequate capacity to pay principal and
interest, are considered to lack outstanding investment characteristics, and may
be speculative.
PORTFOLIO PERFORMANCE
The bar chart below illustrates the Portfolio's annual total return for 1998,
the Portfolio's first full year of operations. The table below shows the
Portfolio's average annual total returns for the Portfolio for one year and
since inception. The table also compares the Portfolio's performance to the
returns of a broad-based index. Both the bar chart and table assume reinvestment
of dividends and distributions. Past performance is not an indication of future
performance. In addition, holders of variable insurance contracts representing
interests in the Portfolio will be subject to charges and expenses relating to
such insurance contracts. The performance results presented below do not reflect
any insurance related expenses and if reflected the results would be reduced.
The inception date for the Portfolio is May 1, 1997.
- -------------------------------------------------------------------------------
CALENDAR YEAR ANNUAL TOTAL RETURN
1998
9.11%
- -------------------------------------------------------------------------------
Best quarter (% and time period) Worst quarter (% and time period)
11.16% (1998 4th Quarter) (7.66)% (1998 3rd Quarter)
-54-
<PAGE>
- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR SINCE INCEPTION
T. ROWE PRICE EQUITY INCOME
PORTFOLIO 9.11% 18.73%
S&P 500 INDEX* 28.58% 31.63%
- -------------------------------------------------------------------------------
* For more information on this index, see the preceding section "The
Benchmarks."
WHO MANAGES THE PORTFOLIO
T. ROWE PRICE ASSOCIATES, INC. ("T. Rowe Price"), 100 East Pratt Street,
Baltimore, MD 21202. T. Rowe Price has been the Adviser to the Portfolio since
the Portfolio commenced operations. T. Rowe Price serves as investment manager
to a variety of individual and institutional investor accounts, including
limited partnerships and other mutual funds.
Investment decisions with respect to the Portfolio are made by an Investment
Advisory Committee. BRIAN C. ROGERS has been the Committee Chairman since the
inception of the Portfolio and has day-to-day responsibility for managing the
Portfolio. Mr. Rogers joined T. Rowe Price in 1982 and has been managing
investments since 1983.
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<PAGE>
AGGRESSIVE EQUITY PORTFOLIOS
BT SMALL COMPANY INDEX PORTFOLIO
INVESTMENT OBJECTIVE: Seeks to replicate as closely as possible (before the
deduction of Portfolio expenses) the total return of the Russell 2000 Index
("Russell 2000").
THE INVESTMENT STRATEGY
The Portfolio invests primarily in equity securities of small-cap companies
included in the Russell 2000. The Adviser seeks to match the returns of the
Russell 2000. The Portfolio invests in a statistically selected sample of the
securities found in the Russell 2000, using a process known as "optimization."
This process selects stocks for the Portfolio so that industry weightings,
market capitalizations and fundamental characteristics (price to book ratios,
price to earnings ratios, debt to asset ratios and dividend yields) closely
match those of the securities included in the Russell 2000. This approach helps
to increase the Portfolio's liquidity and reduce costs. The securities held by
the Portfolio are weighted to make the Portfolio's total investment
characteristics similar to those of the Russell 2000 as a whole.
[SIDEBAR: For more information on The Russell 2000, see the preceding section
"The Benchmarks." The Portfolio is neither sponsored by nor affiliated with the
Frank Russell Company, which is the owner of the trademarks and copyrights
relating to the Russell indices.]
Over time, the correlation between the performance of the Portfolio and the
Russell 2000 is expected to be 95% or higher before the deduction of Portfolio
expenses. The Portfolio's ability to track the Russell 2000 may be affected by,
among other things, transaction costs, administration and other expenses
incurred by the Portfolio, changes in either the composition of the Russell 2000
or the assets of the Portfolio, and the timing and amount of Portfolio investor
contributions and withdrawals, if any. The Portfolio seeks to track the Russell
2000, therefore, the Adviser generally will not attempt to judge the merits of
any particular security as an investment.
Securities index futures contracts and related options, warrants and convertible
securities may be used for a number of reasons, including: to simulate full
investment in the Russell 2000 while retaining a cash balance for fund
management purposes; to facilitate trading; to reduce transaction costs; or to
seek higher investment returns when a future contract, option, warrant or
convertible security is priced more attractively than the underlying equity
security or Russell 2000. These instruments are considered to be derivatives.
The Portfolio may invest to a lesser extent in short-term debt securities and
money market securities to meet redemption requests or to facilitate investment
in the securities included in the Russell 2000.
THE PRINCIPAL RISKS
This Portfolio invests in common stocks, therefore, its performance may go up or
down depending on general market conditions. Other principal risks include:
INDEX-FUND RISK: The Portfolio is not actively managed and invests in securities
included in the index regardless of their investment merit. Therefore, the
Portfolio cannot modify its investment strategies to respond to changes in the
economy and may be particularly susceptible to a general decline in the U.S. or
global stock market segment relating to the index.
-56-
<PAGE>
SMALL-CAP AND MID-CAP COMPANY RISK: The Portfolio's investments in small-cap and
mid-cap companies may be subject to more abrupt or erratic movements in price
than are those of larger, more established companies because: the securities of
such companies are less known and may trade less frequently and in lower volume;
such companies are more likely to experience greater or more unexpected changes
in their earnings and growth prospects; and the products of technologies of such
companies may be at a relatively early stage of development or not fully tested.
DERIVATIVES RISK: The Portfolio's investments in derivatives can significantly
increase the Portfolio's exposure to market risk or credit risk of the
counterparty. Derivatives also involve the risk of mispricing or improper
valuation and the risk that changes in value of the derivative may not correlate
perfectly with the relevant assets, rates and indices.
FIXED INCOME RISKS: To the extent that a substantial amount of the Portfolio's
assets are invested in fixed income securities, that portion of the Portfolio's
performance will be affected by changes in interest rates, the credit risk of
the issuer, the duration or maturity of the Portfolio's fixed income holdings,
and adverse market or economic conditions. When interest rates rise, the value
of the Portfolio's fixed income securities, particularly those with longer
durations or maturities, will go down. When interest rates fall, the reverse is
true. In addition, to the extent that the Portfolio invests in investment-grade
securities which are rated BBB by S&P or an equivalent rating by any other
nationally recognized statistical rating organization, it will be exposed to
greater risk than if it invested in higher-rated obligations because BBB-rated
securities are regarded as having only an adequate capacity to pay principal and
interest, are considered to lack outstanding investment characteristics, and may
be speculative.
PORTFOLIO PERFORMANCE
The bar chart below illustrates the Portfolio's annual total return for 1998,
the Portfolio's first year of existence. The table below shows the Portfolio's
average annual total returns for the Portfolio for one year and since inception.
The table also compares the Portfolio's performance to the returns of a broad
based index. Both the bar chart and table assume reinvestment of dividends and
distributions. Past performance is not an indication of future performance. In
addition, holders of variable insurance contracts representing interests in the
Portfolio will be subject to charges and expenses relating to such insurance
contracts. The performance results presented below do not reflect any insurance
related expenses and if reflected the results would be reduced. The Portfolio's
inception date was January 1, 1998.
- -------------------------------------------------------------------------------
CALENDAR YEAR ANNUAL TOTAL RETURN
1998
(2.27)%
- -------------------------------------------------------------------------------
Best quarter (% and time period) Worst quarter (% and time period)
16.21% (1998 4th Quarter) (19.52) (1998 3rd Quarter)
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<PAGE>
- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR SINCE INCEPTION
BT SMALL COMPANY INDEX PORTFOLIO
(2.27)% (2.27)%
RUSSELL 2000 Index* (2.54)% (2.54)%
- -------------------------------------------------------------------------------
* For more information on this index, see the preceding section "The
Benchmarks."
WHO MANAGES THE PORTFOLIO
BANKERS TRUST COMPANY ("Bankers Trust"), 130 Liberty Street (One Bankers Trust
Plaza), New York, New York 10006. Bankers Trust has been the Adviser to the
Portfolio since it commenced operations. Bankers Trust is a wholly-owned
subsidiary of Bankers Trust New York Corporation. Bankers Trust conducts a
variety of general banking and trust activities and is a major wholesale
supplier of financial services to the international and domestic institutional
markets. Investment management is a core business of Bankers Trust built on a
tradition of excellence from its roots as a trust bank founded in 1903. During
1999, Bankers Trust Corporation and a wholly owned subsidiary of Deutsche Bank
AG ("Deutsche Bank") expect to finalize a merger in which Bankers Trust
Corporation will be acquired by and become a subsidiary of Deutsche Bank.
-58-
<PAGE>
LAZARD SMALL CAP VALUE PORTFOLIO
INVESTMENT OBJECTIVE: Seeks capital appreciation by investing in equity
securities of United States companies with small market capitalizations (i.e.,
companies in the range of companies represented in the Russell 2000 Index) that
the Adviser considers inexpensively priced relative to the return on total
capital or equity.
THE INVESTMENT STRATEGY
The Portfolio is a non-diversified Portfolio that invests primarily in equity
securities of U.S. companies with small market capitalizations that the Adviser
believes are undervalued based on their return on equity or capital. The
Portfolio will have characteristics similar to the Russell 2000 Index. The
equity securities that may be purchased by the Portfolio include common stocks,
preferred stocks, securities convertible into or exchangeable for common stocks,
rights and warrants.
[SIDEBAR: For more information on The Russell 2000, see the preceding section
"The Benchmarks"]
[SIDEBAR: A Portfolio may be considered to be "non-diversified" for federal
securities law purposes because it invests in a limited number of securities. In
all cases, the Portfolio intends to be diversified for tax purposes so that it
can qualify as a regulated investment company.]
In selecting investments for the Portfolio, the Adviser looks for equity
securities of companies that have one or more of the following characteristics:
(i) are undervalued relative to their earnings, cash flow or asset values; (ii)
have an attractive price/value relationship with expectations that some catalyst
will cause the perception of value to change within two years; (iii) are out of
favor due to circumstances which are unlikely to harm the company's franchise or
earnings power; (iv) have low projected price to earnings or price-to-cash flow
multiples; (v) have the potential to become a larger factor in the company's
business; (vi) have significant debt but have high levels of free cash flow; and
(vii) have a relatively short corporate history with the expectation that the
business may grow.
Although the Portfolio will principally invest at least 80% of its assets in
small capitalization securities, the Portfolio may also invest up to 20% of its
assets in larger capitalization equity securities or investment-grade debt
securities.
When market or financial conditions warrant, the Portfolio may invest without
limitation in short-term money market instruments or hold its assets in cash for
temporary or defensive purposes. Such investment strategies could have the
effect of reducing the benefit of any upswing in the market. Such investment
strategies are inconsistent with the Portfolio's investment objectives and could
result in the Portfolio not achieving its investment objective.
THE PRINCIPAL RISKS
This Portfolio invests in common stocks, therefore, its performance may go up or
down depending on general market conditions. Other principal risks include:
VALUE INVESTING RISK: As noted above, the Portfolio uses a value-oriented
approach to stock selection. Value investing is subject to the risk that a value
stock's intrinsic value may never be fully recognized or realized by the market,
or its price may go down. There is also the risk that a stock judged to be
undervalued may actually be appropriately priced.
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<PAGE>
SMALL-CAP AND MID-CAP COMPANY RISK: The Portfolio's investments in small-cap and
mid-cap companies may be subject to more abrupt or erratic movements in price
than are those of larger, more established companies because: the securities of
such companies are less-well known and may trade less frequently and in lower
volume; such companies are more likely to experience greater or more unexpected
changes in their earnings and growth prospects; and the products of technologies
of such companies may be at a relatively early stage of development or not fully
tested.
NON-DIVERSIFICATION RISK: Since a relatively high percentage of the Portfolio's
assets may be invested in the securities of a limited number of issuers, some of
which may be within the same industry, the securities of the Portfolio may be
more sensitive to changes in the market value of a single issuer or industry or
to risks associated with a single economic, political or regulatory event than a
diversified portfolio.
FIXED INCOME RISKS: To the extent that a substantial amount of the Portfolio's
assets are invested in fixed income securities, that portion of the Portfolio's
performance will be affected by changes in interest rates, the credit risk of
the issuer, the duration or maturity of the Portfolio's fixed income holdings,
and adverse market or economic conditions. When interest rates rise, the value
of the Portfolio's fixed income securities, particularly those with longer
durations or maturities, will go down. When interest rates fall, the reverse is
true. In addition, to the extent that the Portfolio invests in investment-grade
securities which are rated BBB by S&P or an equivalent rating by any other
nationally recognized statistical rating organization, it will be exposed to
greater risk than if it invested in higher-rated obligations because BBB-rated
securities are regarded as having only an adequate capacity to pay principal and
interest, are considered to lack outstanding investment characteristics, and may
be speculative.
PORTFOLIO PERFORMANCE
The bar chart below illustrates the Portfolio's annual total return for 1998,
the Portfolio's first year of existence. The table below shows the Portfolio's
average annual total returns for the Portfolio for one year and since inception.
The table also compares the Portfolio's performance to the returns of a broad
based index. Both the bar chart and table assume reinvestment of dividends and
distributions. Past performance is not an indication of future performance. In
addition, holders of variable insurance contracts representing interests in the
Portfolio will be subject to charges and expenses relating to such insurance
contracts. The performance results presented below do not reflect any insurance
related expenses and if reflected the results would be reduced. The Portfolio's
inception date was January 1, 1998.
- -------------------------------------------------------------------------------
CALENDAR YEAR ANNUAL TOTAL RETURN
1998
(7.03)%
- -------------------------------------------------------------------------------
Best quarter (% and time period) Worst quarter (% and time period)
15.78% (1998 4th Quarter) (20.10)% (1998 3rd Quarter)
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<PAGE>
- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR SINCE INCEPTION
LAZARD SMALL CAP VALUE PORTFOLIO
(7.03)% (7.03)%
RUSSELL 2000 INDEX* (2.54)% (2.54)%
- -------------------------------------------------------------------------------
* For more information on this index, see the preceding section "The
Benchmarks."
WHO MANAGES THE PORTFOLIO
LAZARD ASSET MANAGEMENT ("LAM"), 30 Rockefeller Plaza, New York, New York 10112.
LAM has been the Adviser to the Portfolio since it commenced operations. LAM is
a division of Lazard Freres & Co. LLC ("Lazard Freres"), a New York limited
liability company, which is registered as an investment adviser with the SEC.
Lazard Freres provides its clients with a wide variety of investment banking and
related services, including investment management.
The Portfolio Managers, responsible for the day to day management since the
inception of the Portfolio, are: EILEEN D. ALEXANDERSON, a Managing Director of
LAM who has been with LAM since 1979 and HERBERT W. GULLQUIST, a Vice-Chairman,
Managing Director and Chief Investment Officer of LAM, who has been with LAM
since 1982.
-61-
<PAGE>
MFS EMERGING GROWTH COMPANIES PORTFOLIO
INVESTMENT OBJECTIVE: Seeks to provide long-term capital growth.
THE INVESTMENT STRATEGY
The Portfolio invests, under normal market conditions, primarily (at least 65%
of its total assets) in common stocks and related securities, such as preferred
stock, convertible securities and depositary receipts of emerging growth
companies. Emerging growth companies that the Adviser believes are either:
o early in their life cycle but have the potential to become major
enterprises, or
o are major enterprises whose rates of earnings growth are expected to
accelerate because of special factors such as rejuvenated management, new
products, changes in customer demand or basic changes in the economic
environment.
For purposes of this Portfolio, emerging growth companies may be of any size and
the Adviser would expect these companies to have products, technologies,
management, markets and opportunities that will facilitate earnings growth over
time that is well above the growth rate of the overall economy and rate of
inflation. The Portfolio's investments may include securities traded in the
over-the-counter markets.
The Adviser uses a "bottom-up" investment style in managing the Portfolio. This
means the securities are selected based upon fundamental analysis performed by
the Adviser.
In addition, up to 15% of the Portfolio's assets may be invested in foreign
securities, including those in emerging markets, or in cash and cash
equivalents.
When adverse market, financial or political conditions warrant, the Portfolio
may depart from its principal strategies for temporary or defensive purposes.
Such investment strategies are inconsistent with the Portfolio's investment
objectives and could result in the Portfolio not achieving its investment
objective.
The Portfolio may engage in active and frequent trading to achieve its principal
investment strategies. Frequent trading increases transaction costs, which could
detract from the Portfolio's performance.
THE PRINCIPAL RISKS
This Portfolio invests in common stocks, therefore, its performance may go up or
down depending on general market conditions. Other principal risks include:
GROWTH INVESTING RISK: As noted above, this Portfolio uses a growth oriented
approach to stock selection. The price of growth stocks may be more sensitive to
changes in current or expected earnings than the prices of other stocks. The
price of growth stocks is also subject to the risk that the stock price of one
or more companies will fall or will fail to appreciate as anticipated by the
Adviser, regardless of movements in the securities market.
-62-
<PAGE>
SMALL-CAP AND MID-CAP COMPANY RISK: The Portfolio's investments in small-cap and
mid-cap companies may be subject to more abrupt or erratic movements in price
than are those of larger, more established companies because: the securities of
such companies are less well-known and may trade less frequently and in lower
volume; such companies are more likely to experience greater or more unexpected
changes in their earnings and growth prospects; and the products of technologies
of such companies may be at a relatively early stage of development or not fully
tested.
FOREIGN SECURITIES RISKS: The Portfolio's investments in foreign securities
involve risks not associated with investing in U.S. securities, which can
adversely affect the Portfolio's performance. Foreign markets, particularly
emerging markets, may be less liquid, more volatile, and subject to less
government supervision than domestic markets. There may be difficulties
enforcing contractual obligations, and it may take more time for trades to clear
and settle. In addition, the value of foreign investments can be adversely
affected by: unfavorable currency exchange rates (relative to the U.S. dollar
for securities denominated in foreign currencies); inadequate or inaccurate
information about foreign companies; higher transaction, brokerage and custody
costs; adverse changes in foreign economic and tax policies; and foreign
government instability, war or other adverse political or economic actions.
PORTFOLIO PERFORMANCE
The bar chart below illustrates the Portfolio's annual total return for 1998,
the Portfolio's first full year of operations. The table below shows the
Portfolio's average annual total returns for the Portfolio for one year and
since inception. The table also compares the Portfolio's performance to the
returns of a broad-based index. Both the bar chart and table assume reinvestment
of dividends and distributions. Past performance is not an indication of future
performance. In addition, holders of variable insurance contracts representing
interests in the Portfolio will be subject to charges and expenses relating to
such insurance contracts. The performance results presented below do not reflect
any insurance related expenses and if reflected the results would be reduced.
The inception date for the Portfolio is May 1, 1997.
- -------------------------------------------------------------------------------
CALENDAR YEAR ANNUAL TOTAL RETURN
1998
34.57%
- -------------------------------------------------------------------------------
Best quarter (% and time period) Worst quarter (% and time period)
26.70% (1998 4th Quarter) (12.69)% (1998 3rd Quarter)
- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR SINCE INCEPTION
MFS EMERGING GROWTH COMPANIES
PORTFOLIO 34.57% 34.81%
RUSSELL 2000 INDEX* (2.54)% (14.53)%
- -------------------------------------------------------------------------------
* For more information on this index, see the preceding section "The
Benchmarks."
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<PAGE>
WHO MANAGES THE PORTFOLIO
MASSACHUSETTS FINANCIAL SERVICES COMPANY ("MFS"), 500 Boylston Street, Boston,
MA 02116. MFS has been the Adviser to the Portfolio since it commenced
operations. MFS is America's oldest mutual fund organization. MFS and its
predecessor organizations have a history of money management dating from 1924
and the founding of the first mutual fund in the United States, Massachusetts
Investors Trust. MFS is a subsidiary of Sun Life of Canada (United States)
Financial Services Holdings Inc., which, in turn, is an indirect wholly-owned
subsidiary of Sun Life Assurance Company of Canada.
The Portfolio Managers are JOHN W. BALLEN, President of MFS, who has been
employed by MFS as a portfolio manager of the Portfolio since 1984; TONI Y.
SHIMURA, a Vice President of MFS, who has been employed by MFS as a portfolio
manager for the Portfolio since 1995; and STEPHEN PESEK, a Vice President of
MFS, who has been employed as a portfolio manager by MFS since 1994. Prior to
1994, Mr. Pesek worked at Fidelity Investments as a research analyst.
-64-
<PAGE>
WARBURG PINCUS SMALL COMPANY VALUE PORTFOLIO
INVESTMENT OBJECTIVE: Seeks long-term capital appreciation.
THE INVESTMENT STRATEGY
The Portfolio invests primarily in equity securities of U.S. small-cap companies
with above-average growth potential that the Adviser believes to be undervalued.
Typically, such investments may include common stocks, preferred stocks,
convertible securities, warrants and rights of small-cap companies. Once 65% of
the Portfolio's assets are invested in small-cap companies, the Portfolio may
also invest in companies with a market capitalization of any size.
[SIDE BAR: For purposes of this Portfolio, small-cap companies are companies
having market capitalizations within the range of capitalizations of companies
represented in the Russell 2000 Index .]
In determining whether a company's stock is undervalued, the Adviser considers
all relevant factors which may include a company's:
o price/earnings ratio,
o price to book value ratio,
o price to cash flow ratio, and
o debt to capital ratio.
The Portfolio will invest primarily (at least 65% of its net assets) in the
securities of U.S. companies traded in the U.S. securities markets. The
Portfolio may invest to a lesser extent in foreign securities, investment grade
debt securities and high quality domestic and foreign short-term (one year or
less) and medium-term money-market securities.
When market or financial conditions warrant, the Portfolio may invest without
limitation in investment grade debt obligations and in domestic and foreign
obligations, including repurchase agreements for temporary or defensive
purposes. Such investment strategies are inconsistent with the Portfolio's
investment objectives and could result in the Portfolio not achieving its
investment objective.
THE PRINCIPAL RISKS
This Portfolio invests in common stocks, therefore, its performance may go up or
down depending on general market conditions. Other principal risks include:
VALUE INVESTING RISK: As noted above, the Portfolio uses a value-oriented
approach to stock selection. Value investing is subject to the risk that a value
stock's intrinsic value may never be fully recognized or realized by the market,
or its price may go down. There is also the risk that a stock judged to be
undervalued may actually be appropriately priced.
SMALL-CAP AND MID-CAP COMPANY RISK: The Portfolio's investments in small-cap and
mid-cap companies may be subject to more abrupt or erratic movements in price
than are those of larger, more established companies because: the securities of
such companies are less well-known and may trade less frequently and in lower
volume; such companies are more likely to experience greater or more unexpected
changes in their earnings and growth prospects; and the products of technologies
of such companies may be at a relatively early stage of development or not fully
tested.
-65-
<PAGE>
PORTFOLIO TURNOVER RISK: The Portfolio's turnover rate has been over 100% per
year. Higher portfolio turnover (e.g., over 100% per year) will cause the
Portfolio to incur additional transaction costs and may result in higher taxable
gains that could be passed through to shareholders.
FOREIGN SECURITIES RISKS: The Portfolio's investments in foreign securities
involve risks not associated with investing in U.S. securities, which can
adversely affect the Portfolio's performance. Foreign markets, particularly
emerging markets, may be less liquid, more volatile, and subject to less
government supervision than domestic markets. There may be difficulties
enforcing contractual obligations, and it may take more time for trades to clear
and settle. In addition, the value of foreign investments can be adversely
affected by: unfavorable currency exchange rates (relative to the U.S. dollar
for securities denominated in foreign currencies); inadequate or inaccurate
information about foreign companies; higher transaction, brokerage and custody
costs; adverse changes in foreign economic and tax policies; and foreign
government instability, war or other adverse political or economic actions.
FIXED INCOME RISKS: To the extent that a substantial amount of the Portfolio's
assets are invested in fixed income securities, that portion of the Portfolio's
performance will be affected by changes in interest rates, the credit risk of
the issuer, the duration or maturity of the Portfolio's fixed income holdings,
and adverse market or economic conditions. When interest rates rise, the value
of the Portfolio's fixed income securities, particularly those with longer
durations or maturities, will go down. When interest rates fall, the reverse is
true. In addition, to the extent that the Portfolio invests in investment-grade
securities which are rated BBB by S&P or an equivalent rating by any other
nationally recognized statistical rating organization, it will be exposed to
greater risk than if it invested in higher-rated obligations because BBB-rated
securities are regarded as having only an adequate capacity to pay principal and
interest, are considered to lack outstanding investment characteristics, and may
be speculative.
PORTFOLIO PERFORMANCE
The bar chart below illustrates the Portfolio's annual total return for 1998,
the Portfolio's first full year of operations. The table below shows the
Portfolio's average annual total returns for the Portfolio for one year and
since inception. The table also compares the Portfolio's performance to the
returns of a broad-based index. Both the bar chart and table assume reinvestment
of dividends and distributions. Past performance is not an indication of future
performance. In addition, holders of variable insurance contracts representing
interests in the Portfolio will be subject to charges and expenses relating to
such insurance contracts. The performance results presented below do not reflect
any insurance related expenses and if reflected the results would be reduced.
The inception date for the Portfolio is May 1, 1997.
- -------------------------------------------------------------------------------
CALENDAR YEAR ANNUAL TOTAL RETURN
1998
(10.02)%
- -------------------------------------------------------------------------------
Best quarter (% and time period) Worst quarter (% and time period)
15.49% (1997 3rd Quarter) (20.25)% (1998 3rd Quarter)
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<PAGE>
- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR SINCE INCEPTION
WARBURG PINCUS SMALL COMPANY
VALUE PORTFOLIO (10.02)% 4.25%
RUSSELL 2000 INDEX* (2.54)% 14.53%
- -------------------------------------------------------------------------------
* For more information on this index, see the preceding section "The
Benchmarks."
WHO MANAGES THE PORTFOLIO
WARBURG PINCUS ASSET MANAGEMENT, INC. ("WPAM"), 466 Lexington Avenue, New York,
New York 10017-3147. WPAM has been the Adviser to the Portfolio since it
commenced operations. WPAM is a professional investment advisory firm that
provides investment services to investment companies, employee benefit plans,
endowment funds, foundations and other institutions and individuals. WPAM is
indirectly controlled by Warburg, Pincus & Co., a New York partnership which has
no business other than being a holding company of WPAM and its affiliates.
During 1999, WPAM and Credit Suisse Group expect to finalize Credit Suisse
Group's acquisition of WPAM. WPAM will be combined with and into Credit Suisse
Group's global asset management subsidiary, Credit Suisse Asset Management, LLC.
KYLE F. FREY is the Portfolio Manager and has been responsible for the
day-to-day management of the Portfolio since the Portfolio commenced operations.
Mr. Frey is a managing director of WPAM and has been with WPAM since 1989.
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<PAGE>
INTERNATIONAL PORTFOLIOS
BT INTERNATIONAL EQUITY INDEX PORTFOLIO
INVESTMENT OBJECTIVE: Seeks to replicate as closely as possible (before
deduction of Portfolio expenses) the total return of the MSCI EAFE Index.
THE INVESTMENT STRATEGY
The Portfolio invests primarily in equity securities of companies included in
the MSCI EAFE Index. The Portfolio is constructed to have aggregate investment
characteristics similar to those of the MSCI EAFE Index. The Portfolio invests
in a statistically selected sample of the securities of companies included in
the MSCI EAFE Index, although not all companies within a country will be
represented in the Portfolio at the same time. Stocks are selected based on
country of origin, market capitalization, yield, volatility and industry sector.
The Adviser will manage the Portfolio using advanced statistical techniques to
determine which securities should be purchased or sold in order to replicate the
MSCI EAFE index.
[SIDEBAR: For more information on the MSCI EAFE Index see the preceding section
"The Benchmarks." The MSCI EAFE Index is the exclusive property of Morgan
Stanley. The Portfolio is not sponsored, endorsed, sold or promoted by Morgan
Stanley and Morgan Stanley makes no guarantee as to the accuracy or completeness
of the MSCI EAFE Index or any data included therein.]
Over time, the correlation between the performance of the Portfolio and the MSCI
EAFE Index is expected to be 95% or higher before deduction of Portfolio
expenses. The Portfolio's ability to track the MSCI EAFE Index may be affected
by, among others, transaction costs, administration and other expenses incurred
by the Portfolio, changes in either the composition of the MSCI EAFE Index or
the assets of the Portfolio, and the timing and amount of Portfolio investor
contributions and withdrawals, if any. The Portfolio seeks to track the MSCI
EAFE Index, therefore, the Adviser generally will not attempt to judge the
merits of any particular security as an investment.
The Portfolio may invest to a lesser extent in short-term debt securities and
money market instruments to meet redemption requests or to facilitate investment
in the securities of the MSCI EAFE Index. Securities index futures contracts and
related options, warrants and convertible securities may be used for a number of
reasons, including: to simulate full investment in the MSCI EAFE Index while
retaining a cash balance for Portfolio management purposes; to facilitate
trading; to reduce transaction costs; or to seek higher investment returns when
a future contract, option, warrant or convertible security is priced more
attractively than the underlying equity security or MSCI EAFE Index. These
instruments are considered to be derivatives.
THE PRINCIPAL RISKS
This Portfolio invests in common stocks, therefore, its performance may go up or
down depending on general market conditions. Other principal risks include:
INDEX-FUND RISK: The Portfolio is not actively managed and invests in securities
included in the index regardless of their investment merit. Therefore, the
Portfolio cannot modify its investment strategies to respond to changes in the
economy and may be particularly susceptible to a general decline in the U.S. or
global stock market segment relating to the index.
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<PAGE>
FOREIGN SECURITIES RISKS: The Portfolio's investments in foreign securities
involve risks not associated with investing in U.S. securities that can
adversely affect the Portfolio's performance. Foreign markets, particularly
emerging markets, may be less liquid, more volatile and subject to less
government supervision than domestic markets. There may be difficulties
enforcing contractual obligations, and it may take more time for trades to clear
and settle. In addition, foreign investments can be adversely affected by:
unfavorable currency exchange rates (relative to the U.S. dollar for securities
denominated in a foreign currencies); inadequate or inaccurate information about
foreign companies; higher transaction, brokerage and custody costs; adverse
changes in foreign economic and tax policies; and foreign government
instability, war or other adverse political or economic actions. Other specific
risks of investing in foreign securities include:
EMERGING MARKET RISK: There are greater risks involved in investing in
emerging markets countries and/or their securities markets, such as less
diverse and less mature economic structures, less stable political
systems, more restrictive foreign investment policies, smaller-sized
securities markets and low trading volumes. Such risks can make
investments illiquid and more volatile than investments in developed
countries and such securities may be subject to abrupt and severe price
declines. The Year 2000 problem may also be especially acute in emerging
market countries, which also may adversely affect the value of the
Portfolio's investments.
EURO RISK: The Portfolio invests in securities issued by European
issuers that that may be adversely impacted by the introduction of the
"Euro" as a common currency in 11 European Monetary Union member states.
The Euro may result in various legal and accounting differences, tax
treatments, the creation and implementation of suitable clearing and
settlement systems and other operational problems, that may cause market
disruptions that could adversely affect investments quoted in the Euro.
REGULATORY RISK: In general, foreign companies are also not subject to
uniform accounting, auditing and financial reporting standards or to
other regulatory practices and requirements as are U.S. companies, which
could adversely affect their value.
LIQUIDITY RISK: Certain securities held by the Portfolio may be difficult (or
impossible) to sell at the time and at the price the seller would like which may
cause the Portfolio to lose money or be prevented from earning capital gains.
DERIVATIVES RISK: The Portfolio's investments in derivatives can significantly
increase the Portfolio's exposure to market risk or credit risk of the
counterparty. Derivatives also involve the risk of mispricing or improper
valuation and the risk that changes in value of the derivative may not correlate
perfectly with the relevant assets, rates and indices.
PORTFOLIO PERFORMANCE
The bar chart and table below illustrate the Portfolio's average annual total
return for 1998, the Portfolio's first year of existence. The table below shows
the Portfolio's average annual total returns for the Portfolio for one year and
since inception. The table also compares the Portfolio's performance to the
returns of a broad based index. Both the bar chart and table assume reinvestment
of dividends and distributions. Past performance is not an indication of future
performance. In addition, holders of variable insurance contracts representing
interests in the Portfolio will be subject to charges and expenses relating to
such insurance contracts. The performance results presented below do not reflect
any insurance related expenses and if reflected the results would be reduced.
The Portfolio's inception date was January 1, 1998.
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- -------------------------------------------------------------------------------
CALENDAR YEAR ANNUAL TOTAL RETURN
1998
20.07%
- -------------------------------------------------------------------------------
Best quarter (% and time period) Worst quarter (% and time period)
20.43% (1998 4th Quarter) (13.90)% (1998 3rd Quarter)
- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR SINCE INCEPTION
BT INTERNATIONAL EQUITY INDEX
PORTFOLIO 20.07% 20.07%
MSCI EAFE INDEX* 20.00% 20.00%
- -------------------------------------------------------------------------------
* For more information on this index, see the preceding section "The
Benchmarks."
WHO MANAGES THE PORTFOLIO
BANKERS TRUST COMPANY ("Bankers Trust"), 130 Liberty Street (One Bankers Trust
Plaza), New York, New York 10006. Bankers Trust has been the Adviser to the
Portfolio since it commenced operations. Bankers Trust is a wholly-owned
subsidiary of Bankers Trust New York Corporation. Bankers Trust conducts a
variety of general banking and trust activities and is a major wholesale
supplier of financial services to the international and domestic institutional
markets, including investment management. During 1999, Bankers Trust Corporation
and a wholly owned subsidiary of Deutsche Bank AG ("Deutsche Bank") expect to
finalize a merger in which Bankers Trust Corporation will be acquired by and
become a subsidiary of Deutsche Bank.
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CAPITAL GUARDIAN INTERNATIONAL PORTFOLIO
INVESTMENT OBJECTIVE: To achieve long-term growth of capital by investing
primarily in non-U.S. equity 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), warrants, rights, and non-convertible preferred stock. However,
when the Adviser believes that market and economic conditions indicate that it
is desirable to do so, the Portfolio may also purchase high-quality debt
securities rated, at the time of purchase, within the top three quality
categories by Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's
Corporation ("S&P") (or unrated securities of equivalent quality), repurchase
agreements, and short-term debt obligations denominated in U.S. dollars or
foreign currencies.
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-U.S. dollar denominated securities or
holds non-U.S. dollar assets, 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.
The Portfolio may also cross-hedge between two non-U.S.
currencies.
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.
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<PAGE>
THE PRINCIPAL RISKS
This Portfolio invests in common stocks, therefore, its performance may go up or
down depending on general market conditions. Other principal risks include:
FOREIGN SECURITIES RISK: The Portfolio's investments in foreign securities
involve risks not associated with investing in U.S. securities, which can
adversely affect the Portfolio's performance. Foreign markets, particularly
emerging markets, may be less liquid, more volatile, and subject to less
government supervision than domestic markets. There may be difficulties
enforcing contractual obligations, and it may take more time for trades to clear
and settle. In addition, the value of foreign investments can be adversely
affected by: unfavorable currency exchange rates (relative to the U.S. dollar
for securities denominated in foreign currencies); inadequate or inaccurate
information about foreign companies; higher transaction, brokerage and custody
costs; adverse changes in foreign economic and tax policies; and foreign
government instability, war or other adverse political or economic actions.
Other specific risks of investing in foreign securities include:
EMERGING MARKET RISK: There are greater risks involved in investing in
emerging markets countries and/or their securities markets, such as less
diverse and less mature economic structures, less stable political
systems, more restrictive foreign investment policies, smaller-sized
securities markets and low trading volumes. Such risks can make
investments illiquid and more volatile than investments in developed
countries and such securities may be subject to abrupt and severe price
declines. The Year 2000 problem may also be especially acute in emerging
market countries, which also may adversely affect the value of the
Portfolio's investments.
EURO RISK: The Portfolio invests in securities issued by European
issuers that that may be adversely impacted by the introduction of the
"Euro" as a common currency in 11 European Monetary Union member states.
The Euro may result in various legal and accounting differences, tax
treatments, the creation and implementation of suitable clearing and
settlement systems and other operational problems, that may cause market
disruptions that could adversely affect investments quoted in the Euro.
REGULATORY RISK: In general, foreign companies are also not subject to
uniform accounting, auditing and financial reporting standards or to
other regulatory practices and requirements as are U.S. companies, which
could adversely affect their value.
GROWTH INVESTING RISK: As noted above, this Portfolio uses a growth oriented
approach to stock selection. The price of growth stocks may be more sensitive to
changes in current or expected earnings than the prices of other stocks. The
price of growth stocks is also subject to the risk that the stock price of one
or more companies will fall or will fail to appreciate as anticipated by the
Adviser, regardless of movements in the securities markets.
CONVERTIBLE SECURITIES RISK: Convertible securities enable the Portfolio to
benefit from increases in the market price of the underlying common stock and
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 both in relation to changes in
interest rates and changes in the value of the underlying common stock.
DERIVATIVES RISK: The Portfolio's investments in derivatives can significantly
increase the Portfolio's exposure to market risk or credit risk of the
counterparty. Derivatives also involve the risk of mispricing or improper
valuation and the risk that changes in value of the derivative may not correlate
perfectly with the relevant assets, rates and indices.
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PORTFOLIO PERFORMANCE
- -------------------------------------------------------------------------------
The inception date for this Portfolio is May 1, 1999. Therefore, no prior
performance information is available.
- -------------------------------------------------------------------------------
WHO MANAGES THE PORTFOLIO
CAPITAL GUARDIAN TRUST COMPANY ("Capital Guardian"), 333 South Hope Street, Los
Angeles, CA 90071. 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 multiple portfolio manager system under which the
Portfolio is divided into several segments. Each segment is individually managed
with the portfolio manager free to decide on company and industry selections as
well as valuation and transaction assessment. An additional portion of the
Portfolio is managed by a group of investment research analysts.
The individual portfolio managers of each segment of the Portfolio, other than
that managed by the group of research analysts, are as follows:
DAVID I. FISHER. David Fisher is Chairman of the Board of Capital Group
International, Inc. and Capital Guardian. He joined the Capital Guardian
organization in 1969.
HARTMUT GIESECKE. Hartmut Giesecke is Chairman of the Board of Capital's
Japanese investment management subsidiary, Capital International K.K., and
Managing Director Asia-Pacific, Capital Group International, Inc. He is also a
Senior Vice President and a Director of Capital International Research, Inc. and
Capital International, Inc. He joined the Capital Guardian organization in 1972.
RICHARD N. HAVAS. Richard Havas is a Senior Vice President and a portfolio
manager for Capital Guardian and Capital International Limited. He is also a
Senior Vice President and Director for Capital Guardian (Canada), Inc. and
Capital International Research, Inc. He joined the Capital Guardian organization
in 1986.
NANCY J. KYLE. Nancy Kyle is a Senior Vice President and a Director and member
of the Executive Committee of Capital Guardian. She is also President and a
Director of Capital Guardian (Canada), Inc. and a Vice President of Emerging
Markets Growth Fund. She is an international equity and emerging markets
portfolio manager. She joined the Capital Guardian organization in 1991.
JOHN MCILWRAITH. John McIlwraith is a Senior Vice President-International and a
director of Capital Guardian, a Director and a Senior Vice President of Capital
International Limited, and an international equity portfolio manager. He joined
the Capital Guardian organization in 1984.
ROBERT RONUS. Robert Ronus is President and a Director of Capital Guardian. He
is also Chairman of the Board of Capital International Research, Inc., Chairman
of the Board and a Director of Capital Guardian (Canada), Inc., a Director of
The Capital Group Companies, Inc. and Capital Group International, Inc., and a
Senior Vice President of Capital International S.A. and Capital International
Limited. He joined the Capital Guardian organization in 1972.
LIONEL M. SAUVAGE. Lionel Sauvage is a Senior Vice President and portfolio
manager for Capital Guardian and a Vice President and a Director for Capital
International Research, Inc. He joined the Capital Guardian organization in
1987.
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<PAGE>
NILLY SIKORSKY. Nilly Sikorsky is President and Managing Director of Capital
International S.A., Chairman of Capital International Perspective S.A., Managing
Director-Europe and a Director of Capital Group International, Inc., as well as
a Director of The Capital Group Companies, Inc., Capital International Limited,
and Capital International K.K. She joined the Capital Guardian organization in
1962.
RUDOLF M. STAEHELIN. Rudolf Staehelin is a Senior Vice President and Director of
Capital International Research, Inc. and Capital International S.A. He is a
portfolio manager for Capital Guardian, Capital International S.A., and Capital
International Limited. He joined Capital Guardian in 1981.
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EQ/PUTNAM INTERNATIONAL EQUITY PORTFOLIO
INVESTMENT OBJECTIVE: Seeks capital appreciation.
THE INVESTMENT STRATEGY
The Portfolio invests primarily in equity securities of companies in a number of
different countries. Such equity securities normally include common stocks,
preferred stocks, securities convertible into common or preferred stocks and
warrants. Under normal market circumstances, a majority of the Portfolio's
assets will be invested in companies located in at least three different
countries outside the United States. The countries in which the Portfolio may
invest include emerging market countries.
The Portfolio considers the following to be an issuer of securities located in a
country other than the U.S.:
o companies organized under the laws of a country other than the U.S. with a
principal office outside the U.S., or
o companies that earn 50% or more of their total revenues from business
outside the U.S.
The Portfolio may engage in a variety of transactions using "derivatives," such
as futures, options, warrants, forward and swap contracts on both securities and
currencies.
The Portfolio will not limit its investments to any particular type of company.
The Portfolio may invest in companies of any size whose earnings the Adviser
believes to be in a relatively strong growth trend or whose securities the
Adviser considers to be undervalued.
The Adviser considers, among other things, a company's financial strength,
competitive position in its industry and projected future earnings and dividends
when deciding whether to buy or sell investments.
When market or financial conditions warrant, the Portfolio may invest, without
limitation, in securities of any kind, including securities traded primarily in
U.S. markets, cash and money market instruments for temporary or defensive
purposes. Such investment strategies are inconsistent with the Portfolio's
investment objectives and could result in the Portfolio not achieving its
investment objective.
THE PRINCIPAL RISKS
This Portfolio invests in common stocks, therefore, its performance may go up or
down depending on general market conditions. Other principal risks include:
FOREIGN SECURITIES RISKS: The Portfolio's investments in foreign securities
involve risks not associated with investing in U.S. securities that can
adversely affect the Portfolio's performance. Foreign markets, particularly
emerging markets, may be less liquid, more volatile and subject to less
government supervision than domestic markets. There may be difficulties
enforcing contractual obligations, and it may take more time for trades to clear
and settle. In addition, foreign investments can be adversely affected by:
unfavorable currency exchange rates (relative to the U.S. dollar for securities
denominated in a foreign currencies); inadequate or inaccurate information about
foreign companies; higher transaction, brokerage and custody costs; adverse
changes in foreign economic and tax policies; and foreign government
instability, war or other adverse political or economic actions. Other specific
risks of investing in foreign securities include:
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<PAGE>
EMERGING MARKET RISK: There are greater risks involved in investing in
emerging markets countries and/or their securities markets, such as less
diverse and less mature economic structures, less stable political
systems, more restrictive foreign investment policies, smaller-sized
securities markets and low trading volumes. Such risks can make
investments illiquid and more volatile than investments in developed
countries and such securities may be subject to abrupt and severe price
declines. The Year 2000 problem may also be especially acute in emerging
market countries, which also may adversely affect the value of the
Portfolio's investments.
EURO RISK: The Portfolio invests in securities issued by European
issuers that that may be adversely impacted by the introduction of the
"Euro" as a common currency in 11 European Monetary Union member states.
The Euro may result in various legal and accounting differences, tax
treatments, the creation and implementation of suitable clearing and
settlement systems and other operational problems, that may cause market
disruptions that could adversely affect investments quoted in the Euro.
REGULATORY RISK: In general, foreign companies are also not subject to
uniform accounting, auditing and financial reporting standards or to
other regulatory practices and requirements as are U.S. companies, which
could adversely affect their value.
SMALL-CAP AND MID-CAP COMPANY RISK: The Portfolio's investments in small-cap and
mid-cap companies may be subject to more abrupt or erratic movements in price
than are those of larger, more established companies because: the securities of
such companies are less well-known and may trade less frequently and in lower
volume; such companies are more likely to experience greater or more unexpected
changes in their earnings and growth prospects; and the products of technologies
of such companies may be at a relatively early stage of development or not fully
tested.
DERIVATIVES RISK: The Portfolio's investments in derivatives can significantly
increase the Portfolio's exposure to market risk or credit risk of the
counterparty. Derivatives also involve the risk of mispricing or improper
valuation and the risk that changes in value of the derivative may not correlate
perfectly with the relevant assets, rates and indices.
LIQUIDITY RISK: Certain securities held by the Portfolio may be difficult (or
impossible) to sell at the time and at the price the seller would like which may
cause the Portfolio to lose money or be prevented from earning capital gains.
PORTFOLIO PERFORMANCE
The bar chart below illustrates the Portfolio's annual total return for 1998,
the Portfolio's first full year of operations. The table below shows the
Portfolio's average annual total returns for the Portfolio for one year and
since inception. The table also compares the Portfolio's performance to the
returns of a broad-based index. Both the bar chart and table assume reinvestment
of dividends and distributions. Past performance is not an indication of future
performance. In addition, holders of variable insurance contracts representing
interests in the Portfolio will be subject to charges and expenses relating to
such insurance contracts. The performance results presented below do not reflect
any insurance related expenses and if reflected the results would be reduced.
The inception date for the Portfolio is May 1, 1997.
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<PAGE>
- -------------------------------------------------------------------------------
CALENDAR YEAR ANNUAL TOTAL RETURN
1998
19.51%
- -------------------------------------------------------------------------------
Best quarter (% and time period) Worst quarter (% and time period)
22.16% (1998 4th Quarter) (18.48)% (1998 3rd Quarter)
- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR SINCE INCEPTION
EQ/PUTNAM INTERNATIONAL EQUITY 19.51% 17.52%
PORTFOLIO
S&P 500 INDEX* 20.00% 13.43%
- -------------------------------------------------------------------------------
* For more information on this index, see the preceding section "The
Benchmarks."
WHO MANAGES THE PORTFOLIO
PUTNAM INVESTMENT MANAGEMENT, INC. ("Putnam Management"), One Post Office
Square, Boston, MA 02109. Putnam Management has been the Adviser to the
Portfolio since the Portfolio commenced operations. Putnam Management has been
managing mutual funds since 1937. Putnam Management is a subsidiary of Putnam
Investments, Inc.
The Portfolio Managers, responsible for the day to day management of the
Portfolio since the inception of the Portfolio, are JUSTIN SCOTT, a Managing
Director, who has been with Putnam Management as an investment professional*
since 1988 and OMID KAMSHAD, a Managing Director, who has been employed as an
investment professional* by Putnam Management since 1996. Prior to January 1996,
he was a Director of Investments at Lombard Odier International Portfolio
Management Limited and prior to April 1995, he was Director at Baring Asset
Management Company. (*Investment professional means that the manager was either
a portfolio manager or analyst.)
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MORGAN STANLEY EMERGING MARKETS EQUITY PORTFOLIO
INVESTMENT OBJECTIVE: Seeks long-term capital appreciation by investing
primarily in equity securities of emerging country issuers.
THE INVESTMENT STRATEGY
The Portfolio is a non-diversified Portfolio that invests primarily in equity
securities of companies located in emerging markets countries. Such equity
securities may include common stocks, preferred stocks, convertible securities,
depositary receipts, rights and warrants. The Adviser focuses on growth-oriented
companies in emerging market countries that it believes have strong developing
economies and increasingly sophisticated markets. The Portfolio generally
invests only in emerging markets countries whose currencies are freely
convertible into United States dollars.
[SIDEBAR: A Portfolio may be considered to be "non-diversified" for federal
securities law purposes because it invests in a limited number of securities. In
all cases, the Portfolio intends to be diversified for tax purposes so that it
can qualify as a regulated investment company.]
[SIDEBAR: For purposes of this Portfolio, an emerging market country security is
defined as a security of an issuer having one or more of the following
characteristics:
o its principal securities trading market is in an emerging market country;
o alone or on a consolidated basis, at least 50% of its revenues are derived
from goods produced, sales made or services performed in emerging market
countries; and
o it is organized under the laws of or has a principal office in an emerging
market country]
The Adviser's investment approach combines top-down country allocation with
bottom-up stock selection.
[SIDEBAR: In a "top-down" approach, country allocations are made based on
forecasts of stock market trends. In a "bottom-up" approach, securities are
reviewed and chosen individually.]
The Portfolio may invest to a lesser extent in corporate or government-issued or
guaranteed debt securities of emerging markets countries, including debt
securities that are rated or considered to be below investment grade ("junk
bonds"). The Portfolio also may, to a lesser extent, invest in equity or debt
securities (including "junk bonds") of corporate or governmental issuers located
in industrialized countries, foreign currency or investment funds and
supranational entities such as the World Bank. In addition, the Portfolio may
utilize forward foreign currency contracts, options and futures contracts and
swap transactions.
When market or financial conditions warrant, the Portfolio may invest in certain
short- and medium-term fixed income securities of issuers other than emerging
market issuers and may invest without limitation in high quality money market
instruments for temporary or defensive purposes. Such investment strategies are
inconsistent with the Portfolio's investment objectives and could result in the
Portfolio not achieving its investment objective.
THE PRINCIPAL RISKS
This Portfolio invests in common stocks, therefore, its performance may go up or
down depending on general market conditions. Other principal risks include:
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FOREIGN SECURITIES RISKS: The Portfolio's investments in foreign securities
involve risks not associated with investing in U.S. securities that can
adversely affect the Portfolio's performance. Foreign markets, particularly
emerging markets, may be less liquid, more volatile and subject to less
government supervision than domestic markets. There may be difficulties
enforcing contractual obligations, and it may take more time for trades to clear
and settle. In addition, foreign investments can be adversely affected by:
unfavorable currency exchange rates (relative to the U.S. dollar for securities
denominated in a foreign currencies); inadequate or inaccurate information about
foreign companies; higher transaction, brokerage and custody costs; adverse
changes in foreign economic and tax policies; and foreign government
instability, war or other adverse political or economic actions. Other specific
risks of investing in foreign securities include:
EMERGING MARKET RISK: There are greater risks involved in investing in
emerging markets countries and/or their securities markets, such as less
diverse and less mature economic structures, less stable political
systems, more restrictive foreign investment policies, smaller-sized
securities markets and low trading volumes. Such risks can make
investments illiquid and more volatile than investments in developed
countries and such securities may be subject to abrupt and severe price
declines. The Year 2000 problem may also be especially acute in emerging
market countries, which also may adversely affect the value of the
Portfolio's investments.
EURO RISK: The Portfolio invests in securities issued by European
issuers that that may be adversely impacted by the introduction of the
"Euro" as a common currency in 11 European Monetary Union member states.
The Euro may result in various legal and accounting differences, tax
treatments, the creation and implementation of suitable clearing and
settlement systems and other operational problems, that may cause market
disruptions that could adversely affect investments quoted in the Euro.
REGULATORY RISK: In general, foreign companies are also not subject to
uniform accounting, auditing and financial reporting standards or to
other regulatory practices and requirements as are U.S. companies, which
could adversely affect their value.
DERIVATIVES RISK: The Portfolio's investments in derivatives can significantly
increase the Portfolio's exposure to market risk or credit risk of the
counterparty. Derivatives also involve the risk of mispricing or improper
valuation and the risk that changes in value of the derivative may not correlate
perfectly with the relevant assets, rates and indices.
LIQUIDITY RISK: Certain securities held by the Portfolio may be difficult (or
impossible) to sell at the time and at the price the seller would like which may
cause the Portfolio to lose money or be prevented from earning capital gains.
PORTFOLIO TURNOVER RISK: The Portfolio's turnover rate has been over 100% per
year. Higher portfolio turnover (e.g., over 100% per year) will cause the
Portfolio to incur additional transaction costs and may result in higher taxable
gains that could be passed through to shareholders.
NON-DIVERSIFICATION RISK: Since a relatively high percentage of the Portfolio's
assets may be invested in the securities of a limited number of issuers, some of
which may be within the same industry, the securities of the Portfolio may be
more sensitive to changes in the market value of a single issuer or industry or
to risks associated with a single economic, political or regulatory event than a
diversified portfolio.
FIXED INCOME RISKS: To the extent that a substantial amount of the Portfolio's
assets are invested in fixed income securities, that portion of the Portfolio's
performance will be affected by changes in interest rates, the credit risk of
the issuer, the duration or maturity of the Portfolio's fixed income holdings,
and
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<PAGE>
adverse market or economic conditions. When interest rates rise, the value of
the Portfolio's fixed income securities, particularly those with longer
durations or maturities, will go down. When interest rates fall, the reverse is
true. In addition, to the extent that the Portfolio invests in investment-grade
securities which are rated BBB by S&P or an equivalent rating by any other
nationally recognized statistical rating organization, it will be exposed to
greater risk than if it invested in higher-rated obligations because BBB-rated
securities are regarded as having only an adequate capacity to pay principal and
interest, are considered to lack outstanding investment characteristics, and may
be speculative. The risk that an issuer or guarantor of a fixed income security
or counterparty to the Portfolio's fixed income transaction is unable to meets
its financial obligations is particularly significant for this Portfolio because
this Portfolio invests a portion of its assets in "junk bonds" (i.e., securities
rated below investment grade). Junks bonds are issued by companies with
questionable credit strength and, consequently, are considered to be speculative
in nature and may be subject to greater market fluctuations than investment
grade fixed-income securities.
PORTFOLIO PERFORMANCE
The bar chart below illustrates the Portfolio's annual total return for 1998,
the Portfolio's first full year of operations. The table below shows the
Portfolio's average annual total returns for the Portfolio for one year and
since inception. The table also compares the Portfolio's performance to the
returns of a broad-based index. Both the bar chart and table assume reinvestment
of dividends and distributions. Past performance is not an indication of future
performance. In addition, holders of variable insurance contracts representing
interests in the Portfolio will be subject to charges and expenses relating to
such insurance contracts. The performance results presented below do not reflect
any insurance related expenses and if reflected the results would be reduced.
The inception date for the Portfolio is August 20, 1997.
- -------------------------------------------------------------------------------
CALENDAR YEAR ANNUAL TOTAL RETURN
1998
(27.10)%
- -------------------------------------------------------------------------------
Best quarter (% and time period) Worst quarter (% and time period)
14.56% (1998 4th Quarter) (22.14)% (1998 2nd Quarter)
- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR SINCE INCEPTION
MORGAN STANLEY EMERGING
MARKETS EQUITY PORTFOLIO (27.10)% (32.69)%
MSCI EMERGING MARKETS
FREE* (25.34)% (28.92)%
- --------------------------------- ---------------------------------------------
* For more information on this index, see the preceding section "The
Benchmarks."
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WHO MANAGES THE PORTFOLIO
MORGAN STANLEY ASSET MANAGEMENT ("MSAM"), 1221 Avenue of the Americas, New York,
NY 10020. MSAM has been the Adviser to the Portfolio since the Portfolio
commenced operations. MSAM conducts a worldwide investment management business,
providing a broad range of portfolio management services to customers in the
United States and abroad. MSAM serves as an investment adviser to numerous
open-end and closed-end investment companies. On December 1, 1998, Morgan
Stanley Asset Management Inc. changed its name to Morgan Stanley Dean Witter
Investment Management Inc. but continues to do business in certain instances
using the name Morgan Stanley Asset Management.
The Portfolio Managers, responsible for the day to day management of the
Portfolio since the Portfolio commenced operations, are: ROBERT MEYER, a
Managing Director of MSAM and Morgan Stanley & Co. Incorporated, who is head of
MSAM's Emerging Markets Equity Group and who joined MSAM in 1989; and ANDY SKOV,
a Principal of MSAM and Morgan Stanley & Co.
Incorporated who joined MSAM in 1994.
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T. ROWE PRICE INTERNATIONAL STOCK PORTFOLIO
INVESTMENT OBJECTIVE: Seeks long-term growth of capital through investment
primarily in common stocks of established non-United States companies.
THE INVESTMENT STRATEGY
The Portfolio invests substantially all of its assets in common stocks of
established companies outside of the United States. The Portfolio intends to
diversify broadly among countries throughout the world by having securities from
at least five different countries represented in the Portfolio. No more than 20%
of its assets will be invested in securities of any one country, except that up
to 35% can be invested in stocks of companies in Australia, Canada, France,
Japan, United Kingdom or Germany. In determining the appropriate distribution of
investments among various countries and geographic regions, the Adviser
ordinarily considers the following factors:
o prospects for relative economic growth between foreign countries,
o expected levels of inflation,
o government policies influencing business conditions,
o the outlook for currency relationships, and
o the range of individual investment opportunities available to international
investors.
The Portfolio expects to invest substantially all of its assets in common
stocks. However, the Portfolio may also invest in a variety of other equity
securities such as preferred stocks, warrants and convertible securities as well
as governmental debt securities and investment grade debt securities. The
Portfolio may also invest in certain foreign investment funds, hybrid
instruments and derivative instruments in keeping with the Portfolio objective.
In analyzing companies for investment, the Adviser uses a "bottom-up" approach
and looks for companies that have:
o prospects for achieving and sustaining above-average, long -term earnings
growth per share,
o a high return on invested capital,
o healthy balance sheet,
o sound financial and accounting policies and overall financial strength,
o strong competitive advantages,
o effective research, product development and marketing,
o pricing flexibility,
o strong management, and
o record of paying dividends.
This means that the securities are selected based upon fundamental analysis
performed by the Adviser, and are not selected based upon the type of industries
to which they belong.
When market or financial conditions warrant, the Portfolio may invest without
limitation in high quality U.S. Government and corporate debt obligations for
temporary or defensive purposes. Such investment strategies are inconsistent
with the Portfolio's investment objectives and could result in the Portfolio not
achieving its investment objective.
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THE PRINCIPAL RISKS
This Portfolio invests in common stocks, therefore, its performance may go up or
down depending on general market conditions. Other principal risks include:
GROWTH INVESTING RISK: As noted above, this Portfolio uses a growth oriented
approach to stock selection. The price of growth stocks may be more sensitive to
changes in current or expected earnings than the prices of other stocks. The
price of growth stocks is also subject to the risk that the stock price of one
or more companies will fall or will fail to appreciate as anticipated by the
Adviser, regardless of movements in the securities market.
FOREIGN SECURITIES RISKS: The Portfolio's investments in foreign securities
involve risks not associated with investing in U.S. securities that can
adversely affect the Portfolio's performance. Foreign markets, particularly
emerging markets, may be less liquid, more volatile and subject to less
government supervision than domestic markets. There may be difficulties
enforcing contractual obligations, and it may take more time for trades to clear
and settle. In addition, foreign investments can be adversely affected by:
unfavorable currency exchange rates (relative to the U.S. dollar for securities
denominated in a foreign currencies); inadequate or inaccurate information about
foreign companies; higher transaction, brokerage and custody costs; adverse
changes in foreign economic and tax policies; and foreign government
instability, war or other adverse political or economic actions. Other specific
risks of investing in foreign securities include:
EMERGING MARKET RISK: There are greater risks involved in investing in
emerging markets countries and/or their securities markets, such as less
diverse and less mature economic structures, less stable political
systems, more restrictive foreign investment policies, smaller-sized
securities markets and low trading volumes. Such risks can make
investments illiquid and more volatile than investments in developed
countries and such securities may be subject to abrupt and severe price
declines. The Year 2000 problem may also be especially acute in emerging
market countries, which also may adversely affect the value of the
Portfolio's investments.
EURO RISK: The Portfolio invests in securities issued by European
issuers that that may be adversely impacted by the introduction of the
"Euro" as a common currency in 11 European Monetary Union member states.
The Euro may result in various legal and accounting differences, tax
treatments, the creation and implementation of suitable clearing and
settlement systems and other operational problems, that may cause market
disruptions that could adversely affect investments quoted in the Euro.
REGULATORY RISK: In general, foreign companies are also not subject to
uniform accounting, auditing and financial reporting standards or to
other regulatory practices and requirements as are U.S. companies, which
could adversely affect their value.
LIQUIDITY RISK: Certain securities held by the Portfolio may be difficult (or
impossible) to sell at the time and at the price the seller would like which may
cause the Portfolio to lose money or be prevented from earning capital gains.
FIXED INCOME RISKS: To the extent that a substantial amount of the Portfolio's
assets are invested in fixed income securities, that portion of the Portfolio's
performance will be affected by changes in interest rates, the credit risk of
the issuer, the duration or maturity of the Portfolio's fixed income holdings,
and adverse market or economic conditions. When interest rates rise, the value
of the Portfolio's fixed income securities, particularly those with longer
durations or maturities, will go down. When interest rates fall, the reverse is
true. In addition, to the extent that the Portfolio invests in investment-grade
securities which are rated BBB by S&P or an equivalent rating by any other
nationally recognized
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statistical rating organization, it will be exposed to greater risk than if it
invested in higher-rated obligations because BBB-rated securities are regarded
as having only an adequate capacity to pay principal and interest, are
considered to lack outstanding investment characteristics, and may be
speculative.
PORTFOLIO PERFORMANCE
The bar chart below illustrates the Portfolio's annual total return for 1998,
the Portfolio's first full year of operations. The table below shows the
Portfolio's average annual total returns for the Portfolio for one year and
since inception. The table also compares the Portfolio's performance to the
returns of a broad-based index. Both the bar chart and table assume reinvestment
of dividends and distributions. Past performance is not an indication of future
performance. In addition, holders of variable insurance contracts representing
interests in the Portfolio will be subject to charges and expenses relating to
such insurance contracts. The performance results presented below do not reflect
any insurance related expenses and if reflected the results would be reduced.
The inception date for the Portfolio is May 1, 1997.
- -------------------------------------------------------------------------------
CALENDAR YEAR ANNUAL TOTAL RETURN
1998
13.68%
- -------------------------------------------------------------------------------
Best quarter (% and time period) Worst quarter (% and time period)
16.86% (1998 4th Quarter) (13.63)% (1998 3rd Quarter)
- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR SINCE INCEPTION
T. ROWE PRICE INTERNATIONAL
STOCK PORTFOLIO 13.68% 7.01%
MSCI EAFE INDEX* 20.00% 13.43%
- --------------------------------- ---------------------------------------------
* For more information on this index, see the preceding section "The
Benchmarks."
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WHO MANAGES THE PORTFOLIO
ROWE PRICE-FLEMING INTERNATIONAL, INC. ("Price-Fleming"), 100 East Pratt Street,
Baltimore, MD 21202. Price-Fleming has been the Adviser to the Portfolio since
it commenced its operations. Price-Fleming was incorporated in Maryland in 1979
as a joint venture between T. Rowe Price and Robert Fleming Holdings Limited
("Flemings"). Flemings is a diversified investment organization that
participates in a global network of regional investment offices. The common
stock of Price-Fleming is 50% owned by a wholly owned subsidiary of T. Rowe
Price, 25% owned by a subsidiary of Flemings and 25% owned by Jardine Fleming
Group Limited ("Jardine Fleming").
Investment decisions with respect to the Portfolio are made by an Investment
Advisory Committee Group. The Investment Advisory Group has day-to-day
responsibility for managing the Portfolio and developing and executing the
Portfolio's investment program.
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MORE INFORMATION ON PRINCIPAL RISKS
Risk is the chance that you will lose money on your investment or that it will
not earn as much as you expect. In general, the greater the risk, the more money
your investment can earn for you - and the more you can lose. Like other
investment companies, the value of each Portfolio's shares may be affected by
the Portfolio's investment objective(s), principal investment strategies and
particular risk factors. Consequently, each Portfolio may be subject to
different principal risks. Some of the principal risks of investing in the
Portfolios are discussed below. However, other factors may also affect each
Portfolio's net asset value.
There is no guarantee that a Portfolio will achieve its investment objective(s)
or that it will not lose principal value.
GENERAL INVESTMENT RISKS: Each Portfolio is subject to the following risks:
ASSET CLASS RISK: There is the possibility that the returns from the
types of securities in which a Portfolio invests will underperform
returns from the various general securities markets or different asset
classes. Different types of securities tend to go through cycles of
outperformance and underperformance in comparison to the general
securities markets.
MARKET RISK: Each Portfolio's share price moves up and down over the
short term in reaction to stock or bond market movements. This means
that you could lose money over short periods, and perhaps over longer
periods during extended market downturns.
SECURITY SELECTION RISK: The Advisers for each Portfolio rely on the
insights of different specialists in making investment decisions based
on each Portfolio's particular investment objective(s) and investment
strategies. There is the possibility that the specific securities held
by a Portfolio will underperform other funds in the same asset class or
benchmarks that are representative of the general performance of the
asset class because of the Adviser's choice of portfolio securities.
YEAR 2000 RISK: Like other mutual funds, financial and business
organizations and individuals around the world, the Trust and its
Portfolios could be adversely affected if the computer systems used by
the Advisers, other service providers, or persons with whom they deal,
do not properly process and calculate date-related information and data
dated on and after January 1, 2000. This possibility is commonly known
as the "Year 2000 Problem." Virtually all operations of the Trust and
its Portfolios are computer reliant. The Manager, Advisers,
administrator, transfer agent, distributors and custodian have informed
the Trust that they are actively taking steps to address the Year 2000
Problem with regard to their respective computer systems and the
interfaces between their respective computer systems. The Trust is also
taking measures to obtain assurances from necessary persons that
comparable steps are being taken by the key service providers to the
Trust's Advisers, administrator, transfer agent, distributors, and
custodian. There can be no assurance that the Trust and the Portfolios'
key service providers will be Year 2000 compliant. If not adequately
addressed, the Year 2000 Problem could result in the inability of the
Trust to perform its mission critical functions, including trading and
settling trades of Portfolio securities, pricing of portfolio securities
and processing shareholder transactions, and the net asset value of its
Portfolios' shares may be materially affected.
In addition, because the Year 2000 Problem affects virtually all
issuers, the companies or entities in which the Portfolios may invest
also could be adversely impacted by the Year 2000 Problem. For example,
issuers may incur substantial costs to address the Year 2000 problem.
The extent of such impact cannot be predicted and there can be no
assurances that the Year 2000 Problem will
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not have an adverse effect on the issuers whose securities are held by
the Portfolios. The Advisers have assured the Trust that they consider
such issues in making investment decisions for the Portfolios.
Furthermore, certain of the Portfolios make international investments
thereby exposing these Portfolios to operations, custody and settlement
processes outside the United States. In many countries outside the
United States the Year 2000 Problem has not been adequately addressed
and concerns have been raised that capital flight, among other issues,
may be triggered by full disclosure of the Year 2000 Problem on
countries outside the United States. Additional information on the
impact of the Year 2000 Problem on emerging market countries is provided
in this section, under "FOREIGN SECURITIES RISKS--EMERGING MARKET RISK."
As indicated in "Summary Information Concerning EQ Advisors Trust" and "About
the Investment Portfolios," a particular Portfolio may also be subject to the
following risks:
CONVERTIBLE SECURITIES RISK: Convertible securities may include both convertible
debt and convertible preferred stock. Such securities may be converted into
shares of the underlying common stock at either a stated price or stated rate.
Therefore, convertible securities enable you to benefit from increases in the
market price of the underlying common stock. Convertible securities provide
higher yields than the underlying common stocks, but generally offer lower
yields than nonconvertible securities of similar quality. Like bonds, the value
of convertible securities fluctuates in relation to changes in interest rates
and, in addition, fluctuates in relation to the underlying common stock.
Subsequent to purchase by a Portfolio, convertible securities may cease to be
rated or a rating may be reduced below the minimum required for purchase by that
Portfolio. Each Adviser will consider such event in its determination of whether
a Portfolio should continue to hold the securities.
DERIVATIVES RISK: Derivatives are financial contracts whose value depends on, or
is derived from the value of an underlying asset, reference rate or index.
Derivatives include stock options, securities index options, currency options,
forward currency exchange contracts, futures contracts, swaps and options on
futures contracts. Certain Portfolios can use derivatives involving the U.S.
Government and foreign government securities and currencies. Investments in
derivatives can significantly increase your exposure to market risk, or credit
risk of the counterparty. Derivatives also involve the risk of mispricing or
improper valuation and the risk that changes in value of the derivative may not
correlate perfectly with the relevant assets, rates and indices.
FIXED INCOME RISKS: To the extent that any of the Portfolios invest a
substantial amount of its assets in fixed income securities, a Portfolio may be
subject to the following risks:
CREDIT RISK: Credit risk is the risk that the issuer or guarantor of a
debt security or counterparty to a Portfolio's transactions will be
unable or unwilling to make timely principal and/or interest payments,
or otherwise will be unable or unwilling to honor its financial
obligations. Each of the Portfolios may be subject to credit risk to the
extent that it invests in debt securities or engages in transactions,
such as securities loans, which involve a promise by a third party to
honor an obligation to the Portfolio. Credit risk is particularly
significant for the Portfolios that invest a portion of their assets in
"JUNK BONDS" or lower-rated securities.
INTEREST RATE RISK: The price of a bond or a fixed income security is
dependent upon interest rates. Therefore, the share price and total
return of a Portfolio investing a significant portion of its assets in
bonds or fixed income securities will vary in response to changes in
interest rates. A rise in interest rates causes the value of a bond to
decrease, and vice versa. There is the possibility that the value of a
Portfolio's investment in bonds or fixed income securities may fall
because bonds or fixed income securities generally fall in value when
interest rates rise. The longer the term of a bond or fixed income
instrument, the more sensitive it will be to fluctuations in value from
interest rate changes. Changes in interest rates may have a significant
effect on
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<PAGE>
Portfolios holding a significant portion of their assets in fixed income
securities with long term maturities.
MORTGAGE-BACKED SECURITIES RISK: In the case of mortgage-backed
securities, rising interest rates tend to extend the term to maturity of
the securities, making them even more susceptible to interest rate
changes. When interest rates drop, not only can the value of fixed
income securities drop, but the yield can drop, particularly where the
yield on the fixed income securities is tied to changes in interest
rates, such as adjustable mortgages. Also when interest rates drop, the
holdings of mortgage-backed securities by a Portfolio can reduce returns
if the owners of the underlying mortgages pay off their mortgages sooner
than anticipated since the funds prepaid will have to be reinvested at
the then lower prevailing rates. This is known as prepayment risk. When
interest rates rise, the holdings of mortgage-backed securities by a
Portfolio can reduce returns if the owners of the underlying mortgages
pay off their mortgages later than anticipated. This is known as
extension risk.
INVESTMENT-GRADE SECURITIES RISK: Debt securities are rated by national
bond ratings agencies. Securities rated BBB by S&P or Baa by Moody's are
considered investment grade securities, but are somewhat riskier than
higher rated obligations because they are regarded as having only an
adequate capacity to pay principal and interest, and are considered to
lack outstanding investment characteristics and may be speculative.
JUNK BONDS OR LOWER RATED SECURITIES RISK: Bonds rated below investment
grade by S&P and Moody's are speculative in nature, may be subject to
certain risks with respect to the issuing entity and to greater market
fluctuations than higher rated fixed-income securities. They are usually
issued by companies without long track records of sales and earnings, or
by those companies with questionable credit strength. These bonds are
considered "below investment grade." The retail secondary market for
these "junk bonds" may be less liquid than that of higher rated
securities and adverse conditions could make it difficult at times to
sell certain securities or could result in lower prices than those used
in calculating the Portfolio's net asset value.
FOREIGN SECURITIES RISKS: A Portfolio's investments in foreign securities,
including depositary receipts, involve risks not associated with investing in
U.S. securities and can affect a Portfolio's performance. Foreign markets,
particularly emerging markets, may be less liquid, more volatile and subject to
less government supervision than domestic markets. There may be difficulties
enforcing contractual obligations, and it may take more time for trades to clear
and settle. The specific risks of investing in foreign securities, among others,
include:
CURRENCY RISK: The risk that changes in currency exchange rates will
negatively affect securities denominated in, and/or receiving revenues
in, foreign currencies. Adverse changes in currency exchange rates
(relative to the U.S. dollar) may erode or reverse any potential gains
from a Portfolio's investment in securities denominated in a foreign
currency or may widen existing losses.
EMERGING MARKET RISK: There are greater risks involved in investing in
emerging markets countries and/or their securities markets. Generally,
economic structures in these countries are less diverse and mature than
those in developed countries, and their political systems are less
stable. Investments in emerging markets countries may be affected by
national policies that restrict foreign investment in certain issuers or
industries. The small size of their securities markets and low trading
volumes can make investments illiquid and more volatile than investments
in developed countries and such securities may be subject to abrupt and
severe price declines. As a result, a Portfolio investing in emerging
markets countries may be required to establish special custody or other
arrangements before investing.
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<PAGE>
The YEAR 2000 PROBLEM may also be especially acute in emerging market
countries. Many emerging market countries are currently lagging behind
more developed countries in their Year 2000 preparedness because they
lack the financial resources to undertake the necessary remedial
actions. A lack of Year 2000 preparedness may adversely affect the
health, security and economic well-being of emerging market countries
and could, obviously, adversely affect the value of a Portfolio's
investments in emerging market countries. More information on the Year
2000 Problem is provided in this section, under "GENERAL INVESTMENT
RISKS--YEAR 2000 RISK."
EURO RISK: Certain of the Portfolios 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 and/or tax treatments that
otherwise would not likely occur. During this period, the creation and
implementation of suitable clearing and settlement systems and other
operational problems may cause market disruptions that could adversely
affect investments quoted in the Euro.
The consequences of the Euro conversion for foreign exchange rates,
interest rates and the value of European securities eligible for
purchase by the Portfolios are presently unclear and it is not possible
to predict the eventual impact of the Euro implementation plan on the
Portfolios. There are a number of significant risks associated with EMU.
Monetary and economic union on this scale has never been attempted
before. There is a significant degree of uncertainty as to whether
participating countries will remain committed to EMU in the face of
changing economic conditions. The conversion may adversely affect a
Portfolio if the Euro does not take effect as planned or if a
participating state withdraws from the EMU. Such actions may adversely
affect the value and/or increase the volatility of securities held by
the Portfolios.
POLITICAL/ECONOMIC RISK: Changes in economic and tax policies,
government instability, war or other political or economic actions or
factors may have an adverse effect on a Portfolio's foreign investments.
REGULATORY RISK: Less information may be available about foreign
companies. In general, foreign companies are not subject to uniform
accounting, auditing and financial reporting standards or to other
regulatory practices and requirements as are U.S. companies.
TRANSACTION COSTS RISK: The costs of buying and selling foreign
securities, including tax, brokerage and custody costs, generally are
higher than those involving domestic transactions.
GROWTH INVESTING RISK: Growth investing generally focuses on companies that, due
to their strong earnings and revenue potential, offer above-average prospects
for capital growth, with less emphasis on dividend income. Earnings
predictability and confidence in earnings forecasts are an important part of the
selection process. As a result, the price of growth stocks may be more sensitive
to changes in current or expected earnings than the prices of other stocks.
Advisers using this approach generally seek out companies experiencing some or
all of the following: high sales growth, high unit growth, high or improving
returns on assets and equity, and a strong balance sheet. Such Advisers also
prefer companies with a competitive advantage such as unique management,
marketing or research and development. Growth investing is also subject to the
risk that the stock price of one or more companies will fall or will fail to
appreciate as anticipated by the Advisers, regardless of movements in the
securities market.
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INDEX-FUND RISK: The BT Equity 500 Index, BT Small Company Index and BT
International Equity Index Portfolios are not actively managed (which involves
buying and selling of securities based upon economic, financial and market
analysis and investment judgment). Rather, the Portfolios utilize a "passive" or
"indexing" investment approach and attempt to duplicate the investment
performance of the particular index the Portfolio is tracking (i.e., S&P 500
Index, Russell 2000 Index or MSCI EAFE Index) through statistical procedures.
Therefore, the Portfolios will invest in the securities included in the relevant
index or substantially identical securities regardless of market trends. The
Portfolios cannot modify their investment strategies to respond to changes in
the economy, which means they may be particularly susceptible to a general
decline in the U.S. or global stock market segment relating to the relevant
index.
LEVERAGING RISK: When a Portfolio is borrowing money or otherwise leveraging its
portfolio, the value of an investment in that Portfolio will be more volatile
and all other risks will tend to be compounded. All of the Portfolios may take
on leveraging risk by investing in collateral from securities loans and by
borrowing money to meet redemption requests.
LIQUIDITY RISK: Certain securities held by a Portfolio may be difficult (or
impossible) to sell at the time and at the price the seller would like. A
Portfolio may have to hold these securities longer than it would like and may
forego other investment opportunities. There is the possibility that a Portfolio
may lose money or be prevented from earning capital gains if it can not sell a
security at the time and price that is most beneficial to the Portfolio.
Portfolios that invest in privately-placed securities, high-yield bonds,
mortgage-backed securities or foreign or emerging markets securities, which have
all experienced periods of illiquidity, are subject to liquidity risks. A
particular Portfolio may be more susceptible to some of these risks than others,
as noted in the description of each Portfolio.
NON-DIVERSIFICATION RISK: The Lazard Small Cap Value, Morgan Stanley Emerging
Markets Equity and Merrill Lynch World Strategy Portfolios are classified as
"non-diversified" investment companies, which means that the proportion of each
Portfolio's assets that may be invested in the securities of a single issuer is
not limited by the 1940 Act. Since a relatively high percentage of each
non-diversified Portfolio's assets may be invested in the securities of a
limited number of issuers, some of which may be within the same industry, the
securities of each Portfolio may be more sensitive to changes in the market
value of a single issuer or industry. The use of such a focused investment
strategy may increase the volatility of a Portfolio's investment performance, as
the Portfolio may be more susceptible to risks associated with a single
economic, political or regulatory event than a diversified portfolio. If the
securities in which the Portfolio invests perform poorly, the Portfolio could
incur greater losses than it would have had it been invested in a greater number
of securities. However to qualify as a regulated investment company ("RIC")
under the Internal Revenue Code of 1986, as amended (the "Code") and receive
pass through tax treatment, each Portfolio at the close of each fiscal quarter,
may not have more than 25% of its total assets invested in the securities of any
one issuer (excluding U.S. Government obligations) and with respect to 50% of
its assets, (i) may not have more than 5% of its total assets invested in the
securities of any one issuer and (ii) may not own more than 10% of the
outstanding voting securities of any one issuer. Each non-diversified Portfolio
intends to qualify as a RIC.
PORTFOLIO TURNOVER RISK: Consistent with their investment policies, the
Portfolios also will purchase and sell securities without regard to the effect
on portfolio turnover. Higher portfolio turnover (e.g., over 100% per year) will
cause a Portfolio to incur additional transaction costs and may result in
taxable gains being passed through to shareholders.
SMALL-CAP AND MID-CAP COMPANY RISK: A Portfolio's investments in small-cap and
mid-cap companies may involve greater risks than investments in larger, more
established issuers. Smaller companies may have narrower product lines, more
limited financial resources and more limited trading markets for their stock, as
compared with larger companies. Their securities may be less well-known and
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trade less frequently and in more limited volume than the securities of larger,
more established companies. In addition, small-cap and mid-cap companies are
typically subject to greater changes in earnings and business prospects than are
those of larger companies. Consequently, the prices of small company stocks tend
to rise and fall in value more frequently than the stocks of larger companies.
Although investing in small-cap and mid-cap companies offers potential for
above-average returns, the companies may not succeed and the value of their
stock could decline significantly.
VALUE INVESTING RISK: Value investing attempts to identify strong companies
selling at a discount from their perceived true worth. Advisers using this
approach generally select stocks at prices, in their view, that are temporarily
low relative to the company's earnings, assets, cash flow and dividends. Value
investing is subject to the risk that the stocks' intrinsic value may never be
fully recognized or realized by the market, or their prices may go down. In
addition, there is the risk that a stock judged to be undervalued may actually
be appropriately priced. Value investing generally emphasizes companies that,
considering their assets and earnings history, are attractively priced and may
provide dividend income.
The Trust's Portfolios are not insured by the FDIC or any other government
agency. Each Portfolio is not a deposit or other obligation of any financial
institution or bank and is not guaranteed. Each Portfolio is subject to
investment risks and possible loss of principal invested.
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MANAGEMENT OF THE TRUST
This section gives you information on the Trust, the Manager and the Advisers
for the Portfolios. More detailed information concerning each of the Advisers
and portfolio managers is included in the description for each Portfolio in the
section "About The Investment Portfolios."
THE TRUST
The Trust is organized as a Delaware business trust and is registered with the
Securities and Exchange Commission ("SEC") as an open-end management investment
company. The Trust issues shares of beneficial interest that are currently
divided among twenty-one Portfolios, each of which has authorized Class IA and
Class IB shares. Each Portfolio has its own objectives, investment strategies
and risks, which have been previously described in this prospectus.
THE MANAGER
EQ Financial Consultants, Inc., 1290 Avenue of the Americas, New York, New York
10104, serves as the Manager of the Trust, subject to the supervision and
direction of the Board of Trustees. The Manager has overall responsibility for
the general management and administration of the Trust.
In the exercise of that responsibility, the Manager, without obtaining
shareholder approval but subject to the review and approval by the Board of
Trustees, may: (i) select the Advisers for the Portfolios; (ii) enter into and
materially modify existing investment advisory agreements; and (iii) terminate
and replace the Advisers. The Manager also monitors each Adviser's investment
program and results, reviews brokerage matters, oversees compliance by the Trust
with various federal and state statutes, and carries out the directives of the
Board of Trustees. The Manager also supervises the provision of services by
third parties such as the Trust's custodian and administrator.
The Manager is an investment adviser registered under the 1940 Act and a
broker-dealer registered under the Securities Exchange Act of 1934, as amended.
EQ Financial Consultants, Inc. is a wholly-owned subsidiary of Equitable. During
1999, the Manager plans to change its name to AXA Advisors, Inc.
The table below shows the annual rate of the management fees (as a percentage of
each Portfolio's average daily net assets) that the Manager received in 1998 for
managing each of the Portfolios and the rate of the management fees waived by
the Manager in 1998 in accordance with the provisions of the Expense Limitation
Agreement, as defined directly below, between the Manager and the Trust.
MANAGEMENT FEES PAID BY THE PORTFOLIOS TO EQ FINANCIAL CONSULTANTS
<TABLE>
<CAPTION>
- ---------------------------------------- ---------------------------- -------------------------
PORTFOLIOS ANNUAL RATE RECEIVED RATE OF FEES WAIVED
- ---------------------------------------- ---------------------------- -------------------------
<S> <C> <C>
T. Rowe Price Equity Income 0.36% 0.19%
- ---------------------------------------- ---------------------------- -------------------------
EQ/Putnam Growth & Income Value 0.36% 0.19%
- ---------------------------------------- ---------------------------- -------------------------
EQ/Putnam Investors Growth 0.31% 0.24%
- ---------------------------------------- ---------------------------- -------------------------
EQ/Putnam Balanced 0.20% 0.35%
- ---------------------------------------- ---------------------------- -------------------------
MFS Research 0.35% 0.20%
- ---------------------------------------- ---------------------------- -------------------------
MFS Emerging Growth Companies 0.36% 0.19%
- ---------------------------------------- ---------------------------- -------------------------
Merrill Lynch Basic Value Equity 0.34% 0.21%
- ---------------------------------------- ---------------------------- -------------------------
Lazard Large Cap Value 0.21% 0.34%
- ---------------------------------------- ---------------------------- -------------------------
T. Rowe Price International Stock 0.54% 0.21%
- ---------------------------------------- ---------------------------- -------------------------
EQ/Putnam International Equity 0.44% 0.26%
- ---------------------------------------- ---------------------------- -------------------------
Merrill Lynch World Strategy 0.26% 0.44%
- ---------------------------------------- ---------------------------- -------------------------
Morgan Stanley Emerging Markets Equity 0.33% 0.82%
- ---------------------------------------- ---------------------------- -------------------------
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<PAGE>
- ---------------------------------------- ---------------------------- -------------------------
Warburg Pincus Small Company Value 0.47% 0.18%
- ---------------------------------------- ---------------------------- -------------------------
Lazard Small Cap Value 0.62% 0.18%
- ---------------------------------------- ---------------------------- -------------------------
JPM Core Bond 0.05% 0.40%
- ---------------------------------------- ---------------------------- -------------------------
BT Small Company Index 0.00% 0.25%
- ---------------------------------------- ---------------------------- -------------------------
BT Equity 500 Index 0.00% 0.25%
- ---------------------------------------- ---------------------------- -------------------------
BT International Equity Index 0.00% 0.35%
- ---------------------------------------- ---------------------------- -------------------------
</TABLE>
The seven (7) Portfolios listed in the table below did not commence operations
during 1998. The table below shows the annual rate of the management fees (as a
percentage of each Portfolio's average daily net assets) that the Manager is
entitled to receive in 1999 for managing each of these Portfolios.
ANNUAL RATE OF MANAGEMENT FEES
----------------------------------------- --------------------
PORTFOLIOS ANNUAL RATE
----------------------------------------- --------------------
Capital Guardian International Portfolio 0.75%
----------------------------------------- --------------------
Capital Guardian Research Portfolio 0.65%
----------------------------------------- --------------------
Capital Guardian U.S. Equity Portfolio 0.65%
----------------------------------------- --------------------
EQ/Alliance Premier Growth Portfolio 0.90%
----------------------------------------- --------------------
EQ/Evergreen 0.75%
----------------------------------------- --------------------
EQ/Evergreen Foundation 0.63%
----------------------------------------- --------------------
MFS Growth with Income 0.55%
----------------------------------------- --------------------
EXPENSE LIMITATION AGREEMENT
In the interest of limiting expenses of each Portfolio, the Manager has entered
into an expense limitation agreement with the Trust with respect to each
Portfolio ("Expense Limitation Agreement"). Pursuant to that Expense Limitation
Agreement, the Manager has agreed to waive or limit its fees and to assume other
expenses so that the total annual operating expenses of each Portfolio other
than interest, taxes, brokerage commissions, other expenditures which are
capitalized in accordance with generally accepted accounting principles, other
extraordinary expenses not incurred in the ordinary course of each Portfolio's
business and amounts payable pursuant to a plan adopted in accordance with Rule
12b-1 under the 1940 Act, are limited to the following fees:
MANAGEMENT EXPENSE LIMITATION FEES
- -------------------------------------- -------------------------------
PORTFOLIOS AMOUNT EXPENSES LIMITED TO
(% of daily net assets)
- -------------------------------------- -------------------------------
T. Rowe Price Equity Income 0.60%
- -------------------------------------- -------------------------------
EQ/Putnam Growth & Income Value 0.60%
- -------------------------------------- -------------------------------
EQ/Putnam Investors Growth 0.60%
- -------------------------------------- -------------------------------
MFS Research 0.60%
- -------------------------------------- -------------------------------
MFS Emerging Growth Companies 0.60%
- -------------------------------------- -------------------------------
MFS Growth with Income 0.60%
- -------------------------------------- -------------------------------
Merrill Lynch Basic Value Equity 0.60%
- -------------------------------------- -------------------------------
EQ/Putnam Balanced 0.65%
- -------------------------------------- -------------------------------
Lazard Large Cap Value 0.65%
- -------------------------------------- -------------------------------
Warburg Pincus Small Company Value 0.75%
- -------------------------------------- -------------------------------
T. Rowe Price International Stock 0.95%
- -------------------------------------- -------------------------------
EQ/Putnam International Equity 0.95%
- -------------------------------------- -------------------------------
Merrill Lynch World Strategy 0.95%
- -------------------------------------- -------------------------------
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<PAGE>
- ------------------------------------------------- -------------------------
Lazard Small Cap Value 0.95%
- ------------------------------------------------- -------------------------
Morgan Stanley Emerging Markets Equity Portfolio 1.50%
- ------------------------------------------------- -------------------------
JPM Core Bond 0.55%
- ------------------------------------------------- -------------------------
BT International Equity Index 0.55%
- ------------------------------------------------- -------------------------
BT Small Company Index 0.35%
- ------------------------------------------------- -------------------------
BT Equity 500 Index 0.30%
- ------------------------------------------------- -------------------------
EQ/Evergreen Foundation 0.70%
- ------------------------------------------------- -------------------------
EQ/Evergreen Portfolio 0.80%
- ------------------------------------------------- -------------------------
Capital Guardian International Portfolio 0.95%
- ------------------------------------------------- -------------------------
Capital Guardian Research Portfolio 0.70%
- ------------------------------------------------- -------------------------
Capital Guardian U.S. Equity Portfolio 0.70%
- ------------------------------------------------- -------------------------
EQ/Alliance Premier Growth Portfolio 0.90%
- ------------------------------------------------- ----------------------------
Each Portfolio may at a later date reimburse to the Manager the management fees
waived or limited and other expenses assumed and paid by the Manager pursuant to
the Expense Limitation Agreement provided such Portfolio has reached a
sufficient asset size to permit such reimbursement to be made without causing
the total annual expense ratio of each Portfolio to exceed the percentage limits
stated above. Consequently, no reimbursement by a Portfolio will be made unless:
(i) the Portfolio's assets exceed $100 million; (ii) the Portfolio's total
annual expense ratio is less than the respective percentages stated above; and
(iii) the payment of such reimbursement has been approved by the Trust's Board
of Trustees on a quarterly basis.
THE ADVISERS
Each Portfolio has an Adviser that furnishes an investment program for the
Portfolio pursuant to an investment advisory agreement with the Manager. Each
Adviser makes investment decisions on behalf of the Portfolio, places all orders
for the purchase and sale of investments for the Portfolio's account with
brokers or dealers selected by such Adviser and may perform certain limited
related administrative functions in connection therewith.
The Manager has received an exemptive order from the SEC that permits the
Manager, subject to certain conditions, including board approval, and without
the approval of shareholders to: (a) employ a new Adviser or Advisers for any
Portfolio pursuant to the terms of a new Advisory Agreement, in each case either
as a replacement for an existing Adviser or as an additional Adviser; (b) change
the terms of any Advisory Agreement; and (c) continue the employment of an
existing Adviser on the same advisory contract terms where a contract has been
assigned because of a change in control of the Adviser. In such circumstances,
shareholders would receive notice of such action, including the information
concerning the Adviser that normally is provided in the Prospectus.
The Manager pays each Adviser a fee based on the Portfolio's average daily net
assets. No Portfolio is responsible for the fees paid to each of the Advisers.
THE ADMINISTRATOR
Pursuant to an agreement, Chase Global Funds Services Company ("Administrator")
assists the Manager in the performance of its administrative responsibilities to
the Trust and provides the Trust with other necessary administrative, fund
accounting and compliance services. In addition, the Administrator makes
available the office space, equipment, personnel and facilities required to
provide such services to the Trust. For these services, the Trust pays the
Administrator a monthly fee at the annual rate of .0525 of 1% of the total Trust
assets, plus $25,000 for each Portfolio, until the total Trust assets reach $2.0
billion, and when the total Trust assets exceed $2.0 billion: .0425 of 1% of the
next $0.5 billion of the total Trust assets; .035 of 1% of the 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
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<PAGE>
excess of $8.0 billion; provided, however, that the annual fee payable to Chase
with respect to any Portfolio which commenced operations after July 1, 1997 and
whose assets do not exceed $200 million shall be computed at the annual rate of
.0525% of 1% of the Portfolio's total assets plus $25,000.
THE TRANSFER AGENT
Equitable serves as the transfer agent and dividend disbursing agent of the
Trust and receives no compensation for serving in such capacity.
BROKERAGE PRACTICES
In selecting brokers and dealers, the Manager and each Adviser may consider
research and brokerage services furnished to either company and their
affiliates. Subject to seeking the most favorable net price and execution
available, the Manager and each Adviser may also consider sales of shares of the
Trust as a factor in the selection of brokers and dealers.
BROKERAGE TRANSACTIONS WITH AFFILIATES
To the extent permitted by law, the Trust may engage in securities and other
transactions with entities that may be affiliated with the Manager or the
Advisers. The 1940 Act generally prohibits the Trust from engaging in principal
securities transactions with an affiliate of the Manager or Advisers unless
pursuant to an exemptive order from the SEC. For these purposes, however, the
Trust has considered this issue and believes that a broker-dealer affiliate of
an Adviser to one Portfolio should not be treated as an affiliate of the Adviser
to another Portfolio for which such Adviser does not provide investment advice.
The Trust has adopted procedures that are reasonably designed to provide that
any commission it pays to affiliates of the Manager or Advisers does not exceed
the usual and customary broker's commission. The Trust has also adopted
procedures permitting it to purchase securities, under certain restrictions
prescribed by a rule under the 1940 Act, in a public offering in which an
affiliate of the Manager or Advisers is an underwriter.
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.
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<PAGE>
Net asset value per share is calculated for purchases and redemption of shares
of each Portfolio by dividing the value of total Portfolio assets, less
liabilities (including Trust expenses and class related expenses, which are
accrued daily), by the total number of outstanding shares of that Portfolio. The
net asset value per share of each Portfolio is determined each business day at
4:00 p.m. Eastern time. Net asset value per share is not calculated on days on
which the New York Stock Exchange is closed for trading.
Foreign securities (other than ADRs) are valued at the close of business in the
applicable foreign country. Consequently, Portfolios that invest a significant
portion of their assets in foreign securities, may experience changes in their
net asset value on days when a shareholder may not purchase or redeem shares of
that Portfolio.
All shares are purchased and redeemed in accordance with the Trust's Amended and
Restated Declaration of Trust and By-Laws. Sales and redemptions of shares of
the same class by the same shareholder on the same day will be netted for each
Portfolio. All redemption requests will be processed and payment with respect
thereto will normally be made within seven days after tenders.
The Trust may suspend redemption, if permitted by the 1940 Act, for any period
during which the New York Stock Exchange is closed or during which trading is
restricted by the SEC or the SEC declares that an emergency exists. Redemption
may also be suspended during other periods permitted by the SEC for the
protection of the Trust's shareholders. If the Board of Trustees determines that
it would be detrimental to the best interest of the Trust's remaining
shareholders to make payment in cash, the Trust may pay redemption proceeds in
whole or in part by a distribution-in-kind of readily marketable securities.
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 is converted into United States dollar equivalents at
current exchange rates.
o Short-term debt securities in the Portfolios which mature in 60 days or less
are valued at amortized cost, which approximates market value.
o Other securities and assets for which market quotations are not readily
available or for which valuation cannot be provided are valued in good faith
by the Valuation Committee of the Board of Trustees of the Trust using its
best judgment.
TAX INFORMATION
Each Portfolio of the Trust is a separate regulated investment company for
federal income tax purposes. Regulated investment companies are usually not
taxed at the entity (Portfolio) level. They pass through their income and gains
to their shareholders by paying dividends. Their shareholders include this
income on their respective tax returns. A Portfolio will be treated as a
regulated investment company if it meets specified federal income tax rules,
including types of investments, limits on investments, calculation of income,
and dividend payment requirements. Although the Trust intends that it and each
Portfolio will be operated to have no federal tax liability, if they have any
federal tax liability, that could hurt the investment performance of the
Portfolio in question. Also, any Portfolio investing in foreign securities or
holding
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<PAGE>
foreign currencies could be subject to foreign taxes which could reduce the
investment performance of the Portfolio.
It is important for each Portfolio to maintain its federal income tax regulated
investment company status because the shareholders of the Portfolio that are
insurance company separate accounts will then be able to use a favorable federal
income tax investment diversification testing rule in figuring out whether the
Contracts indirectly funded by the Portfolio meet tax qualification rules for
variable insurance contracts. If a Portfolio fails to meet specified investment
diversification requirements, owners of non-pension plan Contracts funded
through the Trust could be taxed immediately on the accumulated investment
earnings under their Contracts and could lose any benefit of tax deferral. The
Administrator and the Manager therefore carefully monitor compliance with all of
the regulated investment company rules and variable insurance contract
investment diversification rules.
PRIOR PERFORMANCE OF EACH ADVISER
The following table provides information concerning the historical performance
of another registered investment company (or series) or other institutional
private accounts managed by each Adviser that has investment objectives,
policies, strategies and risks substantially similar to those of the respective
Portfolio(s) of the Trust for which it serves as Adviser. The data is provided
to illustrate the past performance of each Adviser in managing a substantially
similar investment vehicle as measured against specified market indices. This
data does not represent the past performance of any of the Portfolios or the
future performance of any Portfolio or its Adviser. Consequently, potential
investors should not consider this performance data as an indication of the
future performance of any Portfolio of the Trust or of its Adviser and should
not confuse this performance data with performance data for each of the Trust's
Portfolios, which is shown for each Portfolio that has at least one full year of
operations under the caption "ABOUT THE INVESTMENT PORTFOLIOS."
Each Adviser's performance data shown below for other registered investment
companies (or series thereof) was calculated in accordance with standards
prescribed by the SEC for the calculation of average annual total return
information for registered investment companies. Average annual total return
reflects changes in share prices and reinvestment of dividends and distributions
and is net of fund expenses. In each such instance, the share prices and
investment returns will fluctuate, reflecting market conditions as well as
changes in company-specific fundamentals of portfolio securities.
Composite performance data relating to the historical performance of
institutional private accounts managed by the relevant Adviser was calculated on
a total return basis and includes all losses. As specified below, this composite
performance data is provided for the J.P. Morgan Active Fixed Income Composite,
the Capital Guardian U.S. Equity Research Portfolio-Diversified Composite, the
Capital Guardian U.S. Equity Composite, and the Capital Guardian Non-U.S. Equity
Composite (collectively, the "Composites"). The total returns for each Composite
reflect the deduction of investment advisory fees, brokerage commissions and
execution costs paid by J.P. Morgan's and Capital Guardian's institutional
private accounts, respectively, without provision for federal or state income
taxes. Custodial fees, if any, were not included in the calculation. Each
Composite includes all actual, fee-paying, discretionary institutional private
accounts managed by J.P. Morgan and Capital Guardian, respectively, that have
investment objectives, policies, strategies and risks substantially similar to
those of the relevant Portfolio. Securities transactions are accounted for on
the trade date and accrual accounting is utilized. Cash and equivalents are
included in performance returns. The institutional private accounts that are
included in the Composites are not subject to the same types of expenses to
which the relevant Portfolio is subject or to the diversification requirements,
specific tax restrictions and investment limitations imposed on the Portfolio by
the 1940 Act or Subchapter M of the Internal Revenue Code. Consequently, the
performance results for the Composites could have been adversely affected if the
institutional private accounts included in the Composites had been regulated as
investment companies under the federal securities laws.
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<PAGE>
The major difference between the SEC prescribed calculation of average annual
total returns for registered investment companies or (series thereof) and total
returns for composite performance is that average annual total returns reflects
all fees and charges applicable to the registered investment company in question
and the total return calculation for the Composites reflects only those fees and
charges described in the paragraph directly above.
The performance results for the registered investment companies or Composites
presented below are subject to lower fees and expenses than the relevant
Portfolios although in most instances the fees and expenses are substantially
similar. In addition, holders of Contracts representing interests in the
Portfolio below will be subject to charges and expenses relating to such
insurance contracts. The performance results presented above do not reflect any
insurance related expenses and would be reduced if such charges were reflected.
The investment results presented below are unaudited. For more information on
the specified market indices used below, see the section "The Benchmarks." The
name of the other fund or account managed by the adviser is shown in BOLD. The
name of the Trust Portfolio is shown in (parentheses). The name of the benchmark
is shown in italics.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
ANNUAL RATES OF RETURN OF OTHER FUNDS OR ACCOUNTS
MANAGED BY ADVISERS
AS OF 12/31/98
- -------------------------------------------- ---------- ---------- ----------- ---------- ----------
OTHER FUND OR ACCOUNT MANAGED BY ADVISER
(EQAT Portfolio) 1 5 10 SINCE INCEPTION
- -------------------------------------------- YEAR YEARS YEARS INCEPTION DATE
Benchmark
- -------------------------------------------- ---------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
J.P. MORGAN ACTIVE FIXED INCOME COMPOSITE 6.90% 7.20% 9.40% 5/31/77
(JPM Core Bond Portfolio)
- -------------------------------------------- ---------- ---------- ----------- ---------- ----------
Salomon Brothers Broad Investment Grade 8.70% 7.30% 9.30%
Bond Index(1)
- -------------------------------------------- ---------- ---------- ----------- ---------- ----------
THE GEORGE PUTNAM FUND OF BOSTON(2) 10.60% 15.07% 13.77% 11/5/37
(EQ/Putnam Balanced Portfolio)
- -------------------------------------------- ---------- ---------- ----------- ---------- ----------
S&P 500 Index(3) 28.57% 24.06% 19.21%
- -------------------------------------------- ---------- ---------- ----------- ---------- ----------
BT INSTITUTIONAL FUNDS - EQUITY 500 INDEX 28.75% 24.05% N/A 21.56% 12/31/92
FUND - INSTITUTIONAL CLASS
(BT Equity 500 Index Portfolio)
- -------------------------------------------- ---------- ---------- ----------- ---------- ----------
S&P 500 Index(3) 28.57% 24.06% N/A 21.61%
- -------------------------------------------- ---------- ---------- ----------- ---------- ----------
BT ADVISORS FUNDS - SMALL CAP INDEX (2.60)% N/A N/A 11.58% 7/10/96
FUND-INSTITUTIONAL CLASS
(BT Small Company Index Portfolio)
- -------------------------------------------- ---------- ---------- ----------- ---------- ----------
Russell 2000 Index(4) (2.54)% N/A N/A 11.85%
- -------------------------------------------- ---------- ---------- ----------- ---------- ----------
PUTNAM GROWTH & INCOME FUND II(2) 12.46% N/A N/A N/A 1/5/95
(EQ/Putnam Growth & Income Value Portfolio)
- -------------------------------------------- ---------- ---------- ----------- ---------- ----------
S&P 500 Index(3) 28.57% N/A N/A 30.51%
- -------------------------------------------- ---------- ---------- ----------- ---------- ----------
PUTNAM INVESTORS FUND(2) 35.52% 24.12% 20.16% 12/1/25
(EQ/Putnam Investors Growth Portfolio)
- -------------------------------------------- ---------- ---------- ----------- ---------- ----------
S&P 500 Index(3) 28.57% 24.06% 19.21%
- -------------------------------------------- ---------- ---------- ----------- ---------- ----------
THE LAZARD FUNDS, INC. - LAZARD EQUITY 17.31% 20.36% 16.83% 6/87
PORTFOLIO
(Lazard Large Cap Value Portfolio)
- -------------------------------------------- ---------- ---------- ----------- ---------- ----------
S&P 500 Index(3) 28.57% 24.06% 19.21%
- -------------------------------------------- ---------- ---------- ----------- ---------- ----------
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<PAGE>
- ---------------------------------------------------------------------------------------------------
ANNUAL RATES OF RETURN OF OTHER FUNDS OR ACCOUNTS
MANAGED BY ADVISERS
AS OF 12/31/98
- -------------------------------------------- ---------- ---------- ----------- ---------- ----------
OTHER FUND OR ACCOUNT MANAGED BY ADVISER
(EQAT Portfolio) 1 5 10 SINCE INCEPTION
- -------------------------------------------- YEAR YEARS YEARS INCEPTION DATE
Benchmark
- -------------------------------------------- ---------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
THE LAZARD FUNDS, INC. - LAZARD SMALL CAP
PORTFOLIO (12.62)% 11.45% N/A 16.10% 10/1/91
(Lazard Small Cap Value Portfolio)
- -------------------------------------------- ---------- ---------- ----------- ---------- ----------
Russell 2000 Index(4) (2.54)% 11.86% N/A 13.89%
- -------------------------------------------- ---------- ---------- ----------- ---------- ----------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC. 8.88% N/A 9.57% 2/28/92
- - MERRILL LYNCH GLOBAL STRATEGY FOCUS FUND 8.49%
(Merrill Lynch World Strategy Portfolio)
- -------------------------------------------- ---------- ---------- ----------- ---------- ----------
MSCI EAFE Index(5) 20.00% 9.19% N/A 9.98%
- -------------------------------------------- ---------- ---------- ----------- ---------- ----------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC. 9.44% 15.40% N/A 15.80% 7/1/93
- -MERRILL LYNCH BASIC VALUE FOCUS FUND
(Merrill Lynch Basic Value Equity
Portfolio)
- -------------------------------------------- ---------- ---------- ----------- ---------- ----------
S&P 500 Index(3) 28.57% 24.06% N/A 22.74%
- -------------------------------------------- ---------- ---------- ----------- ---------- ----------
MFS RESEARCH FUND(2), (6) 22.92% 20.65% 18.44% 10/13/71
(MFS Research Portfolio)
- -------------------------------------------- ---------- ---------- ----------- ---------- ----------
S&P 500 Index(3) 28.57% 24.06% 19.21%
- -------------------------------------------- ---------- ---------- ----------- ---------- ----------
T. ROWE PRICE EQUITY INCOME FUND 9.23% 18.75% 15.18% 10/31/85
(T. Rowe Price Equity Income Portfolio)
- -------------------------------------------- ---------- ---------- ----------- ---------- ----------
S&P 500 Index(3) 28.57% 24.06% 19.21%
- -------------------------------------------- ---------- ---------- ----------- ---------- ----------
WARBURG PINCUS SMALL COMPANY VALUE FUND(7) (14.88)% N/A N/A 16.51% 12/29/95
(Warburg Pincus Small Company Value
Portfolio)
- -------------------------------------------- ---------- ---------- ----------- ---------- ----------
Russell 2000 Index(4) (2.54)% N/A N/A 11.58%
- -------------------------------------------- ---------- ---------- ----------- ---------- ----------
BT ADVISORS FUNDS - EAFE EQUITY INDEX FUND 19.81% N/A N/A 9.69% 1/24/96
- - INSTITUTIONAL CLASS
(BT International Equity Index Portfolio)
- -------------------------------------------- ---------- ---------- ----------- ---------- ----------
MSCI EAFE Index(5) 20.00% N/A N/A 9.70%
- -------------------------------------------- ---------- ---------- ----------- ---------- ----------
PUTNAM INTERNATIONAL GROWTH FUND(2) 18.95% 13.18% N/A N/A 2/28/91
(EQ/Putnam International Equity Portfolio)
- -------------------------------------------- ---------- ---------- ----------- ---------- ----------
MSCI EAFE Index(5) 20.00% 9.19% N/A 7.58%
- -------------------------------------------- ---------- ---------- ----------- ---------- ----------
MFS EMERGING GROWTH FUND(6) 23.56% 19.66% 22.94% 12/29/86
(MFS Emerging Growth Companies Portfolio)
- -------------------------------------------- ---------- ---------- ----------- ---------- ----------
Russell 2000 Index(4) (2.54)% 11.86% 12.94%
- -------------------------------------------- ---------- ---------- ----------- ---------- ----------
MASSACHUSETTS INVESTORS TRUST(2) 22.95% 22.97% 19.15% 7/15/24
(MFS Growth with Income Portfolio)
- -------------------------------------------- ---------- ---------- ----------- ---------- ----------
S&P 500 Index(3) 28.57% 24.06% 19.21%
- -------------------------------------------- ---------- ---------- ----------- ---------- ----------
MORGAN STANLEY INSTITUTIONAL FUND, INC. -
EMERGING MARKETS PORTFOLIO(8)
(Morgan Stanley Emerging Markets Equity (25.40)% (8.20)% N/A 3.50% 9/25/92
Portfolio)
- -------------------------------------------- ---------- ---------- ----------- ---------- ----------
IFC Global Total Return Composite Index(9) (21.10)% (8.70)% N/A 1.90%
- -------------------------------------------- ---------- ---------- ----------- ---------- ----------
T. ROWE PRICE INTERNATIONAL STOCK FUND 16.14% 8.87% 10.45% 5/9/80
(T. Rowe Price International Stock
Portfolio)
- -------------------------------------------- ---------- ---------- ----------- ---------- ----------
MSCI EAFE Index(5) 20.00% 9.19% 9.50%
- -------------------------------------------- ---------- ---------- ----------- ---------- ----------
EVERGREEN FOUNDATION FUND - CLASS Y SHARES 12.21% 15.06% N/A 16.89% 1/2/90
(EQ/Evergreen Foundation Portfolio)
- -------------------------------------------- ---------- ---------- ----------- ---------- ----------
S&P 500 Index(3) 28.57% 24.06% N/A 18.82%
- -------------------------------------------- ---------- ---------- ----------- ---------- ----------
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<PAGE>
- ---------------------------------------------------------------------------------------------------
ANNUAL RATES OF RETURN OF OTHER FUNDS OR ACCOUNTS
MANAGED BY ADVISERS
AS OF 12/31/98
- -------------------------------------------- ---------- ---------- ----------- ---------- ----------
OTHER FUND OR ACCOUNT MANAGED BY ADVISER
(EQAT Portfolio) 1 5 10 SINCE INCEPTION
- -------------------------------------------- YEAR YEARS YEARS INCEPTION DATE
Benchmark
- -------------------------------------------- ---------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
EVERGREEN FUND - CLASS Y SHARES 7.23% 17.82% 14.07% 10/15/71
(EQ/Evergreen Portfolio)
- -------------------------------------------- ---------- ---------- ----------- ---------- ----------
Russell 2000 Index(4) (2.54)% 11.86% 12.94%
- -------------------------------------------- ---------- ---------- ----------- ---------- ----------
CAPITAL GUARDIAN U.S. EQUITY RESEARCH 28.46% 24.53% N/A 21.74% 3/31/93
PORTFOLIO-DIVERSIFIED COMPOSITE
(Capital Guardian Research Portfolio)
- -------------------------------------------- ---------- ---------- ----------- ---------- ----------
S&P 500 Index 28.58% 23.99% N/A 21.68%
- -------------------------------------------- ---------- ---------- ----------- ---------- ----------
CAPITAL GUARDIAN U.S. EQUITY COMPOSITE 22.88% 22.27% 18.07% 13.71% 12/31/66
(Capital Guardian U.S. Equity Portfolio)
- -------------------------------------------- ---------- ---------- ----------- ---------- ----------
S&P 500 Index 28.58% 23.99% 19.12% 12.84%
- -------------------------------------------- ---------- ---------- ----------- ---------- ----------
CAPITAL GUARDIAN NON-U.S. EQUITY COMPOSITE 17.32% 11.62% 10.87% 15.00% 12/31/78
(Capital Guardian International Portfolio)
- -------------------------------------------- ---------- ---------- ----------- ---------- ----------
MSCI EAFE Index 19.97% 9.19% 5.53% 13.25%
- -------------------------------------------- ---------- ---------- ----------- ---------- ----------
ALLIANCE PREMIER GROWTH FUND, INC.-ADVISOR 49.85% N/A N/A 42.97% 10/1/96
CLASS (10)
(EQ/Alliance Premier Growth Portfolio)
- -------------------------------------------- ---------- ---------- ----------- ---------- ----------
S&P 500 Index 28.60% N/A N/A 21.60%
- -------------------------------------------- ---------- ---------- ----------- ---------- ----------
</TABLE>
1 The Salomon Brothers Broad Investment Grade Bond Index is an unmanaged,
market-weighted index that contains approximately 4,700 individually
priced investment grade bonds. The index does not include fees or
operating expenses and is not available for actual investment.
2 Performance for the Class A shares. The Class A shares are in many
instances subject to a front-end sales charge of up to 5.75%. Other
share classes have different expenses and their performance will vary.
3 The S&P 500 Index ("S&P 500") is an unmanaged index containing common
stocks of 500 industrial, transportation, utility and financial
companies, regarded as generally representative of the larger
capitalization portion of the United States stock market. The S&P 500
reflects the reinvestment of income dividends and capital gain
distributions, if any, but does not reflect fees, brokerage commissions,
or other expenses of investing.
4 The Russell 2000 Index is an unmanaged index (with no defined investment
objective) composed of approximately 2,000 small-capitalization stocks
and includes reinvestments of dividends. The index does not include fees
or operating expenses and is not available for actual investment. It is
compiled by the Frank Russell Company.
5 The Morgan Stanley Capital International EAFE Index ("EAFE Index") is an
unmanaged capitalization-weighted measure of stock markets in Europe,
Australia and the Far East. The returns of the EAFE Index assume
dividends are reinvested net of withholding tax and do not reflect any
fees or operating expenses. The index is not available for actual
investment.
6 The results for the MFS Research Fund (Class A shares) and the MFS
Emerging Growth Fund (Class B shares) do not reflect sales charges that
may be imposed on the such shares.
7 Absent the waiver of fees in 1998 by the Warburg Pincus Small Company
Value Fund's investment adviser and co-administrator, management fees of
the Warburg Pincus Small Company Value Fund would equal 1.00%, other
expenses would equal 0.94% and total operating expenses would equal
2.19%. The investment adviser and co-administrator of the Warburg Pincus
Small Company Value Fund are under no obligation to continue these
waivers.
8 Performance for the Class A shares of the Morgan Stanley Institutional
Fund, Inc. Emerging Markets Portfolio. The Class B shares of the Morgan
Stanley Institutional Fund, Inc. - Emerging Markets Portfolio are
subject to a Rule 12b-1 fee equal to 0.25% of the Portfolio's assets.
The expense ratio of Morgan Stanley Institutional Fund, Inc. - Emerging
Markets Portfolio has been capped at 1.75% since inception.
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<PAGE>
9 The IFC Global Total Return Composite Index is an unmanaged index of
common stocks and includes developing countries in Latin America, East
and South Asia, Europe, the Middle East and Africa. The Index assumes
dividends are reinvested.
10 Annualized performance for the Adviser 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.
-101-
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Trust's
financial performance since May 1, 1997. The Trust began to offer Class IA
shares for the T. Rowe Price Equity Income, MFS Emerging Growth Companies,
Warburg Pincus Small Company Value and BT International Equity Portfolios on
November 24, 1998. Except for those four Portfolios, the financial information
in the table below for the period May 1, 1997 to December 31, 1998 relates only
to the Class IB shares. The financial information relating to both the Class IA
shares and the Class IB shares has been derived from the audited financial
statements of the Trust. These financial statements have been audited by
PricewaterhouseCoopers LLP, independent public accountants.
PricewaterhouseCoopers LLP's report on the Trust's financial statements as of
December 31, 1998 appears in the Trust's Annual Report. The information should
be read in conjunction with the financial statements contained in the Trust's
Annual Report which are incorporated by reference into the Trust's Statement of
Additional Information (SAI) and available upon request.
<TABLE>
<CAPTION>
NET REALIZED
AND
UNREALIZED
NET GAIN (LOSS) ON DIVIDENDS
ASSET INVESTMENTS TOTAL DIVIDENDS IN EXCESS DISTRIBUTIONS
VALUE, NET AND FOREIGN FROM FROM NET OF NET FROM
BEGINNING INVESTMENT CURRENCY INVESTMENT INVESTMENT INVESTMENT REALIZED
OF PERIOD INCOME TRANSACTIONS OPERATIONS INCOME INCOME GAINS
--------- ---------- ------------ ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
T. Rowe Price
International Stock
Portfolio
DEC 31, 1998 $9.85 $0.06 $1.28 $1.34 $(0.07) $(0.02) -
DEC. 31, 1997 $10.00 $0.02 $(0.17) $(0.15) - - -
T. Rowe Price
Equity Income Portfolio
CLASS IB DEC. 31, 1998 $12.08 $0.22 $0.87 $1.09 $(0.22) - $(0.28)
CLASS IB DEC. 31, 1997 $10.00 $0.10 $2.11 $2.21 $(0.09) - $(0.04)
CLASS IA NOV. 24-DEC. $13.22 $0.06 $(0.09)+ $(0.03) $(0.24) - $(0.28)
31, 1998
EQ/Putnam Growth &
Income Value Portfolio
DEC. 31, 1998 $11.52 $0.11 $1.35 $1.46 $(0.11) - -
DEC. 31, 1997 $10.00 $0.06 $1.56 $1.62 $(0.06) - $(0.01)
EQ/Putnam Balanced
Portfolio
DEC. 31, 1998 $11.21 $0.25 $1.08 $1.33 $(0.23) - $(0.15)
DEC. 31, 1997 $10.00 $0.14 $1.30 $1.44 $(0.13) $(0.01) $(0.09)
EQ/Putnam International
Equity Portfolio
DEC. 31, 1998 $10.89 $0.05 $2.07 $2.12 - - -
DEC. 31, 1997 $10.00 $0.03 $0.93 $0.96 $(0.02) - $(0.01)
EQ/Putnam Investors
Growth Portfolio
DEC. 31 1998 $12.33 $0.01 $4.46 $4.47 $(0.01) - -
DEC. 31, 1997 $10.00 $0.02 $2.45 $2.47 $(0.03) - $(0.04)
MFS Research Portfolio
DEC. 31, 1998 $11.48 $0.04 $2.73 $2.77 $(0.04) - -
DEC. 31, 1997 $10.00 $0.02 $1.58 $1.60 $(0.02) - $(0.01)
MFS Emerging Growth
Companies
Portfolio
CLASS IB DEC. 31, 1998 $11.92 $(0.03) $4.15 $4.12 - - -
CLASS IB DEC. 31, 1997 $10.00 $0.02 $2.21 $2.23 $(0.02) - $(0.18)
CLASS IA NOV. 24-
DEC. 31, 1998 $14.18 - $1.86 $1.86 - - -
Warburg Pincus Small
Company Value Portfolio
CLASS IB DEC. 31, 1998 $11.85 $0.05 $(1.24) $(1.19) $(0.04) - -
CLASS IB DEC. 31, 1997 $10.00 $0.01 $1.90 $1.91 $(0.01) - -
CLASS IA NOV. 24-
DEC. 31, 1998 $10.40 $0.03 $0.23+ $0.26 $(0.06) - -
-102-
<PAGE>
<CAPTION>
NET REALIZED
AND
UNREALIZED
NET GAIN (LOSS) ON DIVIDENDS
ASSET INVESTMENTS TOTAL DIVIDENDS IN EXCESS DISTRIBUTIONS
VALUE, NET AND FOREIGN FROM FROM NET OF NET FROM
BEGINNING INVESTMENT CURRENCY INVESTMENT INVESTMENT INVESTMENT REALIZED
OF PERIOD INCOME TRANSACTIONS OPERATIONS INCOME INCOME GAINS
--------- ---------- ------------ ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Merrill Lynch World
Strategy
Portfolio
DEC. 31, 1998 $10.31 $0.15 $0.55 $0.70 $(0.04) $(0.04) -
DEC. 31, 1997 $10.00 $0.08 $0.39 $0.47 $(0.05) - -
Merrill Lynch
Basic Value Equity
Portfolio
DEC. 31, 1998 $11.58 $0.12 $1.21 $1.33 $(0.12) - $(0.43)
DEC. 31, 1997 $10.00 $0.06 $1.64 $1.70 $(0.06) - $(0.05)
Morgan Stanley
Emerging Markets Equity
Portfolio
DEC. 31, 1998 $7.96 $0.03 $(2.18) $(2.15) $(0.02) - -
DEC. 31, 1997 $10.00 $0.04 $(2.06) $(2.02) $(0.02) - -
BT Equity 500 Index
Portfolio
DEC. 31, 1998 $10.00 $0.06 $2.45 $2.51 $(0.06) - -
DEC. 31, 1997 - - - - - - -
BT International Equity
Index Portfolio
CLASS IB DEC. 31, 1998 $10.00 $0.08 $1.92 $2.00 $(0.15) - -
CLASS IB DEC. 31, 1997 - - - - - - -
CLASS IA NOV. 24-
DEC. 31, 1998 $11.67 $0.03 $0.31 $0.34 $(0.17) - -
BT Small Company Index
Portfolio
DEC. 31, 1998 $10.00 $0.07 $(0.30) $(0.23) $(0.07) - $(0.13)
DEC. 31, 1997 - - - - - - -
JPM Core Bond Portfolio
DEC. 31, 1998 $10.00 $0.21 $0.70 $0.91 $(0.21) $(0.01) $(0.11)
DEC. 31, 1997 - - - - - - -
Lazard Large Cap Value
Portfolio
DEC. 31, 1998 $10.00 $0.06 $1.94 $2.00 $(0.06) - -
DEC. 31, 1997 - - - - - - -
Lazard Small Cap Value
Portfolio
DEC. 31, 1998 $10.00 $0.02 $(0.72) $(0.70) $(0.03) - -
DEC. 31, 1997 - - - - - - -
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DISTRIBUTIONS RATIO OF
IN EXCESS TOTAL NET ASSET NET ASSETS, EXPENSES TO
OF DIVIDENDS VALUE, TOTAL END OF AVERAGE NET
REALIZED AND END OF RETURN PERIOD ASSETS AFTER
GAINS DISTRIBUTIONS PERIOD (B) (000'S) WAIVERS (A)(C)
----------- ------------- ------ ------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
T. Rowe Price
International Stock
Portfolio
DEC. 31, 1998 - $(0.09) $11.10 13.68% $134,653 1.20%
DEC. 31, 1997 - - $9.85 (1.49)% $69,572 1.20%
T. Rowe Price Equity
Income Portfolio
CLASS IB DEC. 31, 1998 - $(0.50) $12.67 9.11% $242,001 0.85%(1)
CLASS IB DEC. 31, 1997 - $(0.13) $12.08 22.11% $99,947 0.85%(a)
CLASS IA NOV. 24-
DEC. 31, 1998 - $(0.52) $12.67 (2.21)%(b) $2,415 0.60%(a)(1)
EQ/Putnam Growth &
Income Value Portfolio
DEC. 31, 1998 $(0.10) $(0.21) $12.77 12.75% $460,744 0.85%
DEC. 31, 1997 $(0.03) $(0.10) $11.52 16.23% $150,260 0.85%
EQ/Putnam Balanced
Portfolio
DEC. 31, 1998 - $(0.38) $12.16 11.92% $75,977 0.90%(a)
DEC. 31, 1997 - $(0.23) $11.21 14.38% $25,854 0.90%
EQ/Putnam International
Equity Portfolio
DEC. 31, 1998 - - $13.01 19.51% $143,721 1.20%
DEC. 31, 1997 $(0.04) $(0.07) $10.89 9.58% $55,178 1.20%
EQ/Putnam Investors
Growth Portfolio
DEC. 31, 1998 - $(0.01) $16.79 36.27% $175,015 0.85%
DEC. 31, 1997 $(0.07) $(0.14) $12.33 24.70% $39,695 0.85%
MFS Research Portfolio
DEC. 31, 1998 - $(0.04) $14.21 24.11% $407,619 0.85%
DEC. 31, 1997 $(0.09) $(0.12) $11.48 16.07% $114,754 0.85%
MFS Emerging Growth
Companies
Portfolio
CLASS IB DEC. 31, 1998 - - $16.04 34.57% $461,307 0.85%(1)
CLASS IB DEC. 31, 1997 $(0.11) $(0.31) $11.92 22.42% $99,317 0.85%(a)
CLASS IA NOV. 24- - - $16.04 13.12% $5,978 0.60%(a)(1)
DEC. 31, 1998
Warburg Pincus Small
Company Value Portfolio
CLASS IB DEC. 31, 1998 - $(0.05) $10.61 (10.02)% $166,746 1.00%(1)
CLASS IB DEC. 31, 1997 $(0.05) $(0.06) $11.85 19.15% $120,880 1.00%(a)
CLASS IA NOV. 24-
DEC. 31, 1998 - $(0.07) $10.59 2.63%(b) $747 0.75%(a)(1)
Merrill Lynch World
Strategy
Portfolio
DEC. 31, 1998 - $(0.08) $10.93 6.81% $30,631 1.20%
DEC. 31, 1997 $(0.11) $(0.16) $10.31 4.70% $18,210 1.20%
Merrill Lynch Basic
Value Equity Portfolio
DEC. 31, 1998 - $(0.55) $12.36 11.59% $174,104 0.85%
DEC. 31, 1997 $(0.01) $(0.12) $11.58 16.99% $49,495 0.85%
Morgan Stanley Emerging
Markets Equity Portfolio
DEC. 31, 1998 - $(0.02) $5.79 (27.10)% $41,359 1.81%
DEC. 31, 1997 - $(0.02) $7.96 (20.16)% $21,433 1.75%
BT Equity 500 Index
Portfolio
DEC. 31, 1998 - $(0.06) $12.45 25.14% $224,247 0.55%
DEC. 31, 1997 - - - - - -
<PAGE>
BT International Equity
Index Portfolio
CLASS IB DEC. 31, 1998 - $(0.15) $11.85 20.07% $48,075 0.84%(1)
CLASS IB DEC. 31, 1997 - - - - - -
CLASS IA NOV. 24-
DEC. 31, 1998 - $(0.17) $11.84 2.94%(b) $735 0.59%(a)(1)
BT Small Company Index
Portfolio
DEC. 31, 1998 $(0.01) $(0.21) $9.56 (2.27)% $32,609 0.60%
DEC. 31, 1997 - - - - -
-104-
<PAGE>
<CAPTION>
DISTRIBUTIONS RATIO OF
IN EXCESS TOTAL NET ASSET NET ASSETS, EXPENSES TO
OF DIVIDENDS VALUE, TOTAL END OF AVERAGE NET
REALIZED AND END OF RETURN PERIOD ASSETS AFTER
GAINS DISTRIBUTIONS PERIOD (B) (000'S) WAIVERS (A)(C)
----------- ------------- ------ ------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
JPM Core Bond Portfolio
DEC. 31, 1998 $(0.01) $(0.34) $10.57 9.02% $103,326 0.80%
DEC. 31, 1997 - - - - - -
Lazard Large Cap Value
Portfolio
DEC. 31, 1998 - $(0.06) $11.94 20.01% $74,588 0.90%
DEC. 31, 1997 - - - - - -
Lazard Small Cap Value
Portfolio
DEC. 31, 1998 - $(0.03) $9.27 (7.03)% $51,046 1.20%
DEC. 31, 1997 - - - - - -
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RATIO OF NET RATIO OF NET
RATIO OF EXPENSES INVESTMENT INCOME INVESTMENT INCOME
TO AVERAGE NET TO AVERAGE NET TO AVERAGE NET
ASSETS BEFORE ASSETS AFTER ASSETS BEFORE PORTFOLIO
WAIVERS (A)(C) WAIVERS(A)(C) WAIVERS(A)(C) TURNOVER RATE
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
T. Rowe Price
International Stock
Portfolio
DEC. 31, 1998 1.40% 0.67% 0.47% 22%
DEC. 31, 1997 2.56% 0.45% (0.91)% 17%
T. Rowe Price Equity
Income Portfolio
CLASS IB DEC. 31, 1998 1.04%(1) 2.20%(1) 2.01%(1) 17%
CLASS IB DEC. 31, 1997 1.74%(a) 2.49%(a) 1.60%(a) 9%
CLASS IA NOV. 24- 0.79%(a)(1) 2.45%(a)(1) 2.26%(a)(1) 17%
DEC. 31, 1998
EQ/Putnam Growth & Income
Value Portfolio
DEC. 31, 1998 1.04% 1.30% 1.11% 74%
DEC. 31, 1997 1.75% 1.67% 0.77% 61%
EQ/Putnam Balanced
Portfolio
DEC. 31, 1998 1.25% 2.88% 2.53% 135%
DEC. 31, 1997 2.55% 3.19% 1.54% 117%
EQ/Putnam International
Equity Portfolio
DEC. 31, 1998 1.46% 0.64% 0.38% 94%
DEC. 31, 1997 2.53% 0.74% (0.59)% 43%
EQ/Putnam
Investors Growth Portfolio
DEC. 31, 1998 1.09% 0.14% (0.10)% 64%
DEC. 31, 1997 2.13% 0.58% (0.70)% 47%
MFS Research Portfolio
DEC. 31, 1998 1.05% 0.44% 0.24% 73%
DEC. 31, 1997 1.78% 0.65% (0.28)% 51%
MFS Emerging Growth
Companies
Portfolio
CLASS IB DEC. 31, 1998 1.04%(1) (0.30)%(1) (0.49)%(1) 79%
CLASS 1B DEC. 31, 1997 1.82%(a) 0.61%(a) (0.36)%(a) 116%
CLASS IA NOV. 24-
DEC. 31, 1998 79%(a)(1) (0.05)%(a)(1) (0.24)%(a)(1) 79%
Warburg Pincus Small
Company Value Portfolio
CLASS IB DEC. 31, 1998 1.17%(1) 0.47%(1) 0.30%(1) 111%
CLASS IB DEC. 31, 1997 1.70%(a) 0.26%(a) (0.44)%(a) 44%
CLASS IA NOV. 24-
DEC. 31, 1998 0.92%(a)(1) 0.72(a)(1) 0.55%(a)(1) 111%
Merrill Lynch World
Strategy
Portfolio %
DEC. 31, 1998 1.61% 1.63% 1.22% 115%
DEC. 31, 1997 3.05% 1.89% 0.04% 58
Merrill Lynch
Basic Value Equity
Portfolio
DEC. 31, 1998 1.06% 1.41% 1.20% 83%
DEC. 31, 1997 1.89% 1.91% 0.87% 25%
*Morgan Stanley Emerging
Markets Equity Portfolio
DEC. 31, 1998 2.63% 0.73% (0.09)% 114%
DEC. 31, 1997 2.61% 1.96% 1.10% 25%
**BT Equity 500 Index
Portfolio
DEC. 31, 1998 0.83% 1.22% 0.94% 2%
DEC. 31, 1997 - - - -
**BT International Equity
Index Portfolio
CLASS IB DEC. 31, 1998 1.49%(1) 1.11%(1) 0.46%(1) 3%
CLASS IB DEC. 31, 1997 - - - -
CLASS IA NOV. 24-
DEC. 31, 1998 1.24%(a)(1) 1.36%(a)(1) 0.71%(a)(1) 3%
-106-
<PAGE>
<CAPTION>
RATIO OF NET RATIO OF NET
RATIO OF EXPENSES INVESTMENT INCOME INVESTMENT INCOME
TO AVERAGE NET TO AVERAGE NET TO AVERAGE NET
ASSETS BEFORE ASSETS AFTER ASSETS BEFORE PORTFOLIO
WAIVERS (A)(C) WAIVERS(A)(C) WAIVERS(A)(C) TURNOVER RATE
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
**BT Small Company Index
Portfolio
DEC. 31, 1998 1.81% 1.18% (0.03)% 35%
DEC. 31, 1997 - - - -
**JPM Core Bond Portfolio
DEC. 31, 1998 1.03% 4.95% 4.72% 428%
DEC. 31, 1997 - - - -
**Lazard Large Cap Value
Portfolio
DEC. 31, 1998 1.20% 1.19% 0.89% 37%
DEC. 31, 1997 - - - -
**Lazard Small Cap Value
Portfolio
DEC. 31, 1998 1.54% 0.52% 0.18% 21%
DEC. 31, 1997 - - - -
</TABLE>
- ----------
* The Morgan Stanley Emerging Markets Equity Portfolio commenced operations
on August 20, 1997.
** Commencement of Operations for the Lazard Large Cap Value Portfolio, Lazard
Small Cap Value Portfolio, JPM Core Bond Portfolio, BT Small Company Index
Portfolio, BT International Equity Index Portfolio and BT Equity 500 Index
Portfolio was January 1, 1998. No financial highlights are presented for
EQ/Evergreen Foundation Portfolio, EQ/Evergreen Portfolio and MFS Growth
with Income Portfolio, each of which received initial capital on December
31, 1998. In addition, no financial highlights are presented for the
EQ/Alliance Premier Growth Portfolio, Capital Guardian Research Portfolio,
Capital Guardian U.S. Equity Portfolio, and Capital Guardian International
Portfolio, each of which received initial capital on April 30, 1999.
+ The amount shown for a share outstanding throughout the period does not
accord with the aggregate net gains on investments for that period because
of the timing of sales and repurchases of the Portfolio shares in relation
to fluctuating market value of the investments of the Portfolio.
(a) Annualized.
(b) Total return calculated for a period of less than one year is not
annualized.
(c) For further information concerning fee waivers, see the section entitled
"Expense Limitation Agreement" in the Prospectus. (1) Reflects overall fund
ratios for investment income and non-class specific expense.
-107-
<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 by calling our toll free number at
1-888-855-5100.
You may visit the SEC's website at www.sec.gov to view the SAI and other
information about the Trust.
You can also review and copy information about the Trust, including the SAI, at
the SEC's Public Reference Room in Washington, D.C. You may have to pay a
duplicating fee. To find out more about the Public Reference Room, call the SEC
at 800-SEC-0330.
Investment Company Act File Number: 811-07953
-108-
<PAGE>
EQ ADVISORS TRUST
PROSPECTUS
May 1, 1999
This Prospectus describes the twenty-five (25) Portfolios offered by EQ
Advisors Trust. 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.
FIXED INCOME PORTFOLIOS BALANCED PORTFOLIOS
- ----------------------- -------------------
JPM Core Bond EQ/Evergreen Foundation
EQ/Putnam Balanced
Merrill Lynch World Strategy
DOMESTIC EQUITY PORTFOLIOS AGGRESSIVE EQUITY PORTFOLIOS
- -------------------------- ----------------------------
BT Equity 500 Index BT Small Company Index
Capital Guardian Research Portfolio Lazard Small Cap Value
Capital Guardian U.S. Equity Portfolio MFS Emerging Growth Companies
EQ/Alliance Premier Growth Portfolio Warburg Pincus Small Company Value
EQ/Evergreen
EQ/Putnam Growth & Income Value
EQ/Putnam Investors Growth
Lazard Large Cap Value
Merrill Lynch Basic Value Equity
MFS Growth with Income
MFS Research
T. Rowe Price Equity Income
INTERNATIONAL PORTFOLIOS
- ------------------------
BT International Equity Index
Capital Guardian International Portfolio
EQ/Putnam International Equity
Morgan Stanley Emerging Markets Equity
T. Rowe Price International Stock
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 twenty-five (25) current Portfolios of the
EQ Advisors Trust ("Trust") and the Class IB shares offered by the Trust on
behalf of each Portfolio. The Trust is an open-end management investment
company. Each Portfolio is a separate series of the Trust with its own
investment objective, investment strategies and risks, which are described in
this Prospectus. Each of the current Portfolios of the Trust, except for the
Morgan Stanley Emerging Markets Equity Portfolio, 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 The
Equitable Investment Plan for Employees, Managers and Agents ("Equitable
Plan"). The prospectus is designed to help you make informed decisions about
the Portfolios that are available under your Contract or under the Equitable
Plan. You will find information about your Contract and how it works in the
accompanying prospectus for the Contracts if you are a Contractholder or
participant under a Contract.
EQ Financial Consultants, Inc. ("Manager") serves as the Manager of the Trust,
subject to the supervision and direction of the Board of Trustees. The Manager
has overall responsibility for the general management and administration of the
Trust. During 1999, the Manager plans to change its name to AXA Advisors, Inc.
Each of the Portfolios has its own investment adviser ("Adviser"). Information
about the Adviser for each Portfolio is contained in the description concerning
that Portfolio in the section entitled "About the Investment Portfolios." The
Manager has the ultimate responsibility to oversee each of the Advisers and to
recommend their hiring, termination and replacement. Subject to approval by the
Board of Trustees, the Manager may without obtaining shareholder approval: (i)
select Advisers for each of the Trust's Portfolios; (ii) enter into and
materially modify existing investment advisory agreements; and (iii) terminate
and replace the Advisers.
2
<PAGE>
[2nd right hand page]
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
----
<S> <C>
SUMMARY INFORMATION CONCERNING EQ ADVISORS TRUST...............5
ABOUT THE INVESTMENT PORTFOLIOS...............................11
FIXED INCOME PORTFOLIOS....................................13
JPM CORE BOND PORTFOLIO.................................13
BALANCED PORTFOLIOS........................................16
EQ/EVERGREEN FOUNDATION PORTFOLIO.......................16
EQ/PUTNAM BALANCED PORTFOLIO............................18
MERRILL LYNCH WORLD STRATEGY PORTFOLIO..................21
DOMESTIC EQUITY PORTFOLIOS.................................25
BT EQUITY 500 INDEX PORTFOLIO...........................25
CAPITAL GUARDIAN RESEARCH PORTFOLIO.....................28
CAPITAL GUARDIAN U.S. EQUITY PORTFOLIO..................30
EQ/ALLIANCE PREMIER GROWTH PORTFOLIO....................32
EQ/EVERGREEN PORTFOLIO..................................34
EQ/PUTNAM GROWTH & INCOME VALUE PORTFOLIO...............36
EQ/PUTNAM INVESTORS GROWTH PORTFOLIO....................39
LAZARD LARGE CAP VALUE PORTFOLIO........................42
MERRILL LYNCH BASIC VALUE EQUITY PORTFOLIO..............45
MFS GROWTH WITH INCOME PORTFOLIO........................48
MFS RESEARCH PORTFOLIO..................................50
T. ROWE PRICE EQUITY INCOME PORTFOLIO...................53
AGGRESSIVE EQUITY PORTFOLIOS...............................56
BT SMALL COMPANY INDEX PORTFOLIO........................56
LAZARD SMALL CAP VALUE PORTFOLIO........................59
MFS EMERGING GROWTH COMPANIES PORTFOLIO.................62
WARBURG PINCUS SMALL COMPANY VALUE PORTFOLIO............65
INTERNATIONAL PORTFOLIOS...................................68
BT INTERNATIONAL EQUITY INDEX PORTFOLIO.................68
CAPITAL GUARDIAN INTERNATIONAL PORTFOLIO................71
EQ/PUTNAM INTERNATIONAL EQUITY PORTFOLIO................75
MORGAN STANLEY EMERGING MARKETS EQUITY PORTFOLIO........78
T. ROWE PRICE INTERNATIONAL STOCK PORTFOLIO.............82
MORE INFORMATION ON PRINCIPAL RISKS...........................86
MANAGEMENT OF THE TRUST.......................................92
The Trust..................................................92
The Manager................................................92
Expense Limitation Agreement...............................93
The Advisers...............................................94
The Administrator..........................................94
The Transfer Agent.........................................95
Brokerage Practices........................................95
Brokerage Transactions with Affiliates.....................95
FUND DISTRIBUTION ARRANGEMENTS................................95
3
<PAGE>
PURCHASE AND REDEMPTION.......................................95
HOW ASSETS ARE VALUED.........................................96
TAX INFORMATION...............................................96
PRIOR PERFORMANCE OF EACH ADVISER.............................97
FINANCIAL HIGHLIGHTS.........................................102
</TABLE>
4
<PAGE>
[TWO PAGE SPREAD]
SUMMARY INFORMATION CONCERNING EQ ADVISORS TRUST
The following chart highlights the twenty-five (25) Portfolios described in
this Prospectus that you can choose as investment alternatives under your
Contracts offered by Equitable or EOC. The chart and accompanying information
identify each Portfolio's investment objective(s), principal investment
strategies, and principal risks. "More Information on Principal Risks", which
more fully describes each of the principal risks, is provided beginning on page
84.
EQ ADVISORS TRUST
FIXED INCOME PORTFOLIO
<TABLE>
<CAPTION>
Part A
- --------------------------------------- ----------------------------------------------------
PORTFOLIO INVESTMENT OBJECTIVE(S)
- --------------------------------------- ----------------------------------------------------
<S> <C>
JPM CORE BOND Seeks to
provide a high total
return consistent with
moderate risk of
capital and
maintenance of
liquidity
- --------------------------------------- ----------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
EQ ADVISORS TRUST
BALANCED PORTFOLIOS
Part A
- --------------------------------------- ----------------------------------------------------
PORTFOLIO INVESTMENT OBJECTIVE(S)
- --------------------------------------- ----------------------------------------------------
<S> <C>
EQ/EVERGREEN FOUNDATION Seeks to provide, in order of priority, reasonable
income, conservation of capital and capital
appreciation
- --------------------------------------- ----------------------------------------------------
EQ/PUTNAM BALANCED Seeks to
provide a balanced
investment composed of
a well-diversified
portfolio of stocks
and bonds that will
produce both capital
growth and current
income
- --------------------------------------- ----------------------------------------------------
MERRILL LYNCH WORLD STRATEGY Seeks high total
investment return by
investing primarily in
a portfolio of equity
and fixed income
securities, including
convertible
securities, of U.S.
and foreign issuers
- --------------------------------------- ----------------------------------------------------
</TABLE>
5
<PAGE>
EQ ADVISORS TRUST
FIXED INCOME PORTFOLIO
<TABLE>
<CAPTION>
Part B
- -------------------------------------- -------------------------------------
PRINCIPAL INVESTMENT STRATEGIES PRINCIPAL RISKS
- -------------------------------------- -------------------------------------
<S> <C>
Investment-grade securities rated General investment, fixed income
BBB/Baa or better at the time of liquidity, portfolio turnover,
purchase (including foreign issuers) derivatives, and foreign securities
risks
- -------------------------------------- -------------------------------------
</TABLE>
EQ ADVISORS TRUST
BALANCED PORTFOLIOS
<TABLE>
<CAPTION>
Part B
- -------------------------------------- -------------------------------------
PRINCIPAL INVESTMENT STRATEGIES PRINCIPAL RISKS
- -------------------------------------- -------------------------------------
<S> <C>
Common stocks, preferred stocks, General investment and fixed income
securities convertible into or risks
exchangeable for common stocks,
corporate debt obligations, U.S.
Government securities and short-term
debt instruments
- -------------------------------------- -------------------------------------
Well-diversified portfolio of stocks General investment, fixed income,
and bonds, and negotiable derivatives, and foreign securities
instruments risks
- -------------------------------------- -------------------------------------
Equity and fixed income securities General investment, foreign
of U.S. and foreign companies securities, fixed income,
derivatives, non-diversification,
liquidity, and portfolio turnover
risks
- -------------------------------------- -------------------------------------
</TABLE>
6
<PAGE>
EQ ADVISORS TRUST
DOMESTIC EQUITY PORTFOLIOS
<TABLE>
<CAPTION>
Part A
- --------------------------------------------- -----------------------------------------------------
PORTFOLIO INVESTMENT OBJECTIVE(S)
- --------------------------------------------- -----------------------------------------------------
<S> <C>
BT EQUITY 500 INDEX Seeks to replicate as closely as possible (before
deduction of Portfolio expenses) the total return
of the S&P 500 Index
- --------------------------------------------- -----------------------------------------------------
CAPITAL GUARDIAN RESEARCH PORTFOLIO Seeks long-term growth of capital
- --------------------------------------------- -----------------------------------------------------
CAPITAL GUARDIAN U.S. EQUITY PORTFOLIO Seeks long-term growth of capital
- --------------------------------------------- -----------------------------------------------------
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/EVERGREEN Seeks capital appreciation
- --------------------------------------------- -----------------------------------------------------
EQ/PUTNAM GROWTH & INCOME VALUE Seeks capital growth. Current income is a secondary
objective
- --------------------------------------------- -----------------------------------------------------
EQ/PUTNAM INVESTORS GROWTH Seeks long-term growth of capital and any increased
income that results from this growth
- --------------------------------------------- -----------------------------------------------------
LAZARD LARGE CAP VALUE Seeks capital appreciation by investing primarily
in equity securities of companies with relatively
large capitalizations (i.e., companies having
market capitalizations of at least $3 billion at
the time of initial purchase) that appear to the
Adviser to be inexpensively priced relative to the
return on total capital or equity
- --------------------------------------------- -----------------------------------------------------
MERRILL LYNCH BASIC VALUE EQUITY Seeks capital appreciation
and secondarily, income by
investing in securities,
primarily equities, that
the Adviser believes are
undervalued and therefore
represent basic investment
value
- --------------------------------------------- -----------------------------------------------------
MFS GROWTH WITH INCOME Seeks to provide reasonable current income and
long-term growth of capital and income
- --------------------------------------------- -----------------------------------------------------
MFS RESEARCH Seeks to provide long-term growth of capital and
future income
- --------------------------------------------- -----------------------------------------------------
T. ROWE PRICE EQUITY INCOME Seeks to provide substantial dividend income and
also capital appreciation by investing primarily in
dividend-paying common stocks of established
companies
- --------------------------------------------- -----------------------------------------------------
</TABLE>
7
<PAGE>
EQ ADVISORS TRUST
DOMESTIC EQUITY PORTFOLIOS
<TABLE>
<CAPTION>
Part B
- ------------------------------------------------- -------------------------------------------
PRINCIPAL INVESTMENT STRATEGIES PRINCIPAL RISKS
- ------------------------------------------------- -------------------------------------------
<S> <C>
Common stocks of companies in General investment,
the S&P 500 Index index-fund, and fixed
income risks
- ------------------------------------------------- -------------------------------------------
Equity securities primarily of United States General investment, growth investing,
issuers and securities whose principal convertible securities, and foreign
markets are in the United States securities risks
- ------------------------------------------------- -------------------------------------------
Equity securities primarily of United States General investment, growth investing,
companies with market capitalization greater convertible securities, and foreign
than $1 billion at the time of purchase securities risks
- ------------------------------------------------- -------------------------------------------
Equity securities of a limited number of large, General investment, focused portfolio,
high-quality companies that are likely to offer growth investing, convertible securities,
superior earnings growth derivatives, and foreign securities risks
- ------------------------------------------------- -------------------------------------------
Common stocks offering potential for capital General investment, fixed income, small-
growth (plus common stocks offering cap and mid-cap company, and value
potential for current income, corporate bonds, investing risks
notes and debentures, preferred stocks and
convertible securities)
- ------------------------------------------------- -------------------------------------------
Common stocks (plus convertible bonds, General investment, derivatives, foreign
convertible preferred stocks, preferred stocks securities, value investing, and fixed
and debt securities) income risks
- ------------------------------------------------- -------------------------------------------
Common stocks and convertible securities of General investment, growth investing,
companies whose earnings are believed likely small-cap and mid-cap company,
to grow faster than the economy as a whole derivatives, foreign securities, and fixed
income risks
- ------------------------------------------------- -------------------------------------------
Equity securities of companies with relatively General investment, value investing,
large capitalizations that the Adviser believes derivatives, and fixed income risks
are undervalued based on their return on
equity or capital
- ------------------------------------------------- -------------------------------------------
Equity securities that are undervalued General investment, small-cap and mid-cap
company, value investing, and foreign
securities risks
- ------------------------------------------------- -------------------------------------------
Equity securities (common stock, preferred General investment, small-cap and mid-cap
stock, preference stock, convertible company, foreign securities, and growth
securities, warrants and depositary receipts) investing risks
- ------------------------------------------------- -------------------------------------------
Common stock or securities convertible into General investment, small-cap and mid-cap
common stock of companies with better than company, foreign securities, fixed
average prospects for long-term growth income, and growth investing risks
- ------------------------------------------------- -------------------------------------------
Dividend-paying common stocks of General investment, value investing,
established companies foreign securities, and fixed income risks
- ------------------------------------------------- -------------------------------------------
</TABLE>
8
<PAGE>
EQ ADVISORS TRUST
AGGRESSIVE EQUITY PORTFOLIOS
<TABLE>
<CAPTION>
Part A
- ------------------------------------------ ----------------------------------------
PORTFOLIO INVESTMENT OBJECTIVE(S)
- ------------------------------------------ ----------------------------------------
<S> <C>
BT SMALL COMPANY INDEX Seeks to replicate as closely as
possible (before the deduction of
Portfolio expenses) the total return
of the Russell 2000 Index
- ------------------------------------------ ----------------------------------------
LAZARD SMALL CAP VALUE Seeks capital appreciation by
investing in equity securities of U.S.
companies with small market
capitalizations (i.e., companies in
the range of companies represented in
the Russell 2000 Index) that the
Adviser considers inexpensively priced
relative to the return on total
capital or equity
- ------------------------------------------ ----------------------------------------
MFS EMERGING GROWTH COMPANIES Seeks to provide long-term capital
growth
- ------------------------------------------ ----------------------------------------
WARBURG PINCUS SMALL COMPANY VALUE Seeks long-term capital appreciation
- ------------------------------------------ ----------------------------------------
</TABLE>
EQ ADVISORS TRUST
INTERNATIONAL EQUITY PORTFOLIOS
<TABLE>
<CAPTION>
Part A
- ----------------------------------------------- ------------------------------------------
PORTFOLIO INVESTMENT OBJECTIVE(S)
- ----------------------------------------------- ------------------------------------------
<S> <C>
BT INTERNATIONAL EQUITY INDEX Seeks to replicate as closely as possible
(before deduction of Portfolio expenses)
the total return of the MSCI EAFE Index
- ----------------------------------------------- ------------------------------------------
CAPITAL GUARDIAN INTERNATIONAL PORTFOLIO Seeks long-term growth of capital by
investing primarily in non-United States
equity securities
- ----------------------------------------------- ------------------------------------------
EQ/PUTNAM INTERNATIONAL EQUITY Seeks capital appreciation
- ----------------------------------------------- ------------------------------------------
MORGAN STANLEY EMERGING MARKETS Seeks long-term capital appreciation by
investing primarily in equity securities
of emerging country issuers
- ----------------------------------------------- ------------------------------------------
T. ROWE PRICE INTERNATIONAL STOCK Seeks long-term growth of capital
through investment primarily in common
stocks of established non-U.S. companies
- ----------------------------------------------- ------------------------------------------
</TABLE>
9
<PAGE>
EQ ADVISORS TRUST
AGGRESSIVE EQUITY PORTFOLIOS
<TABLE>
<CAPTION>
Part B
- ---------------------------------------------- ----------------------------------------
PRINCIPAL INVESTMENT STRATEGIES PRINCIPAL RISKS
- ---------------------------------------------- ----------------------------------------
<S> <C>
Common stocks of small-cap companies in the General investment, index-fund,
Russell 2000 Index small-cap and mid-cap company,
derivatives, and fixed income risks
- ---------------------------------------------- ----------------------------------------
Equity securities of small-cap U.S. General investment, small-cap and
companies in the range of companies included mid-cap company, value investing
in the Russell 2000 Index that the Adviser non-diversification, and fixed income
believes are undervalued based on their risks
return on equity or capital
- ---------------------------------------------- ----------------------------------------
Equity securities of emerging growth General investment, small-cap and
companies with the potential to become mid-cap company, foreign securities,
major enterprises and growth investing risks
- ---------------------------------------------- ----------------------------------------
Equity securities of U.S. small cap General investment, small-cap and
companies mid-cap company, foreign securities,
fixed income, and value investing risks
- ---------------------------------------------- ----------------------------------------
</TABLE>
EQ ADVISORS TRUST
INTERNATIONAL/EQUITY PORTFOLIOS
<TABLE>
<CAPTION>
Part B
- ---------------------------------------------- ----------------------------------------
PRINCIPAL INVESTMENT STRATEGIES PRINCIPAL RISKS
- ---------------------------------------------- ----------------------------------------
<S> <C>
Equity securities of companies in the MSCI General investment, index-fund,
EAFE Index foreign securities, liquidity, and
derivatives risks
- ---------------------------------------------- ----------------------------------------
Non-United States equity securities General investment, foreign
primarily of companies located in Europe, securities, growth investing,
Canada, Australia, and the Far East convertible securities, and
derivatives risks
- ---------------------------------------------- ----------------------------------------
Equity securities of foreign companies General investment, foreign
securities, small-cap and mid-cap
company, liquidity, and derivatives
risks
- ---------------------------------------------- ----------------------------------------
Equity securities of emerging market country General investment, foreign
companies securities, convertible securities,
liquidity, derivatives, portfolio
turnover, non-diversification, and
fixed income risks
- ---------------------------------------------- ----------------------------------------
Common stocks of established foreign General investment, foreign
companies securities, liquidity, fixed income,
and growth investing risks
- ---------------------------------------------- ----------------------------------------
</TABLE>
10
<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
Portfolios. Of course, there can be no assurance that any Portfolio will
achieve its investment objective.
Please note that:
o A fuller description of each of the principal risks is included in the
section "More Information on Principal Risks," which follows the
description of each Portfolio in this section of the Prospectus.
o Additional information concerning each Portfolio's strategies,
investments, and risks can also be found in the Trust's Statement of
Additional Information.
GENERAL INVESTMENT RISKS
Each of the Portfolios is subject to the following risks:
ASSET CLASS RISK: The returns from the types of securities in which a
Portfolio invest may underperform returns from the various general
securities markets or different asset classes.
MARKET RISK: You could lose money over short periods due to
fluctuation in a Portfolio's share price in reaction to stock or bond
market movements, and over longer periods during extended market
downturns.
SECURITY SELECTION RISK: There is the possibility that the specific
securities selected by a Portfolio's Adviser will underperform other
funds in the same asset class or benchmarks that are representative of
the general performance of the asset class.
YEAR 2000 RISK: A Portfolio could be adversely affected if the
computer systems used by the Trust, Adviser, other service providers,
or persons with whom they deal, do not properly process and calculate
date-related information and data dated on and after January 1, 2000
("Year 2000 Problem"). The extent of such impact cannot be predicted
and there can be no assurances that the Year 2000 Problem will not
have an adverse effect on the issuers whose securities are held by a
Portfolio. This risk is greater for Portfolios that make foreign
investments, particularly in emerging market countries.
The Trust's Portfolios are not insured by the FDIC or any other government
agency. Each Portfolio is not a deposit or other obligation of any financial
institution or bank and is not guaranteed. Each Portfolio is subject to
investment risks and possible loss of principal invested.
THE BENCHMARKS
Performance of each of the Trust's Portfolios, which has been in operation for
more than one full year, as shown on the following pages compares each
Portfolio's performance to that of a broad-based securities index. Each of the
Portfolios' annualized rates of return are net of: (i) its investment
management fees; and (ii) its other expenses. These rates are not
representative of the actual return you would receive under your Equitable
Contract.
Broad-based securities indices are unmanaged and are not subject to fees and
expenses typically associated with managed investment company portfolios.
Investments cannot be made directly in a broad-based securities index.
Comparisons with these benchmarks, therefore, are of limited use. They are
included because they are widely known and may help you to understand the
universe of securities from which each Portfolio is likely to select its
holdings. "Blended" performance numbers (e.g., 60% S&P 500/40% Lehman
Gov't/Corp) assume a static mix of the two indices.
11
<PAGE>
THE COMPOSITE MARKET BENCHMARK is made up of 36% S&P 500, 24% MSCI EAFE Index,
21% Salomon Brothers U.S. Treasury Bond 1 year and, 14% Salomon Smith Barney
World Government ex U.S., and 5% U.S. Treasury Bill.
THE STANDARD & POOR'S 500 COMPOSITE STOCK PRICE INDEX ("S&P 500") is an
unmanaged index containing common stock of 500 industrial, transportation,
utility and financial companies, regarded as generally representative of the
larger capitalization portion of the United States stock market. The S&P 500
reflects the reinvestment of dividends, if any, but does not reflect fees,
brokerage commissions or other expenses of investing.
THE RUSSELL 2000 INDEX ("Russell 2000") is an unmanaged index (with no defined
investment objective) of 2000 small-cap stocks and reflects reinvestment of
dividends. It is compiled by the Frank Russell Company.
THE MORGAN STANLEY CAPITAL INTERNATIONAL EAFE INDEX ("MSCI EAFE") is a market
capitalization weighted equity index composed of a sample of companies
representative of the market structure of Europe, Australia and the Far East.
MSCI EAFE Index returns assume dividends reinvested net of withholding tax and
do not reflect any fees or expenses.
THE MORGAN STANLEY CAPITAL INTERNATIONAL EMERGING MARKETS FREE PRICE RETURN
INDEX ("MSCI Emerging Markets Free") is a market capitalization weighted equity
index composed of companies that are representative of the market structure of
the following countries: Argentina, Brazil, Chile, China Free, Columbia, Czech
Republic, Greece, Hungary, India, Indonesia, Israel, Jordan, Korea (@ 50%),
Mexico Free, Pakistan, Peru, Philippines Free, Poland, Russia, South Africa,
Sri Lanka, Taiwan (@ 50%), Thailand, Turkey, Venezuela Free. The base date for
the index is December 31, 1987. "Free" MSCI indices exclude those shares not
purchasable by foreign investors. The average size of the emerging market
companies within this index is US $800 million.
LEHMAN GOVERNMENT/CORPORATE BOND INDEX ("Lehman Gov't/Corp") represents an
unmanaged group of securities widely regarded by investors as representative of
the bond market.
SALOMON BROTHERS BROAD INVESTMENT GRADE BOND INDEX is an unmanaged market
weighted index that contains approximately 4,700 individually priced investment
grade bonds.
12
<PAGE>
FIXED INCOME PORTFOLIOS
JPM CORE BOND PORTFOLIO
INVESTMENT OBJECTIVE: Seeks to provide a high total return consistent with
moderate risk of capital and maintenance of liquidity.
THE INVESTMENT STRATEGY
This Portfolio's total return will consist of income plus realized and
unrealized capital gains and losses. The Portfolio currently invests all of its
assets in investment grade debt securities rated BBB or better by Standard &
Poor's ("S&P") or Baa or better by Moody's Investors Services, Inc. ("Moody's")
or unrated securities of similar quality.
The Adviser actively manages the Portfolio's duration, the allocation of
securities across market sectors and the selection of specific securities
within market sectors. Based on fundamental, economic and capital markets
research, the Adviser adjusts the duration of the Portfolio based on the
Adviser's view of the market and interest rates. The Adviser also actively
allocates the Portfolio's assets among the broad sectors of the fixed income
market. These securities principally include U.S. Government and agency
securities, corporate securities, private placements, asset-backed securities,
mortgage-related securities and direct mortgage obligations. The securities can
be of any duration but will generally mature within one year of the Salomon
Brothers Broad Investment Grade Bond Index (currently about 5 years). The
Portfolio may also use futures contracts to change the duration of the
Portfolio's bond holdings.
[SIDEBAR: Duration is a measure of the weighted average maturity of the bonds
held by the Portfolio and can be used by the Adviser as a measure of the
sensitivity of the market value of the Portfolio to changes in interest rates.
Generally, the longer the duration of the Portfolio, the more sensitive its
market value will be to changes in interest rates. ]
The Portfolio may also invest up to 25% of its assets in securities of foreign
issuers, including up to 20% of its assets in debt securities denominated in
currencies of developed foreign countries.
Under normal market conditions, the Portfolio will be primarily invested in
bonds. When market or financial conditions warrant, the Portfolio may invest up
to 100% of its assets in money market securities for temporary or defensive
purposes. Such investment strategies are inconsistent with the Portfolio's
investment objective and could result in the Portfolio not achieving its
investment objective.
THE PRINCIPAL RISKS
FIXED INCOME RISKS: This Portfolio invests primarily in fixed income
securities, therefore, the Portfolio's performance will be affected by changes
in interest rates, credit risks of the issuer, the duration and maturity of the
Portfolio's fixed income holdings, and adverse market and economic conditions.
INTEREST RATE RISK: When interest rates rise, the value (i.e., share
price and total return) of the Portfolio's fixed income securities,
particularly those with longer durations or maturities, will go down.
When interest rates fall, the reverse is true.
INVESTMENT-GRADE SECURITIES RISK: The Portfolio could lose money if
the issuer or guarantor of a debt security or counterparty to a
Portfolio's transaction is unable or unwilling to make timely
principal and/or interest payments, or to honor its financial
obligations. Investment grade securities which are rated BBB by S&P or
an equivalent rating by any other nationally recognized statistical
rating organization, are somewhat riskier than higher rated
obligations because they are regarded as having only an adequate
capacity to pay principal and interest, are considered to lack
outstanding investment characteristics, and may be speculative.
13
<PAGE>
MORTGAGE-BACKED SECURITIES RISK: Rising interest rates may cause the
duration of mortgage-backed securities to increase. Falling interest
rates may cause the value and yield of mortgage-backed securities to
fall. Falling interest rates also may encourage borrowers to pay off
their mortgages sooner than anticipated (pre-payment). The Portfolio
would need to reinvest the pre-paid funds at the newer, lower interest
rates.
LIQUIDITY RISK: Certain securities held by the Portfolio may be difficult (or
impossible) to sell at the time and at the price the seller would like which
may cause the Portfolio to lose money or be prevented from earning capital
gains.
PORTFOLIO TURNOVER RISK: The Portfolio's turnover rate has been over 100% per
year. Higher portfolio turnover (e.g., over 100% per year) will cause the
Portfolio to incur additional transaction costs and may result in higher
taxable gains that could be passed through to shareholders.
DERIVATIVES RISK: The Portfolio's investments in derivatives can significantly
increase the Portfolio's exposure to market risk or credit risk of the
counterparty. Derivatives also involve the risk of mispricing or improper
valuation and the risk that changes in value of the derivative may not
correlate perfectly with the relevant assets, rates and indices.
FOREIGN SECURITIES RISKS: The Portfolio's investments in foreign securities
involve risks not associated with investing in U.S. securities, which can
adversely affect the Portfolio's performance. Foreign markets, particularly
emerging markets, may be less liquid, more volatile, and subject to less
government supervision than domestic markets. There may be difficulties
enforcing contractual obligations, and it may take more time for trades to
clear and settle. In addition, the value of foreign investments can be
adversely affected by: unfavorable currency exchange rates (relative to the
U.S. dollar for securities denominated in foreign currencies); inadequate or
inaccurate information about foreign companies; higher transaction, brokerage
and custody costs; adverse changes in foreign economic and tax policies; and
foreign government instability, war or other adverse political or economic
actions.
PORTFOLIO PERFORMANCE
The bar chart below illustrates the Portfolio's annual total return for 1998,
the Portfolio's first year of existence. The table below shows the Portfolio's
average annual total returns for one year and since inception. The table also
compares the Portfolio's performance to the returns of a broad-based index.
Both the bar chart and table assume reinvestment of dividends and
distributions. Past performance is not an indication of future performance. In
addition, holders of variable insurance contracts representing interests in the
Portfolio will be subject to charges and expenses relating to such insurance
contracts. The performance results presented below do not reflect any insurance
related expenses and if reflected the results would be reduced. The Portfolio
commenced operations on January 1, 1998.
- --------------------------------------------------------------------------------
CALENDAR YEAR ANNUAL TOTAL RETURN
1998
9.02%
- --------------------------------------------------------------------------------
Best quarter (% and time period) Worst quarter (% and time period)
4.72% (1998 3rd Quarter) 0.21% (1998 4th Quarter)
14
<PAGE>
- ------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR SINCE INCEPTION
JPM CORE BOND PORTFOLIO 9.02% 9.02%
SALOMON BROTHERS BROAD INVESTMENT
GRADE BOND INDEX* 8.72% 8.72%
- ------------------------------------------------------------------------------
* For more information on this index, see the preceding section
"The Benchmarks."
WHO MANAGES THE PORTFOLIO
J.P. MORGAN INVESTMENT MANAGEMENT INC. ("J.P. Morgan"), 522 Fifth Avenue, New
York, New York 10036. J.P. Morgan has been the Adviser to the Portfolio since
it commenced operations. J.P. Morgan is a registered investment adviser and is
a wholly owned subsidiary of J.P. Morgan & Co. Incorporated, a bank holding
company. J.P. Morgan manages portfolios for corporations, governments,
endowments, as well as many of the largest corporate retirements plans in the
nation.
The Portfolio Managers, responsible for the day to day management of the
Portfolio since it commenced operations, are PAUL L. ZEMSKY, a Managing
Director of J.P. Morgan and a portfolio manager specializing in quantitative
techniques, who joined J.P. Morgan in 1985; and ROBERT J. TEATOM, a Managing
Director of J.P. Morgan and co-head of its U.S. Fixed Income Group, who joined
J.P. Morgan in 1975.
15
<PAGE>
BALANCED PORTFOLIOS
EQ/EVERGREEN FOUNDATION PORTFOLIO
INVESTMENT OBJECTIVE: Seeks to provide, in order of priority, reasonable
income, conservation of capital and capital appreciation.
[SIDEBAR: For purposes of this Portfolio, the words "reasonable income" mean
moderate income.]
THE INVESTMENT STRATEGY
The Portfolio invests primarily in a combination of common stocks, preferred
stocks, securities that are convertible into or exchangeable for common stocks,
investment-grade corporate debt securities, securities of or guaranteed by the
U.S. Government, its agencies or instrumentalities, and short-term debt
instruments, such as high quality commercial paper, and obligations of
FDIC-member banks. Investments in common stocks focus on those that pay
dividends and have the potential for capital appreciation. Common stocks are
selected based on a combination of financial strength and estimated growth
potential. Bonds are selected based on the Adviser's projections of interest
rates, varying amounts and maturities in order to achieve capital protection
and, when possible, capital appreciation. The asset allocation of the Portfolio
will vary in accordance with changing economic and market conditions.
Under normal market conditions, at least 25% of the Portfolio's net assets will
be invested in fixed income securities. In selecting debt securities, the
Adviser will emphasize securities that the Adviser believes will not be subject
to significant fluctuations in value. The corporate debt obligations purchased
by the Portfolio will be rated A or higher by S&P and Moody's. The Fund is not
managed with a targeted maturity.
When market or financial conditions warrant, the Portfolio may invest 100% of
its assets in short-term obligations for temporary or defensive purposes. Such
investment strategies are inconsistent with the Portfolio's investment
objectives and could result in the Portfolio not achieving its investment
objective.
THE PRINCIPAL RISKS
This Portfolio invests in common stocks, therefore, its performance may go up
or down depending on general market conditions.
FIXED INCOME RISKS: To the extent that a substantial amount of the Portfolio's
assets are invested in fixed income securities, that portion of the Portfolio's
performance will be affected by changes in interest rates, the credit risk of
the issuer, the duration or maturity of the Portfolio's fixed income holdings,
and adverse market or economic conditions. When interest rates rise, the value
of the Portfolio's fixed income securities, particularly those with longer
durations or maturities, will go down. When interest rates fall, the reverse is
true. In addition, to the extent that the Portfolio invests in investment-grade
securities which are rated BBB by S&P or an equivalent rating by any other
nationally recognized statistical rating organization, it will be exposed to
greater risk than if it invested in higher-rated obligations because BBB-rated
securities are regarded as having only an adequate capacity to pay principal
and interest, are considered to lack outstanding investment characteristics,
and may be speculative.
PORTFOLIO PERFORMANCE
The inception date for this Portfolio is January 1, 1999. Therefore, no
performance information is available.
16
<PAGE>
WHO MANAGES THE PORTFOLIO
EVERGREEN ASSET MANAGEMENT CORP. ("Evergreen"), 2500 Westchester Avenue,
Purchase, New York 10577. Evergreen has been the Adviser to the Portfolio since
it commenced operations. Evergreen is a registered investment adviser and a
wholly-owned subsidiary of First Union Corporation. Evergreen offers a broad
range of financial services to individuals and businesses throughout the United
States.
STEPHEN A. LIEBER is the Portfolio Manager and has been responsible for the
day-to-day management of the Portfolio since its inception. Mr. Lieber has been
the Chairman and Co-Chief Executive Officer of Evergreen since 1994 and has
been associated with Evergreen and its predecessor (as Chairman) since 1971.
17
<PAGE>
EQ/PUTNAM BALANCED PORTFOLIO
INVESTMENT OBJECTIVE: Seeks to provide a balanced investment composed of a
well-diversified portfolio of stocks and bonds that will produce both capital
growth and current income.
THE INVESTMENT STRATEGY
The Portfolio may invest in almost any type of security or negotiable
instrument, including common stocks, corporate bonds, cash and money market
securities. Although the proportion invested in each type of security is not
fixed, generally, no more than 75% of the Portfolio's assets will be invested
in common stocks, securities that are convertible into common stocks and other
equity securities.
The Portfolio uses a value-oriented approach by investing in stocks the Adviser
believes are currently selling below their true worth.
[SIDEBAR: Value-investing attempts to identify strong companies selling at a
discount from their perceived true worth. The Adviser selects stocks for the
Portfolio at prices at which in its view are temporarily low relative to the
company's earnings, assets, cash flow and dividends.]
The Portfolio may also invest in debt securities, issued by the U.S. Government
or by private companies. Most of the Portfolio's debt securities will be
investment-grade (rated at least BBB) and are generally intermediate- to
long-term (with maturities of more than three (3) years). The Portfolio may
also invest in lower-rated debt securities (called "junk bonds").
The Portfolio may also invest up to 20% of its total assets in foreign
securities and may purchase Eurodollar certificates of deposit (i.e.,
short-term time deposits issued by European banks) without regard to this 20%
limit.
When market or financial conditions warrant, the Portfolio may invest up to
100% of its assets in short term obligations for temporary or defensive
purposes. Such investment strategies are inconsistent with the Portfolio's
investment objectives and could result in the Portfolio not achieving its
investment objective.
THE PRINCIPAL RISKS
This Portfolio invests in common stocks, therefore, its performance may go up
or down depending on general market conditions. Other principal risks include:
VALUE INVESTING RISK: As noted above, the Portfolio uses a value-oriented
approach to stock selection. Value investing is subject to the risk that a
value stock's intrinsic value may never be fully recognized or realized by the
market, or its price may go down. There is also the risk that a stock judged to
be undervalued may actually be appropriately priced.
FIXED INCOME RISKS: To the extent that a substantial amount of the Portfolio's
assets are invested in fixed income securities, that portion of the Portfolio's
performance will be affected by changes in interest rates, the credit risk of
the issuer, the duration or maturity of the Portfolio's fixed income holdings,
and adverse market or economic conditions. When interest rates rise, the value
of the Portfolio's fixed income securities, particularly those with longer
durations or maturities, will go down. When interest rates fall, the reverse is
true. In addition, to the extent that the Portfolio invests in investment-grade
securities which are rated BBB by S&P or an equivalent rating by any other
nationally recognized statistical rating organization, it will be exposed to
greater risk than if it invested in higher-rated obligations because BBB-rated
securities are regarded as having only an adequate capacity to pay principal
and interest, are considered to lack outstanding investment characteristics,
and may be speculative.
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<PAGE>
DERIVATIVES RISK: The Portfolio's investments in derivatives can significantly
increase the Portfolio's exposure to market risk or credit risk of the
counterparty. Derivatives also involve the risk of mispricing or improper
valuation and the risk that changes in value of the derivative may not
correlate perfectly with the relevant assets, rates and indices.
PORTFOLIO TURNOVER RISK: The Portfolio's turnover rate was over 100% per year.
Higher portfolio turnover (e.g., over 100% per year) will cause the Portfolio
to incur additional transaction costs and may result in higher taxable gains
that could be passed through to shareholders.
FOREIGN SECURITIES RISKS: The Portfolio's investments in foreign securities
involve risks not associated with investing in U.S. securities, which can
adversely affect the Portfolio's performance. Foreign markets, particularly
emerging markets, may be less liquid, more volatile, and subject to less
government supervision than domestic markets. There may be difficulties
enforcing contractual obligations, and it may take more time for trades to
clear and settle. In addition, the value of foreign investments can be
adversely affected by: unfavorable currency exchange rates (relative to the
U.S. dollar for securities denominated in foreign currencies); inadequate or
inaccurate information about foreign companies; higher transaction, brokerage
and custody costs; adverse changes in foreign economic and tax policies; and
foreign government instability, war or other adverse political or economic
actions.
PORTFOLIO PERFORMANCE
The bar chart below illustrates the Portfolio's annual total return for 1998,
the Portfolio's first full year of operations. The table below shows the
Portfolio's average annual total returns for the Portfolio for one year and
since inception. The table also compares the Portfolio's performance to the
returns of a broad-based index. Both the bar chart and table assume
reinvestment of dividends and distributions. Past performance is not an
indication of future performance. In addition, holders of variable insurance
contracts representing interests in the Portfolio will be subject to charges
and expenses relating to such insurance contracts. The performance results
presented below do not reflect any insurance related expenses and if reflected
the results would be reduced. The inception date for the Portfolio is May 1,
1997.
- ------------------------------------------------------------------------------
CALENDAR YEAR ANNUAL TOTAL RETURN
1998
11.92%
- ------------------------------------------------------------------------------
Best quarter (% and time period) Worst quarter (% and time period)
9.33% (1998 4th Quarter) (5.24)% (1998 3rd Quarter)
19
<PAGE>
- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR SINCE INCEPTION
EQ/PUTNAM BALANCED PORTFOLIO 11.92% 15.93%
60% S&P 500/40% LEHMAN 21.35% 23.48
GOV'T/CORP. INDEX*
- -------------------------------------------------------------------------------
* For more information on this index, see the preceding section
"The Benchmarks."
WHO MANAGES THE PORTFOLIO
PUTNAM INVESTMENT MANAGEMENT, INC. ("Putnam Management"), One Post Office
Square, Boston, MA 02109. Putnam Management has been the Adviser to the
Portfolio since it commenced operations. Putnam Management has been managing
mutual funds since 1937. Putnam Management is a subsidiary of Putnam
Investments, Inc., which is itself a subsidiary of Marsh & McLennan Companies,
Inc.
The Portfolio Managers, responsible for the day-to-day management of the
Portfolio, are: DAVID L. WALDMAN, Managing Director, who has been employed by
Putnam Management as an investment professional* since 1997 and prior to 1997,
Mr. Waldman was a senior Portfolio Manager at Lazard Freres since 1995, and
prior to 1995, he was a Vice President at Goldman Sachs; EDWARD P. BOUSA,
Senior Vice President, who has been employed by Putnam Management as an
investment professional* since October, 1992; JAMES M. PRUSKO, Vice President,
who has been employed by Putnam Management as an investment professional* since
1992; and KRISHNA K. MEMANI, MANAGING DIRECTOR, Senior Vice President, who has
been employed by Putnam Management as an investment professional* since 1993.
(*Investment professional means that the manager was either a portfolio manager
or analyst.)
20
<PAGE>
MERRILL LYNCH WORLD STRATEGY PORTFOLIO
INVESTMENT OBJECTIVE: Seek high total investment return by investing primarily
in a portfolio of equity and fixed income securities, including convertible
securities, of U.S. and foreign issuers.
[SIDEBAR: For purposes of this Portfolio, "total investment return" consists of
interest, dividends discount accruals, and capital changes, including changes
in the value of non-dollar denominated securities and other assets and
liabilities resulting from currency fluctuations.]
THE INVESTMENT STRATEGY
The Portfolio is a non-diversified Portfolio that invests in both equity
securities and fixed-income securities. The Portfolio may invest entirely in
equity securities, entirely in fixed-income securities, or partly in equity
securities and partly in fixed-income securities.
[SIDEBAR: A Portfolio may be considered to be "non-diversified" for federal
securities law purposes because it invests in a limited number of securities.
In all cases, the Portfolio intends to be diversified for tax purposes so that
it can qualify as a regulated investment company.]
The Portfolio will normally invest a significant portion of its assets in
equity securities of companies throughout the world. The equity securities in
which the Portfolio invests will primarily be common stocks of large companies.
There are no limits on the Portfolio's ability to invest in any country or
geographic region. The Portfolio can invest primarily in U.S. securities,
primarily in foreign securities, or partly in both. It normally invests in at
least three countries at any given time. The Portfolio may invest in companies
in emerging markets, but the Adviser anticipates that a substantially greater
portion of the Portfolio's equity investments will be in companies in developed
countries. At the present time, the Portfolio focuses on investments in Canada,
Western Europe, the Far East, and Latin America, as well as in the United
States.
The Adviser will select the percentage of the Portfolio's assets that will be
invested in equity securities and fixed-income securities, as well as the
geographic allocation of the Portfolio's investments, based on its view of
general economic and financial trends in various countries and industries, such
as inflation, commodity prices, the direction of interest and currency
movements, estimates of growth in industry output and profits, and government
fiscal policies. For example, if the Adviser believes that falling commodity
prices and decreasing estimates of industrial output globally signal low growth
and limited returns from equity securities, the Portfolio may emphasize
fixed-income investments. Similarly, if the Adviser believes that low
inflation, new technologies and improvements in economic productivity in a
country or region signal a promising environment for equity securities in that
country or region the Portfolio may emphasize equity investments in that
country or region.
The Portfolio may invest in fixed-income securities of any maturity, including
United States and foreign government securities and corporate debt securities.
The Portfolio will only invest in debt securities that are rated investment
grade by S&P or Moody's or unrated securities that are of comparable quality.
The Portfolio may also invest in securities denominated in currencies other
than the U.S. dollar. The Portfolio may also engage in currency transactions to
hedge against the risk of loss from changes in currency exchange rates. In
addition, the Portfolio may also employ a variety of instruments and techniques
to enhance income and to hedge against market and currency risk.
The Portfolio has no stated minimum holding period for investments, and will
buy or sell securities whenever the Adviser sees an appropriate opportunity.
When market or financial conditions warrant, the Portfolio may invest up to
100% of its assets in United States Government or Government agency securities,
money market securities, other fixed income securities, or cash for temporary
or defensive purposes. Such investment strategies are inconsistent with
21
<PAGE>
the Portfolio's investment objective and could result in the Portfolio not
achieving its investment objective.
THE PRINCIPAL RISKS
This Portfolio invests in common stocks, therefore, its performance may go up
or down depending on general market conditions. Other principal risks include:
FOREIGN SECURITIES RISKS: The Portfolio's investments in foreign securities
involve risks not associated with investing in U.S. securities that can
adversely affect the Portfolio's performance. Foreign markets, particularly
emerging markets, may be less liquid, more volatile and subject to less
government supervision than domestic markets. There may be difficulties
enforcing contractual obligations, and it may take more time for trades to
clear and settle. In addition, foreign investments can be adversely affected
by: unfavorable currency exchange rates (relative to the U.S. dollar for
securities denominated in a foreign currencies); inadequate or inaccurate
information about foreign companies; higher transaction, brokerage and custody
costs; adverse changes in foreign economic and tax policies; and foreign
government instability, war or other adverse political or economic actions.
Other specific risks of investing in foreign securities include:
EURO RISK: The Portfolio invests in securities issued by European
issuers that that may be adversely impacted by the introduction of
the "Euro" as a common currency in 11 European Monetary Union member
states. The Euro may result in various legal and accounting
differences, tax treatments, the creation and implementation of
suitable clearing and settlement systems and other operational
problems, that may cause market disruptions that could adversely
affect investments quoted in the Euro.
REGULATORY RISK: In general, foreign companies are also not subject
to uniform accounting, auditing and financial reporting standards or
to other regulatory practices and requirements as are U.S. companies,
which could adversely affect their value.
FIXED INCOME RISKS: To the extent that a substantial amount of the Portfolio's
assets are invested in fixed income securities, that portion of the Portfolio's
performance will be affected by changes in interest rates, the credit risk of
the issuer, the duration or maturity of the Portfolio's fixed income holdings,
and adverse market or economic conditions. When interest rates rise, the value
of the Portfolio's fixed income securities, particularly those with longer
durations or maturities, will go down. When interest rates fall, the reverse is
true. In addition, to the extent that the Portfolio invests in investment-grade
securities which are rated BBB by S&P or an equivalent rating by any other
nationally recognized statistical rating organization, it will be exposed to
greater risk than if it invested in higher-rated obligations because BBB-rated
securities are regarded as having only an adequate capacity to pay principal
and interest, are considered to lack outstanding investment characteristics,
and may be speculative.
DERIVATIVES RISK: The Portfolio's investments in derivatives can significantly
increase the Portfolio's exposure to market risk or credit risk of the
counterparty. Derivatives also involve the risk of mispricing or improper
valuation and the risk that changes in value of the derivative may not
correlate perfectly with the relevant assets, rates and indices.
NON-DIVERSIFICATION RISK: Since a relatively high percentage of the Portfolio's
assets may be invested in the securities of a limited number of issuers, some
of which may be within the same industry, the securities of the Portfolio may
be more sensitive to changes in the market value of a single issuer or industry
or to risks associated with a single economic, political or regulatory event
than a diversified portfolio.
LIQUIDITY RISK: Certain securities held by the Portfolio may be difficult (or
impossible) to sell at the time and at the price the seller would like which
may cause the Portfolio to lose money or be prevented from earning capital
gains.
22
<PAGE>
PORTFOLIO TURNOVER RISK: The Portfolio's turnover rate has been over 100% per
year. Higher portfolio turnover (e.g., over 100% per year) will cause the
Portfolio to incur additional transaction costs and may result in higher
taxable gains that could be passed through to shareholders.
PORTFOLIO PERFORMANCE
The bar chart below illustrates the Portfolio's annual total return for 1998,
the Portfolio's first full year of operations. The table below shows the
Portfolio's average annual total returns for the Portfolio for one year and
since inception. The table also compares the Portfolio's performance to the
returns of a broad-based index. Both the bar chart and table assume
reinvestment of dividends and distributions. Past performance is not an
indication of future performance. In addition, holders of variable insurance
contracts representing interests in the Portfolio will be subject to charges
and expenses relating to such insurance contracts. The performance results
presented below do not reflect any insurance related expenses and if reflected
the results would be reduced. The inception date for the Portfolio is May 1,
1997.
- -------------------------------------------------------------------------------
CALENDAR YEAR ANNUAL TOTAL RETURN
1998
6.81%
- -------------------------------------------------------------------------------
Best quarter (% and time period) Worst quarter (% and time period)
10.56% (1998 4th Quarter) (11.15)% (1998 3rd Quarter)
- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR SINCE INCEPTION
MERRILL LYNCH WORLD STRATEGY PORTFOLIO 6.81% 6.91%
COMPOSITE MARKET BENCHMARK INDEX* (25.34)% (28.92)%
- -------------------------------------------------------------------------------
* For more information on this index, see the preceding section "The
Benchmarks."
23
<PAGE>
WHO MANAGES THE PORTFOLIO
MERRILL LYNCH ASSET MANAGEMENT, L.P. ("MLAM"), 800 Scudders Mill Road,
Plainsboro, New Jersey 08543. MLAM has been the Adviser to the Portfolio since
it commenced operations. MLAM is an indirect wholly-owned subsidiary of Merrill
Lynch & Co., Inc., a financial services holding company. MLAM and its
affiliates act as the manager for more than 100 registered investment
companies. MLAM also offers portfolio management and portfolio analysis
services to individuals and institutions.
THOMAS R. ROBINSON is the Portfolio Manager primarily responsible for the
day-to-day management of the Portfolio since it commenced operations. Mr.
Robinson has served as a First Vice President of MLAM since 1997 and as a
Senior Portfolio Manager of MLAM since 1995. Prior to 1995, Mr. Robinson served
as Manager of International Strategy for Merrill Lynch & Co. Global Securities
Research and Economics Group.
24
<PAGE>
DOMESTIC EQUITY PORTFOLIOS
BT EQUITY 500 INDEX PORTFOLIO
INVESTMENT OBJECTIVE: Seeks to replicate as closely as possible (before
deduction of Portfolio expenses) the total return of the S&P 500.
THE INVESTMENT STRATEGY
The Portfolio invests in equity securities of companies included in the S&P
500. The Adviser seeks to match the risk and return characteristics of the S&P
500 by investing in a statistically selected sample of the securities found in
the S&P 500, using a process known as "optimization". This process selects
stocks for the Portfolio so that industry weightings, market capitalizations
and fundamental characteristics (price to book ratios, price to earnings
ratios, debt to asset ratios and dividend yields) closely match those of the
securities included in the S&P 500. This approach helps to increase the
Portfolio's liquidity and reduce costs. The securities held by the Portfolio
are weighted to make the Portfolio's total investment characteristics similar
to those of the S&P 500 as a whole.
The Adviser generally will seek to match the composition of the S&P 500 but
usually will not invest the Portfolio's stock portfolio to mirror the S&P 500
exactly. Because of the difficulty and cost of executing relatively small stock
transactions, the Portfolio may not always be invested in the less heavily
weighted S&P 500 stocks, and may at times have its portfolio weighted
differently than the S&P 500, particularly if the Portfolio has a low level of
assets. In addition, the Portfolio may omit or remove any S&P 500 stock from
the Portfolio if, following objective criteria, the Adviser judges the stock to
be insufficiently liquid or believes the merit of the investment has been
substantially impaired by extraordinary events or financial conditions. The
Portfolio will not purchase the stock of Bankers Trust New York Corporation,
which is included in the S&P 500, and instead will overweight its holdings of
companies engaged in similar businesses.
[SIDEBAR: For more information on the S&P 500, see the preceding section "The
Benchmarks." The Portfolio is not sponsored, endorsed, sold or promoted by S&P
and S&P makes no guarantee as to the accuracy and/or completeness of the S&P
500 or any data included therein.]
Over time, the correlation between the performance of the Portfolio and the S&P
is expected to be 95% or higher before deduction of Portfolio expenses. The
Portfolio's ability to track the S&P 500 may be affected by, among others,
transaction costs, administration and other expenses incurred by the Portfolio,
changes in either the composition of the S&P 500 or the assets of the
Portfolio, and the timing and amount of Portfolio investor contributions and
withdrawals, if any. The Portfolio seeks securities to track the S&P 500,
therefore, the Adviser generally will not attempt to judge the merits of any
particular security as an investment.
The Portfolio may also invest up to 20% of its assets in short-term debt
securities and money market instruments to meet redemption requests or to
facilitate investment in the securities of the S&P 500. Securities index
futures contracts and related options, warrants and convertible securities may
be used for a number of reasons, including: to simulate full investment in the
S&P 500 while retaining a cash balance for Portfolio management purposes; to
facilitate trading; to reduce transaction costs; or to seek higher investment
returns when a future contract, option, warrant or convertible security is
priced more attractively than the underlying equity security or S&P 500. These
instruments are considered to be derivatives.
25
<PAGE>
THE PRINCIPAL RISKS
This Portfolio invests in common stocks, therefore, its performance may go up
or down depending on general market conditions. Other principal risks include:
INDEX-FUND RISK: The Portfolio is not actively managed and invests in
securities included in the index regardless of their investment merit.
Therefore, the Portfolio cannot modify its investment strategies to respond to
changes in the economy and may be particularly susceptible to a general decline
in the U.S. or global stock market segment relating to the index.
FIXED INCOME RISKS: To the extent that a substantial amount of the Portfolio's
assets are invested in fixed income securities, that portion of the Portfolio's
performance will be affected by changes in interest rates, the credit risk of
the issuer, the duration or maturity of the Portfolio's fixed income holdings,
and adverse market or economic conditions. When interest rates rise, the value
of the Portfolio's fixed income securities, particularly those with longer
durations or maturities, will go down. When interest rates fall, the reverse is
true. In addition, to the extent that the Portfolio invests in investment-grade
securities which are rated BBB by S&P or an equivalent rating by any other
nationally recognized statistical rating organization, it will be exposed to
greater risk than if it invested in higher-rated obligations because BBB-rated
securities are regarded as having only an adequate capacity to pay principal
and interest, are considered to lack outstanding investment characteristics,
and may be speculative.
PORTFOLIO PERFORMANCE
The bar chart below illustrates the Portfolio's annual total return for 1998,
the Portfolio's first year of existence. The table below shows the Portfolio's
average annual total returns for the Portfolio for one year and since
inception. The table also compares the Portfolio's performance to the returns
of a broad based index. Both the bar chart and table assume reinvestment of
dividends and distributions. Past performance is not an indication of future
performance. In addition, holders of variable insurance contracts representing
interests in the Portfolio will be subject to charges and expenses relating to
such insurance contracts. The performance results presented below do not
reflect any insurance related expenses and if reflected the results would be
reduced. The Portfolio's inception date was January 1, 1998.
- --------------------------------------------------------------------------------
CALENDAR YEAR ANNUAL TOTAL RETURN
1998
25.14%
- --------------------------------------------------------------------------------
Best quarter (% and time period) Worst quarter (% and time period)
21.26% (1998 4th Quarter) (10.03)% (1998 3rd Quarter)
26
<PAGE>
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR SINCE INCEPTION
BT EQUITY 500 INDEX PORTFOLIO 25.14% 25.14%
S&P 500 INDEX* 28.58% 28.58%
- --------------------------------------------------------------------------------
* For more information on this index, see the preceding section "The
Benchmarks."
WHO MANAGES THE PORTFOLIO
BANKERS TRUST COMPANY ("Bankers Trust"), 130 Liberty Street (One Bankers Trust
Plaza), New York, New York 10006. Bankers Trust has been the Adviser to the
Portfolio since it commenced operations. Bankers Trust is a wholly-owned
subsidiary of Bankers Trust Corporation. Bankers Trust conducts a variety of
general banking and trust activities and is a major wholesale supplier of
financial services, including investment management to the international and
domestic institutional markets. During 1999, Bankers Trust Corporation and a
wholly owned subsidiary of Deutsche Bank AG ("Deutsche Bank") expect to
finalize a merger in which Bankers Trust Corporation will be acquired by and
become a subsidiary of Deutsche Bank.
27
<PAGE>
CAPITAL GUARDIAN RESEARCH PORTFOLIO
INVESTMENT OBJECTIVE: To achieve long-term growth of capital.
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, at the time of
purchase, 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 high-quality debt securities, including
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
This Portfolio invests in common stocks, therefore, its performance may go up
or down depending on general market conditions. Other principal risks include:
GROWTH INVESTING RISK: As noted above, this Portfolio uses a growth oriented
approach to stock selection. The price of growth stocks may be more sensitive
to changes in current or expected earnings than the prices of other stocks. The
price of growth stocks is also subject to the risk that the stock price of one
or more companies will fall or will fail to appreciate as anticipated by the
Adviser, regardless of movements in the securities markets.
CONVERTIBLE SECURITIES RISK: Convertible securities enable the Portfolio to
benefit from increases in the market price of the underlying common stock and
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 both in relation to changes in
interest rates and changes in the value of the underlying common stock.
FOREIGN SECURITIES RISK: The Portfolio's investments in foreign securities
involve risks not associated with investing in U.S. securities, which can
adversely affect the Portfolio's performance. Foreign markets, particularly
emerging markets, may be less liquid, more volatile, and subject to less
government supervision than domestic markets. There may be difficulties
enforcing contractual obligations, and it may take more time for trades to
clear and settle. In addition, the value of foreign investments can be
adversely affected by: unfavorable currency exchange rates (relative to the
U.S. dollar for securities denominated in foreign currencies); inadequate or
inaccurate information about foreign companies; higher transaction, brokerage
and custody costs; adverse changes in foreign economic and tax policies; and
foreign government instability, war or other adverse political or economic
actions.
PORTFOLIO PERFORMANCE
- --------------------------------------------------------------------------------
The inception date for this Portfolio is May 1, 1999. Therefore, no prior
performance information is available.
- --------------------------------------------------------------------------------
28
<PAGE>
WHO MANAGES THE PORTFOLIO
CAPITAL GUARDIAN TRUST COMPANY ("Capital Guardian"), 333 South Hope Street, Los
Angeles, CA 90071. 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.
The Portfolio is managed by a group of investment research professionals, led
by the Research Portfolio Coordinator, each of whom has investment discretion
over a segment of the total Portfolio. The size of each segment will vary over
time and may be based upon: (1) the level of conviction of specific research
professionals as to their designated sectors; (2) industry weights within the
relevant benchmark for the Portfolio; and (3) the judgment of the Research
Portfolio Coordinator in assessing the level of conviction of research
professionals compared to industry weights within the relevant benchmark.
Sectors may be overweighted relative to their benchmark weighting if there is a
substantial number of stocks that are judged to be attractive based on the
research professionals research in that sector, or may be underweighted if
there are relatively fewer stocks viewed to be attractive in the sector. The
Research Portfolio Coordinator also coordinates the cash holdings of the
Portfolio.
29
<PAGE>
CAPITAL GUARDIAN U.S. EQUITY PORTFOLIO
INVESTMENT OBJECTIVE: To achieve long-term growth of capital.
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 $1 billion at the time of purchase. In
selecting securities for investment, the Adviser focuses primarily on the
potential of capital appreciation.
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). These securities may include American Depositary Receipts.
When market or financial conditions warrant, the Portfolio may invest a
substantial portion of its assets in high-quality debt securities, including
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
This Portfolio invests in common stocks, therefore, its performance may go up
or down depending on general market conditions. Other principal risks include:
GROWTH INVESTING RISK: As noted above, this Portfolio uses a growth oriented
approach to stock selection. The price of growth stocks may be more sensitive
to changes in current or expected earnings than the prices of other stocks. The
price of growth stocks is also subject to the risk that the stock price of one
or more companies will fall or will fail to appreciate as anticipated by the
Adviser, regardless of movements in the securities markets.
CONVERTIBLE SECURITIES RISK: Convertible securities enable the Portfolio to
benefit from increases in the market price of the underlying common stock and
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 both in relation to changes in
interest rates and changes in the value of the underlying common stock.
FOREIGN SECURITIES RISK: The Portfolio's investments in foreign securities
involve risks not associated with investing in U.S. securities, which can
adversely affect the Portfolio's performance. Foreign markets, particularly
emerging markets, may be less liquid, more volatile, and subject to less
government supervision than domestic markets. There may be difficulties
enforcing contractual obligations, and it may take more time for trades to
clear and settle. In addition, the value of foreign investments can be
adversely affected by: unfavorable currency exchange rates (relative to the
U.S. dollar for securities denominated in foreign currencies); inadequate or
inaccurate information about foreign companies; higher transaction, brokerage
and custody costs; adverse changes in foreign economic and tax policies; and
foreign government instability, war or other adverse political or economic
actions.
30
<PAGE>
PORTFOLIO PERFORMANCE
- --------------------------------------------------------------------------------
The inception date for this Portfolio is May 1, 1999. Therefore, no prior
performance information is available.
- --------------------------------------------------------------------------------
WHO MANAGES THE PORTFOLIO
CAPITAL GUARDIAN TRUST COMPANY ("Capital Guardian"), 333 South Hope Street, Los
Angeles, CA 90071. 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 multiple portfolio manager system under which the
Portfolio is divided into several segments. Each segment is individually
managed with the portfolio manager free to decide on company and industry
selections as well as valuation and transaction assessment. An additional
portion of the Portfolio is managed by a group of investment research analysts.
The individual portfolio managers of each segment of the Portfolio, other than
that managed by the group of research analysts, are as follows:
DONNALISA P. BARNUM. Donnalisa Barnum is a Senior Vice President and a
portfolio manager for Capital Guardian. She joined the Capital Guardian
organization in 1986.
MICHAEL R. ERICKSON. Michael Erickson is a Senior Vice President and portfolio
manager for Capital Guardian and a Senior Vice President and Director for
Capital International Limited. He joined the Capital Guardian organization in
1987.
DAVID I. FISHER. David Fisher is Chairman of the Board of Capital Group
International, Inc. and Capital Guardian. He joined the Capital Guardian
organization in 1969.
THEODORE R. SAMUELS. Theodore Samuels is a Senior Vice President and a Director
for Capital Guardian, as well as a Director of Capital International Research,
Inc. He joined the Capital Guardian organization in 1981.
EUGENE P. STEIN. Eugene Stein is Executive Vice President, a Director, a
portfolio manager, and Chairman of the Investment Committee for Capital
Guardian. He joined the Capital Guardian organization in 1972.
31
<PAGE>
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.
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.
32
<PAGE>
THE PRINCIPAL RISKS
This Portfolio invests in common stocks, therefore, its performance may go up
or down depending on general market conditions. Other principal risks include:
FOCUSED PORTFOLIO RISK: The Portfolio invests in the securities of a limited
number of companies. Consequently, 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.
GROWTH INVESTING RISK: As noted above, this Portfolio uses a growth oriented
approach to stock selection. The price of growth stocks may be more sensitive
to changes in current or expected earnings than the prices of other stocks. The
price of growth stocks is also subject to the risk that the stock price of one
or more companies will fall or will fail to appreciate as anticipated by the
Adviser, regardless of movements in the securities markets.
CONVERTIBLE SECURITIES RISK: Convertible securities enable the Portfolio to
benefit from increases in the market price of the underlying common stock and
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 both in relation to changes in
interest rates and changes in the value of the underlying common stock.
DERIVATIVES RISK: The Portfolio's investments in derivatives can significantly
increase the Portfolio's exposure to market risk or credit risk of the
counterparty. Derivatives also involve the risk of mispricing or improper
valuation and the risk that changes in value of the derivative may not
correlate perfectly with the relevant assets, rates and indices.
FOREIGN SECURITIES RISK: The Portfolio's investments in foreign securities
involve risks not associated with investing in U.S. securities, which can
adversely affect the Portfolio's performance. Foreign markets, particularly
emerging markets, may be less liquid, more volatile, and subject to less
government supervision than domestic markets. There may be difficulties
enforcing contractual obligations, and it may take more time for trades to
clear and settle. In addition, the value of foreign investments can be
adversely affected by: unfavorable currency exchange rates (relative to the
U.S. dollar for securities denominated in foreign currencies); inadequate or
inaccurate information about foreign companies; higher transaction, brokerage
and custody costs; adverse changes in foreign economic and tax policies; and
foreign government instability, war or other adverse political or economic
actions.
PORTFOLIO PERFORMANCE
- --------------------------------------------------------------------------------
The inception date for this Portfolio is May 1, 1999. Therefore, no prior
performance information is available.
- --------------------------------------------------------------------------------
WHO MANAGES THE PORTFOLIO
ALLIANCE CAPITAL MANAGEMENT L.P. ("Alliance"), 1345 Avenue of the Americas, New
York, New York 10105. 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 and has been with
Alliance since 1978. Prior to 1978, Mr. Harrison was co-founder, President, and
Chief Executive Officer of IDS Advisory Corporation, the pension fund
investment management subsidiary of Investors Diversified Services, Inc.
33
<PAGE>
EQ/EVERGREEN PORTFOLIO
INVESTMENT OBJECTIVE: Seeks capital appreciation.
THE INVESTMENT STRATEGY
The Evergreen Portfolio invests primarily in common stocks and convertible
securities of companies that are relatively small or little-known or represent
special situations which the Adviser believes offer potential for capital
appreciation. In addition, the Portfolio may invest in relatively well-known,
large company securities that have the potential for capital appreciation.
Securities are selected based on a combination of comparative undervaluation
relative to growth potential and/or merger/acquisition price.
[SIDEBAR: For purposes of this Portfolio, a "little-known" company is one whose
business is limited to a regional market or whose securities are mainly
privately held. A " relatively small" company is one that has a small share of
the market for its products or services in comparison with other companies in
its field or that provides goods or services for a limited market. A "special
situation" company is one which offers potential for capital appreciation
because of a recent or anticipated change in structure, management, products or
services.
The Portfolio also may invest to a lesser extent in non-convertible debt
securities and preferred stocks that offer an opportunity for capital
appreciation.
When market or financial conditions warrant, the Portfolio may invest up to
100% of its assets in short-term obligations for temporary or defensive
purposes. Such investment strategies are inconsistent with the Portfolio's
investment objectives and could result in the Portfolio not achieving its
investment objective.
THE PRINCIPAL RISKS
This Portfolio invests in common stocks, therefore, its performance may go up
or down depending on general market conditions. Other principal risks include:
SMALL-CAP AND MID-CAP COMPANY RISK: The Portfolio's investments in small-cap
and mid-cap companies may be subject to more abrupt or erratic movements in
price than are those of larger, more established companies because: the
securities of such companies are less well-known and may trade less frequently
and in lower volume; such companies are more likely to experience greater or
more unexpected changes in their earnings and growth prospects; and the
products of technologies of such companies may be at a relatively early stage
of development or not fully tested.
VALUE INVESTING RISK: As noted above, the Portfolio uses a value-oriented
approach to stock selection. Value investing is subject to the risk that a
value stock's intrinsic value may never be fully recognized or realized by the
market, or its price may go down. There is also the risk that a stock judged to
be undervalued may actually be appropriately priced.
FIXED INCOME RISKS: To the extent that a substantial amount of the Portfolio's
assets are invested in fixed income securities, that portion of the Portfolio's
performance will be affected by changes in interest rates, the credit risk of
the issuer, the duration or maturity of the Portfolio's fixed income holdings,
and adverse market or economic conditions. When interest rates rise, the value
of the Portfolio's fixed income securities, particularly those with longer
durations or maturities, will go down. When interest rates fall, the reverse is
true. In addition, to the extent that the Portfolio invests in investment-grade
securities which are rated BBB by S&P or an equivalent rating by any other
nationally recognized statistical rating organization, it will be exposed to
greater risk than if it invested in higher-rated obligations because BBB-rated
securities are regarded as having only an adequate capacity to pay
34
<PAGE>
principal and interest, are considered to lack outstanding investment
characteristics, and may be speculative.
PORTFOLIO PERFORMANCE
- --------------------------------------------------------------------------------
The inception date for this Portfolio is January 1, 1999. Therefore, no prior
performance information is available.
- --------------------------------------------------------------------------------
WHO MANAGES THE PORTFOLIO
EVERGREEN ASSET MANAGEMENT CORP. ("Evergreen"), 2500 Westchester Avenue,
Purchase, New York 10577. Evergreen has been the Adviser to the Portfolio since
it commenced operations. Evergreen is a registered investment adviser and a
wholly-owned subsidiary of First Union Corporation. Evergreen offers a broad
range of financial services to individuals and businesses throughout the United
States.
The Portfolio Managers, responsible for the day-to-day management of the
Portfolio since its inception, are STEPHEN A. LIEBER, who has been Chairman and
Co-Chief Executive Officer of Evergreen since 1994 and has been associated with
Evergreen and its predecessor (as Chairman) since 1971; and NOLA MADDOX
FALCONE, C.F.A., who has been President and Co-Chief Executive Officer of
Evergreen since 1994. Ms. Falcone has been associated with Evergreen and its
predecessor (as portfolio manager) since 1974.
35
<PAGE>
EQ/PUTNAM GROWTH & INCOME VALUE PORTFOLIO
INVESTMENT OBJECTIVE: Seeks capital growth. Current income is a secondary
objective.
THE INVESTMENT STRATEGY
The Portfolio invests primarily in common stocks that offer potential for
capital growth and may invest in stocks that offer potential for current
income. In analyzing companies for investment, the Adviser tries to identify
common stocks of companies that are significantly undervalued compared with
their underlying assets or earnings potential and offer growth and current
income potential.
The Portfolio may also invest in corporate bonds, notes and debentures,
preferred stocks or convertible securities (both debt securities and preferred
stocks) or U.S. Government securities.
It may also invest a portion of its assets in debt securities rated below
investment grade ( commonly referred to as "junk bonds"), zero-coupon bonds and
payment-in-kind bonds, and high quality U.S. and foreign dollar-denominated
money market securities. The Portfolio may invest up to 20% of its total assets
in foreign securities, including transactions involving futures contracts,
forward contracts and options and foreign currency exchange transactions.
There may be times when the Adviser will use additional investment strategies
to achieve a Portfolio's investment objectives. For example, the portfolio may
engage in a variety of investment management practices such as buying and
selling derivatives, including stock index futures contracts and call and put
options.
When market or financial conditions warrant, the Portfolio may invest up to
100% of its assets in debt securities, preferred stocks or other securities for
temporary or defensive purposes. Such investment strategies are inconsistent
with the Portfolio's investment objectives and could result in the Portfolio
not achieving its investment objective.
THE PRINCIPAL RISKS
This Portfolio invests in common stocks, therefore, its performance may go up
or down depending on general market conditions. Other principal risks include:
VALUE INVESTING RISK: As noted above, the Portfolio uses a value-oriented
approach to stock selection. Value investing is subject to the risk that a
value stock's intrinsic value may never be fully recognized or realized by the
market, or its price may go down. There is also the risk that a stock judged to
be undervalued may actually be appropriately priced.
FOREIGN SECURITIES RISKS: The Portfolio's investments in foreign securities
involve risks not associated with investing in U.S. securities, which can
adversely affect the Portfolio's performance. Foreign markets, particularly
emerging markets, may be less liquid, more volatile, and subject to less
government supervision than domestic markets. There may be difficulties
enforcing contractual obligations, and it may take more time for trades to
clear and settle. In addition, the value of foreign investments can be
adversely affected by: unfavorable currency exchange rates (relative to the
U.S. dollar for securities denominated in foreign currencies); inadequate or
inaccurate information about foreign companies; higher transaction, brokerage
and custody costs; adverse changes in foreign economic and tax policies; and
foreign government instability, war or other adverse political or economic
actions.
36
<PAGE>
DERIVATIVES RISK: The Portfolio's investments in derivatives can significantly
increase the Portfolio's exposure to market risk or credit risk of the
counterparty. Derivatives also involve the risk of mispricing or improper
valuation and the risk that changes in value of the derivative may not
correlate perfectly with the relevant assets, rates and indices.
FIXED INCOME RISKS: To the extent that a substantial amount of the Portfolio's
assets are invested in fixed income securities, that portion of the Portfolio's
performance will be affected by changes in interest rates, the credit risk of
the issuer, the duration or maturity of the Portfolio's fixed income holdings,
and adverse market or economic conditions. When interest rates rise, the value
of the Portfolio's fixed income securities, particularly those with longer
durations or maturities, will go down. When interest rates fall, the reverse is
true. In addition, to the extent that the Portfolio invests in investment-grade
securities which are rated BBB by S&P or an equivalent rating by any other
nationally recognized statistical rating organization, it will be exposed to
greater risk than if it invested in higher-rated obligations because BBB-rated
securities are regarded as having only an adequate capacity to pay principal
and interest, are considered to lack outstanding investment characteristics,
and may be speculative. The risk that an issuer or guarantor of a fixed income
security or counterparty to the Portfolio's fixed income transaction is unable
to meets its financial obligations is particularly significant for this
Portfolio because this Portfolio invests a portion of its assets in "junk
bonds" (i.e., securities rated below investment grade). Junk bonds are issued
by companies with questionable credit strength and, consequently, are
considered to be speculative in nature and may be subject to greater market
fluctuations than investment grade fixed-income securities.
PORTFOLIO PERFORMANCE
The bar chart below illustrates the Portfolio's annual total return for 1998,
the Portfolio's first full year of operations. The table below shows the
Portfolio's average annual total returns for the Portfolio for one year and
since inception. The table also compares the Portfolio's performance to the
returns of a broad-based index. Both the bar chart and table assume
reinvestment of dividends and distributions. Past performance is not an
indication of future performance. In addition, holders of variable insurance
contracts representing interests in the Portfolio will be subject to charges
and expenses relating to such insurance contracts. The performance results
presented below do not reflect any insurance related expenses and if reflected
the results would be reduced. The inception date for the Portfolio is May 1,
1997.
- --------------------------------------------------------------------------------
CALENDAR YEAR ANNUAL TOTAL RETURN
1998
12.75%
- --------------------------------------------------------------------------------
Best quarter (% and time period) Worst quarter (% and time period)
16.49% (1998 4th Quarter) (10.58)% (1998 3rd Quarter)
37
<PAGE>
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR SINCE INCEPTION
EQ/PUTNAM GROWTH & INCOME VALUE 12.75% 17.56%
PORTFOLIO
S&P 500 INDEX* 28.58% 31.63%
- --------------------------------------------------------------------------------
* For more information on this index, see the preceding section "The
Benchmarks."
WHO MANAGES THE PORTFOLIO
PUTNAM INVESTMENT MANAGEMENT, INC. ("Putnam Management"), One Post Office
Square, Boston, MA 02109. Putnam Management has been the Adviser to the
Portfolio since the Portfolio commenced operations. Putnam Management has been
managing mutual funds since 1937. Putnam Management is a subsidiary of Putnam
Investments, Inc., which is itself a subsidiary of Marsh & McLennan Companies,
Inc.
ANTHONY I. KREISEL is the Portfolio Manager responsible for the day to day
management of the Portfolio since it commenced operations. Mr. Kreisel has been
employed by Putnam Management as either a portfolio manager or analyst since
1986.
38
<PAGE>
EQ/PUTNAM INVESTORS GROWTH PORTFOLIO
INVESTMENT OBJECTIVE: Seeks long-term growth of capital and any increased
income that results from this growth.
THE INVESTMENT STRATEGY
The Portfolio invests primarily in common stocks of companies with market
capitalizations of $2 billion or more. The Adviser gives consideration to
growth potential rather than to dividend income. The Portfolio may purchase
securities of medium-sized companies having a proprietary product or profitable
market niches and the potential to grow very rapidly.
The Adviser invests mostly in "growth" stocks whose earnings the Adviser
believes are likely to grow faster than the economy as a whole. The Adviser
evaluates a company's future earnings potential and dividends, financial
strength, working assets and competitive position in its industry.
Although the Portfolio invests primarily in U.S. stocks, the Portfolio may
invest without limit in securities of foreign issuers that are traded in U.S.
public markets. It may also, to a lesser extent, invest in securities of
foreign issuers that are not traded in U.S. public markets.
The Portfolio may also engage in a variety of transactions involving
derivatives, such as futures, options, warrants and swaps and may also invest
in convertible securities, preferred stocks and debt securities.
When market or financial conditions warrant, the Portfolio may invest without
limit in debt securities, preferred stocks, United States Government and agency
obligations, cash or money market instruments, or any other securities for
temporary or defensive purposes. Such investment strategies are inconsistent
with the Portfolio's investment objectives and could result in the Portfolio
not achieving its investment objective.
THE PRINCIPAL RISKS
This Portfolio invests in common stocks, therefore, its performance may go up
or down depending on general market conditions. Other principal risks include:
GROWTH INVESTING RISK: As noted above, this Portfolio uses a growth oriented
approach to stock selection. The price of growth stocks may be more sensitive
to changes in current or expected earnings than the prices of other stocks. The
price of growth stocks is also subject to the risk that the stock price of one
or more companies will fall or will fail to appreciate as anticipated by the
Adviser, regardless of movements in the securities market.
SMALL-CAP AND MID-CAP COMPANY RISK: The Portfolio's investments in small-cap
and mid-cap companies may be subject to more abrupt or erratic movements in
price than are those of larger, more established companies because: the
securities of such companies are less well-known and may trade less frequently
and in lower volume; such companies are more likely to experience greater or
more unexpected changes in their earnings and growth prospects; and the
products of technologies of such companies may be at a relatively early stage
of development or not fully tested.
DERIVATIVES RISK: The Portfolio's investments in derivatives can significantly
increase the Portfolio's exposure to market risk or credit risk of the
counterparty. Derivatives also involve the risk of mispricing or improper
valuation and the risk that changes in value of the derivative may not
correlate perfectly with the relevant assets, rates and indices.
39
<PAGE>
FOREIGN SECURITIES RISKS: The Portfolio's investments in foreign securities
involve risks not associated with investing in U.S. securities, which can
adversely affect the Portfolio's performance. Foreign markets, particularly
emerging markets, may be less liquid, more volatile, and subject to less
government supervision than domestic markets. There may be difficulties
enforcing contractual obligations, and it may take more time for trades to
clear and settle. In addition, the value of foreign investments can be
adversely affected by: unfavorable currency exchange rates (relative to the
U.S. dollar for securities denominated in foreign currencies); inadequate or
inaccurate information about foreign companies; higher transaction, brokerage
and custody costs; adverse changes in foreign economic and tax policies; and
foreign government instability, war or other adverse political or economic
actions.
FIXED INCOME RISKS: To the extent that a substantial amount of the Portfolio's
assets are invested in fixed income securities, that portion of the Portfolio's
performance will be affected by changes in interest rates, the credit risk of
the issuer, the duration or maturity of the Portfolio's fixed income holdings,
and adverse market or economic conditions. When interest rates rise, the value
of the Portfolio's fixed income securities, particularly those with longer
durations or maturities, will go down. When interest rates fall, the reverse is
true. In addition, to the extent that the Portfolio invests in investment-grade
securities which are rated BBB by S&P or an equivalent rating by any other
nationally recognized statistical rating organization, it will be exposed to
greater risk than if it invested in higher-rated obligations because BBB-rated
securities are regarded as having only an adequate capacity to pay principal
and interest, are considered to lack outstanding investment characteristics,
and may be speculative.
PORTFOLIO PERFORMANCE
The bar chart below illustrates the Portfolio's annual total return for 1998,
the Portfolio's first full year of operations. The table below shows the
Portfolio's average annual total returns for the Portfolio for one year and
since inception. The table also compares the Portfolio's performance to the
returns of a broad-based index. Both the bar chart and table assume
reinvestment of dividends and distributions. Past performance is not an
indication of future performance. In addition, holders of variable insurance
contracts representing interests in the Portfolio will be subject to charges
and expenses relating to such insurance contracts. The performance results
presented below do not reflect any insurance related expenses and if reflected
the results would be reduced. The inception date for the Portfolio is May 1,
1997.
- --------------------------------------------------------------------------------
CALENDAR YEAR ANNUAL TOTAL RETURN
1998
36.27%
- --------------------------------------------------------------------------------
Best quarter (% and time period) Worst quarter (% and time period)
25.29% (1998 4th Quarter) (11.25)% (1998 3rd Quarter)
40
<PAGE>
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR SINCE INCEPTION
EQ/PUTNAM INVESTORS GROWTH PORTFOLIO 36.27% 37.34%
S&P 500 INDEX* 28.58% 31.63%
- --------------------------------------------------------------------------------
* For more information on this index, see the preceding section
"The Benchmarks."
WHO MANAGES THE PORTFOLIO
PUTNAM INVESTMENT MANAGEMENT, INC. ("Putnam Management"), One Post Office
Square, Boston, MA 02109. Putnam Management has been the Adviser to the
Portfolio since the Portfolio commenced operations. Putnam Management has been
managing mutual funds since 1937. Putnam Management is a subsidiary of Putnam
Investments, Inc., which is itself a subsidiary of Marsh & McLennan Companies,
Inc.
The Portfolio Managers, responsible for the day to day management of the
Portfolio since its inception, are: C. BETH COTNER, who has been employed by
Putnam Management as an investment professional* since 1995, and prior to 1995,
was a Portfolio Manager and Executive Vice President of Kemper Financial
Services; RICHARD B. ENGLAND, who has been employed by Putnam Management as an
investment professional* since 1992; and MANUAL WEISS HERRERRO, who has been
employed by Putnam Management as investment professional* since 1987.
(*Investment professional means that the manager was either a portfolio manager
or analyst.)
41
<PAGE>
LAZARD LARGE CAP VALUE PORTFOLIO
INVESTMENT OBJECTIVE: Seeks capital appreciation by investing primarily in
equity securities of companies with relatively large capitalizations (i.e.,
companies having market capitalizations of at least $3 billion at the time of
initial purchase) that appear to the Adviser to be inexpensively priced
relative to the return on total capital or equity.
THE INVESTMENT STRATEGY
The Portfolio normally invests at least 80% of its total assets primarily in
equity securities of large capitalization companies. Equity securities include
common stocks, preferred stocks and securities convertible into or exchangeable
for common stocks.
The Portfolio uses a value-oriented approach in searching for securities. The
Adviser uses a "bottom-up" approach (individual stock selection) to find
companies that have:
o low price to earnings ratios
o high yield
o unrecognized assets
o the possibility of management change
o the prospect of improved profitability.
The Portfolio may also invest up to 20% of its assets in U.S. Government
securities and investment grade debt securities of domestic corporations rated
BBB or better by S&P or Baa or better by Moody's.
The Portfolio may also invest up to 10% of its assets in foreign equity or debt
securities, or depositary receipts.
The Portfolio may also invest without limitation in high-quality short-term
money market instruments. The Portfolio may engage in options transactions,
including writing covered call options or foreign currencies to offset costs of
hedging and writing and purchasing put and call options on securities. Although
the Portfolio will engage in options transactions primarily to hedge its
Portfolio, it may use options to increase returns and there is the risk that
these transactions sometimes may reduce returns or increase volatility.
When market or financial conditions warrant, the Portfolio may invest, without
limit, in money market securities for temporary or defensive purposes. Such
investment strategies could have the effect of reducing the benefit of any
upswing in the market. Such investment strategies are inconsistent with the
Portfolio's investment objectives and could result in the Portfolio not
achieving its investment objective.
THE PRINCIPAL RISKS
This Portfolio invests in common stocks, therefore, its performance may go up
or down depending on general market conditions. Other principal risks include:
VALUE INVESTING RISK: As noted above, the Portfolio uses a value-oriented
approach to stock selection. Value investing is subject to the risk that a
value stock's intrinsic value may never be fully recognized or realized by the
market, or its price may go down. There is also the risk that a stock judged to
be undervalued may actually be appropriately priced.
42
<PAGE>
DERIVATIVES RISK: The Portfolio's investments in derivatives can significantly
increase the Portfolio's exposure to market risk or credit risk of the
counterparty. Derivatives also involve the risk of mispricing or improper
valuation and the risk that changes in value of the derivative may not
correlate perfectly with the relevant assets, rates and indices.
FIXED INCOME RISKS: To the extent that a substantial amount of the Portfolio's
assets are invested in fixed income securities, that portion of the Portfolio's
performance will be affected by changes in interest rates, the credit risk of
the issuer, the duration or maturity of the Portfolio's fixed income holdings,
and adverse market or economic conditions. When interest rates rise, the value
of the Portfolio's fixed income securities, particularly those with longer
durations or maturities, will go down. When interest rates fall, the reverse is
true. In addition, to the extent that the Portfolio invests in investment-grade
securities which are rated BBB by S&P or an equivalent rating by any other
nationally recognized statistical rating organization, it will be exposed to
greater risk than if it invested in higher-rated obligations because BBB-rated
securities are regarded as having only an adequate capacity to pay principal
and interest, are considered to lack outstanding investment characteristics,
and may be speculative.
PORTFOLIO PERFORMANCE
The bar chart below illustrates the Portfolio's average annual total return for
1998, the Portfolio's first year of existence. The table below shows the
Portfolio's average annual total returns for the Portfolio for one year and
since inception. The table also compares the Portfolio's performance to the
returns of a broad based index. Both the bar chart and table assume
reinvestment of dividends and distributions. Past performance is not an
indication of future performance. In addition, holders of variable insurance
contracts representing interests in the Portfolio will be subject to charges
and expenses relating to such insurance contracts. The performance results
presented below do not reflect any insurance related expenses and if reflected
the results would be reduced. The Portfolio's inception date was January 1,
1998.
- -------------------------------------------------------------------------------
CALENDAR YEAR ANNUAL TOTAL RETURN
1998
20.01%
- -------------------------------------------------------------------------------
Best quarter (% and time period) Worst quarter (% and time period)
23.34% (1998 4th Quarter) (13.43)% (1998 3rd Quarter)
- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR SINCE INCEPTION
LAZARD LARGE CAP VALUE PORTFOLIO 20.01% 20.01%
S&P 500 INDEX* 28.58% 28.58%
- -------------------------------------------------------------------------------
* For more information on this index, see the preceding section "The
Benchmarks."
43
<PAGE>
WHO MANAGES THE PORTFOLIO
LAZARD ASSET MANAGEMENT ("LAM"), 30 Rockefeller Plaza, New York, New York
10112. LAM has been the Adviser to the Portfolio since it commenced operations.
LAM is a division of Lazard Freres & Co. LLC ("Lazard Freres"), a New York
limited liability company, which is registered as an investment adviser with
the SEC. Lazard Freres provides its clients with a wide variety of investment
banking, brokerage and related services, including investment management.
The Portfolio Managers, responsible for the day to day management since the
inception of the Portfolio are HERBERT W. GULLQUIST, a Vice-Chairman, Managing
Director and Chief Investment Officer of LAM, who has been with LAM since 1982;
and MICHAEL S. ROME, a Managing Director of LAM and a U.S./Global Equity
Portfolio Manager since 1991.
44
<PAGE>
MERRILL LYNCH BASIC VALUE EQUITY PORTFOLIO
INVESTMENT OBJECTIVE: Seeks capital appreciation and secondarily, income by
investing in securities, primarily equities, that the Adviser of the Portfolio
believes are undervalued and therefore represent basic investment value.
THE INVESTMENT STRATEGY
The Portfolio chooses securities for capital appreciation that are expected to
increase in value. In selecting securities the Adviser emphasizes stocks that
are undervalued, are selling at a discount, or seem capable of recovering from
being temporarily out of favor. The Adviser places particular emphasis on
securities with statistical characteristics associated with undervaluation.
The Adviser follows a contrary opinion/out-of-favor investment style. The
Adviser believes that favorable changes in market prices are more likely to
occur when:
o stocks are out of favor
o company earnings are depressed
o price/earnings ratios are relatively low
o investment expectations are limited
o there is no general interest in a security or industry.
On the other hand, the Adviser believes that negative developments are more
likely to occur when:
o investment expectations are high
o stock prices are advancing or have advanced rapidly
o price/earnings ratios have been inflated
o an industry or security continues to become popular among investors.
In other words, the Adviser believes that stocks with relatively high
price/earnings ratios are more vulnerable to price declines from unexpected
adverse developments. At the same time, stocks with relatively low
price/earnings ratios are more likely to benefit from favorable but generally
unanticipated events. Thus, the Portfolio may invest a large part of its net
assets in stocks that have weak research ratings.
The Portfolio invests primarily in common stocks of U.S. companies, but may buy
equity securities other than common stock and may also invest up to 10% of its
total assets in securities issued by foreign companies. The Portfolio may also
invest a substantial portion of its assets in companies with market
capitalizations below the largest companies. The Adviser believes that large
institutional investors may overlook these companies, making them undervalued.
The Portfolio has no minimum holding period for investments, and will buy or
sell securities whenever the Portfolio's management sees an appropriate
opportunity.
When market or financial conditions warrant, the Portfolio may invest in U.S.
Government and agency securities, money market securities and other
fixed-income securities for temporary or defensive purposes. Such investment
strategies are inconsistent with the Portfolio's investment objectives and
could result in the Portfolio not achieving its investment objective.
45
<PAGE>
THE PRINCIPAL RISKS
This Portfolio invests in common stocks, therefore, its performance may go up
or down depending on general market conditions. Other principal risks include:
VALUE INVESTING RISK: As noted above, the Portfolio uses a value-oriented
approach to stock selection. Value investing is subject to the risk that a
value stock's intrinsic value may never be fully recognized or realized by the
market, or its price may go down. There is also the risk that a stock judged to
be undervalued may actually be appropriately priced.
SMALL-CAP AND MID-CAP COMPANY RISK: The Portfolio's investments in small-cap
and mid-cap companies may be subject to more abrupt or erratic movements in
price than are those of larger, more established companies because: the
securities of such companies are less well-known and may trade less frequently
and in lower volume; such companies are more likely to experience greater or
more unexpected changes in their earnings and growth prospects; and the
products of technologies of such companies may be at a relatively early stage
of development or not fully tested.
FOREIGN SECURITIES RISKS: The Portfolio's investments in foreign securities
involve risks not associated with investing in U.S. securities, which can
adversely affect the Portfolio's performance. Foreign markets, particularly
emerging markets, may be less liquid, more volatile, and subject to less
government supervision than domestic markets. There may be difficulties
enforcing contractual obligations, and it may take more time for trades to
clear and settle. In addition, the value of foreign investments can be
adversely affected by: unfavorable currency exchange rates (relative to the
U.S. dollar for securities denominated in foreign currencies); inadequate or
inaccurate information about foreign companies; higher transaction, brokerage
and custody costs; adverse changes in foreign economic and tax policies; and
foreign government instability, war or other adverse political or economic
actions.
PORTFOLIO PERFORMANCE
The bar chart below illustrates the Portfolio's annual total return for 1998,
the Portfolio's first full year of operations. The table below shows the
Portfolio's average annual total returns for the Portfolio for one year and
since inception. The table also compares the Portfolio's performance to the
returns of a broad-based index. Both the bar chart and table assume
reinvestment of dividends and distributions. Past performance is not an
indication of future performance. In addition, holders of variable insurance
contracts representing interests in the Portfolio will be subject to charges
and expenses relating to such insurance contracts. The performance results
presented below do not reflect any insurance related expenses and if reflected
the results would be reduced. The inception date for the Portfolio is May 1,
1997.
- --------------------------------------------------------------------------------
CALENDAR YEAR ANNUAL TOTAL RETURN
1998
11.59%
- --------------------------------------------------------------------------------
Best quarter (% and time period) Worst quarter (% and time period)
11.20% (1997 3rd Quarter) (10.91)% (1998 3rd Quarter)
46
<PAGE>
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR SINCE INCEPTION
MERRILL LYNCH BASIC VALUE EQUITY
PORTFOLIO 11.59% 17.29%
S&P 500 INDEX* 28.58% 31.63%
- --------------------------------------------------------------------------------
* For more information on this index, see the preceding section "The
Benchmarks."
WHO MANAGES THE PORTFOLIO
MERRILL LYNCH ASSET MANAGEMENT, L.P. ("MLAM"), 800 Scudders Mill Road,
Plainsboro, NJ 08543. MLAM has been the Adviser to the Portfolio since it
commenced operations. MLAM is an indirect wholly-owned subsidiary of Merrill
Lynch & Co., Inc., a financial services holding company. The general partner of
MLAM is Princeton Services, Inc., a wholly-owned subsidiary of Merrill Lynch &
Co., Inc. MLAM and its affiliates act as the manager for more than 100
registered investment companies. MLAM also offers portfolio management and
portfolio analysis services to individuals and institutions.
KEVIN RENDINO, a First Vice President of MLAM since 1997, has been the
Portfolio Manager responsible for the day to day management of the Portfolio
since it commenced operations. Mr. Rendino was a Vice President of MLAM from
1993 to 1997.
47
<PAGE>
MFS GROWTH WITH INCOME PORTFOLIO
INVESTMENT OBJECTIVE: Seeks to provide reasonable current income and long-term
growth of capital and income.
[SIDEBAR: For purposes of this Portfolio, the words "reasonable current income"
mean moderate income.]
THE INVESTMENT STRATEGY
The Portfolio invests, under normal market conditions, primarily (at least 65%
of its total assets) in equity securities, including common stocks, preferred
stocks, convertible securities, warrants and depositary receipts for those
securities. Equity securities may be listed on a securities exchange or traded
in the over-the-counter markets. While the Portfolio may invest in companies of
any size, the Portfolio generally focuses on companies with larger market
capitalizations that the Adviser believes have sustainable growth prospects and
attractive valuations based on current and expected earnings or cash flow.
The Adviser uses a "bottom-up" investment style in managing the Portfolio. This
means that securities are selected based upon fundamental analysis performed by
the Adviser's large group of equity research analysts.
The Portfolio may invest in foreign securities and may have exposure to foreign
currencies through its investment in these securities, its direct holdings of
foreign currencies or through its use of forward foreign currency exchange
contracts for the purchase or sale of a fixed quantity of foreign currency at a
future date.
When adverse market, financial or political conditions warrant, the Portfolio
may depart from its principal strategies for temporary or defensive purposes.
Such investment strategies are inconsistent with the Portfolio's investment
objective and could result in the Portfolio not achieving its investment
objective.
THE PRINCIPAL RISKS
This Portfolio invests in common stocks, therefore, its performance may go up
or down depending on general market conditions. Other principal risks include:
GROWTH INVESTING RISK: As noted above, this Portfolio uses a growth oriented
approach to stock selection. The price of growth stocks may be more sensitive
to changes in current or expected earnings than the prices of other stocks. The
price of growth stocks is also subject to the risk that the stock price of one
or more companies will fall or will fail to appreciate as anticipated by the
Adviser, regardless of movements in the securities market.
SMALL-CAP AND MID-CAP COMPANY RISK: The Portfolio's investments in small-cap
and mid-cap companies may be subject to more abrupt or erratic movements in
price than are those of larger, more established companies because: the
securities of such companies are less well-known and may trade less frequently
and in lower volume; such companies are more likely to experience greater or
more unexpected changes in their earnings and growth prospects; and the
products of technologies of such companies may be at a relatively early stage
of development or not fully tested.
48
<PAGE>
FOREIGN SECURITIES RISKS: The Portfolio's investments in foreign securities
involve risks not associated with investing in U.S. securities, which can
adversely affect the Portfolio's performance. Foreign markets, particularly
emerging markets, may be less liquid, more volatile, and subject to less
government supervision than domestic markets. There may be difficulties
enforcing contractual obligations, and it may take more time for trades to
clear and settle. In addition, the value of foreign investments can be
adversely affected by: unfavorable currency exchange rates (relative to the
U.S. dollar for securities denominated in foreign currencies); inadequate or
inaccurate information about foreign companies; higher transaction, brokerage
and custody costs; adverse changes in foreign economic and tax policies; and
foreign government instability, war or other adverse political or economic
actions.
PORTFOLIO PERFORMANCE
- --------------------------------------------------------------------------------
The inception date for this Portfolio is January 1, 1999. Therefore, no prior
performance information is available.
- --------------------------------------------------------------------------------
WHO MANAGES THE PORTFOLIO
MASSACHUSETTS FINANCIAL SERVICES COMPANY ("MFS"), 500 Boylston Street, Boston,
MA 02116. MFS has been the Adviser to the Portfolio since it commenced
operations. MFS is America's oldest mutual fund organization. MFS and its
predecessor organizations have a history of money management dating from 1924
and the founding of the first mutual fund in the United States, Massachusetts
Investors Trust. MFS is a subsidiary of Sun Life of Canada (United States)
Financial Services Holdings Inc., which, in turn, is an indirect wholly-owned
subsidiary of Sun Life Assurance Company of Canada.
The Portfolio Managers are JOHN D. LAUPHEIMER, JR., Senior Vice President of
MFS, who has been employed as a portfolio manager by MFS since 1986; and
MITCHELL D. DYNAN, a Vice President of MFS, who has been employed as a
portfolio manager by MFS since 1981.
49
<PAGE>
MFS RESEARCH PORTFOLIO
INVESTMENT OBJECTIVE: Seeks to provide long-term growth of capital and future
income.
THE INVESTMENT STRATEGY
The Portfolio invests primarily in equity securities, such as common stocks,
securities convertible into common stocks, preferred stocks and depositary
receipts of companies believed by the Adviser to have:
o favorable prospects for long-term growth,
o attractive valuations based on current and expected earnings or cash
flow,
o dominant or growing market share, and
o superior management.
The Portfolio may invest in securities of companies of any size. The
Portfolio's investments may include securities traded on securities exchanges
or in the over-the-counter markets.
The Portfolio may invest in foreign equity securities, and may have exposure to
foreign currencies through its investment in these securities, its direct
holdings of foreign currencies or through its use of foreign currency exchange
contracts for the purchase or sale of a fixed quantity of foreign currency at a
future date.
When adverse market, financial or political conditions warrant, the Portfolio
may depart from its principal investment strategies for temporary or defensive
purposes. Such investment strategies are inconsistent with the Portfolio's
investment objectives and could result in the Portfolio not achieving its
investment objective.
The Portfolio may invest up to 10% of its assets in high yielding debt
securities rated below investment grade ("junk bonds").
THE PRINCIPAL RISKS
This Portfolio invests in common stocks, therefore, its performance may go up
or down depending on general market conditions. Other principal risks include:
GROWTH INVESTING RISK: As noted above, this Portfolio uses a growth oriented
approach to stock selection. The price of growth stocks may be more sensitive
to changes in current or expected earnings than the prices of other stocks. The
price of growth stocks is also subject to the risk that the stock price of one
or more companies will fall or will fail to appreciate as anticipated by the
Adviser, regardless of movements in the securities market.
SMALL-CAP AND MID-CAP COMPANY RISK: The Portfolio's investments in small-cap
and mid-cap companies may be subject to more abrupt or erratic movements in
price than are those of larger, more established companies because: the
securities of such companies are less well-known and may trade less frequently
and in lower volume; such companies are more likely to experience greater or
more unexpected changes in their earnings and growth prospects; and the
products of technologies of such companies may be at a relatively early stage
of development or not fully tested.
50
<PAGE>
FIXED INCOME RISKS: To the extent that a substantial amount of the Portfolio's
assets are invested in fixed income securities, that portion of the Portfolio's
performance will be affected by changes in interest rates, the credit risk of
the issuer, the duration or maturity of the Portfolio's fixed income holdings,
and adverse market or economic conditions. When interest rates rise, the value
of the Portfolio's fixed income securities, particularly those with longer
durations or maturities, will go down. When interest rates fall, the reverse is
true. In addition, to the extent that the Portfolio invests in investment-grade
securities which are rated BBB by S&P or an equivalent rating by any other
nationally recognized statistical rating organization, it will be exposed to
greater risk than if it invested in higher-rated obligations because BBB-rated
securities are regarded as having only an adequate capacity to pay principal
and interest, are considered to lack outstanding investment characteristics,
and may be speculative. The risk that an issuer or guarantor of a fixed income
security or counterparty to the Portfolio's fixed income transaction is unable
to meets its financial obligations is particularly significant for this
Portfolio because this Portfolio invests a portion of its assets in "junk
bonds" (i.e., securities rated below investment grade). Junk bonds are issued
by companies with questionable credit strength and, consequently, are
considered to be speculative in nature and may be subject to greater market
fluctuations than investment grade fixed-income securities.
FOREIGN SECURITIES RISKS: The Portfolio's investments in foreign securities
involve risks not associated with investing in U.S. securities, which can
adversely affect the Portfolio's performance. Foreign markets, particularly
emerging markets, may be less liquid, more volatile, and subject to less
government supervision than domestic markets. There may be difficulties
enforcing contractual obligations, and it may take more time for trades to
clear and settle. In addition, the value of foreign investments can be
adversely affected by: unfavorable currency exchange rates (relative to the
U.S. dollar for securities denominated in foreign currencies); inadequate or
inaccurate information about foreign companies; higher transaction, brokerage
and custody costs; adverse changes in foreign economic and tax policies; and
foreign government instability, war or other adverse political or economic
actions.
PORTFOLIO PERFORMANCE
The bar chart below illustrates the Portfolio's annual total return for 1998,
the Portfolio's first full year of operations. The table below shows the
Portfolio's average annual total returns for the Portfolio for one year and
since inception. The table also compares the Portfolio's performance to the
returns of a broad-based index. Both the bar chart and table assume
reinvestment of dividends and distributions. Past performance is not an
indication of future performance. In addition, holders of variable insurance
contracts representing interests in the Portfolio will be subject to charges
and expenses relating to such insurance contracts. The performance results
presented below do not reflect any insurance related expenses and if reflected
the results would be reduced. The inception date for the Portfolio is May 1,
1997.
- --------------------------------------------------------------------------------
CALENDAR YEAR ANNUAL TOTAL RETURN
1998
24.11%
- --------------------------------------------------------------------------------
Best quarter (% and time period) Worst quarter (% and time period)
21.36% (1998 4th Quarter) (17.35)% (1997 4th Quarter)
51
<PAGE>
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR SINCE INCEPTION
MFS RESEARCH PORTFOLIO 24.11% 24.41%
S&P 500 INDEX* 28.58% 31.63%
- --------------------------------------------------------------------------------
* For more information on this index, see the preceding section "The
Benchmarks."
WHO MANAGES THE PORTFOLIO
MASSACHUSETTS FINANCIAL SERVICES COMPANY ("MFS"), 500 Boylston Street, Boston,
MA 02116. MFS has been the Adviser to the Portfolio since it commenced
operations. MFS is America's oldest mutual fund organization. MFS and its
predecessor organizations have a history of money management dating from 1924
and the founding of the first mutual fund in the United States, Massachusetts
Investors Trust. MFS is a subsidiary of Sun Life of Canada (United States)
Financial Services Holdings Inc., which, in turn, is an indirect wholly-owned
subsidiary of Sun Life Assurance Company of Canada.
A committee of investment research analysts selects portfolio securities for
the Portfolio. This committee includes investment analysts employed not only by
MFS, but also by MFS International (U.K.) Limited, a wholly owned subsidiary of
MFS. The committee allocates the Portfolio's assets among various industries.
Individual analysts then select what they view as the securities best suited to
achieve the Portfolio's investment objective within their assigned industry
responsibility.
52
<PAGE>
T. ROWE PRICE EQUITY INCOME PORTFOLIO
INVESTMENT OBJECTIVE: Seeks to provide substantial dividend income and also
capital appreciation by investing primarily in dividend-paying common stocks of
established companies.
THE INVESTMENT STRATEGY
The Portfolio invests primarily in dividend-paying common stocks of established
companies that have favorable prospects for increasing dividend income and
capital appreciation. The Portfolio's yield as a result of that dividend income
is expected to be significantly above the average yield of the companies of the
S&P 500.
The Adviser bases its investment decisions on three premises: (1) over time,
dividend income can account for a significant portion of the Portfolio's
return; (2) dividends are a more stable and predictable source of return; and
(3) prices of stocks that pay a high current income level tend to be less
volatile than those paying below average dividends.
The Adviser uses a "value" approach in choosing securities. It looks for common
stocks of companies that have:
o established operating histories;
o above-average dividend yields relative to the S&P 500;
o low price to earnings ratios relative to the S&P 500;
o sound balance sheets; and
o low stock price relative to the company's asset value, earnings and
cash flow.
[SIDEBAR: Equity income investing involves finding common stocks that pay
dividend income. As an example, utility company stocks often provide dividend
income while a shareholder waits for the stock price to move. Dividends can
help reduce the Portfolio's volatility during turbulent markets and help offset
losses when stock prices are falling.]
The Portfolio may invest up to 25% of its total assets in foreign securities.
These securities include non-dollar-denominated securities traded outside the
United States and dollar-denominated securities such as American Depositary
Receipts. The Portfolio may also purchase preferred stocks, convertible
securities, warrants, U.S. Government securities, high-quality money market
securities, as well as investment grade debt securities and high yielding debt
securities ("junk bonds").
When market or financial conditions warrant, the Portfolio may invest without
limitation in high quality money market securities, and United States
Government debt securities for temporary or defensive purposes. Such investment
strategies are inconsistent with the Portfolio's investment objectives and
could result in the Portfolio not achieving its investment objective.
THE PRINCIPAL RISKS
This Portfolio invests in common stocks, therefore, its performance may go up
or down depending on general market conditions. Other principal risks include:
VALUE INVESTING RISK: As noted above, the Portfolio uses a value-oriented
approach to stock selection. Value investing is subject to the risk that a
value stock's intrinsic value may never be fully recognized or realized by the
market, or its price may go down. There is also the risk that a stock judged to
be undervalued may actually be appropriately priced.
53
<PAGE>
FOREIGN SECURITIES RISKS: The Portfolio's investments in foreign securities
involve risks not associated with investing in U.S. securities, which can
adversely affect the Portfolio's performance. Foreign markets, particularly
emerging markets, may be less liquid, more volatile, and subject to less
government supervision than domestic markets. There may be difficulties
enforcing contractual obligations, and it may take more time for trades to
clear and settle. In addition, the value of foreign investments can be
adversely affected by: unfavorable currency exchange rates (relative to the
U.S. dollar for securities denominated in foreign currencies); inadequate or
inaccurate information about foreign companies; higher transaction, brokerage
and custody costs; adverse changes in foreign economic and tax policies; and
foreign government instability, war or other adverse political or economic
actions.
FIXED INCOME RISKS: To the extent that a substantial amount of the Portfolio's
assets are invested in fixed income securities, that portion of the Portfolio's
performance will be affected by changes in interest rates, the credit risk of
the issuer, the duration or maturity of the Portfolio's fixed income holdings,
and adverse market or economic conditions. When interest rates rise, the value
of the Portfolio's fixed income securities, particularly those with longer
durations or maturities, will go down. When interest rates fall, the reverse is
true. In addition, to the extent that the Portfolio invests in investment-grade
securities which are rated BBB by S&P or an equivalent rating by any other
nationally recognized statistical rating organization, it will be exposed to
greater risk than if it invested in higher-rated obligations because BBB-rated
securities are regarded as having only an adequate capacity to pay principal
and interest, are considered to lack outstanding investment characteristics,
and may be speculative.
PORTFOLIO PERFORMANCE
The bar chart below illustrates the Portfolio's annual total return for 1998,
the Portfolio's first full year of operations. The table below shows the
Portfolio's average annual total returns for the Portfolio for one year and
since inception. The table also compares the Portfolio's performance to the
returns of a broad-based index. Both the bar chart and table assume
reinvestment of dividends and distributions. Past performance is not an
indication of future performance. In addition, holders of variable insurance
contracts representing interests in the Portfolio will be subject to charges
and expenses relating to such insurance contracts. The performance results
presented below do not reflect any insurance related expenses and if reflected
the results would be reduced. The inception date for the Portfolio is May 1,
1997.
- --------------------------------------------------------------------------------
CALENDAR YEAR ANNUAL TOTAL RETURN
1998
9.11%
- --------------------------------------------------------------------------------
Best quarter (% and time period) Worst quarter (% and time period)
11.16% (1998 4th Quarter) (7.66)% (1998 3rd Quarter)
54
<PAGE>
- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR SINCE INCEPTION
T. ROWE PRICE EQUITY INCOME
PORTFOLIO 9.11% 18.73%
S&P 500 INDEX* 28.58% 31.63%
- -------------------------------------------------------------------------------
* For more information on this index, see the preceding section "The
Benchmarks."
WHO MANAGES THE PORTFOLIO
T. ROWE PRICE ASSOCIATES, INC. ("T. Rowe Price"), 100 East Pratt Street,
Baltimore, MD 21202. T. Rowe Price has been the Adviser to the Portfolio since
the Portfolio commenced operations. T. Rowe Price serves as investment manager
to a variety of individual and institutional investor accounts, including
limited partnerships and other mutual funds.
Investment decisions with respect to the Portfolio are made by an Investment
Advisory Committee. BRIAN C. ROGERS has been the Committee Chairman since the
inception of the Portfolio and has day-to-day responsibility for managing the
Portfolio. Mr. Rogers joined T. Rowe Price in 1982 and has been managing
investments since 1983.
55
<PAGE>
AGGRESSIVE EQUITY PORTFOLIOS
BT SMALL COMPANY INDEX PORTFOLIO
INVESTMENT OBJECTIVE: Seeks to replicate as closely as possible (before the
deduction of Portfolio expenses) the total return of the Russell 2000 Index
("Russell 2000").
THE INVESTMENT STRATEGY
The Portfolio invests primarily in equity securities of small-cap companies
included in the Russell 2000. The Adviser seeks to match the returns of the
Russell 2000. The Portfolio invests in a statistically selected sample of the
securities found in the Russell 2000, using a process known as "optimization."
This process selects stocks for the Portfolio so that industry weightings,
market capitalizations and fundamental characteristics (price to book ratios,
price to earnings ratios, debt to asset ratios and dividend yields) closely
match those of the securities included in the Russell 2000. This approach helps
to increase the Portfolio's liquidity and reduce costs. The securities held by
the Portfolio are weighted to make the Portfolio's total investment
characteristics similar to those of the Russell 2000 as a whole.
[SIDEBAR: For more information on The Russell 2000, see the preceding section
"The Benchmarks." The Portfolio is neither sponsored by nor affiliated with the
Frank Russell Company, which is the owner of the trademarks and copyrights
relating to the Russell indices.]
Over time, the correlation between the performance of the Portfolio and the
Russell 2000 is expected to be 95% or higher before the deduction of Portfolio
expenses. The Portfolio's ability to track the Russell 2000 may be affected by,
among other things, transaction costs, administration and other expenses
incurred by the Portfolio, changes in either the composition of the Russell
2000 or the assets of the Portfolio, and the timing and amount of Portfolio
investor contributions and withdrawals, if any. The Portfolio seeks to track
the Russell 2000, therefore, the Adviser generally will not attempt to judge
the merits of any particular security as an investment.
Securities index futures contracts and related options, warrants and
convertible securities may be used for a number of reasons, including: to
simulate full investment in the Russell 2000 while retaining a cash balance for
fund management purposes; to facilitate trading; to reduce transaction costs;
or to seek higher investment returns when a future contract, option, warrant or
convertible security is priced more attractively than the underlying equity
security or Russell 2000. These instruments are considered to be derivatives.
The Portfolio may invest to a lesser extent in short-term debt securities and
money market securities to meet redemption requests or to facilitate investment
in the securities included in the Russell 2000.
THE PRINCIPAL RISKS
This Portfolio invests in common stocks, therefore, its performance may go up
or down depending on general market conditions. Other principal risks include:
INDEX-FUND RISK: The Portfolio is not actively managed and invests in
securities included in the index regardless of their investment merit.
Therefore, the Portfolio cannot modify its investment strategies to respond to
changes in the economy and may be particularly susceptible to a general decline
in the U.S. or global stock market segment relating to the index.
56
<PAGE>
SMALL-CAP AND MID-CAP COMPANY RISK: The Portfolio's investments in small-cap
and mid-cap companies may be subject to more abrupt or erratic movements in
price than are those of larger, more established companies because: the
securities of such companies are less known and may trade less frequently and
in lower volume; such companies are more likely to experience greater or more
unexpected changes in their earnings and growth prospects; and the products of
technologies of such companies may be at a relatively early stage of
development or not fully tested.
DERIVATIVES RISK: The Portfolio's investments in derivatives can significantly
increase the Portfolio's exposure to market risk or credit risk of the
counterparty. Derivatives also involve the risk of mispricing or improper
valuation and the risk that changes in value of the derivative may not
correlate perfectly with the relevant assets, rates and indices.
FIXED INCOME RISKS: To the extent that a substantial amount of the Portfolio's
assets are invested in fixed income securities, that portion of the Portfolio's
performance will be affected by changes in interest rates, the credit risk of
the issuer, the duration or maturity of the Portfolio's fixed income holdings,
and adverse market or economic conditions. When interest rates rise, the value
of the Portfolio's fixed income securities, particularly those with longer
durations or maturities, will go down. When interest rates fall, the reverse is
true. In addition, to the extent that the Portfolio invests in investment-grade
securities which are rated BBB by S&P or an equivalent rating by any other
nationally recognized statistical rating organization, it will be exposed to
greater risk than if it invested in higher-rated obligations because BBB-rated
securities are regarded as having only an adequate capacity to pay principal
and interest, are considered to lack outstanding investment characteristics,
and may be speculative.
PORTFOLIO PERFORMANCE
The bar chart below illustrates the Portfolio's annual total return for 1998,
the Portfolio's first year of existence. The table below shows the Portfolio's
average annual total returns for the Portfolio for one year and since
inception. The table also compares the Portfolio's performance to the returns
of a broad based index. Both the bar chart and table assume reinvestment of
dividends and distributions. Past performance is not an indication of future
performance. In addition, holders of variable insurance contracts representing
interests in the Portfolio will be subject to charges and expenses relating to
such insurance contracts. The performance results presented below do not
reflect any insurance related expenses and if reflected the results would be
reduced. The Portfolio's inception date was January 1, 1998.
- --------------------------------------------------------------------------------
CALENDAR YEAR ANNUAL TOTAL RETURN
1998
(2.27)%
- --------------------------------------------------------------------------------
Best quarter (% and time period) Worst quarter (% and time period)
16.21% (1998 4th Quarter) (19.52) (1998 3rd Quarter)
57
<PAGE>
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR SINCE INCEPTION
BT SMALL COMPANY INDEX PORTFOLIO (2.27)% (2.27)%
RUSSELL 2000 Index* (2.54)% (2.54)%
- --------------------------------------------------------------------------------
* For more information on this index, see the preceding section "The
Benchmarks."
WHO MANAGES THE PORTFOLIO
BANKERS TRUST COMPANY ("Bankers Trust"), 130 Liberty Street (One Bankers Trust
Plaza), New York, New York 10006. Bankers Trust has been the Adviser to the
Portfolio since it commenced operations. Bankers Trust is a wholly-owned
subsidiary of Bankers Trust New York Corporation. Bankers Trust conducts a
variety of general banking and trust activities and is a major wholesale
supplier of financial services to the international and domestic institutional
markets. Investment management is a core business of Bankers Trust built on a
tradition of excellence from its roots as a trust bank founded in 1903. During
1999, Bankers Trust Corporation and a wholly owned subsidiary of Deutsche Bank
AG ("Deutsche Bank") expect to finalize a merger in which Bankers Trust
Corporation will be acquired by and become a subsidiary of Deutsche Bank.
58
<PAGE>
LAZARD SMALL CAP VALUE PORTFOLIO
INVESTMENT OBJECTIVE: Seeks capital appreciation by investing in equity
securities of United States companies with small market capitalizations (i.e.,
companies in the range of companies represented in the Russell 2000 Index) that
the Adviser considers inexpensively priced relative to the return on total
capital or equity.
THE INVESTMENT STRATEGY
The Portfolio is a non-diversified Portfolio that invests primarily in equity
securities of U.S. companies with small market capitalizations that the Adviser
believes are undervalued based on their return on equity or capital. The
Portfolio will have characteristics similar to the Russell 2000 Index. The
equity securities that may be purchased by the Portfolio include common stocks,
preferred stocks, securities convertible into or exchangeable for common
stocks, rights and warrants.
[SIDEBAR: For more information on The Russell 2000, see the preceding section
"The Benchmarks"]
[SIDEBAR: A Portfolio may be considered to be "non-diversified" for federal
securities law purposes because it invests in a limited number of securities.
In all cases, the Portfolio intends to be diversified for tax purposes so that
it can qualify as a regulated investment company.]
In selecting investments for the Portfolio, the Adviser looks for equity
securities of companies that have one or more of the following characteristics:
(i) are undervalued relative to their earnings, cash flow or asset values; (ii)
have an attractive price/value relationship with expectations that some
catalyst will cause the perception of value to change within two years; (iii)
are out of favor due to circumstances which are unlikely to harm the company's
franchise or earnings power; (iv) have low projected price to earnings or
price-to-cash flow multiples; (v) have the potential to become a larger factor
in the company's business; (vi) have significant debt but have high levels of
free cash flow; and (vii) have a relatively short corporate history with the
expectation that the business may grow.
Although the Portfolio will principally invest at least 80% of its assets in
small capitalization securities, the Portfolio may also invest up to 20% of its
assets in larger capitalization equity securities or investment-grade debt
securities.
When market or financial conditions warrant, the Portfolio may invest without
limitation in short-term money market instruments or hold its assets in cash
for temporary or defensive purposes. Such investment strategies could have the
effect of reducing the benefit of any upswing in the market. Such investment
strategies are inconsistent with the Portfolio's investment objectives and
could result in the Portfolio not achieving its investment objective.
THE PRINCIPAL RISKS
This Portfolio invests in common stocks, therefore, its performance may go up
or down depending on general market conditions. Other principal risks include:
VALUE INVESTING RISK: As noted above, the Portfolio uses a value-oriented
approach to stock selection. Value investing is subject to the risk that a
value stock's intrinsic value may never be fully recognized or realized by the
market, or its price may go down. There is also the risk that a stock judged to
be undervalued may actually be appropriately priced.
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<PAGE>
SMALL-CAP AND MID-CAP COMPANY RISK: The Portfolio's investments in small-cap
and mid-cap companies may be subject to more abrupt or erratic movements in
price than are those of larger, more established companies because: the
securities of such companies are less-well known and may trade less frequently
and in lower volume; such companies are more likely to experience greater or
more unexpected changes in their earnings and growth prospects; and the
products of technologies of such companies may be at a relatively early stage
of development or not fully tested.
NON-DIVERSIFICATION RISK: Since a relatively high percentage of the Portfolio's
assets may be invested in the securities of a limited number of issuers, some
of which may be within the same industry, the securities of the Portfolio may
be more sensitive to changes in the market value of a single issuer or industry
or to risks associated with a single economic, political or regulatory event
than a diversified portfolio.
FIXED INCOME RISKS: To the extent that a substantial amount of the Portfolio's
assets are invested in fixed income securities, that portion of the Portfolio's
performance will be affected by changes in interest rates, the credit risk of
the issuer, the duration or maturity of the Portfolio's fixed income holdings,
and adverse market or economic conditions. When interest rates rise, the value
of the Portfolio's fixed income securities, particularly those with longer
durations or maturities, will go down. When interest rates fall, the reverse is
true. In addition, to the extent that the Portfolio invests in investment-grade
securities which are rated BBB by S&P or an equivalent rating by any other
nationally recognized statistical rating organization, it will be exposed to
greater risk than if it invested in higher-rated obligations because BBB-rated
securities are regarded as having only an adequate capacity to pay principal
and interest, are considered to lack outstanding investment characteristics,
and may be speculative.
PORTFOLIO PERFORMANCE
The bar chart below illustrates the Portfolio's annual total return for 1998,
the Portfolio's first year of existence. The table below shows the Portfolio's
average annual total returns for the Portfolio for one year and since
inception. The table also compares the Portfolio's performance to the returns
of a broad based index. Both the bar chart and table assume reinvestment of
dividends and distributions. Past performance is not an indication of future
performance. In addition, holders of variable insurance contracts representing
interests in the Portfolio will be subject to charges and expenses relating to
such insurance contracts. The performance results presented below do not
reflect any insurance related expenses and if reflected the results would be
reduced. The Portfolio's inception date was January 1, 1998.
- --------------------------------------------------------------------------------
CALENDAR YEAR ANNUAL TOTAL RETURN
1998
(7.03)%
- --------------------------------------------------------------------------------
Best quarter (% and time period) Worst quarter (% and time period)
15.78% (1998 4th Quarter) (20.10)% (1998 3rd Quarter)
60
<PAGE>
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR SINCE INCEPTION
LAZARD SMALL CAP VALUE PORTFOLIO (7.03)% (7.03)%
RUSSELL 2000 INDEX* (2.54)% (2.54)%
- --------------------------------------------------------------------------------
* For more information on this index, see the preceding section "The
Benchmarks."
WHO MANAGES THE PORTFOLIO
LAZARD ASSET MANAGEMENT ("LAM"), 30 Rockefeller Plaza, New York, New York
10112. LAM has been the Adviser to the Portfolio since it commenced operations.
LAM is a division of Lazard Freres & Co. LLC ("Lazard Freres"), a New York
limited liability company, which is registered as an investment adviser with
the SEC. Lazard Freres provides its clients with a wide variety of investment
banking and related services, including investment management.
The Portfolio Managers, responsible for the day to day management since the
inception of the Portfolio, are: EILEEN D. ALEXANDERSON, a Managing Director of
LAM who has been with LAM since 1979 and HERBERT W. GULLQUIST, a Vice-Chairman,
Managing Director and Chief Investment Officer of LAM, who has been with LAM
since 1982.
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<PAGE>
MFS EMERGING GROWTH COMPANIES PORTFOLIO
INVESTMENT OBJECTIVE: Seeks to provide long-term capital growth.
THE INVESTMENT STRATEGY
The Portfolio invests, under normal market conditions, primarily (at least 65%
of its total assets) in common stocks and related securities, such as preferred
stock, convertible securities and depositary receipts of emerging growth
companies. Emerging growth companies that the Adviser believes are either:
o early in their life cycle but have the potential to become major
enterprises, or
o are major enterprises whose rates of earnings growth are expected to
accelerate because of special factors such as rejuvenated management, new
products, changes in customer demand or basic changes in the economic
environment.
For purposes of this Portfolio, emerging growth companies may be of any size
and the Adviser would expect these companies to have products, technologies,
management, markets and opportunities that will facilitate earnings growth over
time that is well above the growth rate of the overall economy and rate of
inflation. The Portfolio's investments may include securities traded in the
over-the-counter markets.
The Adviser uses a "bottom-up" investment style in managing the Portfolio. This
means the securities are selected based upon fundamental analysis performed by
the Adviser.
In addition, up to 15% of the Portfolio's assets may be invested in foreign
securities, including those in emerging markets, or in cash and cash
equivalents.
When adverse market, financial or political conditions warrant, the Portfolio
may depart from its principal strategies for temporary or defensive purposes.
Such investment strategies are inconsistent with the Portfolio's investment
objectives and could result in the Portfolio not achieving its investment
objective.
The Portfolio may engage in active and frequent trading to achieve its
principal investment strategies. Frequent trading increases transaction costs,
which could detract from the Portfolio's performance.
THE PRINCIPAL RISKS
This Portfolio invests in common stocks, therefore, its performance may go up
or down depending on general market conditions. Other principal risks include:
GROWTH INVESTING RISK: As noted above, this Portfolio uses a growth oriented
approach to stock selection. The price of growth stocks may be more sensitive
to changes in current or expected earnings than the prices of other stocks. The
price of growth stocks is also subject to the risk that the stock price of one
or more companies will fall or will fail to appreciate as anticipated by the
Adviser, regardless of movements in the securities market.
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<PAGE>
SMALL-CAP AND MID-CAP COMPANY RISK: The Portfolio's investments in small-cap
and mid-cap companies may be subject to more abrupt or erratic movements in
price than are those of larger, more established companies because: the
securities of such companies are less well-known and may trade less frequently
and in lower volume; such companies are more likely to experience greater or
more unexpected changes in their earnings and growth prospects; and the
products of technologies of such companies may be at a relatively early stage
of development or not fully tested.
FOREIGN SECURITIES RISKS: The Portfolio's investments in foreign securities
involve risks not associated with investing in U.S. securities, which can
adversely affect the Portfolio's performance. Foreign markets, particularly
emerging markets, may be less liquid, more volatile, and subject to less
government supervision than domestic markets. There may be difficulties
enforcing contractual obligations, and it may take more time for trades to
clear and settle. In addition, the value of foreign investments can be
adversely affected by: unfavorable currency exchange rates (relative to the
U.S. dollar for securities denominated in foreign currencies); inadequate or
inaccurate information about foreign companies; higher transaction, brokerage
and custody costs; adverse changes in foreign economic and tax policies; and
foreign government instability, war or other adverse political or economic
actions.
PORTFOLIO PERFORMANCE
The bar chart below illustrates the Portfolio's annual total return for 1998,
the Portfolio's first full year of operations. The table below shows the
Portfolio's average annual total returns for the Portfolio for one year and
since inception. The table also compares the Portfolio's performance to the
returns of a broad-based index. Both the bar chart and table assume
reinvestment of dividends and distributions. Past performance is not an
indication of future performance. In addition, holders of variable insurance
contracts representing interests in the Portfolio will be subject to charges
and expenses relating to such insurance contracts. The performance results
presented below do not reflect any insurance related expenses and if reflected
the results would be reduced. The inception date for the Portfolio is May 1,
1997.
- --------------------------------------------------------------------------------
CALENDAR YEAR ANNUAL TOTAL RETURN
1998
34.57%
- --------------------------------------------------------------------------------
Best quarter (% and time period) Worst quarter (% and time period)
26.70% (1998 4th Quarter) (12.69)% (1998 3rd Quarter)
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR SINCE INCEPTION
MFS EMERGING GROWTH
COMPANIES PORTFOLIO 34.57% 34.81%
RUSSELL 2000 INDEX* (2.54)% (14.53)%
- --------------------------------------------------------------------------------
* For more information on this index, see the preceding section "The
Benchmarks."
63
<PAGE>
WHO MANAGES THE PORTFOLIO
MASSACHUSETTS FINANCIAL SERVICES COMPANY ("MFS"), 500 Boylston Street, Boston,
MA 02116. MFS has been the Adviser to the Portfolio since it commenced
operations. MFS is America's oldest mutual fund organization. MFS and its
predecessor organizations have a history of money management dating from 1924
and the founding of the first mutual fund in the United States, Massachusetts
Investors Trust. MFS is a subsidiary of Sun Life of Canada (United States)
Financial Services Holdings Inc., which, in turn, is an indirect wholly-owned
subsidiary of Sun Life Assurance Company of Canada.
The Portfolio Managers are JOHN W. BALLEN, President of MFS, who has been
employed by MFS as a portfolio manager of the Portfolio since 1984; TONI Y.
SHIMURA, a Vice President of MFS, who has been employed by MFS as a portfolio
manager for the Portfolio since 1995; and STEPHEN PESEK, a Vice President of
MFS, who has been employed as a portfolio manager by MFS since 1994. Prior to
1994, Mr. Pesek worked at Fidelity Investments as a research analyst.
64
<PAGE>
WARBURG PINCUS SMALL COMPANY VALUE PORTFOLIO
INVESTMENT OBJECTIVE: Seeks long-term capital appreciation.
THE INVESTMENT STRATEGY
The Portfolio invests primarily in equity securities of U.S. small-cap
companies with above-average growth potential that the Adviser believes to be
undervalued. Typically, such investments may include common stocks, preferred
stocks, convertible securities, warrants and rights of small-cap companies.
Once 65% of the Portfolio's assets are invested in small-cap companies, the
Portfolio may also invest in companies with a market capitalization of any
size.
[SIDE BAR: For purposes of this Portfolio, small-cap companies are companies
having market capitalizations within the range of capitalizations of companies
represented in the Russell 2000 Index.]
In determining whether a company's stock is undervalued, the Adviser considers
all relevant factors which may include a company's:
o price/earnings ratio,
o price to book value ratio,
o price to cash flow ratio, and
o debt to capital ratio.
The Portfolio will invest primarily (at least 65% of its net assets) in the
securities of U.S. companies traded in the U.S. securities markets. The
Portfolio may invest to a lesser extent in foreign securities, investment grade
debt securities and high quality domestic and foreign short-term (one year or
less) and medium-term money-market securities.
When market or financial conditions warrant, the Portfolio may invest without
limitation in investment grade debt obligations and in domestic and foreign
obligations, including repurchase agreements for temporary or defensive
purposes. Such investment strategies are inconsistent with the Portfolio's
investment objectives and could result in the Portfolio not achieving its
investment objective.
THE PRINCIPAL RISKS
This Portfolio invests in common stocks, therefore, its performance may go up
or down depending on general market conditions. Other principal risks include:
VALUE INVESTING RISK: As noted above, the Portfolio uses a value-oriented
approach to stock selection. Value investing is subject to the risk that a
value stock's intrinsic value may never be fully recognized or realized by the
market, or its price may go down. There is also the risk that a stock judged to
be undervalued may actually be appropriately priced.
SMALL-CAP AND MID-CAP COMPANY RISK: The Portfolio's investments in small-cap
and mid-cap companies may be subject to more abrupt or erratic movements in
price than are those of larger, more established companies because: the
securities of such companies are less well-known and may trade less frequently
and in lower volume; such companies are more likely to experience greater or
more unexpected changes in their earnings and growth prospects; and the
products of technologies of such companies may be at a relatively early stage
of development or not fully tested.
65
<PAGE>
PORTFOLIO TURNOVER RISK: The Portfolio's turnover rate has been over 100% per
year. Higher portfolio turnover (e.g., over 100% per year) will cause the
Portfolio to incur additional transaction costs and may result in higher
taxable gains that could be passed through to shareholders.
FOREIGN SECURITIES RISKS: The Portfolio's investments in foreign securities
involve risks not associated with investing in U.S. securities, which can
adversely affect the Portfolio's performance. Foreign markets, particularly
emerging markets, may be less liquid, more volatile, and subject to less
government supervision than domestic markets. There may be difficulties
enforcing contractual obligations, and it may take more time for trades to
clear and settle. In addition, the value of foreign investments can be
adversely affected by: unfavorable currency exchange rates (relative to the
U.S. dollar for securities denominated in foreign currencies); inadequate or
inaccurate information about foreign companies; higher transaction, brokerage
and custody costs; adverse changes in foreign economic and tax policies; and
foreign government instability, war or other adverse political or economic
actions.
FIXED INCOME RISKS: To the extent that a substantial amount of the Portfolio's
assets are invested in fixed income securities, that portion of the Portfolio's
performance will be affected by changes in interest rates, the credit risk of
the issuer, the duration or maturity of the Portfolio's fixed income holdings,
and adverse market or economic conditions. When interest rates rise, the value
of the Portfolio's fixed income securities, particularly those with longer
durations or maturities, will go down. When interest rates fall, the reverse is
true. In addition, to the extent that the Portfolio invests in investment-grade
securities which are rated BBB by S&P or an equivalent rating by any other
nationally recognized statistical rating organization, it will be exposed to
greater risk than if it invested in higher-rated obligations because BBB-rated
securities are regarded as having only an adequate capacity to pay principal
and interest, are considered to lack outstanding investment characteristics,
and may be speculative.
PORTFOLIO PERFORMANCE
The bar chart below illustrates the Portfolio's annual total return for 1998,
the Portfolio's first full year of operations. The table below shows the
Portfolio's average annual total returns for the Portfolio for one year and
since inception. The table also compares the Portfolio's performance to the
returns of a broad-based index. Both the bar chart and table assume
reinvestment of dividends and distributions. Past performance is not an
indication of future performance. In addition, holders of variable insurance
contracts representing interests in the Portfolio will be subject to charges
and expenses relating to such insurance contracts. The performance results
presented below do not reflect any insurance related expenses and if reflected
the results would be reduced. The inception date for the Portfolio is May 1,
1997.
- --------------------------------------------------------------------------------
CALENDAR YEAR ANNUAL TOTAL RETURN
1998
(10.02)%
- --------------------------------------------------------------------------------
Best quarter (% and time period) Worst quarter (% and time period)
15.49% (1997 3rd Quarter) (20.25)% (1998 3rd Quarter)
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<PAGE>
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR SINCE INCEPTION
WARBURG PINCUS SMALL COMPANY VALUE
PORTFOLIO (10.02)% 4.25%
RUSSELL 2000 INDEX* (2.54)% 14.53%
- --------------------------------------------------------------------------------
* For more information on this index, see the preceding section "The
Benchmarks."
WHO MANAGES THE PORTFOLIO
WARBURG PINCUS ASSET MANAGEMENT, INC. ("WPAM"), 466 Lexington Avenue, New York,
New York 10017-3147. WPAM has been the Adviser to the Portfolio since it
commenced operations. WPAM is a professional investment advisory firm that
provides investment services to investment companies, employee benefit plans,
endowment funds, foundations and other institutions and individuals. WPAM is
indirectly controlled by Warburg, Pincus & Co., a New York partnership which
has no business other than being a holding company of WPAM and its affiliates.
During 1999, WPAM and Credit Suisse Group expect to finalize Credit Suisse
Group's acquisition of WPAM. WPAM will be combined with and into Credit Suisse
Group's global asset management subsidiary, Credit Suisse Asset Management,
LLC.
KYLE F. FREY is the Portfolio Manager and has been responsible for the
day-to-day management of the Portfolio since the Portfolio commenced
operations. Mr. Frey is a managing director of WPAM and has been with WPAM
since 1989.
67
<PAGE>
INTERNATIONAL PORTFOLIOS
BT INTERNATIONAL EQUITY INDEX PORTFOLIO
INVESTMENT OBJECTIVE: Seeks to replicate as closely as possible (before
deduction of Portfolio expenses) the total return of the MSCI EAFE Index.
THE INVESTMENT STRATEGY
The Portfolio invests primarily in equity securities of companies included in
the MSCI EAFE Index. The Portfolio is constructed to have aggregate investment
characteristics similar to those of the MSCI EAFE Index. The Portfolio invests
in a statistically selected sample of the securities of companies included in
the MSCI EAFE Index, although not all companies within a country will be
represented in the Portfolio at the same time. Stocks are selected based on
country of origin, market capitalization, yield, volatility and industry
sector. The Adviser will manage the Portfolio using advanced statistical
techniques to determine which securities should be purchased or sold in order
to replicate the MSCI EAFE index.
[SIDEBAR: For more information on the MSCI EAFE Index see the preceding section
"The Benchmarks." The MSCI EAFE Index is the exclusive property of Morgan
Stanley. The Portfolio is not sponsored, endorsed, sold or promoted by Morgan
Stanley and Morgan Stanley makes no guarantee as to the accuracy or
completeness of the MSCI EAFE Index or any data included therein.]
Over time, the correlation between the performance of the Portfolio and the
MSCI EAFE Index is expected to be 95% or higher before deduction of Portfolio
expenses. The Portfolio's ability to track the MSCI EAFE Index may be affected
by, among others, transaction costs, administration and other expenses incurred
by the Portfolio, changes in either the composition of the MSCI EAFE Index or
the assets of the Portfolio, and the timing and amount of Portfolio investor
contributions and withdrawals, if any. The Portfolio seeks to track the MSCI
EAFE Index, therefore, the Adviser generally will not attempt to judge the
merits of any particular security as an investment.
The Portfolio may invest to a lesser extent in short-term debt securities and
money market instruments to meet redemption requests or to facilitate
investment in the securities of the MSCI EAFE Index. Securities index futures
contracts and related options, warrants and convertible securities may be used
for a number of reasons, including: to simulate full investment in the MSCI
EAFE Index while retaining a cash balance for Portfolio management purposes; to
facilitate trading; to reduce transaction costs; or to seek higher investment
returns when a future contract, option, warrant or convertible security is
priced more attractively than the underlying equity security or MSCI EAFE
Index. These instruments are considered to be derivatives.
THE PRINCIPAL RISKS
This Portfolio invests in common stocks, therefore, its performance may go up
or down depending on general market conditions. Other principal risks include:
INDEX-FUND RISK: The Portfolio is not actively managed and invests in
securities included in the index regardless of their investment merit.
Therefore, the Portfolio cannot modify its investment strategies to respond to
changes in the economy and may be particularly susceptible to a general decline
in the U.S. or global stock market segment relating to the index.
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<PAGE>
FOREIGN SECURITIES RISKS: The Portfolio's investments in foreign securities
involve risks not associated with investing in U.S. securities that can
adversely affect the Portfolio's performance. Foreign markets, particularly
emerging markets, may be less liquid, more volatile and subject to less
government supervision than domestic markets. There may be difficulties
enforcing contractual obligations, and it may take more time for trades to
clear and settle. In addition, foreign investments can be adversely affected
by: unfavorable currency exchange rates (relative to the U.S. dollar for
securities denominated in a foreign currencies); inadequate or inaccurate
information about foreign companies; higher transaction, brokerage and custody
costs; adverse changes in foreign economic and tax policies; and foreign
government instability, war or other adverse political or economic actions.
Other specific risks of investing in foreign securities include:
EMERGING MARKET RISK: There are greater risks involved in investing in
emerging markets countries and/or their securities markets, such as
less diverse and less mature economic structures, less stable
political systems, more restrictive foreign investment policies,
smaller-sized securities markets and low trading volumes. Such risks
can make investments illiquid and more volatile than investments in
developed countries and such securities may be subject to abrupt and
severe price declines. The Year 2000 problem may also be especially
acute in emerging market countries, which also may adversely affect
the value of the Portfolio's investments.
EURO RISK: The Portfolio invests in securities issued by European
issuers that that may be adversely impacted by the introduction of the
"Euro" as a common currency in 11 European Monetary Union member
states. The Euro may result in various legal and accounting
differences, tax treatments, the creation and implementation of
suitable clearing and settlement systems and other operational
problems, that may cause market disruptions that could adversely
affect investments quoted in the Euro.
REGULATORY RISK: In general, foreign companies are also not subject
to uniform accounting, auditing and financial reporting standards or
to other regulatory practices and requirements as are U.S. companies,
which could adversely affect their value.
LIQUIDITY RISK: Certain securities held by the Portfolio may be difficult (or
impossible) to sell at the time and at the price the seller would like which
may cause the Portfolio to lose money or be prevented from earning capital
gains.
DERIVATIVES RISK: The Portfolio's investments in derivatives can significantly
increase the Portfolio's exposure to market risk or credit risk of the
counterparty. Derivatives also involve the risk of mispricing or improper
valuation and the risk that changes in value of the derivative may not
correlate perfectly with the relevant assets, rates and indices.
PORTFOLIO PERFORMANCE
The bar chart and table below illustrate the Portfolio's average annual total
return for 1998, the Portfolio's first year of existence. The table below shows
the Portfolio's average annual total returns for the Portfolio for one year and
since inception. The table also compares the Portfolio's performance to the
returns of a broad based index. Both the bar chart and table assume
reinvestment of dividends and distributions. Past performance is not an
indication of future performance. In addition, holders of variable insurance
contracts representing interests in the Portfolio will be subject to charges
and expenses relating to such insurance contracts. The performance results
presented below do not reflect any insurance related expenses and if reflected
the results would be reduced. The Portfolio's inception date was January 1,
1998.
69
<PAGE>
- --------------------------------------------------------------------------------
CALENDAR YEAR ANNUAL TOTAL RETURN
1998
20.07%
- --------------------------------------------------------------------------------
Best quarter (% and time period) Worst quarter (% and time period)
20.43% (1998 4th Quarter) (13.90)% (1998 3rd Quarter)
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR SINCE INCEPTION
BT INTERNATIONAL EQUITY INDEX
PORTFOLIO 20.07% 20.07%
MSCI EAFE INDEX* 20.00% 20.00%
- --------------------------------------------------------------------------------
* For more information on this index, see the preceding section "The
Benchmarks."
WHO MANAGES THE PORTFOLIO
BANKERS TRUST COMPANY ("Bankers Trust"), 130 Liberty Street (One Bankers Trust
Plaza), New York, New York 10006. Bankers Trust has been the Adviser to the
Portfolio since it commenced operations. Bankers Trust is a wholly-owned
subsidiary of Bankers Trust New York Corporation. Bankers Trust conducts a
variety of general banking and trust activities and is a major wholesale
supplier of financial services to the international and domestic institutional
markets, including investment management. During 1999, Bankers Trust
Corporation and a wholly owned subsidiary of Deutsche Bank AG ("Deutsche Bank")
expect to finalize a merger in which Bankers Trust Corporation will be acquired
by and become a subsidiary of Deutsche Bank.
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<PAGE>
CAPITAL GUARDIAN INTERNATIONAL PORTFOLIO
INVESTMENT OBJECTIVE: To achieve long-term growth of capital by investing
primarily in non-U.S. equity 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), warrants, rights, and non-convertible preferred stock.
However, when the Adviser believes that market and economic conditions indicate
that it is desirable to do so, the Portfolio may also purchase high-quality
debt securities rated, at the time of purchase, within the top three quality
categories by Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's
Corporation ("S&P") (or unrated securities of equivalent quality), repurchase
agreements, and short-term debt obligations denominated in U.S. dollars or
foreign currencies.
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-U.S. dollar denominated securities
or holds non-U.S. dollar assets, 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. The Portfolio may also cross-hedge between two non-U.S.
currencies.
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.
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<PAGE>
THE PRINCIPAL RISKS
This Portfolio invests in common stocks, therefore, its performance may go up
or down depending on general market conditions. Other principal risks include:
FOREIGN SECURITIES RISK: The Portfolio's investments in foreign securities
involve risks not associated with investing in U.S. securities, which can
adversely affect the Portfolio's performance. Foreign markets, particularly
emerging markets, may be less liquid, more volatile, and subject to less
government supervision than domestic markets. There may be difficulties
enforcing contractual obligations, and it may take more time for trades to
clear and settle. In addition, the value of foreign investments can be
adversely affected by: unfavorable currency exchange rates (relative to the
U.S. dollar for securities denominated in foreign currencies); inadequate or
inaccurate information about foreign companies; higher transaction, brokerage
and custody costs; adverse changes in foreign economic and tax policies; and
foreign government instability, war or other adverse political or economic
actions. Other specific risks of investing in foreign securities include:
EMERGING MARKET RISK: There are greater risks involved in investing in
emerging markets countries and/or their securities markets, such as
less diverse and less mature economic structures, less stable
political systems, more restrictive foreign investment policies,
smaller-sized securities markets and low trading volumes. Such risks
can make investments illiquid and more volatile than investments in
developed countries and such securities may be subject to abrupt and
severe price declines. The Year 2000 problem may also be especially
acute in emerging market countries, which also may adversely affect
the value of the Portfolio's investments.
EURO RISK: The Portfolio invests in securities issued by European
issuers that that may be adversely impacted by the introduction of the
"Euro" as a common currency in 11 European Monetary Union member
states. The Euro may result in various legal and accounting
differences, tax treatments, the creation and implementation of
suitable clearing and settlement systems and other operational
problems, that may cause market disruptions that could adversely
affect investments quoted in the Euro.
REGULATORY RISK: In general, foreign companies are also not subject
to uniform accounting, auditing and financial reporting standards or
to other regulatory practices and requirements as are U.S. companies,
which could adversely affect their value.
GROWTH INVESTING RISK: As noted above, this Portfolio uses a growth oriented
approach to stock selection. The price of growth stocks may be more sensitive
to changes in current or expected earnings than the prices of other stocks. The
price of growth stocks is also subject to the risk that the stock price of one
or more companies will fall or will fail to appreciate as anticipated by the
Adviser, regardless of movements in the securities markets.
CONVERTIBLE SECURITIES RISK: Convertible securities enable the Portfolio to
benefit from increases in the market price of the underlying common stock and
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 both in relation to changes in
interest rates and changes in the value of the underlying common stock.
DERIVATIVES RISK: The Portfolio's investments in derivatives can significantly
increase the Portfolio's exposure to market risk or credit risk of the
counterparty. Derivatives also involve the risk of mispricing or improper
valuation and the risk that changes in value of the derivative may not
correlate perfectly with the relevant assets, rates and indices.
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PORTFOLIO PERFORMANCE
- --------------------------------------------------------------------------------
The inception date for this Portfolio is May 1, 1999. Therefore, no prior
performance information is available.
- --------------------------------------------------------------------------------
WHO MANAGES THE PORTFOLIO
CAPITAL GUARDIAN TRUST COMPANY ("Capital Guardian"), 333 South Hope Street, Los
Angeles, CA 90071. 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 multiple portfolio manager system under which the
Portfolio is divided into several segments. Each segment is individually
managed with the portfolio manager free to decide on company and industry
selections as well as valuation and transaction assessment. An additional
portion of the Portfolio is managed by a group of investment research analysts.
The individual portfolio managers of each segment of the Portfolio, other than
that managed by the group of research analysts, are as follows:
DAVID I. FISHER. David Fisher is Chairman of the Board of Capital Group
International, Inc. and Capital Guardian. He joined the Capital Guardian
organization in 1969.
HARTMUT GIESECKE. Hartmut Giesecke is Chairman of the Board of Capital's
Japanese investment management subsidiary, Capital International K.K., and
Managing Director Asia-Pacific, Capital Group International, Inc. He is also a
Senior Vice President and a Director of Capital International Research, Inc.
and Capital International, Inc. He joined the Capital Guardian organization in
1972.
RICHARD N. HAVAS. Richard Havas is a Senior Vice President and a portfolio
manager for Capital Guardian and Capital International Limited. He is also a
Senior Vice President and Director for Capital Guardian (Canada), Inc. and
Capital International Research, Inc. He joined the Capital Guardian
organization in 1986.
NANCY J. KYLE. Nancy Kyle is a Senior Vice President and a Director and member
of the Executive Committee of Capital Guardian. She is also President and a
Director of Capital Guardian (Canada), Inc. and a Vice President of Emerging
Markets Growth Fund. She is an international equity and emerging markets
portfolio manager. She joined the Capital Guardian organization in 1991.
JOHN MCILWRAITH. John McIlwraith is a Senior Vice President-International and a
director of Capital Guardian, a Director and a Senior Vice President of Capital
International Limited, and an international equity portfolio manager. He joined
the Capital Guardian organization in 1984.
ROBERT RONUS. Robert Ronus is President and a Director of Capital Guardian. He
is also Chairman of the Board of Capital International Research, Inc., Chairman
of the Board and a Director of Capital Guardian (Canada), Inc., a Director of
The Capital Group Companies, Inc. and Capital Group International, Inc., and a
Senior Vice President of Capital International S.A. and Capital International
Limited. He joined the Capital Guardian organization in 1972.
LIONEL M. SAUVAGE. Lionel Sauvage is a Senior Vice President and portfolio
manager for Capital Guardian and a Vice President and a Director for Capital
International Research, Inc. He joined the Capital Guardian organization in
1987.
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<PAGE>
NILLY SIKORSKY. Nilly Sikorsky is President and Managing Director of Capital
International S.A., Chairman of Capital International Perspective S.A.,
Managing Director-Europe and a Director of Capital Group International, Inc.,
as well as a Director of The Capital Group Companies, Inc., Capital
International Limited, and Capital International K.K. She joined the Capital
Guardian organization in 1962.
RUDOLF M. STAEHELIN. Rudolf Staehelin is a Senior Vice President and Director
of Capital International Research, Inc. and Capital International S.A. He is a
portfolio manager for Capital Guardian, Capital International S.A., and Capital
International Limited. He joined Capital Guardian in 1981.
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EQ/PUTNAM INTERNATIONAL EQUITY PORTFOLIO
INVESTMENT OBJECTIVE: Seeks capital appreciation.
THE INVESTMENT STRATEGY
The Portfolio invests primarily in equity securities of companies in a number
of different countries. Such equity securities normally include common stocks,
preferred stocks, securities convertible into common or preferred stocks and
warrants. Under normal market circumstances, a majority of the Portfolio's
assets will be invested in companies located in at least three different
countries outside the United States. The countries in which the Portfolio may
invest include emerging market countries.
The Portfolio considers the following to be an issuer of securities located in
a country other than the U.S.:
o companies organized under the laws of a country other than the U.S. with a
principal office outside the U.S., or
o companies that earn 50% or more of their total revenues from business
outside the U.S.
The Portfolio may engage in a variety of transactions using "derivatives," such
as futures, options, warrants, forward and swap contracts on both securities
and currencies.
The Portfolio will not limit its investments to any particular type of company.
The Portfolio may invest in companies of any size whose earnings the Adviser
believes to be in a relatively strong growth trend or whose securities the
Adviser considers to be undervalued.
The Adviser considers, among other things, a company's financial strength,
competitive position in its industry and projected future earnings and
dividends when deciding whether to buy or sell investments.
When market or financial conditions warrant, the Portfolio may invest, without
limitation, in securities of any kind, including securities traded primarily in
U.S. markets, cash and money market instruments for temporary or defensive
purposes. Such investment strategies are inconsistent with the Portfolio's
investment objectives and could result in the Portfolio not achieving its
investment objective.
THE PRINCIPAL RISKS
This Portfolio invests in common stocks, therefore, its performance may go up
or down depending on general market conditions. Other principal risks include:
FOREIGN SECURITIES RISKS: The Portfolio's investments in foreign securities
involve risks not associated with investing in U.S. securities that can
adversely affect the Portfolio's performance. Foreign markets, particularly
emerging markets, may be less liquid, more volatile and subject to less
government supervision than domestic markets. There may be difficulties
enforcing contractual obligations, and it may take more time for trades to
clear and settle. In addition, foreign investments can be adversely affected
by: unfavorable currency exchange rates (relative to the U.S. dollar for
securities denominated in a foreign currencies); inadequate or inaccurate
information about foreign companies; higher transaction, brokerage and custody
costs; adverse changes in foreign economic and tax policies; and foreign
government instability, war or other adverse political or economic actions.
Other specific risks of investing in foreign securities include:
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<PAGE>
EMERGING MARKET RISK: There are greater risks involved in investing in
emerging markets countries and/or their securities markets, such as
less diverse and less mature economic structures, less stable
political systems, more restrictive foreign investment policies,
smaller-sized securities markets and low trading volumes. Such risks
can make investments illiquid and more volatile than investments in
developed countries and such securities may be subject to abrupt and
severe price declines. The Year 2000 problem may also be especially
acute in emerging market countries, which also may adversely affect
the value of the Portfolio's investments.
EURO RISK: The Portfolio invests in securities issued by European
issuers that that may be adversely impacted by the introduction of the
"Euro" as a common currency in 11 European Monetary Union member
states. The Euro may result in various legal and accounting
differences, tax treatments, the creation and implementation of
suitable clearing and settlement systems and other operational
problems, that may cause market disruptions that could adversely
affect investments quoted in the Euro.
REGULATORY RISK: In general, foreign companies are also not subject
to uniform accounting, auditing and financial reporting standards or
to other regulatory practices and requirements as are U.S. companies,
which could adversely affect their value.
SMALL-CAP AND MID-CAP COMPANY RISK: The Portfolio's investments in small-cap
and mid-cap companies may be subject to more abrupt or erratic movements in
price than are those of larger, more established companies because: the
securities of such companies are less well-known and may trade less frequently
and in lower volume; such companies are more likely to experience greater or
more unexpected changes in their earnings and growth prospects; and the
products of technologies of such companies may be at a relatively early stage
of development or not fully tested.
DERIVATIVES RISK: The Portfolio's investments in derivatives can significantly
increase the Portfolio's exposure to market risk or credit risk of the
counterparty. Derivatives also involve the risk of mispricing or improper
valuation and the risk that changes in value of the derivative may not
correlate perfectly with the relevant assets, rates and indices.
LIQUIDITY RISK: Certain securities held by the Portfolio may be difficult (or
impossible) to sell at the time and at the price the seller would like which
may cause the Portfolio to lose money or be prevented from earning capital
gains.
PORTFOLIO PERFORMANCE
The bar chart below illustrates the Portfolio's annual total return for 1998,
the Portfolio's first full year of operations. The table below shows the
Portfolio's average annual total returns for the Portfolio for one year and
since inception. The table also compares the Portfolio's performance to the
returns of a broad-based index. Both the bar chart and table assume
reinvestment of dividends and distributions. Past performance is not an
indication of future performance. In addition, holders of variable insurance
contracts representing interests in the Portfolio will be subject to charges
and expenses relating to such insurance contracts. The performance results
presented below do not reflect any insurance related expenses and if reflected
the results would be reduced. The inception date for the Portfolio is May 1,
1997.
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<PAGE>
- --------------------------------------------------------------------------------
CALENDAR YEAR ANNUAL TOTAL RETURN
1998
19.51%
- --------------------------------------------------------------------------------
Best quarter (% and time period) Worst quarter (% and time period)
22.16% (1998 4th Quarter) (18.48)% (1998 3rd Quarter)
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR SINCE INCEPTION
EQ/PUTNAM INTERNATIONAL EQUITY 19.51% 17.52%
PORTFOLIO
S&P 500 INDEX* 20.00% 13.43%
- --------------------------------------------------------------------------------
* For more information on this index, see the preceding section "The
Benchmarks."
WHO MANAGES THE PORTFOLIO
PUTNAM INVESTMENT MANAGEMENT, INC. ("Putnam Management"), One Post Office
Square, Boston, MA 02109. Putnam Management has been the Adviser to the
Portfolio since the Portfolio commenced operations. Putnam Management has been
managing mutual funds since 1937. Putnam Management is a subsidiary of Putnam
Investments, Inc.
The Portfolio Managers, responsible for the day to day management of the
Portfolio since the inception of the Portfolio, are JUSTIN SCOTT, a Managing
Director, who has been with Putnam Management as an investment professional*
since 1988 and OMID KAMSHAD, a Managing Director, who has been employed as an
investment professional* by Putnam Management since 1996. Prior to January
1996, he was a Director of Investments at Lombard Odier International Portfolio
Management Limited and prior to April 1995, he was Director at Baring Asset
Management Company. (*Investment professional means that the manager was either
a portfolio manager or analyst.)
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<PAGE>
MORGAN STANLEY EMERGING MARKETS EQUITY PORTFOLIO
INVESTMENT OBJECTIVE: Seeks long-term capital appreciation by investing
primarily in equity securities of emerging country issuers.
THE INVESTMENT STRATEGY
The Portfolio is a non-diversified Portfolio that invests primarily in equity
securities of companies located in emerging markets countries. Such equity
securities may include common stocks, preferred stocks, convertible securities,
depositary receipts, rights and warrants. The Adviser focuses on
growth-oriented companies in emerging market countries that it believes have
strong developing economies and increasingly sophisticated markets. The
Portfolio generally invests only in emerging markets countries whose currencies
are freely convertible into United States dollars.
[SIDEBAR: A Portfolio may be considered to be "non-diversified" for federal
securities law purposes because it invests in a limited number of securities.
In all cases, the Portfolio intends to be diversified for tax purposes so that
it can qualify as a regulated investment company.]
[SIDEBAR: For purposes of this Portfolio, an emerging market country security
is defined as a security of an issuer having one or more of the following
characteristics:
o its principal securities trading market is in an emerging market country;
o alone or on a consolidated basis, at least 50% of its revenues are derived
from goods produced, sales made or services performed in emerging market
countries; and
o it is organized under the laws of or has a principal office in an emerging
market country]
The Adviser's investment approach combines top-down country allocation with
bottom-up stock selection.
[SIDEBAR: In a "top-down" approach, country allocations are made based on
forecasts of stock market trends. In a "bottom-up" approach, securities are
reviewed and chosen individually.]
The Portfolio may invest to a lesser extent in corporate or government-issued
or guaranteed debt securities of emerging markets countries, including debt
securities that are rated or considered to be below investment grade ("junk
bonds"). The Portfolio also may, to a lesser extent, invest in equity or debt
securities (including "junk bonds") of corporate or governmental issuers
located in industrialized countries, foreign currency or investment funds and
supranational entities such as the World Bank. In addition, the Portfolio may
utilize forward foreign currency contracts, options and futures contracts and
swap transactions.
When market or financial conditions warrant, the Portfolio may invest in
certain short- and medium-term fixed income securities of issuers other than
emerging market issuers and may invest without limitation in high quality money
market instruments for temporary or defensive purposes. Such investment
strategies are inconsistent with the Portfolio's investment objectives and
could result in the Portfolio not achieving its investment objective.
THE PRINCIPAL RISKS
This Portfolio invests in common stocks, therefore, its performance may go up
or down depending on general market conditions. Other principal risks include:
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<PAGE>
FOREIGN SECURITIES RISKS: The Portfolio's investments in foreign securities
involve risks not associated with investing in U.S. securities that can
adversely affect the Portfolio's performance. Foreign markets, particularly
emerging markets, may be less liquid, more volatile and subject to less
government supervision than domestic markets. There may be difficulties
enforcing contractual obligations, and it may take more time for trades to
clear and settle. In addition, foreign investments can be adversely affected
by: unfavorable currency exchange rates (relative to the U.S. dollar for
securities denominated in a foreign currencies); inadequate or inaccurate
information about foreign companies; higher transaction, brokerage and custody
costs; adverse changes in foreign economic and tax policies; and foreign
government instability, war or other adverse political or economic actions.
Other specific risks of investing in foreign securities include:
EMERGING MARKET RISK: There are greater risks involved in investing in
emerging markets countries and/or their securities markets, such as
less diverse and less mature economic structures, less stable
political systems, more restrictive foreign investment policies,
smaller-sized securities markets and low trading volumes. Such risks
can make investments illiquid and more volatile than investments in
developed countries and such securities may be subject to abrupt and
severe price declines. The Year 2000 problem may also be especially
acute in emerging market countries, which also may adversely affect
the value of the Portfolio's investments.
EURO RISK: The Portfolio invests in securities issued by European
issuers that that may be adversely impacted by the introduction of the
"Euro" as a common currency in 11 European Monetary Union member
states. The Euro may result in various legal and accounting
differences, tax treatments, the creation and implementation of
suitable clearing and settlement systems and other operational
problems, that may cause market disruptions that could adversely
affect investments quoted in the Euro.
REGULATORY RISK: In general, foreign companies are also not subject
to uniform accounting, auditing and financial reporting standards or
to other regulatory practices and requirements as are U.S. companies,
which could adversely affect their value.
DERIVATIVES RISK: The Portfolio's investments in derivatives can significantly
increase the Portfolio's exposure to market risk or credit risk of the
counterparty. Derivatives also involve the risk of mispricing or improper
valuation and the risk that changes in value of the derivative may not
correlate perfectly with the relevant assets, rates and indices.
LIQUIDITY RISK: Certain securities held by the Portfolio may be difficult (or
impossible) to sell at the time and at the price the seller would like which
may cause the Portfolio to lose money or be prevented from earning capital
gains.
PORTFOLIO TURNOVER RISK: The Portfolio's turnover rate has been over 100% per
year. Higher portfolio turnover (e.g., over 100% per year) will cause the
Portfolio to incur additional transaction costs and may result in higher
taxable gains that could be passed through to shareholders.
NON-DIVERSIFICATION RISK: Since a relatively high percentage of the Portfolio's
assets may be invested in the securities of a limited number of issuers, some
of which may be within the same industry, the securities of the Portfolio may
be more sensitive to changes in the market value of a single issuer or industry
or to risks associated with a single economic, political or regulatory event
than a diversified portfolio.
FIXED INCOME RISKS: To the extent that a substantial amount of the Portfolio's
assets are invested in fixed income securities, that portion of the Portfolio's
performance will be affected by changes in interest rates, the credit risk of
the issuer, the duration or maturity of the Portfolio's fixed income holdings,
and
79
<PAGE>
adverse market or economic conditions. When interest rates rise, the value of
the Portfolio's fixed income securities, particularly those with longer
durations or maturities, will go down. When interest rates fall, the reverse is
true. In addition, to the extent that the Portfolio invests in investment-grade
securities which are rated BBB by S&P or an equivalent rating by any other
nationally recognized statistical rating organization, it will be exposed to
greater risk than if it invested in higher-rated obligations because BBB-rated
securities are regarded as having only an adequate capacity to pay principal
and interest, are considered to lack outstanding investment characteristics,
and may be speculative. The risk that an issuer or guarantor of a fixed income
security or counterparty to the Portfolio's fixed income transaction is unable
to meets its financial obligations is particularly significant for this
Portfolio because this Portfolio invests a portion of its assets in "junk
bonds" (i.e., securities rated below investment grade). Junks bonds are issued
by companies with questionable credit strength and, consequently, are
considered to be speculative in nature and may be subject to greater market
fluctuations than investment grade fixed-income securities.
PORTFOLIO PERFORMANCE
The bar chart below illustrates the Portfolio's annual total return for 1998,
the Portfolio's first full year of operations. The table below shows the
Portfolio's average annual total returns for the Portfolio for one year and
since inception. The table also compares the Portfolio's performance to the
returns of a broad-based index. Both the bar chart and table assume
reinvestment of dividends and distributions. Past performance is not an
indication of future performance. In addition, holders of variable insurance
contracts representing interests in the Portfolio will be subject to charges
and expenses relating to such insurance contracts. The performance results
presented below do not reflect any insurance related expenses and if reflected
the results would be reduced. The inception date for the Portfolio is August
20, 1997.
- --------------------------------------------------------------------------------
CALENDAR YEAR ANNUAL TOTAL RETURN
1998
(27.10)%
- --------------------------------------------------------------------------------
Best quarter (% and time period) Worst quarter (% and time period)
14.56% (1998 4th Quarter) (22.14)% (1998 2nd Quarter)
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR SINCE INCEPTION
MORGAN STANLEY EMERGING
MARKETS EQUITY PORTFOLIO (27.10)% (32.69)%
MSCI EMERGING MARKETS
FREE* (25.34)% (28.92)%
- --------------------------------------------------------------------------------
* For more information on this index, see the preceding section "The
Benchmarks."
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<PAGE>
WHO MANAGES THE PORTFOLIO
MORGAN STANLEY ASSET MANAGEMENT ("MSAM"), 1221 Avenue of the Americas, New
York, NY 10020. MSAM has been the Adviser to the Portfolio since the Portfolio
commenced operations. MSAM conducts a worldwide investment management business,
providing a broad range of portfolio management services to customers in the
United States and abroad. MSAM serves as an investment adviser to numerous
open-end and closed-end investment companies. On December 1, 1998, Morgan
Stanley Asset Management Inc. changed its name to Morgan Stanley Dean Witter
Investment Management Inc. but continues to do business in certain instances
using the name Morgan Stanley Asset Management.
The Portfolio Managers, responsible for the day to day management of the
Portfolio since the Portfolio commenced operations, are: ROBERT MEYER, a
Managing Director of MSAM and Morgan Stanley & Co. Incorporated, who is head of
MSAM's Emerging Markets Equity Group and who joined MSAM in 1989; and ANDY
SKOV, a Principal of MSAM and Morgan Stanley & Co. Incorporated who joined MSAM
in 1994.
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<PAGE>
T. ROWE PRICE INTERNATIONAL STOCK PORTFOLIO
INVESTMENT OBJECTIVE: Seeks long-term growth of capital through investment
primarily in common stocks of established non-United States companies.
THE INVESTMENT STRATEGY
The Portfolio invests substantially all of its assets in common stocks of
established companies outside of the United States. The Portfolio intends to
diversify broadly among countries throughout the world by having securities
from at least five different countries represented in the Portfolio. No more
than 20% of its assets will be invested in securities of any one country,
except that up to 35% can be invested in stocks of companies in Australia,
Canada, France, Japan, United Kingdom or Germany. In determining the
appropriate distribution of investments among various countries and geographic
regions, the Adviser ordinarily considers the following factors:
o prospects for relative economic growth between foreign countries,
o expected levels of inflation,
o government policies influencing business conditions,
o the outlook for currency relationships, and
o the range of individual investment opportunities available to
international investors.
The Portfolio expects to invest substantially all of its assets in common
stocks. However, the Portfolio may also invest in a variety of other equity
securities such as preferred stocks, warrants and convertible securities as
well as governmental debt securities and investment grade debt securities. The
Portfolio may also invest in certain foreign investment funds, hybrid
instruments and derivative instruments in keeping with the Portfolio objective.
In analyzing companies for investment, the Adviser uses a "bottom-up" approach
and looks for companies that have:
o prospects for achieving and sustaining above-average, long -term
earnings growth per share,
o a high return on invested capital,
o healthy balance sheet,
o sound financial and accounting policies and overall financial
strength,
o strong competitive advantages,
o effective research, product development and marketing,
o pricing flexibility,
o strong management, and
o record of paying dividends.
This means that the securities are selected based upon fundamental analysis
performed by the Adviser, and are not selected based upon the type of
industries to which they belong.
When market or financial conditions warrant, the Portfolio may invest without
limitation in high quality U.S. Government and corporate debt obligations for
temporary or defensive purposes. Such investment strategies are inconsistent
with the Portfolio's investment objectives and could result in the Portfolio
not achieving its investment objective.
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<PAGE>
THE PRINCIPAL RISKS
This Portfolio invests in common stocks, therefore, its performance may go up
or down depending on general market conditions. Other principal risks include:
GROWTH INVESTING RISK: As noted above, this Portfolio uses a growth oriented
approach to stock selection. The price of growth stocks may be more sensitive
to changes in current or expected earnings than the prices of other stocks. The
price of growth stocks is also subject to the risk that the stock price of one
or more companies will fall or will fail to appreciate as anticipated by the
Adviser, regardless of movements in the securities market.
FOREIGN SECURITIES RISKS: The Portfolio's investments in foreign securities
involve risks not associated with investing in U.S. securities that can
adversely affect the Portfolio's performance. Foreign markets, particularly
emerging markets, may be less liquid, more volatile and subject to less
government supervision than domestic markets. There may be difficulties
enforcing contractual obligations, and it may take more time for trades to
clear and settle. In addition, foreign investments can be adversely affected
by: unfavorable currency exchange rates (relative to the U.S. dollar for
securities denominated in a foreign currencies); inadequate or inaccurate
information about foreign companies; higher transaction, brokerage and custody
costs; adverse changes in foreign economic and tax policies; and foreign
government instability, war or other adverse political or economic actions.
Other specific risks of investing in foreign securities include:
EMERGING MARKET RISK: There are greater risks involved in investing in
emerging markets countries and/or their securities markets, such as
less diverse and less mature economic structures, less stable
political systems, more restrictive foreign investment policies,
smaller-sized securities markets and low trading volumes. Such risks
can make investments illiquid and more volatile than investments in
developed countries and such securities may be subject to abrupt and
severe price declines. The Year 2000 problem may also be especially
acute in emerging market countries, which also may adversely affect
the value of the Portfolio's investments.
EURO RISK: The Portfolio invests in securities issued by European
issuers that that may be adversely impacted by the introduction of the
"Euro" as a common currency in 11 European Monetary Union member
states. The Euro may result in various legal and accounting
differences, tax treatments, the creation and implementation of
suitable clearing and settlement systems and other operational
problems, that may cause market disruptions that could adversely
affect investments quoted in the Euro.
REGULATORY RISK: In general, foreign companies are also not subject
to uniform accounting, auditing and financial reporting standards or
to other regulatory practices and requirements as are U.S. companies,
which could adversely affect their value.
LIQUIDITY RISK: Certain securities held by the Portfolio may be difficult (or
impossible) to sell at the time and at the price the seller would like which
may cause the Portfolio to lose money or be prevented from earning capital
gains.
FIXED INCOME RISKS: To the extent that a substantial amount of the Portfolio's
assets are invested in fixed income securities, that portion of the Portfolio's
performance will be affected by changes in interest rates, the credit risk of
the issuer, the duration or maturity of the Portfolio's fixed income holdings,
and adverse market or economic conditions. When interest rates rise, the value
of the Portfolio's fixed income securities, particularly those with longer
durations or maturities, will go down. When interest rates fall, the reverse is
true. In addition, to the extent that the Portfolio invests in investment-grade
securities which are rated BBB by S&P or an equivalent rating by any other
nationally recognized
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<PAGE>
statistical rating organization, it will be exposed to
greater risk than if it invested in higher-rated obligations because BBB-rated
securities are regarded as having only an adequate capacity to pay principal
and interest, are considered to lack outstanding investment characteristics,
and may be speculative.
PORTFOLIO PERFORMANCE
The bar chart below illustrates the Portfolio's annual total return for 1998,
the Portfolio's first full year of operations. The table below shows the
Portfolio's average annual total returns for the Portfolio for one year and
since inception. The table also compares the Portfolio's performance to the
returns of a broad-based index. Both the bar chart and table assume
reinvestment of dividends and distributions. Past performance is not an
indication of future performance. In addition, holders of variable insurance
contracts representing interests in the Portfolio will be subject to charges
and expenses relating to such insurance contracts. The performance results
presented below do not reflect any insurance related expenses and if reflected
the results would be reduced. The inception date for the Portfolio is May 1,
1997.
- --------------------------------------------------------------------------------
CALENDAR YEAR ANNUAL TOTAL RETURN
1998
13.68%
- --------------------------------------------------------------------------------
Best quarter (% and time period) Worst quarter (% and time period)
16.86% (1998 4th Quarter) (13.63)% (1998 3rd Quarter)
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR SINCE INCEPTION
T. ROWE PRICE INTERNATIONAL STOCK
PORTFOLIO 13.68% 7.01%
MSCI EAFE INDEX* 20.00% 13.43%
- --------------------------------------------------------------------------------
* For more information on this index, see the preceding section "The
Benchmarks."
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WHO MANAGES THE PORTFOLIO
ROWE PRICE-FLEMING INTERNATIONAL, INC. ("Price-Fleming"), 100 East Pratt
Street, Baltimore, MD 21202. Price-Fleming has been the Adviser to the
Portfolio since it commenced its operations. Price-Fleming was incorporated in
Maryland in 1979 as a joint venture between T. Rowe Price and Robert Fleming
Holdings Limited ("Flemings"). Flemings is a diversified investment
organization that participates in a global network of regional investment
offices. The common stock of Price-Fleming is 50% owned by a wholly owned
subsidiary of T. Rowe Price, 25% owned by a subsidiary of Flemings and 25%
owned by Jardine Fleming Group Limited ("Jardine Fleming").
Investment decisions with respect to the Portfolio are made by an Investment
Advisory Committee Group. The Investment Advisory Group has day-to-day
responsibility for managing the Portfolio and developing and executing the
Portfolio's investment program.
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<PAGE>
MORE INFORMATION ON PRINCIPAL RISKS
Risk is the chance that you will lose money on your investment or that it will
not earn as much as you expect. In general, the greater the risk, the more
money your investment can earn for you - and the more you can lose. Like other
investment companies, the value of each Portfolio's shares may be affected by
the Portfolio's investment objective(s), principal investment strategies and
particular risk factors. Consequently, each Portfolio may be subject to
different principal risks. Some of the principal risks of investing in the
Portfolios are discussed below. However, other factors may also affect each
Portfolio's net asset value.
There is no guarantee that a Portfolio will achieve its investment objective(s)
or that it will not lose principal value.
GENERAL INVESTMENT RISKS: Each Portfolio is subject to the following risks:
ASSET CLASS RISK: There is the possibility that the returns from the
types of securities in which a Portfolio invests will underperform
returns from the various general securities markets or different asset
classes. Different types of securities tend to go through cycles of
outperformance and underperformance in comparison to the general
securities markets.
MARKET RISK: Each Portfolio's share price moves up and down over the
short term in reaction to stock or bond market movements. This means
that you could lose money over short periods, and perhaps over longer
periods during extended market downturns.
SECURITY SELECTION RISK: The Advisers for each Portfolio rely on the
insights of different specialists in making investment decisions based
on each Portfolio's particular investment objective(s) and investment
strategies. There is the possibility that the specific securities held
by a Portfolio will underperform other funds in the same asset class
or benchmarks that are representative of the general performance of
the asset class because of the Adviser's choice of portfolio
securities.
YEAR 2000 RISK: Like other mutual funds, financial and business
organizations and individuals around the world, the Trust and its
Portfolios could be adversely affected if the computer systems used by
the Advisers, other service providers, or persons with whom they deal,
do not properly process and calculate date-related information and
data dated on and after January 1, 2000. This possibility is commonly
known as the "Year 2000 Problem." Virtually all operations of the
Trust and its Portfolios are computer reliant. The Manager, Advisers,
administrator, transfer agent, distributors and custodian have
informed the Trust that they are actively taking steps to address the
Year 2000 Problem with regard to their respective computer systems and
the interfaces between their respective computer systems. The Trust is
also taking measures to obtain assurances from necessary persons that
comparable steps are being taken by the key service providers to the
Trust's Advisers, administrator, transfer agent, distributors, and
custodian. There can be no assurance that the Trust and the
Portfolios' key service providers will be Year 2000 compliant. If not
adequately addressed, the Year 2000 Problem could result in the
inability of the Trust to perform its mission critical functions,
including trading and settling trades of Portfolio securities, pricing
of portfolio securities and processing shareholder transactions, and
the net asset value of its Portfolios' shares may be materially
affected.
In addition, because the Year 2000 Problem affects virtually all
issuers, the companies or entities in which the Portfolios may invest
also could be adversely impacted by the Year 2000 Problem. For
example, issuers may incur substantial costs to address the Year 2000
problem. The extent of such impact cannot be predicted and there can
be no assurances that the Year 2000 Problem will
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not have an adverse effect on the issuers whose securities are held
by the Portfolios. The Advisers have assured the Trust that they
consider such issues in making investment decisions for the
Portfolios. Furthermore, certain of the Portfolios make international
investments thereby exposing these Portfolios to operations, custody
and settlement processes outside the United States. In many countries
outside the United States the Year 2000 Problem has not been
adequately addressed and concerns have been raised that capital
flight, among other issues, may be triggered by full disclosure of
the Year 2000 Problem on countries outside the United States.
Additional information on the impact of the Year 2000 Problem on
emerging market countries is provided in this section, under "FOREIGN
SECURITIES RISKS--EMERGING MARKET RISK."
As indicated in "Summary Information Concerning EQ Advisors Trust" and "About
the Investment Portfolios," a particular Portfolio may also be subject to the
following risks:
CONVERTIBLE SECURITIES RISK: Convertible securities may include both
convertible debt and convertible preferred stock. Such securities may be
converted into shares of the underlying common stock at either a stated price
or stated rate. Therefore, convertible securities enable you to benefit from
increases in the market price of the underlying common stock. Convertible
securities provide higher yields than the underlying common stocks, but
generally offer lower yields than nonconvertible securities of similar quality.
Like bonds, the value of convertible securities fluctuates in relation to
changes in interest rates and, in addition, fluctuates in relation to the
underlying common stock. Subsequent to purchase by a Portfolio, convertible
securities may cease to be rated or a rating may be reduced below the minimum
required for purchase by that Portfolio. Each Adviser will consider such event
in its determination of whether a Portfolio should continue to hold the
securities.
DERIVATIVES RISK: Derivatives are financial contracts whose value depends on,
or is derived from the value of an underlying asset, reference rate or index.
Derivatives include stock options, securities index options, currency options,
forward currency exchange contracts, futures contracts, swaps and options on
futures contracts. Certain Portfolios can use derivatives involving the U.S.
Government and foreign government securities and currencies. Investments in
derivatives can significantly increase your exposure to market risk, or credit
risk of the counterparty. Derivatives also involve the risk of mispricing or
improper valuation and the risk that changes in value of the derivative may not
correlate perfectly with the relevant assets, rates and indices.
FIXED INCOME RISKS: To the extent that any of the Portfolios invest a
substantial amount of its assets in fixed income securities, a Portfolio may be
subject to the following risks:
CREDIT RISK: Credit risk is the risk that the issuer or guarantor of a
debt security or counterparty to a Portfolio's transactions will be
unable or unwilling to make timely principal and/or interest payments,
or otherwise will be unable or unwilling to honor its financial
obligations. Each of the Portfolios may be subject to credit risk to
the extent that it invests in debt securities or engages in
transactions, such as securities loans, which involve a promise by a
third party to honor an obligation to the Portfolio. Credit risk is
particularly significant for the Portfolios that invest a portion of
their assets in "JUNK BONDS" or lower-rated securities.
INTEREST RATE RISK: The price of a bond or a fixed income security is
dependent upon interest rates. Therefore, the share price and total
return of a Portfolio investing a significant portion of its assets in
bonds or fixed income securities will vary in response to changes in
interest rates. A rise in interest rates causes the value of a bond to
decrease, and vice versa. There is the possibility that the value of a
Portfolio's investment in bonds or fixed income securities may fall
because bonds or fixed income securities generally fall in value when
interest rates rise. The longer the term of a bond or fixed income
instrument, the more sensitive it will be to fluctuations in value
from interest rate changes. Changes in interest rates may have a
significant effect on
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Portfolios holding a significant portion of their assets in fixed
income securities with long term maturities.
MORTGAGE-BACKED SECURITIES RISK: In the case of mortgage-backed
securities, rising interest rates tend to extend the term to maturity
of the securities, making them even more susceptible to interest rate
changes. When interest rates drop, not only can the value of fixed
income securities drop, but the yield can drop, particularly where the
yield on the fixed income securities is tied to changes in interest
rates, such as adjustable mortgages. Also when interest rates drop,
the holdings of mortgage-backed securities by a Portfolio can reduce
returns if the owners of the underlying mortgages pay off their
mortgages sooner than anticipated since the funds prepaid will have to
be reinvested at the then lower prevailing rates. This is known as
prepayment risk. When interest rates rise, the holdings of
mortgage-backed securities by a Portfolio can reduce returns if the
owners of the underlying mortgages pay off their mortgages later than
anticipated. This is known as extension risk.
INVESTMENT-GRADE SECURITIES RISK: Debt securities are rated by
national bond ratings agencies. Securities rated BBB by S&P or Baa by
Moody's are considered investment grade securities, but are somewhat
riskier than higher rated obligations because they are regarded as
having only an adequate capacity to pay principal and interest, and
are considered to lack outstanding investment characteristics and may
be speculative.
JUNK BONDS OR LOWER RATED SECURITIES RISK: Bonds rated below
investment grade by S&P and Moody's are speculative in nature, may be
subject to certain risks with respect to the issuing entity and to
greater market fluctuations than higher rated fixed-income securities.
They are usually issued by companies without long track records of
sales and earnings, or by those companies with questionable credit
strength. These bonds are considered "below investment grade." The
retail secondary market for these "junk bonds" may be less liquid than
that of higher rated securities and adverse conditions could make it
difficult at times to sell certain securities or could result in lower
prices than those used in calculating the Portfolio's net asset value.
FOREIGN SECURITIES RISKS: A Portfolio's investments in foreign securities,
including depositary receipts, involve risks not associated with investing in
U.S. securities and can affect a Portfolio's performance. Foreign markets,
particularly emerging markets, may be less liquid, more volatile and subject to
less government supervision than domestic markets. There may be difficulties
enforcing contractual obligations, and it may take more time for trades to
clear and settle. The specific risks of investing in foreign securities, among
others, include:
CURRENCY RISK: The risk that changes in currency exchange rates will
negatively affect securities denominated in, and/or receiving revenues
in, foreign currencies. Adverse changes in currency exchange rates
(relative to the U.S. dollar) may erode or reverse any potential gains
from a Portfolio's investment in securities denominated in a foreign
currency or may widen existing losses.
EMERGING MARKET RISK: There are greater risks involved in investing in
emerging markets countries and/or their securities markets. Generally,
economic structures in these countries are less diverse and mature
than those in developed countries, and their political systems are
less stable. Investments in emerging markets countries may be affected
by national policies that restrict foreign investment in certain
issuers or industries. The small size of their securities markets and
low trading volumes can make investments illiquid and more volatile
than investments in developed countries and such securities may be
subject to abrupt and severe price declines. As a result, a Portfolio
investing in emerging markets countries may be required to establish
special custody or other arrangements before investing.
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The YEAR 2000 PROBLEM may also be especially acute in emerging market
countries. Many emerging market countries are currently lagging behind
more developed countries in their Year 2000 preparedness because they
lack the financial resources to undertake the necessary remedial
actions. A lack of Year 2000 preparedness may adversely affect the
health, security and economic well-being of emerging market countries
and could, obviously, adversely affect the value of a Portfolio's
investments in emerging market countries. More information on the Year
2000 Problem is provided in this section, under "GENERAL INVESTMENT
RISKS--YEAR 2000 RISK."
EURO RISK: Certain of the Portfolios 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 and/or tax
treatments that otherwise would not likely occur. During this period,
the creation and implementation of suitable clearing and settlement
systems and other operational problems may cause market disruptions
that could adversely affect investments quoted in the Euro.
The consequences of the Euro conversion for foreign exchange rates,
interest rates and the value of European securities eligible for
purchase by the Portfolios are presently unclear and it is not
possible to predict the eventual impact of the Euro implementation
plan on the Portfolios. There are a number of significant risks
associated with EMU. Monetary and economic union on this scale has
never been attempted before. There is a significant degree of
uncertainty as to whether participating countries will remain
committed to EMU in the face of changing economic conditions. The
conversion may adversely affect a Portfolio if the Euro does not take
effect as planned or if a participating state withdraws from the EMU.
Such actions may adversely affect the value and/or increase the
volatility of securities held by the Portfolios.
POLITICAL/ECONOMIC RISK: Changes in economic and tax policies,
government instability, war or other political or economic actions or
factors may have an adverse effect on a Portfolio's foreign
investments.
REGULATORY RISK: Less information may be available about foreign
companies. In general, foreign companies are not subject to uniform
accounting, auditing and financial reporting standards or to other
regulatory practices and requirements as are U.S. companies.
TRANSACTION COSTS RISK: The costs of buying and selling foreign
securities, including tax, brokerage and custody costs, generally are
higher than those involving domestic transactions.
GROWTH INVESTING RISK: Growth investing generally focuses on companies that,
due to their strong earnings and revenue potential, offer above-average
prospects for capital growth, with less emphasis on dividend income. Earnings
predictability and confidence in earnings forecasts are an important part of
the selection process. As a result, the price of growth stocks may be more
sensitive to changes in current or expected earnings than the prices of other
stocks. Advisers using this approach generally seek out companies experiencing
some or all of the following: high sales growth, high unit growth, high or
improving returns on assets and equity, and a strong balance sheet. Such
Advisers also prefer companies with a competitive advantage such as unique
management, marketing or research and development. Growth investing is also
subject to the risk that the stock price of one or more companies will fall or
will fail to appreciate as anticipated by the Advisers, regardless of movements
in the securities market.
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INDEX-FUND RISK: The BT Equity 500 Index, BT Small Company Index and BT
International Equity Index Portfolios are not actively managed (which involves
buying and selling of securities based upon economic, financial and market
analysis and investment judgment). Rather, the Portfolios utilize a "passive"
or "indexing" investment approach and attempt to duplicate the investment
performance of the particular index the Portfolio is tracking (i.e., S&P 500
Index, Russell 2000 Index or MSCI EAFE Index) through statistical procedures.
Therefore, the Portfolios will invest in the securities included in the
relevant index or substantially identical securities regardless of market
trends. The Portfolios cannot modify their investment strategies to respond to
changes in the economy, which means they may be particularly susceptible to a
general decline in the U.S. or global stock market segment relating to the
relevant index.
LEVERAGING RISK: When a Portfolio is borrowing money or otherwise leveraging
its portfolio, the value of an investment in that Portfolio will be more
volatile and all other risks will tend to be compounded. All of the Portfolios
may take on leveraging risk by investing in collateral from securities loans
and by borrowing money to meet redemption requests.
LIQUIDITY RISK: Certain securities held by a Portfolio may be difficult (or
impossible) to sell at the time and at the price the seller would like. A
Portfolio may have to hold these securities longer than it would like and may
forego other investment opportunities. There is the possibility that a
Portfolio may lose money or be prevented from earning capital gains if it can
not sell a security at the time and price that is most beneficial to the
Portfolio. Portfolios that invest in privately-placed securities, high-yield
bonds, mortgage-backed securities or foreign or emerging markets securities,
which have all experienced periods of illiquidity, are subject to liquidity
risks. A particular Portfolio may be more susceptible to some of these risks
than others, as noted in the description of each Portfolio.
NON-DIVERSIFICATION RISK: The Lazard Small Cap Value, Morgan Stanley Emerging
Markets Equity and Merrill Lynch World Strategy Portfolios are classified as
"non-diversified" investment companies, which means that the proportion of each
Portfolio's assets that may be invested in the securities of a single issuer is
not limited by the 1940 Act. Since a relatively high percentage of each
non-diversified Portfolio's assets may be invested in the securities of a
limited number of issuers, some of which may be within the same industry, the
securities of each Portfolio may be more sensitive to changes in the market
value of a single issuer or industry. The use of such a focused investment
strategy may increase the volatility of a Portfolio's investment performance,
as the Portfolio may be more susceptible to risks associated with a single
economic, political or regulatory event than a diversified portfolio. If the
securities in which the Portfolio invests perform poorly, the Portfolio could
incur greater losses than it would have had it been invested in a greater
number of securities. However to qualify as a regulated investment company
("RIC") under the Internal Revenue Code of 1986, as amended (the "Code") and
receive pass through tax treatment, each Portfolio at the close of each fiscal
quarter, may not have more than 25% of its total assets invested in the
securities of any one issuer (excluding U.S. Government obligations) and with
respect to 50% of its assets, (i) may not have more than 5% of its total assets
invested in the securities of any one issuer and (ii) may not own more than 10%
of the outstanding voting securities of any one issuer. Each non-diversified
Portfolio intends to qualify as a RIC.
PORTFOLIO TURNOVER RISK: Consistent with their investment policies, the
Portfolios also will purchase and sell securities without regard to the effect
on portfolio turnover. Higher portfolio turnover (e.g., over 100% per year)
will cause a Portfolio to incur additional transaction costs and may result in
taxable gains being passed through to shareholders.
SMALL-CAP AND MID-CAP COMPANY RISK: A Portfolio's investments in small-cap and
mid-cap companies may involve greater risks than investments in larger, more
established issuers. Smaller companies may have narrower product lines, more
limited financial resources and more limited trading markets for their stock,
as compared with larger companies. Their securities may be less well-known and
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trade less frequently and in more limited volume than the securities of larger,
more established companies. In addition, small-cap and mid-cap companies are
typically subject to greater changes in earnings and business prospects than
are those of larger companies. Consequently, the prices of small company stocks
tend to rise and fall in value more frequently than the stocks of larger
companies. Although investing in small-cap and mid-cap companies offers
potential for above-average returns, the companies may not succeed and the
value of their stock could decline significantly.
VALUE INVESTING RISK: Value investing attempts to identify strong companies
selling at a discount from their perceived true worth. Advisers using this
approach generally select stocks at prices, in their view, that are temporarily
low relative to the company's earnings, assets, cash flow and dividends. Value
investing is subject to the risk that the stocks' intrinsic value may never be
fully recognized or realized by the market, or their prices may go down. In
addition, there is the risk that a stock judged to be undervalued may actually
be appropriately priced. Value investing generally emphasizes companies that,
considering their assets and earnings history, are attractively priced and may
provide dividend income.
The Trust's Portfolios are not insured by the FDIC or any other government
agency. Each Portfolio is not a deposit or other obligation of any financial
institution or bank and is not guaranteed. Each Portfolio is subject to
investment risks and possible loss of principal invested.
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MANAGEMENT OF THE TRUST
This section gives you information on the Trust, the Manager and the Advisers
for the Portfolios. More detailed information concerning each of the Advisers
and portfolio managers is included in the description for each Portfolio in the
section "About The Investment Portfolios."
THE TRUST
The Trust is organized as a Delaware business trust and is registered with the
Securities and Exchange Commission ("SEC") as an open-end management investment
company. The Trust issues shares of beneficial interest that are currently
divided among twenty-one Portfolios, each of which has authorized Class IA and
Class IB shares. Each Portfolio has its own objectives, investment strategies
and risks, which have been previously described in this prospectus.
THE MANAGER
EQ Financial Consultants, Inc., 1290 Avenue of the Americas, New York, New York
10104, serves as the Manager of the Trust, subject to the supervision and
direction of the Board of Trustees. The Manager has overall responsibility for
the general management and administration of the Trust.
In the exercise of that responsibility, the Manager, without obtaining
shareholder approval but subject to the review and approval by the Board of
Trustees, may: (i) select the Advisers for the Portfolios; (ii) enter into and
materially modify existing investment advisory agreements; and (iii) terminate
and replace the Advisers. The Manager also monitors each Adviser's investment
program and results, reviews brokerage matters, oversees compliance by the
Trust with various federal and state statutes, and carries out the directives
of the Board of Trustees. The Manager also supervises the provision of services
by third parties such as the Trust's custodian and administrator.
The Manager is an investment adviser registered under the 1940 Act and a
broker-dealer registered under the Securities Exchange Act of 1934, as amended.
EQ Financial Consultants, Inc. is a wholly-owned subsidiary of Equitable.
During 1999, the Manager plans to change its name to AXA Advisors, Inc.
The table below shows the annual rate of the management fees (as a percentage
of each Portfolio's average daily net assets) that the Manager received in 1998
for managing each of the Portfolios and the rate of the management fees waived
by the Manager in 1998 in accordance with the provisions of the Expense
Limitation Agreement, as defined directly below, between the Manager and the
Trust.
MANAGEMENT FEES PAID BY THE PORTFOLIOS TO EQ FINANCIAL CONSULTANTS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
PORTFOLIOS ANNUAL RATE RECEIVED RATE OF FEES WAIVED
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
T. Rowe Price Equity Income 0.36% 0.19%
- ----------------------------------------------------------------------------------------------------------------
EQ/Putnam Growth & Income Value 0.36% 0.19%
- ----------------------------------------------------------------------------------------------------------------
EQ/Putnam Investors Growth 0.31% 0.24%
- ----------------------------------------------------------------------------------------------------------------
EQ/Putnam Balanced 0.20% 0.35%
- ----------------------------------------------------------------------------------------------------------------
MFS Research 0.35% 0.20%
- ----------------------------------------------------------------------------------------------------------------
MFS Emerging Growth Companies 0.36% 0.19%
- ----------------------------------------------------------------------------------------------------------------
Merrill Lynch Basic Value Equity 0.34% 0.21%
- ----------------------------------------------------------------------------------------------------------------
Lazard Large Cap Value 0.21% 0.34%
- ----------------------------------------------------------------------------------------------------------------
T. Rowe Price International Stock 0.54% 0.21%
- ----------------------------------------------------------------------------------------------------------------
EQ/Putnam International Equity 0.44% 0.26%
- ----------------------------------------------------------------------------------------------------------------
Merrill Lynch World Strategy 0.26% 0.44%
- ----------------------------------------------------------------------------------------------------------------
Morgan Stanley Emerging Markets Equity 0.33% 0.82%
- ----------------------------------------------------------------------------------------------------------------
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- ----------------------------------------------------------------------------------------------------------------
Warburg Pincus Small Company Value 0.47% 0.18%
- ----------------------------------------------------------------------------------------------------------------
Lazard Small Cap Value 0.62% 0.18%
- ----------------------------------------------------------------------------------------------------------------
JPM Core Bond 0.05% 0.40%
- ----------------------------------------------------------------------------------------------------------------
BT Small Company Index 0.00% 0.25%
- ----------------------------------------------------------------------------------------------------------------
BT Equity 500 Index 0.00% 0.25%
- ----------------------------------------------------------------------------------------------------------------
BT International Equity Index 0.00% 0.35%
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
The seven (7) Portfolios listed in the table below did not commence operations
during 1998. The table below shows the annual rate of the management fees (as a
percentage of each Portfolio's average daily net assets) that the Manager is
entitled to receive in 1999 for managing each of these Portfolios.
ANNUAL RATE OF MANAGEMENT FEES
---------------------------------------------------------------------
PORTFOLIOS ANNUAL RATE
---------------------------------------------------------------------
Capital Guardian International Portfolio 0.75%
---------------------------------------------------------------------
Capital Guardian Research Portfolio 0.65%
---------------------------------------------------------------------
Capital Guardian U.S. Equity Portfolio 0.65%
---------------------------------------------------------------------
EQ/Alliance Premier Growth Portfolio 0.90%
---------------------------------------------------------------------
EQ/Evergreen 0.75%
---------------------------------------------------------------------
EQ/Evergreen Foundation 0.63%
---------------------------------------------------------------------
MFS Growth with Income 0.55%
---------------------------------------------------------------------
EXPENSE LIMITATION AGREEMENT
In the interest of limiting expenses of each Portfolio, the Manager has entered
into an expense limitation agreement with the Trust with respect to each
Portfolio ("Expense Limitation Agreement"). Pursuant to that Expense Limitation
Agreement, the Manager has agreed to waive or limit its fees and to assume
other expenses so that the total annual operating expenses of each Portfolio
other than interest, taxes, brokerage commissions, other expenditures which are
capitalized in accordance with generally accepted accounting principles, other
extraordinary expenses not incurred in the ordinary course of each Portfolio's
business and amounts payable pursuant to a plan adopted in accordance with Rule
12b-1 under the 1940 Act, are limited to the following fees:
MANAGEMENT EXPENSE LIMITATION FEES
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
PORTFOLIOS AMOUNT EXPENSES LIMITED TO
(% of daily net assets)
- --------------------------------------------------------------------------------------------------------------------
<S> <C>
T. Rowe Price Equity Income 0.60%
- --------------------------------------------------------------------------------------------------------------------
EQ/Putnam Growth & Income Value 0.60%
- --------------------------------------------------------------------------------------------------------------------
EQ/Putnam Investors Growth 0.60%
- --------------------------------------------------------------------------------------------------------------------
MFS Research 0.60%
- --------------------------------------------------------------------------------------------------------------------
MFS Emerging Growth Companies 0.60%
- --------------------------------------------------------------------------------------------------------------------
MFS Growth with Income 0.60%
- --------------------------------------------------------------------------------------------------------------------
Merrill Lynch Basic Value Equity 0.60%
- --------------------------------------------------------------------------------------------------------------------
EQ/Putnam Balanced 0.65%
- --------------------------------------------------------------------------------------------------------------------
Lazard Large Cap Value 0.65%
- --------------------------------------------------------------------------------------------------------------------
Warburg Pincus Small Company Value 0.75%
- --------------------------------------------------------------------------------------------------------------------
T. Rowe Price International Stock 0.95%
- --------------------------------------------------------------------------------------------------------------------
EQ/Putnam International Equity 0.95%
- --------------------------------------------------------------------------------------------------------------------
Merrill Lynch World Strategy 0.95%
- --------------------------------------------------------------------------------------------------------------------
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- --------------------------------------------------------------------------------------------------------------------
Lazard Small Cap Value 0.95%
- --------------------------------------------------------------------------------------------------------------------
Morgan Stanley Emerging Markets Equity Portfolio 1.50%
- --------------------------------------------------------------------------------------------------------------------
JPM Core Bond 0.55%
- --------------------------------------------------------------------------------------------------------------------
BT International Equity Index 0.55%
- --------------------------------------------------------------------------------------------------------------------
BT Small Company Index 0.35%
- --------------------------------------------------------------------------------------------------------------------
BT Equity 500 Index 0.30%
- --------------------------------------------------------------------------------------------------------------------
EQ/Evergreen Foundation 0.70%
- --------------------------------------------------------------------------------------------------------------------
EQ/Evergreen Portfolio 0.80%
- --------------------------------------------------------------------------------------------------------------------
Capital Guardian International Portfolio 0.95%
- --------------------------------------------------------------------------------------------------------------------
Capital Guardian Research Portfolio 0.70%
- --------------------------------------------------------------------------------------------------------------------
Capital Guardian U.S. Equity Portfolio 0.70%
- --------------------------------------------------------------------------------------------------------------------
EQ/Alliance Premier Growth Portfolio 0.90%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
Each Portfolio may at a later date reimburse to the Manager the management fees
waived or limited and other expenses assumed and paid by the Manager pursuant
to the Expense Limitation Agreement provided such Portfolio has reached a
sufficient asset size to permit such reimbursement to be made without causing
the total annual expense ratio of each Portfolio to exceed the percentage
limits stated above. Consequently, no reimbursement by a Portfolio will be made
unless: (i) the Portfolio's assets exceed $100 million; (ii) the Portfolio's
total annual expense ratio is less than the respective percentages stated
above; and (iii) the payment of such reimbursement has been approved by the
Trust's Board of Trustees on a quarterly basis.
THE ADVISERS
Each Portfolio has an Adviser that furnishes an investment program for the
Portfolio pursuant to an investment advisory agreement with the Manager. Each
Adviser makes investment decisions on behalf of the Portfolio, places all
orders for the purchase and sale of investments for the Portfolio's account
with brokers or dealers selected by such Adviser and may perform certain
limited related administrative functions in connection therewith.
The Manager has received an exemptive order from the SEC that permits the
Manager, subject to certain conditions, including board approval, and without
the approval of shareholders to: (a) employ a new Adviser or Advisers for any
Portfolio pursuant to the terms of a new Advisory Agreement, in each case
either as a replacement for an existing Adviser or as an additional Adviser;
(b) change the terms of any Advisory Agreement; and (c) continue the employment
of an existing Adviser on the same advisory contract terms where a contract has
been assigned because of a change in control of the Adviser. In such
circumstances, shareholders would receive notice of such action, including the
information concerning the Adviser that normally is provided in the Prospectus.
The Manager pays each Adviser a fee based on the Portfolio's average daily net
assets. No Portfolio is responsible for the fees paid to each of the Advisers.
THE ADMINISTRATOR
Pursuant to an agreement, Chase Global Funds Services Company ("Administrator")
assists the Manager in the performance of its administrative responsibilities
to the Trust and provides the Trust with other necessary administrative, fund
accounting and compliance services. In addition, the Administrator makes
available the office space, equipment, personnel and facilities required to
provide such services to the Trust. For these services, the Trust pays the
Administrator a monthly fee at the annual rate of .0525 of 1% of the total
Trust assets, plus $25,000 for each Portfolio, until the total Trust assets
reach $2.0 billion, and when the total Trust assets exceed $2.0 billion: .0425
of 1% of the next $0.5 billion of the total Trust assets; .035 of 1% of the
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
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excess of $8.0 billion; provided, however, that the annual fee payable to Chase
with respect to any Portfolio which commenced operations after July 1, 1997 and
whose assets do not exceed $200 million shall be computed at the annual rate of
.0525% of 1% of the Portfolio's total assets plus $25,000.
THE TRANSFER AGENT
Equitable serves as the transfer agent and dividend disbursing agent of the
Trust and receives no compensation for serving in such capacity.
BROKERAGE PRACTICES
In selecting brokers and dealers, the Manager and each Adviser may consider
research and brokerage services furnished to either company and their
affiliates. Subject to seeking the most favorable net price and execution
available, the Manager and each Adviser may also consider sales of shares of
the Trust as a factor in the selection of brokers and dealers.
BROKERAGE TRANSACTIONS WITH AFFILIATES
To the extent permitted by law, the Trust may engage in securities and other
transactions with entities that may be affiliated with the Manager or the
Advisers. The 1940 Act generally prohibits the Trust from engaging in principal
securities transactions with an affiliate of the Manager or Advisers unless
pursuant to an exemptive order from the SEC. For these purposes, however, the
Trust has considered this issue and believes that a broker-dealer affiliate of
an Adviser to one Portfolio should not be treated as an affiliate of the
Adviser to another Portfolio for which such Adviser does not provide investment
advice. The Trust has adopted procedures that are reasonably designed to
provide that any commission it pays to affiliates of the Manager or Advisers
does not exceed the usual and customary broker's commission. The Trust has also
adopted procedures permitting it to purchase securities, under certain
restrictions prescribed by a rule under the 1940 Act, in a public offering in
which an affiliate of the Manager or Advisers is an underwriter.
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 Distribution Plan under Rule 12b-1 under the 1940 Act
for the Trust's Class IB shares. Under the Class IB Distribution Plan the Class
IB shares of the Trust pay each of the distributors an annual fee to compensate
them for promoting, selling and servicing shares of the Portfolios. The annual
fees equal 0.25% of each Portfolio's average daily net assets. Over time, the
fees will increase your cost of investing and may cost you more than other
types of charges.
PURCHASE AND REDEMPTION
The price at which a purchase or redemption is effected is based on the next
calculation of net asset value after an order is placed by an insurance company
or qualified retirement plan investing in or redeeming from the Trust.
95
<PAGE>
Net asset value per share is calculated for purchases and redemption of shares
of each Portfolio by dividing the value of total Portfolio assets, less
liabilities (including Trust expenses and class related expenses, which are
accrued daily), by the total number of outstanding shares of that Portfolio.
The net asset value per share of each Portfolio is determined each business day
at 4:00 p.m. Eastern time. Net asset value per share is not calculated on days
on which the New York Stock Exchange is closed for trading.
Foreign securities (other than ADRs) are valued at the close of business in the
applicable foreign country. Consequently, Portfolios that invest a significant
portion of their assets in foreign securities, may experience changes in their
net asset value on days when a shareholder may not purchase or redeem shares of
that Portfolio.
All shares are purchased and redeemed in accordance with the Trust's Amended
and Restated Declaration of Trust and By-Laws. Sales and redemptions of shares
of the same class by the same shareholder on the same day will be netted for
each Portfolio. All redemption requests will be processed and payment with
respect thereto will normally be made within seven days after tenders.
The Trust may suspend redemption, if permitted by the 1940 Act, for any period
during which the New York Stock Exchange is closed or during which trading is
restricted by the SEC or the SEC declares that an emergency exists. Redemption
may also be suspended during other periods permitted by the SEC for the
protection of the Trust's shareholders. If the Board of Trustees determines
that it would be detrimental to the best interest of the Trust's remaining
shareholders to make payment in cash, the Trust may pay redemption proceeds in
whole or in part by a distribution-in-kind of readily marketable securities.
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 is converted into United States dollar equivalents at
current exchange rates.
o Short-term debt securities in the Portfolios which mature in 60 days or
less are valued at amortized cost, which approximates market value.
o Other securities and assets for which market quotations are not readily
available or for which valuation cannot be provided are valued in good
faith by the Valuation Committee of the Board of Trustees of the Trust
using its best judgment.
TAX INFORMATION
Each Portfolio of the Trust is a separate regulated investment company for
federal income tax purposes. Regulated investment companies are usually not
taxed at the entity (Portfolio) level. They pass through their income and gains
to their shareholders by paying dividends. Their shareholders include this
income on their respective tax returns. A Portfolio will be treated as a
regulated investment company if it meets specified federal income tax rules,
including types of investments, limits on investments, calculation of income,
and dividend payment requirements. Although the Trust intends that it and each
Portfolio will be operated to have no federal tax liability, if they have any
federal tax liability, that could hurt the investment performance of the
Portfolio in question. Also, any Portfolio investing in foreign securities or
holding
96
<PAGE>
foreign currencies could be subject to foreign taxes which could reduce the
investment performance of the Portfolio.
It is important for each Portfolio to maintain its federal income tax regulated
investment company status because the shareholders of the Portfolio that are
insurance company separate accounts will then be able to use a favorable
federal income tax investment diversification testing rule in figuring out
whether the Contracts indirectly funded by the Portfolio meet tax qualification
rules for variable insurance contracts. If a Portfolio fails to meet specified
investment diversification requirements, owners of non-pension plan Contracts
funded through the Trust could be taxed immediately on the accumulated
investment earnings under their Contracts and could lose any benefit of tax
deferral. The Administrator and the Manager therefore carefully monitor
compliance with all of the regulated investment company rules and variable
insurance contract investment diversification rules.
PRIOR PERFORMANCE OF EACH ADVISER
The following table provides information concerning the historical performance
of another registered investment company (or series) or other institutional
private accounts managed by each Adviser that has investment objectives,
policies, strategies and risks substantially similar to those of the respective
Portfolio(s) of the Trust for which it serves as Adviser. The data is provided
to illustrate the past performance of each Adviser in managing a substantially
similar investment vehicle as measured against specified market indices. This
data does not represent the past performance of any of the Portfolios or the
future performance of any Portfolio or its Adviser. Consequently, potential
investors should not consider this performance data as an indication of the
future performance of any Portfolio of the Trust or of its Adviser and should
not confuse this performance data with performance data for each of the Trust's
Portfolios, which is shown for each Portfolio that has at least one full year
of operations under the caption "ABOUT THE INVESTMENT PORTFOLIOS."
Each Adviser's performance data shown below for other registered investment
companies (or series thereof) was calculated in accordance with standards
prescribed by the SEC for the calculation of average annual total return
information for registered investment companies. Average annual total return
reflects changes in share prices and reinvestment of dividends and
distributions and is net of fund expenses. In each such instance, the share
prices and investment returns will fluctuate, reflecting market conditions as
well as changes in company-specific fundamentals of portfolio securities.
Composite performance data relating to the historical performance of
institutional private accounts managed by the relevant Adviser was calculated
on a total return basis and includes all losses. As specified below, this
composite performance data is provided for the J.P. Morgan Active Fixed Income
Composite, the Capital Guardian U.S. Equity Research Portfolio-Diversified
Composite, the Capital Guardian U.S. Equity Composite, and the Capital Guardian
Non-U.S. Equity Composite (collectively, the "Composites"). The total returns
for each Composite reflect the deduction of investment advisory fees, brokerage
commissions and execution costs paid by J.P. Morgan's and Capital Guardian's
institutional private accounts, respectively, without provision for federal or
state income taxes. Custodial fees, if any, were not included in the
calculation. Each Composite includes all actual, fee-paying, discretionary
institutional private accounts managed by J.P. Morgan and Capital Guardian,
respectively, that have investment objectives, policies, strategies and risks
substantially similar to those of the relevant Portfolio. Securities
transactions are accounted for on the trade date and accrual accounting is
utilized. Cash and equivalents are included in performance returns. The
institutional private accounts that are included in the Composites are not
subject to the same types of expenses to which the relevant Portfolio is
subject or to the diversification requirements, specific tax restrictions and
investment limitations imposed on the Portfolio by the 1940 Act or Subchapter M
of the Internal Revenue Code. Consequently, the performance results for the
Composites could have been adversely affected if the institutional private
accounts included in the Composites had been regulated as investment companies
under the federal securities laws.
97
<PAGE>
The major difference between the SEC prescribed calculation of average annual
total returns for registered investment companies or (series thereof) and total
returns for composite performance is that average annual total returns reflects
all fees and charges applicable to the registered investment company in
question and the total return calculation for the Composites reflects only
those fees and charges described in the paragraph directly above.
The performance results for the registered investment companies or Composites
presented below are subject to lower fees and expenses than the relevant
Portfolios although in most instances the fees and expenses are substantially
similar. In addition, holders of Contracts representing interests in the
Portfolio below will be subject to charges and expenses relating to such
insurance contracts. The performance results presented above do not reflect any
insurance related expenses and would be reduced if such charges were reflected.
The investment results presented below are unaudited. For more information on
the specified market indices used below, see the section "The Benchmarks." The
name of the other fund or account managed by the adviser is shown in BOLD. The
name of the Trust Portfolio is shown in (parentheses). The name of the
benchmark is shown in italics.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
ANNUAL RATES OF RETURN OF OTHER FUNDS OR ACCOUNTS
MANAGED BY ADVISERS
AS OF 12/31/98
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Other Fund or Account Managed by Adviser 1 5 10 Since Inception
(EQAT Portfolio) Year Years Years Inception Date
- -----------------------------------------------------
Benchmark
- --------------------------------------------------------------------------------------------------------------------
J.P. MORGAN ACTIVE FIXED INCOME COMPOSITE 6.90% 7.20% 9.40% 5/31/77
(JPM Core Bond Portfolio)
- --------------------------------------------------------------------------------------------------------------------
Salomon Brothers Broad Investment Grade Bond 8.70% 7.30% 9.30%
Index(1)
- --------------------------------------------------------------------------------------------------------------------
THE GEORGE PUTNAM FUND OF BOSTON(2) 10.60% 15.07% 13.77% 11/5/37
(EQ/Putnam Balanced Portfolio)
- --------------------------------------------------------------------------------------------------------------------
S&P 500 Index(3) 28.57% 24.06% 19.21%
- --------------------------------------------------------------------------------------------------------------------
BT INSTITUTIONAL FUNDS - EQUITY 500 INDEX FUND - 28.75% 24.05% N/A 21.56% 12/31/92
INSTITUTIONAL CLASS
(BT Equity 500 Index Portfolio)
- --------------------------------------------------------------------------------------------------------------------
S&P 500 Index(3) 28.57% 24.06% N/A 21.61%
- --------------------------------------------------------------------------------------------------------------------
BT ADVISORS FUNDS - SMALL CAP INDEX (2.60)% N/A N/A 11.58% 7/10/96
FUND-INSTITUTIONAL CLASS
(BT Small Company Index Portfolio)
- --------------------------------------------------------------------------------------------------------------------
Russell 2000 Index(4) (2.54)% N/A N/A 11.85%
- --------------------------------------------------------------------------------------------------------------------
PUTNAM GROWTH & INCOME FUND II(2) 12.46% N/A N/A N/A 1/5/95
(EQ/Putnam Growth & Income Value Portfolio)
- --------------------------------------------------------------------------------------------------------------------
S&P 500 Index(3) 28.57% N/A N/A 30.51%
- --------------------------------------------------------------------------------------------------------------------
PUTNAM INVESTORS FUND(2) 35.52% 24.12% 20.16% 12/1/25
(EQ/Putnam Investors Growth Portfolio)
- --------------------------------------------------------------------------------------------------------------------
S&P 500 Index(3) 28.57% 24.06% 19.21%
- --------------------------------------------------------------------------------------------------------------------
THE LAZARD FUNDS, INC. - LAZARD EQUITY PORTFOLIO 17.31% 20.36% 16.83% 6/87
(Lazard Large Cap Value Portfolio)
- --------------------------------------------------------------------------------------------------------------------
S&P 500 Index(3) 28.57% 24.06% 19.21%
- --------------------------------------------------------------------------------------------------------------------
98
<PAGE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
ANNUAL RATES OF RETURN OF OTHER FUNDS OR ACCOUNTS
MANAGED BY ADVISERS
AS OF 12/31/98
- --------------------------------------------------------------------------------------------------------------------
OTHER FUND OR ACCOUNT MANAGED BY ADVISER 1 5 10 SINCE INCEPTION
(EQAT Portfolio) YEAR YEARS YEARS INCEPTION DATE
- -----------------------------------------------------
Benchmark
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
THE LAZARD FUNDS, INC. - LAZARD SMALL CAP PORTFOLIO
(Lazard Small Cap Value Portfolio) (12.62)% 11.45% N/A 16.10% 10/1/91
- --------------------------------------------------------------------------------------------------------------------
Russell 2000 Index(4) (2.54)% 11.86% N/A 13.89%
- --------------------------------------------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC. - MERRILL 8.88% 8.49% N/A 9.57% 2/28/92
LYNCH GLOBAL STRATEGY FOCUS FUND
(Merrill Lynch World Strategy Portfolio)
- --------------------------------------------------------------------------------------------------------------------
MSCI EAFE Index(5) 20.00% 9.19% N/A 9.98%
- --------------------------------------------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC. - MERRILL 9.44% 15.40% N/A 15.80% 7/1/93
LYNCH BASIC VALUE FOCUS FUND
(Merrill Lynch Basic Value Equity Portfolio)
- --------------------------------------------------------------------------------------------------------------------
S&P 500 Index(3) 28.57% 24.06% N/A 22.74%
- --------------------------------------------------------------------------------------------------------------------
MFS RESEARCH FUND(2), (6) 22.92% 20.65% 18.44% 10/13/71
(MFS Research Portfolio)
- --------------------------------------------------------------------------------------------------------------------
S&P 500 Index(3) 28.57% 24.06% 19.21%
- --------------------------------------------------------------------------------------------------------------------
T. ROWE PRICE EQUITY INCOME FUND 9.23% 18.75% 15.18% 10/31/85
(T. Rowe Price Equity Income Portfolio)
- --------------------------------------------------------------------------------------------------------------------
S&P 500 Index(3) 28.57% 24.06% 19.21%
- --------------------------------------------------------------------------------------------------------------------
WARBURG PINCUS SMALL COMPANY VALUE FUND(7) (14.88)% N/A N/A 16.51% 12/29/95
(Warburg Pincus Small Company Value Portfolio)
- --------------------------------------------------------------------------------------------------------------------
Russell 2000 Index(4) (2.54)% N/A N/A 11.58%
- --------------------------------------------------------------------------------------------------------------------
BT ADVISORS FUNDS - EAFE EQUITY INDEX FUND - 19.81% N/A N/A 9.69% 1/24/96
INSTITUTIONAL CLASS
(BT International Equity Index Portfolio)
- --------------------------------------------------------------------------------------------------------------------
MSCI EAFE Index(5) 20.00% N/A N/A 9.70%
- --------------------------------------------------------------------------------------------------------------------
PUTNAM INTERNATIONAL GROWTH FUND(2) 18.95% 13.18% N/A N/A 2/28/91
(EQ/Putnam International Equity Portfolio)
- --------------------------------------------------------------------------------------------------------------------
MSCI EAFE Index(5) 20.00% 9.19% N/A 7.58%
- --------------------------------------------------------------------------------------------------------------------
MFS EMERGING GROWTH FUND(6) 23.56% 19.66% 22.94% 12/29/86
(MFS Emerging Growth Companies Portfolio)
- --------------------------------------------------------------------------------------------------------------------
Russell 2000 Index(4) (2.54)% 11.86% 12.94%
- --------------------------------------------------------------------------------------------------------------------
MASSACHUSETTS INVESTORS TRUST(2) 22.95% 22.97% 19.15% 7/15/24
(MFS Growth with Income Portfolio)
- --------------------------------------------------------------------------------------------------------------------
S&P 500 Index(3) 28.57% 24.06% 19.21%
- --------------------------------------------------------------------------------------------------------------------
MORGAN STANLEY INSTITUTIONAL FUND, INC. - EMERGING
MARKETS PORTFOLIO(8)
(Morgan Stanley Emerging Markets Equity Portfolio) (25.40)% (8.20)% N/A 3.50% 9/25/92
- --------------------------------------------------------------------------------------------------------------------
IFC Global Total Return Composite Index(9) (21.10)% (8.70)% N/A 1.90%
- --------------------------------------------------------------------------------------------------------------------
T. ROWE PRICE INTERNATIONAL STOCK FUND 16.14% 8.87% 10.45% 5/9/80
(T. Rowe Price International Stock Portfolio)
- --------------------------------------------------------------------------------------------------------------------
MSCI EAFE Index(5) 20.00% 9.19% 9.50%
- --------------------------------------------------------------------------------------------------------------------
EVERGREEN FOUNDATION FUND - CLASS Y SHARES 12.21% 15.06% N/A 16.89% 1/2/90
(EQ/Evergreen Foundation Portfolio)
- --------------------------------------------------------------------------------------------------------------------
S&P 500 Index(3) 28.57% 24.06% N/A 18.82%
- --------------------------------------------------------------------------------------------------------------------
99
<PAGE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
ANNUAL RATES OF RETURN OF OTHER FUNDS OR ACCOUNTS
MANAGED BY ADVISERS
AS OF 12/31/98
- --------------------------------------------------------------------------------------------------------------------
OTHER FUND OR ACCOUNT MANAGED BY ADVISER 1 5 10 SINCE INCEPTION
(EQAT Portfolio) YEAR YEARS YEARS INCEPTION DATE
- -----------------------------------------------------
Benchmark
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
EVERGREEN FUND - CLASS Y SHARES 7.23% 17.82% 14.07% 10/15/71
(EQ/Evergreen Portfolio)
- --------------------------------------------------------------------------------------------------------------------
Russell 2000 Index(4) (2.54)% 11.86% 12.94%
- --------------------------------------------------------------------------------------------------------------------
CAPITAL GUARDIAN U.S. EQUITY RESEARCH 28.46% 24.53% N/A 21.74% 3/31/93
PORTFOLIO-DIVERSIFIED COMPOSITE
(Capital Guardian Research Portfolio)
- --------------------------------------------------------------------------------------------------------------------
S&P 500 Index 28.58% 23.99% N/A 21.68%
- --------------------------------------------------------------------------------------------------------------------
CAPITAL GUARDIAN U.S. EQUITY COMPOSITE 22.88% 22.27% 18.07% 13.71% 12/31/66
(Capital Guardian U.S. Equity Portfolio)
- --------------------------------------------------------------------------------------------------------------------
S&P 500 Index 28.58% 23.99% 19.12% 12.84%
- --------------------------------------------------------------------------------------------------------------------
CAPITAL GUARDIAN NON-U.S. EQUITY COMPOSITE 17.32% 11.62% 10.87% 15.00% 12/31/78
(Capital Guardian International Portfolio)
- --------------------------------------------------------------------------------------------------------------------
MSCI EAFE Index 19.97% 9.19% 5.53% 13.25%
- --------------------------------------------------------------------------------------------------------------------
ALLIANCE PREMIER GROWTH FUND, INC.-ADVISOR CLASS(10) 49.85% N/A N/A 42.97% 10/1/96
(EQ/Alliance Premier Growth Portfolio)
- --------------------------------------------------------------------------------------------------------------------
S&P 500 Index 28.60% N/A N/A 21.60%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Salomon Brothers Broad Investment Grade Bond Index is an
unmanaged, market-weighted index that contains approximately 4,700
individually priced investment grade bonds. The index does not include
fees or operating expenses and is not available for actual investment.
(2) Performance for the Class A shares. The Class A shares are in many
instances subject to a front-end sales charge of up to 5.75%. Other
share classes have different expenses and their performance will vary.
(3) The S&P 500 Index ("S&P 500") is an unmanaged index containing common
stocks of 500 industrial, transportation, utility and financial
companies, regarded as generally representative of the larger
capitalization portion of the United States stock market. The S&P 500
reflects the reinvestment of income dividends and capital gain
distributions, if any, but does not reflect fees, brokerage
commissions, or other expenses of investing.
(4) The Russell 2000 Index is an unmanaged index (with no defined
investment objective) composed of approximately 2,000
small-capitalization stocks and includes reinvestments of dividends.
The index does not include fees or operating expenses and is not
available for actual investment. It is compiled by the Frank Russell
Company.
(5) The Morgan Stanley Capital International EAFE Index ("EAFE Index") is
an unmanaged capitalization-weighted measure of stock markets in
Europe, Australia and the Far East. The returns of the EAFE Index
assume dividends are reinvested net of withholding tax and do not
reflect any fees or operating expenses. The index is not available for
actual investment.
(6) The results for the MFS Research Fund (Class A shares) and the MFS
Emerging Growth Fund (Class B shares) do not reflect sales charges
that may be imposed on the such shares.
(7) Absent the waiver of fees in 1998 by the Warburg Pincus Small Company
Value Fund's investment adviser and co-administrator, management fees
of the Warburg Pincus Small Company Value Fund would equal 1.00%,
other expenses would equal 0.94% and total operating expenses would
equal 2.19%. The investment adviser and co-administrator of the
Warburg Pincus Small Company Value Fund are under no obligation to
continue these waivers.
(8) Performance for the Class A shares of the Morgan Stanley Institutional
Fund, Inc. - Emerging Markets Portfolio. The Class B shares of the
Morgan Stanley Institutional Fund, Inc. - Emerging Markets Portfolio
are subject to a Rule 12b-1 fee equal to 0.25% of the Portfolio's
assets. The expense ratio of Morgan Stanley Institutional Fund, Inc. -
Emerging Markets Portfolio has been capped at 1.75% since inception.
100
<PAGE>
(9) The IFC Global Total Return Composite Index is an unmanaged index of
common stocks and includes developing countries in Latin America, East
and South Asia, Europe, the Middle East and Africa. The Index assumes
dividends are reinvested.
(10) Annualized performance for the Adviser 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.
101
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Trust's
financial performance since May 1, 1997. The Trust began to offer Class IA
shares for the T. Rowe Price Equity Income, MFS Emerging Growth Companies,
Warburg Pincus Small Company Value and BT International Equity Portfolios on
November 24, 1998. Except for those four Portfolios, the financial information
in the table below for the period May 1, 1997 to December 31, 1998 relates only
to the Class IB shares. The financial information relating to both the Class IA
shares and the Class IB shares has been derived from the audited financial
statements of the Trust. These financial statements have been audited by
PricewaterhouseCoopers LLP, independent public accountants.
PricewaterhouseCoopers LLPs' report on the Trust's financial statements as of
December 31, 1998 appears in the Trust's Annual Report. The information should
be read in conjunction with the financial statements contained in the Trust's
Annual Report which are incorporated by reference into the Trust's Statement of
Additional Information (SAI) and available upon request.
<TABLE>
<CAPTION>
NET REALIZED
AND
UNREALIZED
GAIN (LOSS) ON DIVIDENDS IN
NET ASSET INVESTMENTS DIVIDENDS EXCESS OF
VALUE, NET AND FOREIGN TOTAL FROM FROM NET NET DISTRIBUTIONS
BEGINNING INVESTMENT CURRENCY INVESTMENT INVESTMENT INVESTMENT FROM REALIZED
OF PERIOD INCOME TRANSACTIONS OPERATIONS INCOME INCOME GAINS
--------- ------ ------------ ---------- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
T. Rowe Price
International Stock Portfolio
DEC 31, 1998 $9.85 $0.06 $1.28 $1.34 $(0.07) $(0.02) -
DEC. 31, 1997 $10.00 $0.02 $(0.17) $(0.15) - - -
T. Rowe Price
Equity Income Portfolio
CLASS IB DEC. 31, 1998 $12.08 $0.22 $0.87 $1.09 $(0.22) - $(0.28)
CLASS IB DEC. 31, 1997 $10.00 $0.10 $2.11 $2.21 $(0.09) - $(0.04)
CLASS IA NOV. 24 -
DEC. 31, 1998 $13.22 $0.06 $(0.09)+ $(0.03) $(0.24) - $(0.28)
EQ/Putnam Growth & Income
Value Portfolio
DEC. 31, 1998 $11.52 $0.11 $1.35 $1.46 $(0.11) - -
DEC. 31, 1997 $10.00 $0.06 $1.56 $1.62 $(0.06) - $(0.01)
EQ/Putnam Balanced Portfolio
DEC. 31, 1998 $11.21 $0.25 $1.08 $1.33 $(0.23) - $(0.15)
DEC. 31, 1997 $10.00 $0.14 $1.30 $1.44 $(0.13) $(0.01) $(0.09)
EQ/Putnam International
Equity Portfolio
DEC. 31, 1998 $10.89 $0.05 $2.07 $2.12 - - -
DEC. 31, 1997 $10.00 $0.03 $0.93 $0.96 $(0.02) - $(0.01)
EQ/Putnam Investors Growth
Portfolio
DEC. 31 1998 $12.33 $0.01 $4.46 $4.47 $(0.01) - -
DEC. 31, 1997 $10.00 $0.02 $2.45 $2.47 $(0.03) - $(0.04)
MFS Research Portfolio
DEC. 31, 1998 $11.48 $0.04 $2.73 $2.77 $(0.04) - -
DEC. 31, 1997 $10.00 $0.02 $1.58 $1.60 $(0.02) - $(0.01)
MFS Emerging Growth Companies
Portfolio
CLASS IB DEC. 31, 1998 $11.92 $(0.03) $4.15 $4.12 - - -
CLASS IB DEC. 31, 1997 $10.00 $0.02 $2.21 $2.23 $(0.02) - $(0.18)
CLASS IA NOV. 24 -
DEC. 31, 1998 $14.18 -- $1.86 $1.86 - - -
Warburg Pincus Small Company
Value Portfolio
CLASS IB DEC. 31, 1998 $11.85 $0.05 $(1.24) $(1.91) $(0.04) - -
CLASS IB DEC. 31, 1997 $10.00 $0.01 $1.90 $1.91 $(0.01) - -
CLASS IA NOV. 24 -
DEC. 31, 1998 $10.40 $0.03 $0.23+ $0.26 $(0.06) - -
102
<PAGE>
<CAPTION>
NET REALIZED
AND
UNREALIZED
GAIN (LOSS) ON DIVIDENDS IN
NET ASSET INVESTMENTS DIVIDENDS EXCESS OF
VALUE, NET AND FOREIGN TOTAL FROM FROM NET NET DISTRIBUTIONS
BEGINNING INVESTMENT CURRENCY INVESTMENT INVESTMENT INVESTMENT FROM REALIZED
OF PERIOD INCOME TRANSACTIONS OPERATIONS INCOME INCOME GAINS
--------- ------ ------------ ---------- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
Merrill Lynch World Strategy
Portfolio
DEC. 31, 1998 $10.31 $0.15 $0.55 $0.70 $(0.04) $(0.04) -
DEC. 31, 1997 $10.00 $0.08 $0.39 $0.47 $(0.05) - -
Merrill Lynch Basic Value
Equity Portfolio
DEC. 31, 1998 $11.58 $0.12 $1.21 $1.33 $(0.12) - $(0.43)
DEC. 31, 1997 $10.00 $0.06 $1.64 $1.70 $(0.06) - $(0.05)
Morgan Stanley
Emerging Markets Equity
Portfolio
DEC. 31, 1998 $7.96 $0.03 $(2.18) $(2.15) $(0.02) - -
DEC. 31, 1997 $10.00 $0.04 $(2.06) $(2.02) $(0.02) - -
BT Equity 500 Index Portfolio
DEC. 31, 1998 $10.00 $0.06 $2.45 $2.51 $(0.06) - -
DEC. 31, 1997 - - - - - - -
BT International Equity Index
Portfolio
CLASS IB DEC. 31, 1998 $10.00 $0.08 $1.92 $2.00 $(0.15) - -
CLASS IB DEC. 31, 1997 - - - - - - -
CLASS IA NOV. 24-DEC. 31, 1998 $11.67 $0.03 $0.31 $0.34 $(0.17) - -
BT Small Company Index
Portfolio
DEC. 31, 1998 $10.00 $0.07 $(0.30) $(0.23) $(0.07) - $(0.13)
DEC. 31, 1997 - - - - - - -
JPM Core Bond Portfolio
DEC. 31, 1998 $10.00 $0.21 $0.70 $0.91 $(0.21) $(0.01) $(0.11)
DEC. 31, 1997 - - - - - - -
Lazard Large Cap Value
Portfolio
DEC. 31, 1998 $10.00 $0.06 $1.94 $2.00 $(0.06) - -
DEC. 31, 1997 - - - - - - -
Lazard Small Cap Value
Portfolio
DEC. 31, 1998 $10.00 $0.02 $(0.72) $(0.70) $(0.03) - -
DEC. 31, 1997 - - - - - - -
</TABLE>
103
<PAGE>
<TABLE>
<CAPTION>
DISTRIBUTIONS RATIO OF EXPENSES
IN EXCESS OF TOTAL NET ASSET NET ASSETS, END TO AVERAGE NET
REALIZED DIVIDENDS, AND VALUE, END TOTAL RETURN OF PERIOD ASSETS AFTER
GAINS DISTRIBUTIONS OF PERIOD (B) (000's) WAIVERS(A)(C)
------------ -------------- ---------- ------------ --------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
T. Rowe Price International
Stock Portfolio
DEC. 31, 1998 - $(0.09) $11.10 13.68% $134,653 1.20%
DEC. 31, 1997 - - $9.85 (1.49)% $69,572 1.20%
T. Rowe Price Equity Income
Portfolio
CLASS IB DEC. 31, 1998 - $(0.50) $12.67 9.11% $242,001 0.85%(1)
CLASS IB DEC. 31, 1997 - $(0.13) $12.08 22.11% $99,947 0.85%(a)
CLASS IA NOV. 24-DEC. 31, 1998 - $(0.52) $12.67 (2.21)%(b) $2,415 0.60%(a)(1)
EQ/Putnam Growth & Income
Value Portfolio
DEC. 31, 1998 $(0.10) $(0.21) $12.77 12.75% $460,744 0.85%
DEC. 31, 1997 $(0.03) $(0.10) $11.52 16.23% $150,260 0.85%
EQ/Putnam Balanced Portfolio
DEC. 31, 1998 - $(0.38) $12.16 11.92% $75,977 0.90%(a)
DEC. 31, 1997 - $(0.23) $11.21 14.38% $25,854 0.90%
EQ/Putnam International
Equity Portfolio
DEC. 31, 1998 - - $13.01 19.51% $143,721 1.20%
DEC. 31, 1997 $(0.04) $(0.07) $10.89 9.58% $55,178 1.20%
EQ/Putnam Investors Growth
Portfolio
DEC. 31, 1998 - $(0.01) $16.79 36.27% $175,015 0.85%
DEC. 31, 1997 $(0.07) $(0.14) $12.33 24.70% $39,695 0.85%
MFS Research Portfolio
DEC. 31, 1998 - $(0.04) $14.21 24.11% $407,619 0.85%
DEC. 31, 1997 $(0.09) $(0.12) $11.48 16.07% $114,754 0.85%
MFS Emerging Growth Companies
Portfolio
CLASS IB DEC. 31, 1998 - - $16.04 34.57% $461,307 0.85%(1)
CLASS IB DEC. 31, 1997 $(0.11) $(0.31) $11.92 22.42% $99,317 0.85%(a)
CLASS IA NOV. 24-DEC. 31, 1998 - - $16.04 13.12% $5,978 0.60%(a)(1)
Warburg Pincus Small Company
Value Portfolio
CLASS IB DEC. 31, 1998 - $(0.05) $10.61 (10.02)% $166,746 1.00%(1)
CLASS IB DEC. 31, 1997 $(0.05) $(0.06) $11.85 19.15% $120,880 1.00%(a)
CLASS IA NOV. 24-DEC. 31, 1998 - $(0.07) $10.59 2.63%(b) $747 0.75%(a)(1)
Merrill Lynch World Strategy
Portfolio
DEC. 31, 1998 - $(0.08) $10.93 6.81% $30,631 1.20%
DEC. 31, 1997 $(0.11) $(0.16) $10.31 4.70% $18,210 1.20%
Merrill Lynch Basic Value
Equity Portfolio
DEC. 31, 1998 - $(0.55) $12.36 11.59% $174,104 0.85%
DEC. 31, 1997 $(0.01) $(0.12) $11.58 16.99% $49,495 0.85%
Morgan Stanley Emerging
Markets Equity Portfolio
DEC. 31, 1998 - $(0.02) $5.79 (27.10)% $41,359 1.81%
DEC. 31, 1997 - $(0.02) $7.96 (20.16)% $21,433 1.75%
BT Equity 500 Index Portfolio
DEC. 31, 1998 - $(0.06) $12.45 25.14% $224,247 0.55%
DEC. 31, 1997 - - - - - -
BT International Equity
Index Portfolio
CLASS IB DEC. 31, 1998 - $(0.15) $11.85 20.07% $48,075 0.84%(1)
CLASS IB DEC. 31, 1997 - - - - - -
CLASS IA NOV. 24-DEC. 31, 1998 - $(0.17) $11.84 2.94%(b) $735 0.59%(a)(1)
BT Small Company Index
Portfolio $(0.01) $(0.21) $9.56 (2.27)% $32,609 0.60%
DEC. 31, 1998 - - - - -
DEC. 31, 1997
104
<PAGE>
<CAPTION>
DISTRIBUTIONS RATIO OF EXPENSES
IN EXCESS OF TOTAL NET ASSET NET ASSETS, END TO AVERAGE NET
REALIZED DIVIDENDS AND VALUE, END TOTAL RETURN OF PERIOD ASSETS AFTER
GAINS DISTRIBUTIONS OF PERIOD (B) (000'S) WAIVERS (A)(C)
----- ------------- --------- --- ------- --------------
JPM Core Bond Portfolio
DEC. 31, 1998 $(0.01) $(0.34) $10.57 9.02% $103,326 0.80%
DEC. 31, 1997 - - - - - -
Lazard Large Cap Value
Portfolio
DEC. 31, 1998 - $(0.06) $11.94 20.01% $74,588 0.90%
DEC. 31, 1997 - - - - - -
Lazard Small Cap Value
Portfolio
DEC. 31, 1998 - $(0.03) $9.27 (7.03)% $51,046 1.20%
DEC. 31, 1997 - - - - - -
</TABLE>
105
<PAGE>
<TABLE>
<CAPTION>
RATIO OF NET RATIO OF NET
INVESTMENT INCOME INVESTMENT INCOME
RATIO OF EXPENSES TO TO AVERAGE NET TO AVERAGE NET
AVERAGE NET ASSETS ASSETS AFTER ASSETS BEFORE PORTFOLIO
BEFORE WAIVERS (A)(C) WAIVERS(A)(C) WAIVERS(A)(C) TURNOVER RATE
--------------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
T. Rowe Price International
Stock Portfolio
DEC. 31, 1998 1.40% 0.67% 0.47% 22%
DEC. 31, 1997 2.56% 0.45% (0.91)% 17%
T. Rowe Price Equity Income
Portfolio
CLASS IB DEC. 31, 1998 1.04%(1) 2.20%(1) 2.01%(1) 17%
CLASS IB DEC. 31, 1997 1.74%(a) 2.49%(a) 1.60%(a) 9%
CLASS IA NOV. 24-DEC. 31, 1998 0.79%(a)(1) 2.45%(a)(1) 2.26%(a)(1) 17%
EQ/Putnam Growth & Income Value
Portfolio
DEC. 31, 1998 1.04% 1.30% 1.11% 74%
DEC. 31, 1997 1.75% 1.67% 0.77% 61%
EQ/Putnam Balanced Portfolio
DEC. 31, 1998 1.25% 2.88% 2.53% 135%
DEC. 31, 1997 2.55% 3.19% 1.54% 117%
EQ/Putnam International Equity
Portfolio
DEC. 31, 1998 1.46% 0.64% 0.38% 94%
DEC. 31, 1997 2.53% 0.74% (0.59)% 43%
EQ/Putnam
Investors Growth Portfolio
DEC. 31, 1998 1.09% 0.14% (0.10)% 64%
DEC. 31, 1997 2.13% 0.58% (0.70)% 47%
MFS Research Portfolio
DEC. 31, 1998 1.05% 0.44% 0.24% 73%
DEC. 31, 1997 1.78% 0.65% (0.28)% 51%
MFS Emerging Growth Companies
Portfolio
CLASS IB DEC. 31, 1998 1.04%(1) (0.30)%(1) (0.49)%(1) 79%
CLASS 1B DEC. 31, 1997 1.82%(a) 0.61%(a) (0.36)%(a) 116%
CLASS IA NOV. 24-DEC. 31, 1998 79%(a)(1) (0.05)%(a)(1) (0.24)%(a)(1) 79%
Warburg Pincus Small Company
Value Portfolio
CLASS IB DEC. 31, 1998 1.17%(1) 0.47%(1) 0.30%(1) 111%
CLASS IB DEC. 31, 1997 1.70%(a) 0.26%(a) (0.44)%(a) 44%
CLASS IA NOV. 24-DEC. 31, 1998 0.92%(a)(1) 0.72(a)(1) 0.55%(a)(1) 111%
Merrill Lynch World Strategy
Portfolio
DEC. 31, 1998 1.61% 1.63% 1.22% 115%
DEC. 31, 1997 3.05% 1.89% 0.04% 58%
Merrill Lynch
Basic Value Equity Portfolio
DEC. 31, 1998 1.06% 1.41% 1.20% 83%
DEC. 31, 1997 1.89% 1.91% 0.87% 25%
*Morgan Stanley Emerging Markets
Equity Portfolio
DEC. 31, 1998 2.63% 0.73% (0.09)% 114%
DEC. 31, 1997 2.61% 1.96% 1.10% 25%
**BT Equity 500 Index Portfolio
DEC. 31, 1998 0.83% 1.22% 0.94% 2%
DEC. 31, 1997 - - - -
**BT International Equity Index
Portfolio
CLASS IB DEC. 31, 1998 1.49%(1) 1.11%(1) 0.46%(1) 3%
CLASS IB DEC. 31, 1997 - - - -
CLASS IA NOV. 24-DEC. 31, 1998 1.24%(a)(1) 1.36%(a)(1) 0.71%(a)(1) 3%
106
<PAGE>
<CAPTION>
RATIO OF NET RATIO OF NET
INVESTMENT INCOME INVESTMENT INCOME
RATIO OF EXPENSES TO TO AVERAGE NET TO AVERAGE NET
AVERAGE NET ASSETS ASSETS AFTER ASSETS BEFORE PORTFOLIO
BEFORE WAIVERS (A)(C) WAIVERS(A)(C) WAIVERS(A)(C) TURNOVER RATE
--------------------- ------------- ------------- -------------
**BT Small Company Index
Portfolio
DEC. 31, 1998 1.81% 1.18% (0.03)% 35%
DEC. 31, 1997 - - - -
**JPM Core Bond Portfolio
DEC. 31, 1998 1.03% 4.95% 4.72% 428%
DEC. 31, 1997 - - - -
**Lazard Large Cap Value
Portfolio
DEC. 31, 1998 1.20% 1.19% 0.89% 37%
DEC. 31, 1997 - - - -
**Lazard Small Cap Value
Portfolio
DEC. 31, 1998 1.54% 0.52% 0.18% 21%
DEC. 31, 1997 - - - -
</TABLE>
- ------------------
* The Morgan Stanley Emerging Markets Equity Portfolio commenced operations
on August 20, 1997.
** Commencement of Operations for the Lazard Large Cap Value Portfolio,
Lazard Small Cap Value Portfolio, JPM Core Bond Portfolio, BT Small
Company Index Portfolio, BT International Equity Index Portfolio and BT
Equity 500 Index Portfolio was January 1, 1998. No financial highlights
are presented for EQ/Evergreen Foundation Portfolio, EQ/Evergreen
Portfolio and MFS Growth with Income Portfolio, each of which received
initial capital on December 31, 1998. In addition, no financial highlights
are presented for the EQ/Alliance Premier Growth Portfolio, Capital
Guardian Research Portfolio, Capital Guardian U.S. Equity Portfolio, and
Capital Guardian International Portfolio, each of which received initial
capital on April 30, 1999.
+ The amount shown for a share outstanding throughout the period does not
accord with the aggregate net gains on investments for that period because
of the timing of sales and repurchases of the Portfolio shares in relation
to fluctuating market value of the investments of the Portfolio.
(a) Annualized.
(b) Total return calculated for a period of less than one year is not
annualized.
(c) For further information concerning fee waivers, see the section entitled
"Expense Limitation Agreement" in the Prospectus.
(1) Reflects overall fund ratios for investment income and non-class specific
expense.
107
<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 by calling our toll free number at
1-888-855-5100.
You may visit the SEC's website at www.sec.gov to view the SAI and other
information about the Trust.
You can also review and copy information about the Trust, including the SAI, at
the SEC's Public Reference Room in Washington, D.C. You may have to pay a
duplicating fee. To find out more about the Public Reference Room, call the SEC
at 800-SEC-0330.
Investment Company Act File Number: 811-07953
108
<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
TRUST HISTORY..............................................................2
DESCRIPTION OF THE TRUST AND ITS INVESTMENTS AND RISKS.....................2
TRUST POLICIES.............................................................3
INVESTMENT STRATEGIES AND RISKS............................................8
MANAGEMENT OF THE TRUST...................................................39
INVESTMENT MANAGEMENT AND OTHER SERVICES..................................43
BROKERAGE ALLOCATION AND OTHER STRATEGIES.................................50
PURCHASE AND PRICING OF SHARES............................................53
REDEMPTION OF SHARES......................................................55
TAXATION..................................................................55
PORTFOLIO PERFORMANCE.....................................................57
OTHER SERVICES............................................................57
FINANCIAL STATEMENTS......................................................58
<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, Capital Guardian Research Portfolio,
Capital Guardian U.S. Equity Portfolio, and Capital Guardian International
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.
-2-
<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
-3-
<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, Capital Guardian Research
Portfolio, Capital Guardian U.S. Equity Portfolio and Capital
Guardian International Portfolio, as a matter of non-fundamental
operating policy, may only borrow for temporary or emergency
purposes, provided such amount shall not exceed 5% of the
Portfolio's total assets at the time the borrowing is made;
(2) Purchase or sell physical commodities, except that it may (i) enter into
futures contracts and options thereon in accordance with applicable law and (ii)
purchase or sell physical commodities if acquired as a result of ownership of
securities or other instruments. No Portfolio will consider stock index futures
contracts, currency contracts, hybrid investments, swaps or other similar
instruments to be commodities;
(3) Purchase the securities of any issuer if, as a result, more than 25% of the
value of the Portfolio's total assets would be invested in the securities of
issuers having their principal business activities in the same industry. The
United States, state or local governments, or related agencies or
instrumentalities are not
-4-
<PAGE>
considered an industry. Industries are determined by reference to the
classifications of industries set forth in each Portfolio's semi-annual and
annual reports;
(4) Make loans, except that:
a. each Portfolio may: (i) lend portfolio securities provided that no
such loan may be made if, as a result, the aggregate of such loans
would exceed 33 1/3% of the value of the Portfolio's total assets;
(ii) purchase money market securities and enter into repurchase
agreements; and (iii) acquire publicly-distributed or
privately-placed debt securities and purchase debt securities. Each
Portfolio will consider the acquisition of a debt security to
include the execution of a note or other evidence of an extension of
credit with a term of more than nine months. For purposes of this
restriction, each Portfolio will treat purchases of loan
participations and other direct indebtedness, including investments
in mortgages, as not subject to this limitation;
b. the EQ/Putnam Growth & Income Value Portfolio and EQ/Putnam
International Equity Portfolio, as a matter of non-fundamental
operating policy, may purchase debt obligations consistent with the
respective investment objectives and policies of each of those
Portfolios: (i) by entering into repurchase agreements with respect
to not more than 25% of the Portfolios' respective total assets
(taken at current value) or (ii) through the lending of the
Portfolios' portfolio securities with respect to not more than 25%
of the Portfolios' respective total assets (taken at current value);
c. the MFS Emerging Growth Companies Portfolio, BT Small Company Index
Portfolio, BT International Equity Index Portfolio, and BT Equity
500 Index Portfolio, as a matter of non-fundamental operating
policy, may each lend its portfolio securities provided that no such
loan may be made if, as a result, the aggregate of such loans would
exceed 30% of such Portfolio's total assets (taken at market value);
and
d. the Warburg Pincus Small Company Value Portfolio, the Merrill Lynch
World Strategy Portfolio, and the Merrill Lynch Basic Value Equity
Portfolio, as a matter of non-fundamental policy, may each lend its
portfolio securities provided that no such loan may be made if, as a
result, the aggregate of such loans would exceed 20% of such
Portfolio's total assets (taken at market value);
e. the Lazard Large Cap Value Portfolio and the Lazard Small Cap Value
Portfolio, as a matter of non-fundamental policy, may each lend its
portfolio securities provided that no such loan may be made if, as a
result, the aggregate of such loans would exceed 10% of such
Portfolio's total assets (taken at market value);
f. MFS Growth with Income Portfolio, as a matter of non-fundamental
operating policy, may lend its portfolio securities provided that no
such loan may be made if, as a result, the aggregate of such loans
would exceed 25% of its net assets (taken at market value);
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;
h. the Capital Guardian Research Portfolio, Capital Guardian U.S.
Equity Portfolio and Capital Guardian International Portfolio, as a
matter of fundamental policy, will not make loans;
-5-
<PAGE>
(5) Purchase a security if, as a result, with respect to 75% of the value of its
total assets, more than 5% of the value of the Portfolio's total assets would be
invested in the securities of a single issuer, except securities issued or
guaranteed by the United States Government, its agencies or instrumentalities.*
(6) Purchase a security if, as a result, with respect to 75% of the value of the
Portfolio's total assets, more than 10% of the outstanding voting securities of
any issuer would be held by the Portfolio (other than obligations issued or
guaranteed by the United States Government, its agencies or instrumentalities);*
(7) Purchase or sell real estate, except that:
a. each Portfolio, except the JPM Core Bond Portfolio, may purchase
securities of issuers which deal in real estate, securities which
are directly or indirectly secured by interests in real estate, and
securities which represent interests in real estate, and each
Portfolio may acquire and dispose of real estate or interests in
real estate acquired through the exercise of its rights as a holder
of debt obligations secured by real estate or interests therein;
b. the JPM Core Bond Portfolio may (i) invest in securities of issuers
that invest in real estate or interests therein, (ii) invest in
securities that are secured by real estate or interests therein
(iii) make direct investments in mortgages, (iv) purchase and sell
mortgage-related securities and (v) hold and sell real estate
acquired by the Portfolio as a result of the ownership of securities
including mortgages;
(8) Issue senior securities except in compliance with the 1940 Act; or
(9) Underwrite securities issued by other persons, except to the extent that the
Portfolio may be deemed to be an underwriter within the meaning of the
Securities Act of 1933, as amended (the "1933 Act"), in connection with the
purchase and sale of its portfolio securities in the ordinary course of pursuing
its investment objective, policies and program.
NON-FUNDAMENTAL RESTRICTIONS
The following investment restrictions apply to each Portfolio, but are not
fundamental. They may be changed for any Portfolio without a vote of that
Portfolio's shareholders.
Each Portfolio may not:
(1) Purchase a futures contract or an option thereon if, with respect to
positions in futures or options on futures which do not represent bona fide
hedging, the aggregate initial margin and premiums on such options would exceed
5% of the Portfolio's net asset value. As a matter of operating policy, the MFS
Research Portfolio, the Lazard Large Cap Value Portfolio, the Lazard Small Cap
Portfolio, the Capital Guardian Research Portfolio, the Capital Guardian U.S.
Equity Portfolio and the Capital Guardian International Portfolio may not invest
in commodities or commodity contracts including futures contracts. As a matter
of operating policy, the EQ/Alliance Premier Growth Portfolio may purchase and
sell exchange-traded index options and stock index futures contracts;
- ----------
* 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.
-6-
<PAGE>
(2) Purchase: (a) illiquid securities, (b) securities restricted as to resale
(excluding securities determined by the Board of Trustees to be readily
marketable), and (c) repurchase agreements maturing in more than seven days if,
as a result, more than 15% of each Portfolio's net assets (10% for the Warburg
Pincus Small Company Value Portfolio, Lazard Large Cap Value Portfolio and
Lazard Small Cap Value Portfolio) would be invested in such securities.
Securities purchased in accordance with Rule 144A under the 1933 Act and
determined to be liquid by the Trust's Board are not subject to the limitations
set forth in this investment restriction;
(3) Purchase securities on margin, except that each Portfolio may: (a) make use
of any short-term credit necessary for clearance of purchases and sales of
portfolio securities and (b) make initial or variation margin deposits in
connection with futures contracts, options, currencies, or other permissible
investments;
(4) Mortgage, pledge, hypothecate or, in any manner, transfer any security owned
by the Portfolio as security for indebtedness, except as may be necessary in
connection with permissible borrowings or investments; and then such mortgaging,
pledging or hypothecating may not exceed 33 1/3% of the respective total assets
of each Portfolio (except as specified below for the EQ/Putnam International
Equity Portfolio, Merrill Lynch World Strategy Portfolio, Merrill Lynch Basic
Value Equity Portfolio and MFS Investor Portfolio). Such mortgaging, pledging or
hypothecating may not exceed 15% of EQ/Putnam International Equity Portfolio's
total assets; 10% of each of the Merrill Lynch World Strategy Portfolio's and
Merrill Lynch Basic Value Equity Portfolio's total assets, (taken at the lower
of cost or market value); and 15% of MFS Investor Portfolio's gross assets
(taken at cost), each taken at the time of the permissible borrowing or
investment. The deposit of underlying securities and other assets in escrow and
collateral arrangements with respect to margin accounts for futures contracts,
options, currencies or other permissible investments are not deemed to be
mortgages, pledges, or hypothecations for these purposes;
(5) Purchase participations or other direct interests in or enter into leases
with respect to, oil, gas, or other mineral exploration or development programs,
except that the MFS Emerging Growth Companies Portfolio, Warburg Pincus Small
Company Value Portfolio, Merrill Lynch World Strategy Portfolio, Merrill Lynch
Basic Value Equity Portfolio, JPM Core Bond Portfolio, EQ/Evergreen Foundation
Portfolio, EQ/Evergreen Portfolio, EQ/Alliance Premier Growth Portfolio, Capital
Guardian Research Portfolio, Capital Guardian U.S. Equity Portfolio and Capital
Guardian International Portfolio may invest in securities issued by companies
that engage in oil, gas or other mineral exploration or development activities
or hold mineral leases acquired as a result of its ownership of securities;
(6) Invest in puts, calls, straddles, spreads, swaps or any combination thereof,
except to the extent permitted by the Portfolio's Prospectus and Statement of
Additional Information, as may be amended from time to time. 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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(7) Effect short sales of securities unless at all times when a short position
is open the Portfolio owns an equal amount of such securities or owns securities
which, without payment of any further consideration, are convertible into or
exchangeable for securities of the same issue as, and at least equal in amount
to, the securities sold short. Permissible futures contracts, options, or
currency transactions will not be deemed to constitute selling securities short.
As a matter of operating policy, the Capital Guardian Research Portfolio,
Capital Guardian U.S. Equity Portfolio and Capital Guardian International
Portfolio will not effect short sales of securities or property.
INVESTMENT STRATEGIES AND RISKS
In addition to the Portfolios' principal investment strategies discussed in the
Prospectus, each Portfolio may engage in other types of investment strategies as
further described in the descriptions below. Each Portfolio may invest in or
utilize any of these investment strategies and instruments or engage in any of
these practices except where otherwise prohibited by law or the Portfolio's own
investment restrictions. Portfolios that anticipate committing 5% or more of
their net assets to a particular type of investment strategy or instrument are
specifically referred to in the descriptions below of such investment strategy
or instrument.
ASSET-BACKED SECURITIES. As indicated in Appendix A, certain 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
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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.
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
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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.
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
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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.
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
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diversification strategies. However, the Adviser to the Portfolio believes that
it is important to have the flexibility to enter into such forward contracts
when it determines that the best interests of the Portfolio will be served.
A Portfolio may enter into forward contracts for any other purpose consistent
with the Portfolio's investment objective and program. However, the Portfolio
will not enter into a forward contract, or maintain exposure to any such
contract(s), if the amount of foreign currency required to be delivered
thereunder would exceed the Portfolio's holdings of liquid, securities and
currency available for cover of the forward contract(s). In determining the
amount to be delivered under a contract, the Portfolio may net offsetting
positions.
At the maturity of a forward contract, a Portfolio may sell the portfolio
security and make delivery of the foreign currency, or it may retain the
security and either extend the maturity of the forward contract (by "rolling"
that contract forward) or may initiate a new forward contract. If a Portfolio
retains the portfolio security and engages in an offsetting transaction, the
Portfolio will incur a gain or a loss (as described below) to the extent that
there has been movement in forward contract prices. If the Portfolio engages in
an offsetting transaction, it may subsequently enter into a new forward contract
to sell the foreign currency.
Should forward prices decline during the period between the Portfolio's entering
into a forward contract for the sale of a foreign currency and the date it
enters into an offsetting contract for the purchase of the foreign currency, the
Portfolio will realize a gain to the extent the price of 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 futures contract
written by the Portfolio will be considered "covered" only if the Portfolio owns
short term debt securities with a value equal to the face amount of the option
contract and denominated in the currency upon which the call is written. Option
transactions may be effected to hedge the currency risk on non-United States
dollar-denominated securities owned by a Portfolio, sold by a Portfolio but not
yet delivered or anticipated to be purchased by a Portfolio. As an illustration,
a Portfolio may use such techniques to hedge the stated value in United States
dollars of an investment in a Japanese
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yen-denominated security. In these circumstances, a Portfolio may purchase a
foreign currency put option enabling it to sell a specified amount of yen for
dollars at a specified price by a future date. To the extent the hedge is
successful, a loss in the value of the dollar relative to the yen will tend to
be offset by an increase in the value of the put option.
OVER THE COUNTER OPTIONS ON FOREIGN CURRENCY TRANSACTIONS. 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 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
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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 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
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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.
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.
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Investing in emerging market countries may entail purchasing securities issued
by or on behalf of entities that are insolvent, bankrupt, in default or
otherwise engaged in an attempt to reorganize or reschedule their obligations,
and in entities that have little or no proven credit rating or credit history.
In any such case, the issuer's poor or deteriorating financial condition may
increase the likelihood that the investing Portfolio will experience losses or
diminution in available gains due to bankruptcy, insolvency or fraud.
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.
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The economies of most of the Asian countries are heavily dependent on
international trade and are accordingly affected by protective trade barriers
and the economic conditions of their trading partners, principally, the United
States, Japan, China and the European Community. The enactment by the United
States or other principal trading partners of protectionist trade legislation,
reduction of foreign investment in the local economies and general declines in
the international securities markets could have a significant adverse effect
upon the securities markets of the Asian countries.
The securities markets in Asia are substantially smaller, less liquid and more
volatile than the major securities markets in the United States. A high
proportion of the shares of many issuers may be held by a limited number of
persons and financial institutions, which may limit the number of shares
available for investment by a Portfolio. Similarly, volume and liquidity in the
bond markets in Asia are less than in the United States and, at times, price
volatility can be greater than in the United States. A limited number of issuers
in Asian securities markets may represent a disproportionately large percentage
of market capitalization and trading value. The limited liquidity of securities
markets in Asia may also affect a Portfolio's ability to acquire or dispose of
securities at the price and time it wishes to do so. In addition, the Asian
securities markets are susceptible to being influenced by large investors
trading significant blocks of securities.
Many stock markets are undergoing a period of growth and change which may result
in trading volatility and difficulties in the settlement and recording of
transactions, and in interpreting and applying the relevant law and regulations.
With respect to investments in the currencies of Asian countries, changes in the
value of those currencies against the United States dollar will result in
corresponding changes in the United States dollar value of a Portfolio's assets
denominated in those currencies.
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
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Portfolio may sell these securities before the settlement date if it is deemed
advisable as a matter of investment strategy. Forward commitments and
when-issued and delayed delivery transactions are generally expected to settle
within three months from the date the transactions are entered into, although
the Portfolio may close out its position prior to the settlement date by
entering into a matching sales transaction.
Although none of the Portfolios intends to make such purchases for speculative
purposes and each Portfolio intends to adhere to the policies of the Securities
and Exchange Commission ("SEC"), purchases of securities on such a basis may
involve more risk than other types of purchases. For example, by committing to
purchase securities in the future, a Portfolio subjects itself to a risk of loss
on such commitments as well as on its portfolio securities. Also, a Portfolio
may have to sell assets which have 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
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with buying and currency-hedging the foreign bond positions. One solution would
be to purchase a United States dollar-denominated hybrid instrument whose
redemption price is linked to the average three year interest rate in a
designated group of countries. The redemption price formula would provide for
payoffs of greater than par if the average interest rate was lower than a
specified level, and payoffs of less than par if rates were above the specified
level. Furthermore, a Portfolio could limit the downside risk of the security by
establishing a minimum redemption price so that the principal paid at maturity
could not be below a predetermined minimum level if interest rates were to rise
significantly. The purpose of this arrangement, known as a structured security
with an embedded put option, would be to give the Portfolio the desired European
bond exposure while avoiding currency risk, limiting downside market risk, and
lowering transaction costs. Of course, there is no guarantee that the strategy
will be 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
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the security; (iii) the number of dealers wishing to purchase or sell the
security and the number of other potential purchasers; (iv) dealer undertakings
to make a market in the security; and (v) the nature of the security and the
nature of the marketplace trades (e.g., the time needed to dispose of the
security, the method of soliciting offers and the mechanics of the transfer).
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the 1933 Act, securities which are otherwise not readily
marketable and repurchase agreements having a maturity of longer than seven
days. Securities which have not been registered under the 1933 Act are referred
to as private placements or restricted securities and are purchased directly
from the issuer or in the secondary market. Mutual funds do not typically hold a
significant amount of these restricted or other illiquid securities because of
the potential 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 or higher by Moody's Investors Service Inc.
("Moody's") or BBB or higher by Standard & Poor's Rating Services, a division of
McGraw-Hill Companies, Inc. ("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 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
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Appendix to this Statement of Additional Information.) Because investment in
lower quality securities involves greater investment risk, achievement of a
Portfolio's investment objective will be more dependent on the Adviser's
analysis than would be the case if that Portfolio were investing in higher
quality bonds. In addition, lower quality securities may be more susceptible to
real or perceived adverse economic and individual corporate developments than
would investment grade bonds. Moreover, the secondary trading market for lower
quality securities may be less liquid than the market for investment grade
bonds. This potential lack of liquidity may make it more difficult for an
Adviser to value accurately certain portfolio securities.
It is the policy of each Portfolio's Adviser to not rely exclusively on ratings
issued by credit rating agencies but to supplement such ratings with the
Adviser's own independent and ongoing review of credit quality. Junk bonds may
be issued as a consequence of corporate restructuring, such as leveraged
buyouts, mergers, acquisitions, debt recapitalizations, or similar events or by
smaller or highly leveraged 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,
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and only limited opportunities may exist to resell such instruments. As a
result, the Portfolio may be unable to sell such investments at an opportune
time or may have to resell them at less than fair market value. These
commitments may have the effect of requiring a Portfolio to increase its
investment in a company at a time when a Portfolio might not otherwise decide to
do so (including at a time when the company's financial condition makes it
unlikely that such amounts will be repaid). To the extent that a Portfolio is
committed to advance additional funds, it will at all times hold and maintain in
a segregated account cash or assets in an amount sufficient to meet such
commitments.
Such loans and other direct indebtedness loans are typically made by a syndicate
of lending institutions, represented by an agent lending institution which has
negotiated and structured the loan and is responsible for collecting interest,
principal and other amounts due on its own behalf and on behalf of the others in
the syndicate, and for enforcing its rights and the rights of other loan
participants against the borrower. Alternatively, such loans and other direct
indebtedness may be structured as a "novation" (i.e., a new loan) pursuant to
which a Portfolio would assume all of the rights of the lending institution in a
loan, or as 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
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of intervals; others make semiannual interest payments at a predetermined rate
and repay principal at maturity (like a typical bond). Mortgage-backed
securities are based on different types of mortgages including those on
commercial real estate or residential properties.
CMOs may be issued by a United States Government agency or instrumentality or by
a private issuer. Although payment of the principal of, and interest on, the
underlying collateral securing privately issued CMOs may be guaranteed by the
United States Government or its agencies or instrumentalities, these CMOs
represent obligations solely of the private issuer and are not insured or
guaranteed by the United States Government, its agencies or instrumentalities or
any other person or entity. Prepayments could cause early retirement of CMOs.
CMOs are designed to reduce the risk of prepayment for investors by issuing
multiple classes of securities (or "tranches"), each having different
maturities, interest rates and payment schedules, and with the principal and
interest on the underlying mortgages allocated among the several classes in
various ways. Payment of interest or principal on some classes or series of CMOs
may be subject to contingencies or some classes or series may bear some or all
of the risk of default on the underlying mortgages. CMOs of different classes or
series are generally retired in sequence as the 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.
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Mortgage-backed securities are less effective than other types of securities as
a means of "locking in" attractive long-term interest rates. One reason is the
need to reinvest prepayments of principal; another is the possibility of
significant unscheduled prepayments resulting from declines in interest rates.
Prepayments may cause losses on securities purchased at a premium. At times,
some of the mortgage-backed securities in which a Portfolio may invest will have
higher than market interest rates and, therefore, will be purchased at a premium
above their par value. Unscheduled prepayments, which are made at par, will
cause a Portfolio to experience a loss equal to any unamortized premium.
Stripped mortgage-backed securities are created when a United States government
agency or a financial institution separates the interest and principal
components of a mortgage-backed security and sells them as individual
securities. The securities may be issued by agencies or instrumentalities of the
United States Government and private originators of, or investors in, mortgage
loans, including savings and loan associations, mortgage banks, commercial
banks, investment banks and special purpose entities of the foregoing. Stripped
mortgage-backed securities are usually structured with two classes that receive
different portions of the interest and principal distributions on a pool of
mortgage loans. The holder of the "principal-only" security ("PO") receives the
principal payments made by the underlying mortgage-backed security, while the
holder of the "interest-only" security ("IO") receives interest payments from
the same underlying security. The Portfolios may invest in both the IO class and
the PO class. The prices 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
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be present on, at or under the mortgaged property and adversely affect the value
of the property. In addition, the owners of the property containing such
substances may be held responsible, under various laws, for containing,
monitoring, removing or cleaning up such substances. The presence of such
substances may also provide a basis for other claims by third parties. Costs of
clean-up or of liabilities to third parties may exceed the value of the
property. In addition, these risks may be uninsurable. In light of these and
similar risks, it may be impossible to dispose profitably of properties in
foreclosure.
MORTGAGE DOLLAR ROLLS. The JPM Core Bond Portfolio may enter into mortgage
dollar rolls in which the Portfolio sells securities for delivery in the current
month and simultaneously contracts with the same counterparty to repurchase
similar (same type, coupon and maturity) but not identical securities on a
specified future date. During the roll period, the Portfolio loses the right to
receive principal (including prepayments of principal) and interest paid on the
securities sold. However, the Portfolio may benefit from the interest earned on
the cash proceeds of the securities sold until the settlement date of the
forward purchase. The Portfolio will hold and maintain in a segregated account
until the settlement date cash or liquid securities in an amount equal to the
forward purchase price. The benefits derived from the use of mortgage dollar
rolls depend upon the Adviser's ability to manage mortgage prepayments. There is
no assurance that mortgage dollar rolls can be successfully employed.
MUNICIPAL SECURITIES. As indicated in Appendix A, certain 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)
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possible lack of a liquid secondary market for a futures contract or an
over-the-counter option and the resulting inability to close a futures position
or over-the-counter option prior to its maturity date.
Following is a description of specific Options and Futures Transactions,
followed by a discussion concerning the risks associated with utilizing options,
futures contracts, and forward foreign currency exchange contracts.
FUTURES TRANSACTIONS. As indicated in Appendix A, certain 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
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at any time before the option expires. A put option gives the purchaser the
right, in return for the premium paid, to sell a futures contract (assume a
"short" position), for a specified exercise price, at any time before the option
expires.
Options on futures contracts can be used by a Portfolio to hedge substantially
the same risks as might be addressed by the direct purchase or sale of the
underlying futures contracts. If the Portfolio purchases an option on a futures
contract, it may obtain benefits similar to those that would result if it held
the futures position itself. Purchases of options on futures contracts may
present less risk in hedging than the purchase and sale of the underlying
futures contracts since the potential loss is limited to the amount of the
premium plus related transaction costs.
The Portfolios will write only options on futures contracts which are "covered."
A Portfolio will be considered "covered" with respect to a put option it has
written if, so long as it is obligated as a writer of the put, the Portfolio
segregates with its custodian cash, United States Government securities or
liquid securities at all times equal to or greater than the aggregate exercise
price of the puts it has written (less any related margin deposited with the
futures broker). A Portfolio will be considered "covered" with respect to a call
option it has written on a debt security future if, so long as it is obligated
as a writer of the call, the Portfolio owns a security deliverable under the
futures contract. A Portfolio will be considered "covered" with respect to a
call option it has written on a securities index future if the Portfolio owns,
so long as the Portfolio is obligated as the writer of the call, a portfolio of
securities the price changes of which are, in the opinion of its Adviser,
expected to replicate substantially the movement of the index upon which the
futures contract is based.
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
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not exceed 5% of the liquidation value of the Portfolio's total assets. In
instances involving the purchase of futures contracts or the writing of put
options thereon by a Portfolio, an amount of cash and cash equivalents, equal to
the cost of such futures contracts or options written (less any related margin
deposits), will be deposited in a segregated account with its custodian, thereby
insuring that the use of such futures contracts and options is unleveraged. In
instances involving the sale of futures contracts or the writing of call options
thereon by a Portfolio, the securities underlying such futures contracts or
options will at all times be maintained by the Portfolio or, in the case of
index futures and related options, the Portfolio will own securities the price
changes of which are, in the opinion of its Adviser, expected to replicate
substantially the movement of the index upon which the futures contract or
option is based.
For information concerning the risks associated with utilizing options, futures
contracts, and forward foreign currency exchange contracts, please see "Risks of
Transactions in Options, Futures Contracts and Forward Currency Contracts" on
page ____.
As indicated in Appendix A, certain 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,
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the Portfolio will give up the opportunity to profit from an increase in the
market price of the underlying security above the exercise price so long as its
obligations under the contract continue, except insofar as the premium
represents a profit. Moreover, in writing the call option, the Portfolio will
retain the risk of loss should the price of the security decline. The premium is
intended to offset that loss in whole or in part. Unlike the situation in which
the Portfolio owns securities not subject to a call option, the Portfolio, in
writing call options, must assume that the call may be exercised at any time
prior to the expiration of its obligation as a writer, and that in such
circumstances the net proceeds realized from the sale of the underlying
securities pursuant to the call may be substantially below the prevailing market
price.
A Portfolio may terminate its obligation under an option it has written by
buying an identical option. Such a transaction is called a "closing purchase
transaction." The Portfolio will realize a gain or loss from a closing purchase
transaction if the amount paid to purchase a call option is less or more than
the amount received from the sale of the corresponding call option. Also,
because increases in the market price of a call option will generally reflect
increases in the market price of the underlying security, any loss resulting
from the exercise or closing out of a call option is likely to be offset in
whole or part by unrealized appreciation of the underlying security owned by the
Portfolio. When an underlying security is sold from the Portfolio's securities
portfolio, the Portfolio will effect a closing purchase transaction so as to
close out any existing covered call option on that underlying security.
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.
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SECURITIES INDEX FUTURES CONTRACTS. Purchases or sales of securities
index futures contracts may be used in an attempt to protect a Portfolio's
current or intended investments from broad fluctuations in securities prices. A
securities index futures contract does not require the physical delivery of
securities, but merely provides for profits and losses resulting from changes in
the market value of the contract to be credited or debited at the close of each
trading day to the respective accounts of the parties to the contract. On the
contract's expiration date a final cash settlement occurs and the futures
positions are simply closed out. Changes in the market value of a particular
index futures contract reflect changes in the specified index of securities on
which the future is based.
By establishing an appropriate "short" position in index futures, a Portfolio
may also seek to protect the value of its portfolio against an overall decline
in the market for such securities. Alternatively, in anticipation of a generally
rising market, a Portfolio can seek to avoid losing the benefit of apparently
low current prices by establishing a "long" position in securities index futures
and later liquidating that position as particular securities are in fact
acquired. To the extent that these hedging strategies are successful, the
Portfolio will be affected to a lesser degree by adverse overall market price
movements than would otherwise be the case.
SECURITIES INDEX OPTIONS. A Portfolio may write covered put and call
options and purchase call and put options on securities indexes for the purpose
of hedging against the risk of unfavorable price movements adversely affecting
the value of a Portfolio's securities or securities it intends to purchase. Each
Portfolio writes only "covered" options. A call option on a securities index is
considered covered, 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
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dealers, the formula will generally be based on a multiple of the premium
received by each Portfolio for writing the option, plus the amount, if any, of
the option's intrinsic value (i.e., the amount the option is "in-the-money").
The formula will also include a factor to account for the difference between
the price of the security and the strike price of the option if the option is
written "out-of-the-money." Although the specific details of the formula may
vary with different primary dealers, each contract will provide a formula to
determine the maximum price at which each Portfolio can repurchase the option
at any time. The Portfolios have established standards of creditworthiness for
these primary dealers, although the Portfolios may still be subject to the risk
that firms participating in such transactions will fail to meet their
obligations. In instances in which a Portfolio has entered into agreements with
respect to the over-the-counter options it has written, and such agreements
would enable the Portfolio to have an absolute right to repurchase at a
pre-established formula price the over-the-counter option written by it, the
Portfolio would treat as illiquid only securities equal in amount to the
formula price described above less the amount by which the option is
"in-the-money," i.e., the amount by which the price of the option exceeds the
exercise price.
RISKS OF TRANSACTIONS IN OPTIONS, FUTURES CONTRACTS AND FORWARD CURRENCY
CONTRACTS
OPTIONS. A closing purchase transaction for exchange-traded options
may be made only on a national securities exchange ("exchange"). There is no
assurance that a liquid secondary market on an exchange will exist for any
particular option, or at any particular time, and for some options, such as
over-the-counter options, no secondary market on an exchange may exist. If a
Portfolio is unable to effect a closing purchase transaction, the Portfolio
will not sell the underlying security until the option expires or the Portfolio
delivers the underlying security upon exercise.
Options traded in the over-the-counter market may not be as actively traded as
those on an exchange. Accordingly, it may be more difficult to value such
options. In addition, it may be difficult to enter into closing transactions
with respect to options traded over-the-counter. The Portfolios will engage in
such transactions only with firms of sufficient credit so as to minimize these
risks. Such options and the securities used as "cover" for such options may be
considered illiquid securities.
The effectiveness of hedging through the purchase of securities index options
will depend upon the extent to which price movements in the portion of the
securities portfolio being hedged correlate with price movements in the
selected securities index. Perfect correlation is not possible because the
securities held or to be acquired by a Portfolio will not exactly match the
composition of the securities indexes on which options are written. In the
purchase of securities index options the principal risk is that the premium
and transaction costs paid by a Portfolio in purchasing an option will be lost
if the changes (increase in the case of a call, decrease in the case of a put)
in the level of the index do not exceed the cost of the option.
FUTURES. The prices of futures contracts are volatile and are influenced, among
other things, by actual and anticipated changes in the market and interest
rates, which in turn are affected by fiscal and monetary policies and national
and international political and economic events.
Most United States futures exchanges limit the amount of fluctuation permitted
in futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of a
trading session. Once the daily limit has been reached in a particular type of
futures contract, no trades may be made on that day at a price beyond that
limit. The daily limit governs only price movement during a particular trading
day and therefore does not limit potential losses, because the limit may prevent
the liquidation of unfavorable positions. Futures contract prices have
occasionally moved to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of futures positions
and subjecting some futures traders to substantial losses.
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Because of the low margin deposits required, futures trading involves an
extremely high degree of leverage. As a result, a relatively small price
movement in a futures contract may result in immediate and substantial loss, as
well as gain, to the investor. For example, if at the time of purchase, 10% of
the value of the futures contract is deposited as margin, a subsequent 10%
decrease in the value of the futures contract would result in a total loss of
the margin deposit, before any deduction for the transaction costs, if the
account were then closed out. A 15% decrease would result in a loss equal to
150% of the original margin deposit, if the contract were closed out. Thus, a
purchase or sale of a futures contract may result in losses in excess of the
amount invested in the futures contract.
A decision of whether, when, and how to hedge involves skill and judgment, and
even a well-conceived hedge may be unsuccessful to some degree because of
unexpected market behavior, market trends or interest rate trends. There are
several risks in connection with the use by a Portfolio of futures contracts as
a hedging device. One risk arises because of the imperfect correlation between
movements in the prices of the futures contracts and movements in the prices of
the underlying instruments which are the subject of the hedge. A Portfolio's
Adviser will, however, attempt to reduce this risk by entering into futures
contracts whose movements, in its judgment, will have a significant correlation
with movements in the prices of the Portfolio's underlying instruments sought to
be hedged.
Successful use of futures contracts by a Portfolio for hedging purposes is also
subject to a Portfolio's ability to correctly predict movements in the direction
of the market. It is possible that, when a Portfolio has sold futures to hedge
its portfolio against a decline in the market, the index, indices, or
instruments underlying futures might advance and the value of the underlying
instruments held in the Portfolio's portfolio might decline. If this were to
occur, the Portfolio would lose money on the futures and also would experience a
decline in value in its underlying instruments.
Positions in futures contracts may be closed out only on an exchange or a board
of trade which provides the market for such futures. Although the Portfolios,
specified in the Prospectus, intend to purchase or sell futures only on
exchanges or boards of trade where there appears to be an active market, there
is no guarantee that such will exist for any particular contract or at any
particular time. If there is not a liquid market at a particular time, it may
not be possible to close a futures position at such time, and, in the event of
adverse price movements, a Portfolio would continue to be required to make daily
cash payments of variation margin. However, in the event futures positions are
used to hedge portfolio securities, the securities will not be sold until the
futures positions can be liquidated. In such circumstances, an increase in the
price of securities, if any, may partially or completely offset losses on the
futures contracts.
FOREIGN OPTIONS AND FUTURES. Participation in foreign futures and
foreign options transactions involves the execution and clearing of trades on or
subject to the rules of a foreign board of trade. Neither the National Futures
Association nor any domestic exchange regulates activities of any foreign boards
of trade, including the execution, delivery and clearing of transactions, or has
the power to compel enforcement of the rules of a foreign board of trade or any
applicable foreign law. This is true even if the exchange is formally linked to
a domestic market so that a position taken on the market may be liquidated by a
transaction on another market. Moreover, such laws or regulations will vary
depending on the foreign country in which the foreign futures or foreign options
transaction occurs. For these reasons, when a Portfolio trades foreign futures
or foreign options contracts, it may not be afforded certain of the protective
measures provided by the Commodity Exchange Act, the CFTC's regulations and the
rules of the National Futures Association and any domestic exchange, including
the right to use reparations proceedings before the CFTC and arbitration
proceedings provided by the National Futures Association or any domestic futures
exchange. In particular, funds received from a Portfolio for foreign futures or
foreign options transactions may not be provided the same protections as funds
received in respect of transactions on United States futures exchanges. In
addition, the price of any foreign futures or foreign options contract and,
therefore,
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the potential profit and loss thereon, may be affected by any variance in the
foreign exchange rate between the time the Portfolio's order is placed and the
time it is liquidated, offset or exercised.
FOREIGN CURRENCY CONTRACTS. Hedging against a decline in the value of a
currency does not eliminate fluctuations in the prices of portfolio securities
or prevent losses if the prices of such securities decline. These hedging
transactions also preclude the opportunity for gain if the value of the hedged
currency should rise. Whether a currency hedge benefits a Portfolio will depend
on the ability of a Portfolio's Adviser to predict future currency exchange
rates.
The writing of an option on foreign currency will constitute only a partial
hedge, up to the amount of the premium received, and a Portfolio could be
required to purchase or sell foreign currencies at disadvantageous exchange
rates, thereby incurring losses. The purchase of an option on foreign currency
may constitute an effective hedge against fluctuations in exchange rates
although, in the event of rate movements adverse to a Portfolio's position, it
may forfeit the entire amount of the premium plus related transaction costs.
PASSIVE FOREIGN INVESTMENT COMPANIES. As indicated in Appendix A, certain
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
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repurchase price, including any accrued interest. A Portfolio's right to
liquidate such securities in the event of a default by the seller could involve
certain costs, losses or delays and, to the extent that proceeds from any sale
upon a default of the obligation to repurchase are less than the repurchase
price, the Portfolio could suffer a loss.
Under a repurchase agreement, underlying debt instruments are acquired for a
relatively short period (usually not more than one week and never more than a
year) subject to an obligation of the seller to repurchase and the Portfolio to
resell the instrument at a fixed price and time, thereby determining the yield
during the Portfolio's holding period. This results in a fixed rate of return
insulated from market fluctuation during that holding period.
Repurchase agreements may have the characteristics of loans by a Portfolio.
During the term of the repurchase agreement, a Portfolio retains the security
subject to the repurchase agreement as collateral securing the seller's
repurchase obligation, continually monitors on a daily basis the market value of
the security subject to the agreement and requires the seller to deposit with
the Portfolio collateral equal to any amount by which the market value of the
security subject to the repurchase agreements falls below the resale amount
provided under the repurchase agreement. A Portfolio will enter into repurchase
agreements (with respect to United States Government obligations, certificates
of deposit, or bankers' acceptances) with registered brokers-dealers, United
States Government securities dealers or domestic banks whose creditworthiness is
determined to be satisfactory by the Portfolio's Adviser, pursuant to guidelines
adopted by the Board of Trustees. Generally, a Portfolio does not invest in
repurchase agreements maturing in more than seven days. The staff of the SEC
currently takes the position that repurchase agreements maturing in more than
seven days are illiquid securities.
If a seller under a repurchase agreement were to default on the agreement and be
unable to repurchase the security subject to the repurchase agreement, the
Portfolio would look to the collateral underlying the seller's repurchase
agreement, including the security subject to the repurchase agreement, for
satisfaction 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
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repurchase it at a mutually agreed upon date and price, reflecting the interest
rate effective for the term of the agreement. It may also be viewed as the
borrowing of money by the Portfolio. The Portfolio's investment of the proceeds
of a reverse repurchase agreement is the speculative factor known as leverage.
The Portfolio may enter into a reverse repurchase agreement only if the interest
income from investment of the proceeds is greater than the interest expense of
the transaction and the proceeds are invested for a period no longer than the
term of the agreement. At the time a Portfolio enters into a reverse repurchase
agreement, it will establish and maintain a segregated account with an approved
custodian containing cash or other liquid securities having a value not less
than the repurchase price (including accrued interest). If interest rates rise
during a reverse repurchase agreement, it may adversely affect the Portfolio's
net asset value. See "Fundamental Restrictions" for more information concerning
restrictions on borrowing by each Portfolio.
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
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will call a loan in anticipation of any important vote. The risks in lending
portfolio securities, as with other extensions of secured credit, consist of
possible delay in receiving additional collateral or in the recovery of the
securities or possible loss of rights in the collateral should the borrower fail
financially. Loans will only be made to firms deemed by a Portfolio's Adviser to
be of good standing and will not be made unless, in the judgment of the Adviser,
the consideration to be earned from such loans would justify the risk.
SHORT SALES AGAINST THE BOX. As indicated in Appendix A, certain 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
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Markets Equity Portfolio's investment in these structured notes may be limited
by restrictions contained in the 1940 Act. Structured notes are typically sold
in private placement transactions, and there currently is no active trading
market for structured notes.
SWAPS. As indicated in Appendix A, certain 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.
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Accordingly, the risk of loss with respect to swaps is limited to the net amount
of payments the Portfolio is contractually obligated to make. If the other party
to a swap defaults, the Portfolio's risk of loss consists of the net amount of
payments that the Portfolio contractually is entitled to receive. Currency swaps
usually involve the delivery of the entire principal value of one designated
currency in exchange for the other designated currency. Therefore, the entire
principal value of a currency swap is subject to the risk that the other party
to the swap will default on its contractual delivery obligations. If there is a
default by the counterparty, a Portfolio may have contractual remedies pursuant
to the agreements related to the transaction. The swap market has grown
substantially in recent years with a large number of banks and investment
banking firms acting both as principals and as agents utilizing standardized
swap documentation. As a result, the swap market has become relatively liquid.
Certain swap transactions involve more recent innovations for which standardized
documentation has not yet been fully developed and, accordingly, they are less
liquid than traditional swap transactions.
The use of swaps is a highly specialized activity which involves investment
techniques and risks different from those associated with ordinary portfolio
securities transactions. If an Adviser is incorrect in its forecasts of market
values, interest rates, and currency exchange rates, the investment performance
of the Portfolio would be less favorable than it would have been if this
investment technique were not used.
UNITED STATES GOVERNMENT SECURITIES. Each Portfolio may invest in debt
obligations of varying maturities issued or guaranteed by the United States
Government, its agencies or instrumentalities ("United States Government
securities"). Direct obligations of the United States Treasury include a variety
of securities that differ in their interest rates, maturities and dates of
issuance. United States Government securities also include securities issued or
guaranteed by government agencies that are supported by the full faith and
credit of the United States (e.g., securities issued by the Federal Housing
Administration, Export-Import Bank of the United States, Small Business
Administration, and Government National Mortgage Association); securities issued
or guaranteed by government agencies that are supported by the ability to borrow
from the United States Treasury (e.g., securities issued by the Federal National
Mortgage Association); and securities issued or guaranteed by government
agencies that are only supported by the credit of the particular agency (e.g.,
Interamerican Development Bank, the International Bank for Reconstruction and
Development, and the Tennessee Valley Authority).
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 price of the underlying security, or any
combination thereof. Warrants generally pay no dividends and confer no voting or
other rights other than to purchase the underlying security.
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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.
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
Equitable Life Investment Officer, Equitable Life since
1290 Avenue of the Americas May 1995; prior thereto, Vice President
New York, New York 10104 Salomon Brothers Inc., 1992 to 1995.
Principal, Equity Division, Morgan
Stanley & Co., Inc., 1984 to 1992.
Director, Alliance Capital Management
Co. since July 1995. Trustee, Hudson
River Trust (investment company) since
July 1995. Executive Vice President, EQ
Financial Consultants, Inc. since
November 1996.
Jettie M. Edwards (52) Partner and Consultant, Syrus Associates
Syrus Associates since 1986. Trustee, Provident
880 Third Avenue Investment Counsel Trust (investment
New York, NY 10022 company) since 1992. Director, The PBHG
Funds, Inc.(investment company) since
1995.
William M. Kearns, Jr. (63) President, W.M. Kearns & Co., Inc., a
W.M. Kearns & Co., Inc. private investment company, since 1994;
310 South Street Director, Kuhlman Corporation, Malibu
Morristown, NJ 07960 Entertainment Worldwide, Inc.,
Selective Insurance Group, Inc., as well
as a number of private and venture-
backed companies; Managing Director,
Lehman Brothers, Inc. and predecessor
firms, 1969-1992; Advisory Director,
Lehman Brothers, Inc. 1992-1994.
-39-
<PAGE>
NAME, ADDRESS AND AGE PRINCIPAL OCCUPATION DURING LAST
FIVE YEARS
<S> <C>
Christopher P.A. Komisarjevsky (54) President and Chief Executive Officer,
Burson-Marsteller Burson-Marsteller USA since 1996.
230 Park Avenue South President and Chief Executive Officer,
New York, NY 10003-1566 Burson-Marsteller New York, 1995 to
1996. President and Chief Executive
Officer, Gavin Anderson & Company New
York, 1994 to 1995. Prior thereto, he
held various positions with Hill and
Knowlton, Inc. for twenty years.
Harvey Rosenthal (56) Independent Director and Investor, CVS
60 State Street Corporation (formerly Melville
Suite 700 Corporation) since 1996. President and
Boston, MA 02109 Chief Operating Officer, CVS Corporation
from 1994 to 1996. Prior thereto, he
held various positions with CVS division
of Melville Corporation, for twenty-
seven years.
William T. McCaffrey* (62) Director, Senior Executive Vice
89-25 63rd Avenue President and Chief Operating Officer,
Rego Park, NY 11374 Equitable Life, to March 1998.
Executive Vice President and Chief
Administrative Officer, The Equitable
Companies Incorporated since 1994.
Director, Equitable Foundation and
Equitable Distributors, Inc. since May
1996.
Michael Hegarty* (54) Director, President and Chief Operating
Equitable Life Officer, Equitable Life since April 1,
1290 Avenue of the Americas 1998. Vice Chairman, Chase Manhattan
New York, New York 10104 Corporation from 1996 to 1998. Vice
Chairman, Chemical Bank, 1995 to 1996
(Chase Manhattan Corporation and
Chemical Bank merged in 1996). Senior
Executive Vice President, Chemical Bank,
1991-1995. Executive Vice President,
Group Executive and other various
positions, Manufacturers Hanover Trust.
</TABLE>
* Mr. Noris, Mr. McCaffrey and Mr. Hegarty are "interested persons" (as defined
in the 1940 Act) of the Trust. Mr. Noris, Mr. McCaffrey and Mr. Hegarty are
deemed "interested persons" of the Trust by virtue of their position as officers
of Equitable Life.
COMMITTEES OF THE BOARD
The Trust has a standing audit committee consisting of all of the Trust's
disinterested Trustees. The audit committee's function is to recommend to the
Board of Trustees a firm of independent accountants to conduct the annual audit
of the Trust's financial statements; review with such firm the outline, scope
and results of this annual audit; and review the performance and fees charged by
the independent accountants for professional services. In addition, the
committee meets with the independent accountants and representatives of
management to review accounting activities and areas of financial reporting and
control.
The Trust has a valuation committee consisting of Peter D. Noris, Harvey Blitz,
Norman Abrams, Kevin Byrne, Brian O'Neil, and such other officers of the Trust,
the Manager, and Chase Global Funds Services Company, as well as such officers
of any Adviser to any Portfolio as are deemed necessary by Mr. Noris or Mr.
Blitz from time to time, each of whom shall serve at the pleasure of the Board
of Trustees as members of the Valuation Committee. This committee determines the
value of any of the Trust's securities and assets for which market quotations
are not readily available or for which valuation cannot otherwise be provided.
The Trust has a compensation committee consisting of Jettie M. Edwards, William
K. Kearns, Jr., Christopher P.A. Komisarjevsky and Harvey Rosenthal. The
compensation committee's function is to review the Trustees' compensation
arrangements.
The Trust has a conflicts committee consisting of Peter D. Noris and William T.
McCaffrey. The conflicts committee's function is to take any action necessary to
resolve conflicts among shareholders.
COMPENSATION OF THE TRUSTEES
Each Trustee, other than those who are "interested persons" of the Trust (as
defined in the 1940 Act), receives from the Trust an annual fee of $25,000 plus
an additional fee of $1,000 per Board meeting and $500 per committee meeting
attended in person or by telephone.
-40-
<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
Vice President and Secretary Associate General Counsel,
Equitable Life since
January 1997. Vice
President and Counsel,
Equitable Life from October
1991 to December 1996.
Harvey Blitz (52) Senior Vice President,
Vice President and Chief Financial Officer Equitable Life since
September 1987. Deputy
Chief 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
-41-
<PAGE>
<CAPTION>
NAME, AGE AND POSITION WITH TRUST PRINCIPAL OCCUPATION DURING
LAST FIVE YEARS
<S> <C>
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.
Brian O'Neil (47) Executive Vice President,
Equitable Life since
November 1998. Vice
President Chief Investment
Officer, AXA Investment
Management Paris since
July 1995. Executive Vice
President and Chief
Investment Officer,
Equitable Life since 1992.
Kevin R. Byrne (42) Vice President and
Vice President and Treasurer Treasurer, The Equitable
Companies Incorporated and
Equitable Life. Treasurer,
Frontier Trust Company and
EquiSource. Vice President
and Treasurer, Equitable
Casualty Insurance Company.
Robin K. Murray (43) Vice President, Office of
First Vice President the Chief Investment
Officer, and First Vice
President, Equitable
Financial Consultants, Inc.
since May 1997. Vice
President, Office of the
President, Equitable Life
since 1996. Vice President,
Income Management Group,
Equitable Life since 1994;
Assistant Vice President of
Marketing, Equitable Life
from 1989 to 1994.
Martin J. Telles (50) Executive Vice President
Vice President and Chief Marketing
Officer, Equico Securities
since 1993. Director, Royal
Alliance.
Mary Joan Hoene, Esq. (49) Vice President and Counsel,
Vice President Insurance Division,
Equitable Life since 1998.
Divisional Senior Vice
President, Financial
Institution and Government
Affairs, AIG Technical
Services from 1994 to 1998.
General Counsel, Mitchell
Hutchins Asset Management
Inc., from 1988
to 1994.
Allen T. Zabusky (47) Vice President and Deputy
Vice President and Controller Controller, Equitable Life
since 1990. Controller,
The Equitable of Colorado,
Inc. since 1996.
Mary E. Cantwell (37) Assistant Vice President,
Assistant Vice President Office of the Chief
Investment Officer,
Equitable Life since
September 1997. Assistant
Vice President, Equitable
Financial Consultants, Inc.
since September 1997.
Marketing Director, Income
Management Group, Equitable
Life since 1994. Marketing
Manager, Equitable Life
since 1991.
Paul Roselli (34) Vice President, Fund
Assistant Treasurer Administration, Chase
Global Funds Services
Company since March 1997.
Assistant Manager of Fund
Accounting, Brown Brothers
Harriman from July 1993 to
March 1997.
Karl O. Hartmann (43) Senior Vice President and
Assistant Secretary General Counsel, Chase
Global Funds Services
Company.
Lloyd Lipsett (34) Vice President and
Assistant Secretary Associate General Counsel,
Chase Global Funds Services
Company since 1997.
Associate, Hale and Dorr
(law firm), 1995 to 1997.
Associate, Choate, Hall &
Stewart (law firm), 1993
to 1995.
</TABLE>
CONTROL PERSON AND PRINCIPAL HOLDERS OF SECURITIES
The Trust continuously offers its shares to separate accounts of insurance
companies in connection with variable life insurance contracts and variable
annuity certificates and contracts (the "Contracts") and to participants in
tax-qualified retirement plans. 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 100% of the Trust's Class IB shares as of March 1, 1999. Equitable
is organized as a New York Stock life insurance company and is a wholly owned
subsidiary of The Equitable Companies, Incorporated, a subsidiary of AXA, a
French insurance holding company. During 1999, The Equitable Companies,
Incorporated plans to change its name to AXA Financial, Inc.
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
-42-
<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. ("EQFC" or "Manager") is the investment manager
for each Portfolio. T. Rowe Price Associates, Inc. ("T. Rowe Price"), Rowe
Price-Fleming International, Inc. ("Price Fleming"), Putnam Investment
Management, Inc. ("Putnam Management"), Massachusetts Financial Services Company
("MFS"), Morgan Stanley Asset Management Inc. ("MSAM"), Warburg Pincus Asset
Management, Inc. ("Warburg"), Merrill Lynch Asset Management, L.P. ("MLAM"),
Lazard Asset Management ("LAM"), a division of Lazard Freres and Company, LLC,
J.P. Morgan Investment Management Inc. ("J.P. Morgan"), Bankers Trust Company
("Bankers Trust"), Evergreen Asset Management Corp. ("Evergreen"), Alliance
Capital Management, L.P. ("Alliance"), and Capital Guardian Trust Company
("Capital Guardian") (each an "Adviser," and together the "Advisers") serve as
investment advisers to one or more of the Portfolios, as described more fully in
the Prospectus.
The Manager is an investment adviser registered with the SEC under the 1940 Act
and a broker-dealer registered with the SEC under the Securities Exchange Act of
1934, as amended ("1934 Act"). The Manager has served as an investment manager
to each Portfolio of the Trust since its inception. The Manager currently
furnishes specialized investment advice to individuals, pension and profit
sharing plans, trusts, charitable organizations, corporations and other business
entities. The Manager is a wholly-owned subsidiary of Equitable Holding
Corporation, a wholly-owned subsidiary of Equitable. During 1999, the Manager
plans to change its name to AXA Advisors, Inc.
Equitable, which is a New York life insurance company and one of the largest
life insurance companies in the United States, is a wholly-owned subsidiary of
The Equitable Companies Incorporated ("The Equitable Companies"), a
publicly-owned holding company. The principal offices of The Equitable Companies
and Equitable are located at 1290 Avenue of the Americas, New York, New York
10104.
AXA is the largest shareholder of The Equitable Companies. On March 1, 1999, AXA
owned, directly or indirectly through its affiliates, 58.4% of the outstanding
common stock of The Equitable Companies. AXA is the holding company for an
international group of insurance and related financial services companies.
-43-
<PAGE>
AXA's insurance operations include activities in life insurance, property and
casualty insurance and reinsurance. The insurance operations are diverse
geographically, with activities principally in Western Europe, North America,
and the Asia/Pacific area and, to a lesser extent, in Africa and South America.
AXA is also engaged in asset management, investment banking, securities trading,
brokerage, real estate and other financial services activities principally in
the United States, as well as in Western Europe and the Asia/Pacific area.
The Trust and Manager have entered into an investment management agreement
("Management Agreement"). This was initially approved by the Board of Trustees
on March 31, 1997. The Management Agreement obligates the Manager to: (i)
provide investment management services to the Trust; (ii) select the Adviser for
each Portfolio; (iii) monitor the Adviser's investment programs and results;
(iv) review brokerage matters; (v) oversee compliance by the Trust with various
federal and state statutes; and (vi) carry out the directives of the Board of
Trustees. The Management Agreement requires the Manager to provide the Trust
with office space, office equipment, and personnel necessary to operate and
administer the Trust's business, and also to supervise the provision of services
by third parties. The continuance of the Management Agreement, with respect to
each Portfolio, after the first two years must be specifically approved at least
annually (i) by the Trust's Board of Trustees or by vote of a majority of the
outstanding voting securities (as defined in the 1940 Act) of such Portfolio and
(ii) by the affirmative vote of a majority of the Trustees who are not parties
to the Management Agreement or "interested persons" (as defined in the 1940 Act)
of any such party by votes cast in person at a meeting called for such purpose.
The Management Agreement with respect to each Portfolio may be terminated (i) at
any time, without the payment of any penalty, by the Trust upon the vote of a
majority of the Trustees or by vote of the majority of the outstanding voting
securities (as defined in the 1940 Act) of such Portfolio upon sixty (60) days'
written notice to the Manager or (ii) by the Manager at any time without penalty
upon sixty (60) days' written notice to the Trust. The Management Agreement will
also terminate automatically in the event of its assignment (as defined in the
1940 Act).
Each Portfolio pays a fee to the Manager as described below for the investment
management services the Manager provides each Portfolio. The Manager and the
Trust have also entered into an expense limitation agreement with respect to
each Portfolio ("Expense Limitation Agreement"), pursuant to which the Manager
has agreed to waive or limit its fees and to assume other expenses so that the
total annual operating expenses (with certain exceptions described in the
Prospectus) of each Portfolio are limited to the extent described in the
"Management of the Trust -- Expense Limitation Agreement" section of the
Prospectus.
In addition to the management fees, the Trust pays all expenses not assumed by
the Manager, including, without limitation: the fees and expenses of its
independent accountants and of its legal counsel; the costs of printing and
mailing annual and semi-annual reports to shareholders, proxy statements,
prospectuses, prospectus supplements and statements of additional information,
all to the extent they are sent to existing Contract owners; the costs of
printing registration statements; bank transaction charges and custodian's fees;
any proxy solicitors' fees and expenses; filing fees; any federal, state or
local income or other taxes; any interest; any membership fees of the Investment
Company Institute and similar organizations; fidelity bond and Trustees'
liability insurance premiums; and any extraordinary expenses, such as
indemnification payments or damages awarded in litigation or settlements made.
All general Trust expenses are allocated among and charged to the assets of the
Portfolios of the Trust on a basis that the Trustees deem fair and equitable,
which may be on the basis of relative net assets of each Portfolio or the nature
of the services 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.
-44-
<PAGE>
The table below shows the fees paid by each Portfolio to the Manager during the
year ended December 31, 1998. The first column shows each fee without fee
waivers, the second column shows the fees actually paid to the Manager after fee
waivers and the third column shows the total amount of fees waived by the
Manager and other expenses of each Portfolio assumed by the Manager pursuant to
the Expense Limitation Agreement.
<TABLE>
<CAPTION>
PORTFOLIO MANAGEMENT MANAGEMENT FEE TOTAL AMOUNT OF
FEE PAID TO MANAGER FEES WAIVED AND
AFTER FEE WAIVER OTHER EXPENSES
ASSUMED BY MANAGER
<S> <C> <C> <C>
Merrill Lynch Basic Value Equity Portfolio $632,783 $396,615 $236,168
Merrill Lynch World Strategy Portfolio $179,486 $75,018 $104,468
MFS Emerging Growth Companies Portfolio $1,351,932 $881,342 $470,590
MFS Research Portfolio $1,319,969 $842,389 $477,580
EQ/Putnam Balanced Portfolio $269,939 $99,960 $169,979
EQ/Putnam Growth & Income Value Portfolio $1,654,313 $1,069,169 $585,144
EQ/Putnam International Equity Portfolio $673,315 $421,928 $251,387
EQ/Putnam Investors Growth Portfolio $497,899 $282,976 $214,923
T. Rowe Price Equity Income Portfolio $1,000,224 $661,278 $338,946
T. Rowe Price International Stock 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 Portfolio $210,001 $0 $232,207
BT International Equity Index Portfolio $98,039 $0 $180,103
BT Small Company Index Portfolio $45,728 $0 $220,614
JPM Core Bond Portfolio $172,507 $86,266 $86,241
Lazard Large Cap Value Portfolio $160,570 $73,011 $87,559
Lazard Small Cap Portfolio $194,797 $111,500 $83,297
</TABLE>
The EQ/Evergreen Foundation, EQ/Evergreen, MFS Growth with Income, EQ/Alliance
Premier Growth, Capital Guardian Research, Capital Guardian U.S. Equity and
Capital Guardian International 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 Advisory
Agreement on behalf of MFS Research Portfolio, MFS Emerging Growth Companies
Portfolio and MFS Growth with Income Portfolio with MFS. The Manager has entered
into Advisory Agreements on behalf of Morgan Stanley Emerging Markets Equity
Portfolio and Warburg Pincus Small Company Value Portfolio with MSAM and
Warburg, respectively. The Manager has entered into an Advisory Agreement on
behalf of Merrill Lynch World Strategy Portfolio and Merrill Lynch Basic Value
Equity Portfolio with MLAM. The Manager has entered into an Advisory Agreement
on behalf of Lazard Large Cap Value Portfolio and Lazard Small Cap Value
Portfolio with LAM. The Manager has entered into an Advisory Agreement on behalf
of the JPM Core Bond Portfolio with J.P. Morgan. The Manager has entered into an
Advisory Agreement on behalf of BT Small Company Index Portfolio, BT
International Equity Index Portfolio and BT Equity 500 Index Portfolio with
Bankers Trust. The Manager has entered into an Advisory Agreement on behalf of
EQ/Evergreen Foundation
-45-
<PAGE>
Portfolio and EQ/Evergreen Portfolio with 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 Capital Guardian Research Portfolio, Capital Guardian U.S. Equity
Portfolio, and Capital Guardian International 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 Guardian to: (i) make investment decisions on
behalf of their respective Portfolios; (ii) place all orders for the purchase
and sale of investments for their respective Portfolios with brokers or dealers
selected by the Manager or an Adviser; and (iii) perform certain limited related
administrative functions in connection therewith.
During the 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 Portfolio $42,047
BT International Equity Index Portfolio $42,067
BT Small Company Index Portfolio $9,143
JPM Core Bond Portfolio $15,022
Lazard Large Cap Value Portfolio $123,634
Lazard Small Cap Value Portfolio $158,214
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
agreement. Although shareholder approval would not be required for the
termination of Advisory
-46-
<PAGE>
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 Portfolio $91,209
BT International Equity Index Portfolio $89,083
BT Small Company Index Portfolio $97,220
JPM Core Bond Portfolio $52,546
Lazard Large Cap Value Portfolio $47,035
Lazard Small Cap Value Portfolio $45,857
The EQ/Evergreen Foundation, EQ/Evergreen, MFS Growth with Income, EQ/Alliance
Premier Growth, Capital Guardian Research, Capital Guardian U.S. Equity and
Capital Guardian International Portfolios did not pay a fee to the Administrator
during the year ended December 31, 1998.
-47-
<PAGE>
THE DISTRIBUTORS
The Trust has distribution agreements with EQFC and EDI (each also referred to
as a "Distributor," and together "Distributors"), each an indirect wholly-owned
subsidiary of Equitable. The address for both EQFC and EDI is 1290 Avenue of the
Americas, New York, New York 10104. EQFC is one of the Distributors for the
Trust's Class IA shares and Class IB shares and also serves as the Manager of
the Trust. EDI serves as one of the Distributors for the Trust's Class IA shares
and Class IB shares.
The Trust's distribution agreements with respect to the Class IA shares and
Class IB shares ("Distribution Agreements") were reapproved by the Board of
Trustees at a Board meeting held on April 12, 1999. The Distribution Agreements
will remain in effect from year to year provided each Distribution Agreement's
continuance is approved annually by (i) a majority of the Trustees who are not
parties to such agreement or "interested persons" (as defined in the 1940 Act)
of the Trust or a Portfolio and, if applicable, who have no direct or indirect
financial interest in the operation of the Class IB Distribution Plan or any
such related agreement ("Independent Trustees") and (ii) either by vote of a
majority of the Trustees or a majority of the outstanding voting securities (as
defined in the 1940 Act) of the Trust.
The Distributors or their affiliates for the Class IA shares will pay for
printing and distributing prospectuses or reports prepared for their use in
connection with the offering of the Class IA shares to prospective Contract
owners and preparing, printing and mailing any other literature or advertising
in connection with the offering of the Class IA shares to prospective Contract
owners.
Pursuant to the Class IB Distribution Plan the Trust compensates the
Distributors from assets attributable to the Class IB shares for services
rendered and expenses borne in connection with activities primarily intended to
result in the sale of the Trust's Class IB shares. It is anticipated that a
portion of the amounts received by the Distributors will be used to defray
various costs incurred or paid by the Distributors in connection with the
printing and mailing of Trust prospectuses, statements of additional
information, and any supplements thereto and shareholder reports, and holding
seminars and sales meetings with wholesale and retail sales personnel designed
to promote the distribution of Class IB shares. The Distributors may also use a
portion of the amounts received to provide compensation to financial
intermediaries and third-party broker-dealers for their services in connection
with the distribution of Class IB shares.
The Class IB Distribution Plan provides that the Trust, on behalf of each
Portfolio, may pay annually up to 0.50% of the average daily net assets of a
Portfolio attributable to its Class IB shares in respect of activities primarily
intended to result in the sale of Class IB shares. However, under the
Distribution Agreements, payments to the Distributors for activities pursuant to
the Class IB Distribution Plan are limited to payments at an annual rate equal
to 0.25% of average daily net assets of a Portfolio attributable to its Class IB
shares. Under terms of the Class IB Distribution Plan and the Distribution
Agreements, each Portfolio is authorized to make payments monthly to the
Distributors that may be used to pay or reimburse entities providing
distribution and shareholder servicing with respect to the Class IB shares for
such entities' fees or expenses incurred or paid in that regard.
The Class IB Distribution Plan is of a type known as a "compensation" plan
because payments are made for services rendered to the Trust with respect to
Class IB shares regardless of the level of expenditures by the Distributors. The
Trustees will, however, take into account such expenditures for purposes of
reviewing operations under either the Class IB Distribution Plan and in
connection with their annual consideration of the Class IB Distribution Plan's
renewal. The Distributors have indicated that they expect their expenditures to
include, without limitation: (a) the printing and mailing of Trust prospectuses,
statements of additional information, any supplements thereto and shareholder
reports for prospective Contract owners with respect to the Class IB shares of
the Trust; (b) those relating to the development,
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preparation, printing and mailing of advertisements, sales literature and other
promotional materials describing and/or relating to the Class IB shares of the
Trust; (c) holding seminars and sales meetings designed to promote the
distribution of Trust Class IB shares; (d) obtaining information and providing
explanations to wholesale and retail distributors of Contracts regarding Trust
investment objectives and policies and other information about the Trust and its
Portfolios, including the performance of the Portfolios; (e) training sales
personnel regarding the Class IB shares of the Trust; and (f) financing any
other activity that the Distributors determine is primarily intended to result
in the sale of Class IB shares.
The Distributors for each class of shares will pay all fees and expenses in
connection with their respective qualification and registration as a broker or
dealer under federal and state laws. In the capacity of agent, each Distributor
currently offers shares of each Portfolio on a continuous basis to the separate
accounts of insurance companies offering the Contracts in all states in which
the Portfolio or the Trust may from time to time be registered or where
permitted by applicable law. EQFC also serves as the Distributor for shares of
the Trust to the Equitable Plan. Each Distribution Agreement provides that the
Distributors shall accept orders for shares at net asset value without sales
commission or load being charged. The Distributors have made no firm commitment
to acquire shares of any Portfolio.
A description of the Class IB Distribution Plan with respect to the Class IB
shares and related services and fees thereunder is provided in the Prospectus
for the Class IB shares of the Portfolios. On April 12, 1999, the Board of
Trustees of the Trust, including the Independent Trustees, considered the
reapproval of the Class IB Distribution Plan. In connection with its
consideration of the Class IB Distribution Plan, the Board of Trustees was
furnished with a copy of the Class IB Distribution Plan and the related
materials, including information related to the advantages and disadvantages of
the Class IB Distribution Plan. Legal counsel for the Independent Trustees
discussed the legal and regulatory considerations in readopting the Class IB
Distribution Plan.
The Board of Trustees considered various factors in connection with its decision
as to whether to reapprove the Class IB Distribution Plan, including: (i) the
nature and causes of the circumstances which makes continuation of the Class IB
Distribution Plan, necessary and appropriate; (ii) the way in which the Class IB
Distribution Plan would continue to address those circumstances, including the
nature and potential amount of expenditures; (iii) the nature of the anticipated
benefits; (iv) the possible benefits of the Class IB Distribution Plan to any
other person relative to those of the Trust; (v) the effect of the Class IB
Distribution Plan on existing owners of Contracts; (vi) the merits of possible
alternative plans or pricing structures; (vii) competitive conditions in the
variable products industry; and (viii) the relationship of the Class IB
Distribution Plan to other distribution efforts of the Trust.
Based upon its review of the foregoing factors and the materials presented to
it, and in light of its fiduciary duties under the 1940 Act, the Board of
Trustees, including the Independent Trustees, unanimously determined, in the
exercise of its business judgment, that the Class IB Distribution Plan is
reasonably likely to continue to benefit the Trust and the shareholders of its
Portfolios and approved its continuance.
The Class IB Distribution Plan and any Rule 12b-1 related agreement that is
entered into by the Trust or the Distributors of the Class IB shares in
connection with the Class IB Distribution Plan will continue in effect for a
period of more than one year only so long as continuance is specifically
approved at least annually by a vote of a majority of the Trust's Board of
Trustees, and of a majority of the Independent Trustees, cast in person at a
meeting called for the purpose of voting on the Class IB Distribution Plan or
any Rule 12b-1 related agreement, as applicable. In addition, the Class IB
Distribution Plan and any Rule 12b-1 related agreement may be terminated as to
Class IB shares of a Portfolio at any time, without penalty, by vote of a
majority of the outstanding Class IB shares of the Portfolio or by vote of a
majority of the Independent Trustees. The Class IB Distribution Plan also
provides that it may not be amended to increase materially the
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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 $190,254 $97,374 $287,628
Merrill Lynch World Strategy Portfolio $46,865 $17,237 $64,102
MFS Emerging Growth Companies Portfolio $376,888 $236,809 $613,697
MFS Research Portfolio $255,532 $344,454 $599,986
EQ/Putnam Balanced Portfolio $115,264 $7,435 $122,699
EQ/Putnam Growth & Income Value Portfolio $221,883 $530,078 $751,961
EQ/Putnam International Equity Portfolio $0 $240,470 $240,470
EQ/Putnam Investors Growth Portfolio $0 $226,318 $226,318
T. Rowe Price Equity Income Portfolio $433,183 $21,464 $454,647
T. Rowe Price International Stock Portfolio $250,434 $12,461 $262,895
Warburg Pincus Small Company Value Portfolio $364,576 $24,617 $389,193
Morgan Stanley Emerging Markets Equity Portfolio $64,145 $15,158 $79,303
BT Equity 500 Index Portfolio $41,616 $168,385 $210,001
BT International Equity Index Portfolio $4,446 $65,476 $69,922
BT Small Company Index Portfolio $4,113 $41,615 $45,728
JPM Core Bond Portfolio $0 $95,837 $95,837
Lazard Large Cap Value Portfolio $0 $72,986 $72,986
Lazard Small Cap Value Portfolio $0 $60,874 $60,874
</TABLE>
The EQ/Evergreen Foundation, EQ/Evergreen, MFS Growth with Income, EQ/Alliance
Premier Growth, Capital Guardian Research, Capital Guardian U.S. Equity and
Capital Guardian International Portfolios did not pay any distribution fees or
expenses during the year ended December 31, 1998.
BROKERAGE ALLOCATION AND OTHER STRATEGIES
BROKERAGE COMMISSIONS
The Portfolios are charged for securities brokers' commissions, transfer taxes
and similar fees relating to securities transactions. The Manager and each of
the Advisers, as appropriate, seek to obtain the best net price and execution on
all orders placed for the Portfolios, considering all the circumstances except
to the extent they may be permitted to pay higher commissions as described
below.
It is expected that securities will ordinarily be purchased in the primary
markets, whether over-the-counter or listed, and that listed securities may be
purchased in the over-the-counter market if that market is deemed the primary
market.
Transactions on stock exchanges involve the payment of brokerage commissions. In
transactions on stock exchanges in the United States, these commissions are
negotiated, whereas on many foreign stock exchanges these commissions are fixed.
However, brokerage commission rates in certain countries in which the Portfolios
may invest may be discounted for certain large domestic and foreign investors
such as the Portfolios. A number of foreign banks and brokers will be used for
execution of each Portfolio's portfolio transactions. In the case of securities
traded in the foreign and domestic over-the-counter markets, there is
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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
T. Rowe Price International Stock Portfolio $179,993
Warburg Pincus Small Company Value Portfolio $690,305
Morgan Stanley Emerging Markets Equity Portfolio $246,559
BT Equity 500 Index Portfolio $ 87,608
BT International Equity Index Portfolio $ 26,510
BT Small Company Index Portfolio $ 38,914
JPM Core Bond Portfolio $ 7,380
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<PAGE>
PORTFOLIO BROKERAGE COMMISSIONS PAID
Lazard Large Cap Value Portfolio $ 95,425
Lazard Small Cap Value Portfolio $ 79,393
The EQ/Evergreen Foundation, EQ/Evergreen, MFS Growth with Income, EQ/Alliance
Premier Growth, Capital Guardian Research, Capital Guardian U.S. Equity and
Capital Guardian International 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 Capital
Guardian Research Portfolio, the Capital Guardian U.S. Equity Portfolio and the
Capital Guardian International Portfolio, does not have an affiliated broker
through which it would execute portfolio transactions.
To the extent permitted by law, the Trust may engage in brokerage transactions
with brokers that are affiliates of the Manager and Advisers, with brokers who
are affiliates of such brokers, or with unaffiliated brokers who trade or clear
through affiliates of the Manager and Advisers. The 1940 Act generally prohibits
the Trust from engaging in principal securities transactions with brokers that
are affiliates of the Manager and Advisers or affiliates of such brokers, unless
pursuant to an exemptive order from the SEC. The Trust may apply for such
exemptive relief. The Trust has adopted procedures, prescribed by the 1940 Act,
which are reasonably designed to provide that any commissions or other
remuneration it pays to brokers that are affiliates of the Manager and brokers
that are affiliates of an Adviser to a Portfolio for which that Adviser provides
investment advice do not exceed the usual and customary broker's commission. In
addition, the Trust will adhere to the requirements under the 1934 Act governing
floor trading. Also, because of securities law limitations, the Trust will limit
purchases of securities in a public offering, if such securities are
underwritten by brokers that are affiliates of the Manager and Advisers or their
affiliates.
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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
COMMISSIONS PAID COMMISSIONS (BASED
ON DOLLAR
AMOUNTS)
<S> <C> <C> <C> <C>
Merrill Lynch Basic Value Equity Donaldson, Lufkin & Jenrette $14,104 3.55% 4.43%
Portfolio Securities Corporation ("DLJ")
Merrill Lynch and Co. $13,238 3.33% 3.15%
Merrill Lynch World Strategy Portfolio DLJ $ 2,260 2.52% 3.40%
Merrill Lynch and Co. $ 5,171 5.76% 7.31%
MFS Research Portfolio DLJ $ 408 .07% .07%
Pershing Trading Company, 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 $ 3,544 2.47% 1.53%
T. Rowe Price International Stock Portfolio Jardine Fleming Securities Ltd. $ 1,978 1.10% .72%
Robert Fleming Co. $ 5,249 2.92% 3.41%
Ord Minnett - New Zealand - Ltd $ 326 .18% .13%
Ord Minnett Group, Ltd. $ 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 Growth, Capital Guardian Research, Capital Guardian U.S. Equity and
Capital Guardian International Portfolios did not pay any brokerage commissions
during the year ended December 31, 1998.
PURCHASE AND PRICING OF SHARES
The Trust will offer and sell its shares at each Portfolio's net asset value per
share, which will be determined in the manner set forth below.
The net asset value of the shares of each class of a Portfolio of the Trust will
be determined once daily, immediately after the declaration of dividends, if
any, at the close of business on each business day. The net asset value per
share of each class of a Portfolio will be computed by dividing the sum of the
investments held by that Portfolio applicable to that class, plus any cash or
other assets, minus all liabilities, by the total number of outstanding shares
of that class of the Portfolio at such time. All expenses borne by the Trust and
each of its Classes, will be accrued daily.
The net asset value per share of each Portfolio will be determined and computed
as follows, in accordance with generally accepted accounting principles, and
consistent with the 1940 Act:
o The assets belonging to each Portfolio will include (i) all
consideration received by the Trust for the issue or sale of shares of that
particular Portfolio, together with all assets in which such consideration is
invested or reinvested, (ii) all income, earnings, profits, and proceeds
thereof, including any proceeds derived from the sale, exchange or liquidation
of such assets, (iii) any funds or payments derived from any
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reinvestment of such proceeds in whatever form the same may be, and (iv)
"General Items", if any, allocated to that Portfolio. "General Items" include
any assets, income, earnings, profits, and proceeds thereof, funds, or payments
which are not readily identifiable as belonging to any particular Portfolio.
General Items will be allocated as the Trust's Board of Trustees considers fair
and equitable.
o The liabilities belonging to each Portfolio will include (i) the
liabilities of the Trust in respect of that Portfolio, (ii) all expenses, costs,
changes and reserves attributable to that Portfolio, and (iii) any general
liabilities, expenses, costs, charges or reserves of the Trust which are not
readily identifiable as belonging to any particular Portfolio which have been
allocated as the Trust's Board of Trustees considers fair and equitable.
The value of each Portfolio will be determined at the close of business on each
"business day." Normally, this would be each day that the New York Stock
Exchange is open and would include some federal holidays. For stocks and
options, the close of trading is 4:00 p.m. and 4:15 p.m. Eastern Time,
respectively; for bonds it is the close of business in New York City, and for
foreign securities (other than ADRs) it is the close of business in the
applicable foreign country, with exchange rates determined at 12:00 p.m. Eastern
Time.
Values are determined according to accepted accounting practices and all laws
and regulations that apply. The assets of each Portfolio are valued as follows:
o Stocks listed on national securities exchanges and certain
over-the-counter issues traded on the NASDAQ national market system are valued
at the last sale price, or, if there is no sale, at the latest available bid
price. Other unlisted stocks are valued at their last sale price or, if there is
no reported sale during the day, at a bid price estimated by a broker.
o Foreign securities not traded directly, or in ADRs or similar form in
the United States, are valued at representative quoted prices in the currency of
the country of origin. Foreign currency is converted into United States dollar
equivalent at current exchange rates.
o United States Treasury securities and other obligations issued or
guaranteed by the United States Government, its agencies or instrumentalities,
are valued at representative quoted prices.
o Long-term corporate bonds are valued at prices obtained from a bond
pricing service of a major dealer in bonds when such prices are available;
however, when such prices are not available, such bonds are valued at a bid
price estimated by a broker.
o Short-term debt securities in the Portfolios which mature in 60 days
or less are valued at amortized cost, which approximates market value.
Short-term debt securities in such Portfolios which mature in more than 60 days
are valued at representative quoted prices.
o Convertible preferred stocks listed on national securities exchanges
are valued as of their last sale price or, if there is no sale, at the latest
available bid price.
o Convertible bonds, and unlisted convertible preferred stocks, are
valued at bid prices obtained from one or more of the major dealers in such
bonds or stocks. Where there is a discrepancy between dealers, values may be
adjusted based on recent premium spreads to the underlying common stocks.
o Mortgage-backed and asset-backed securities are valued at prices
obtained from a bond pricing service where available, or at a bid price obtained
from one or more of the major dealers in such securities.
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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. In
addition, there may be occasions when a different pricing provider or
methodology is used. In addition, there may be occasions where a different
pricing provider or methodology is used. The Manager and Advisers will
continuously monitor the performance of these services.
REDEMPTION OF SHARES
The Trust may suspend redemption privileges or postpone the date of payment on
shares of the Portfolios for more than seven days during any period (i) when the
New York Stock Exchange is closed or trading on the New York Stock Exchange is
restricted as determined by the SEC, (ii) when an emergency exists, as defined
by the SEC, which makes it not reasonably practicable for a Portfolio to dispose
of securities owned by it or fairly to determine the value of its assets, or
(iii) as the SEC may otherwise permit.
The value of the shares on redemption may be more or less than the shareholder's
cost, depending upon the market value of the portfolio securities at the time of
redemption.
TAXATION
Each Portfolio is treated for federal income tax purposes as a separate
taxpayer. The Trust intends that each Portfolio shall qualify each year and
elect to be treated as a regulated investment company under Subchapter M of the
Code. Such qualification does not involve supervision of management or
investment practices or policies by any governmental agency or bureau.
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As a regulated investment company, each Portfolio will not be subject to federal
income or excise tax on any of its net investment income or net realized capital
gains which are timely distributed to shareholders under the Code. A number of
technical rules are prescribed for computing net investment income and net
capital gains. For example, dividends are generally treated as received on the
ex-dividend date. Also, certain foreign currency losses and capital losses
arising after October 31 of a given year may be treated as if they arise on the
first day of the next taxable year.
A Portfolio investing in foreign securities or currencies may be subject to
foreign taxes which could reduce the investment performance of such Portfolio.
However, if foreign securities comprise more than 50% of the year-end value of a
Portfolio, the Portfolio may elect to pass through such foreign taxes as a
deemed dividend to shareholders. In such a case the shareholder and not the
Portfolio would be entitled to claim a federal tax deduction or credit for
foreign taxes, as appropriate. The deduction or credit will not necessarily
result in a direct or immediate benefit to 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 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
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a separate issuer. Compliance with the regulations is tested on the first day of
each calendar year quarter. There is a thirty (30) day period after the end of
each calendar year quarter in which to cure any non-compliance.
PORTFOLIO PERFORMANCE
COMPUTATION OF TOTAL RETURN
Each Portfolio may provide average annual total return information calculated
according to a formula prescribed by the SEC. According to that formula, average
annual total return figures represent the average annual compounded rate of
return for the stated period. Average annual total return quotations reflect the
percentage change between the beginning value of a static account in the
Portfolio and the ending value of that account measured by the then current net
asset value of that Portfolio assuming that all dividends and capital gains
distributions during the stated period were invested in shares of the Portfolio
when paid. Total return is calculated by finding the average annual compounded
rates of return of a hypothetical investment that would equate the initial
amount invested to the ending redeemable value of such investment, according to
the following formula:
T = (ERV/P)1/n
where "T" equals average annual total return; where "ERV", the ending redeemable
value, is the value at the end of the applicable period of a hypothetical $1,000
investment made at the beginning of the applicable period; where "P" equals a
hypothetical initial investment of $1,000; and where "n" equals the number of
years.
Each Portfolio's total return will vary from time to time depending upon market
conditions, the composition of each Portfolio's investment portfolio and
operating expenses of the Trust allocated to each Portfolio. Total return should
also be considered relative to changes in the value of a Portfolio's shares and
to the relative risks associated with the investment objectives and policies of
the Portfolios. These total return figures do not reflect insurance company
expenses and fees applicable to the Contracts. At any time in the future, total
return may be higher or lower than in the past and there can be no assurance
that any historical results will continue.
NON-STANDARD PERFORMANCE
In addition to the performance information described above, each Portfolio may
provide total return information with respect to the Portfolios for designated
periods, such as for the most recent six months or most recent twelve months.
This total return information is computed as described under "Computation of
Total Return" above except that no annualization is made.
OTHER SERVICES
INDEPENDENT ACCOUNTANT
PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York, New York
10036, serves as the Trust's independent accountants. PricewaterhouseCoopers LLP
is responsible for auditing the annual financial statements of the Trust.
-57-
<PAGE>
CUSTODIAN
The Chase Manhattan Bank, 1211 Avenue of the Americas, New York, New York 10036
serves as custodian of the Trust's portfolio securities and other assets. Under
the terms of the custody agreement between the Trust and The Chase Manhattan
Bank, The Chase Manhattan Bank maintains and deposits in separate accounts,
cash, securities and other assets of the Portfolios. The Chase Manhattan Bank is
also required, upon the order of the Trust, to deliver securities held by The
Chase Manhattan Bank, and to make payments for securities purchased by the
Trust. The Chase Manhattan Bank has also entered into sub-custodian agreements
with a number of foreign banks and clearing agencies, pursuant to which
portfolio securities purchased outside the United States are maintained in the
custody of these entities.
TRANSFER AGENT
Equitable serves as the transfer agent and dividend disbursing agent for the
Trust. Equitable receives no compensation for providing such services for the
Trust.
COUNSEL
Dechert Price & Rhoads, 1775 Eye Street, N.W. Washington, D.C. 20006, serves as
counsel to the Trust.
Sullivan & Worcester, LLP, 1025 Connecticut Avenue, N.W., Suite 1000,
Washington, D.C. 20036, serves as counsel to the independent Trustees of the
Trust.
FINANCIAL STATEMENTS
The audited financial statements for the period ended December 31, 1998,
including the financial highlights, appearing in the Trust's Annual Report to
Shareholders, filed electronically with the SEC on March 16, 1999, are
incorporated by reference and made a part of this document.
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<PAGE>
APPENDIX A
EQ ADVISORS TRUST
INVESTMENT STRATEGIES SUMMARY
<TABLE>
<CAPTION>
Borrowings Borrowings
Asset-backed (emergencies, (leveraging Convertible Inverse Brady
PORTFOLIO Securities (Aredemptions) purposes) Securities Floaters(A) Floaters(A) Bonds(B)
--------- ---------- -------------- --------- ---------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
T. Rowe Price International Stock N Y - 33.3% N Y N N N
T. Rowe Price Equity Income N Y - 33.3% N Y N N N
EQ/Putnam Growth & Income Value N Y - 10.0% N Y N N N
EQ/Putnam International Equity N Y - 10.0% N Y N N N
EQ/Putnam Investors Growth N Y - 10.0% N Y N N N
EQ/Putnam Balanced Y Y - 10.0% N Y Y N Y
MFS Research N Y - 33.3% N Y N N N
MFS Emerging Growth Companies Y Y - 33.3% N Y N N Y
MFS Growth with Income N Y - 10.0% N Y N N N
Morgan Stanley Emerging Markets Equity Y Y - 33.3% N Y Y Y Y
Warburg Pincus Small Company Value N Y - 30.0% N Y N N N
Merrill Lynch World Strategy N Y - 33.3% N Y N N N
Merrill Lynch Basic Value Equity N Y - 33.3% N Y N N N
Lazard Large Cap Value N Y - 10.0% Y - 33.3% Y Y N N
Lazard Small Cap Value N Y - 15.0%(E) N Y Y N N
JPM Core Bond Y Y - 33.3% N Y N N Y
BT Small Company Index Y Y - 33.3% N Y N N N
BT International Equity Index Y Y - 33.3% N Y N N N
BT Equity 500 Index Y Y - 33.3% N Y N N N
EQ/Evergreen Portfolio N Y - 33.3% N Y N N N
EQ/Evergreen Foundation Portfolio N Y - 33.3% N Y N N N
EQ/Alliance Premier Growth Portfolio N Y - 5.0% N Y N N N
Capital Guardian Research Portfolio N Y - 5.0% N Y N N N
Capital Guardian U.S. Equity Portfolio N Y - 5.0% N Y N N N
Capital Guardian International Portfolio N Y - 5.0% N Y N N N
<CAPTION>
Foreign Foreign
Foreign Currency Currency Options
Depository Currency Forward Futures (exchange
PORTFOLIO Receipts(B) Spot Trans. Trans. Trans.(A) traded)
--------- ----------- ----------- ------ --------- -------
<S> <C> <C> <C> <C> <C>
T. Rowe Price International Stock Y Y Y Y Y
T. Rowe Price Equity Income Y Y Y Y Y
EQ/Putnam Growth & Income Value Y Y Y Y Y
EQ/Putnam International Equity Y Y Y Y Y
EQ/Putnam Investors Growth Y Y Y Y Y
EQ/Putnam Balanced Y Y Y Y Y
MFS Research Y Y N N N
MFS Emerging Growth Companies Y Y Y Y Y
MFS Growth with Income Y Y Y Y Y
Morgan Stanley Emerging Markets Equity Y Y Y Y Y
Warburg Pincus Small Company Value Y Y Y Y Y
Merrill Lynch World Strategy Y Y Y Y Y
Merrill Lynch Basic Value Equity Y - 10% Y Y Y Y
Lazard Large Cap Value Y - 10% Y N N N
Lazard Small Cap Value N N N N N
JPM Core Bond Y Y Y Y Y
BT Small Company Index N N N N N
BT International Equity Index Y Y Y Y Y
BT Equity 500 Index N N N N N
EQ/Evergreen Portfolio N N N N N
EQ/Evergreen Foundation Portfolio Y Y Y Y Y
EQ/Alliance Premier Growth Portfolio Y Y Y Y Y
Capital Guardian Research Portfolio Y N N N N
Capital Guardian U.S. Equity Portfolio Y N N N N
Capital Guardian International Portfolio Y Y Y Y Y
</TABLE>
- --------------------------------------------------
(A) Considered a derivative security.
(B) Considered a foreign security.
(C) Written options must be "covered."
(D) Certain mortgages are considered derivatives.
(E) May not exceed 15% for temporary or emergency purposes, including to meet
redemptions (otherwise such borrowings may not exceed 5% of total assets).
-59-
<PAGE>
EQ ADVISORS TRUST
INVESTMENT STRATEGIES SUMMARY
<TABLE>
<CAPTION>
Foreign Foreign Currency Investment
Options (written, call Foreign Forward Hybrid Illiquid Grade
PORTFOLIO (OTC) options) Securities Commitments Instruments(A) Securities Fixed Income
--------- ----- -------- ---------- ----------- -------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
T. Rowe Price International Stock N Y Y Y Y - 10% Y - 15% Y
T. Rowe Price Equity Income N Y Y Y Y - 10% Y - 15% Y
EQ/Putnam Growth & Income Value Y Y Y Y N Y - 15% Y
EQ/Putnam International Equity Y Y Y Y N Y - 15% Y
EQ/Putnam Investors Growth Y Y Y Y N Y - 15% Y
EQ/Putnam Balanced Y Y Y Y N Y - 15% Y
MFS Research N N Y Y N Y - 15% Y
MFS Emerging Growth Companies Y Y Y Y N Y - 15% Y
MFS Growth with Income Y Y Y Y N Y - 15% Y
Morgan Stanley Emerging Market Equity Y Y Y Y Y Y - 15% Y
Warburg Pincus Small Company Value N Y Y N N Y - 10% Y
Merrill Lynch World Strategy Y Y Y Y N Y - 15% Y
Merrill Lynch Basic Value Equity N Y Y Y N Y - 15% Y
Lazard Large Cap Value N Y Y Y N Y - 10% Y
Lazard Small Cap Value N N Y Y N Y - 10% Y
JPM Core Bond Y Y Y Y N Y - 15% Y
BT Small Company Index N N N Y N Y - 15% Y
BT International Equity Index Y Y Y Y N Y - 15% Y
BT Equity 500 Index N N Y Y N Y - 15% Y
EQ/Evergreen Portfolio Y Y Y Y N Y - 15% Y
EQ/Evergreen Foundation Portfolio N Y Y Y N Y - 15% N
EQ/Alliance Premier Growth Portfolio Y Y Y Y N Y - 15% Y
Capital Guardian Research Portfolio N N Y Y Y - 10% Y - 15% Y
Capital Guardian U.S. Equity Portfolio N N Y Y Y - 10% Y - 15% Y
Capital Guardian International Portfolio Y Y Y Y Y - 10% Y - 15% Y
<CAPTION>
Non-Inv. Security Security
Grade Loan Mortgage Direct Municipal Futures Options
Fixed Income Participations Related(D) Mortgages Securities Trans.(A) Trans.(C)
------------ -------------- ---------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
T. Rowe Price International Stock N N N N N Y Y
T. Rowe Price Equity Income Y - 10% N N N N Y Y
EQ/Putnam Growth & Income Value Y N N N N Y Y
EQ/Putnam International Equity Y N N N N Y Y
EQ/Putnam Investors Growth Y N N N N Y Y
EQ/Putnam Balanced Y Y Y N N Y Y
MFS Research Y - 10% N N N N N N
MFS Emerging Growth Companies Y Y N N N Y Y
MFS Growth with Income Y N N N N Y Y
Morgan Stanley Emerging Market Equity Y Y Y N Y Y Y
Warburg Pincus Small Company Value Y N N N N Y Y
Merrill Lynch World Strategy Y N N N N Y Y
Merrill Lynch Basic Value Equity N N N N N Y Y
Lazard Large Cap Value N Y Y N N N N
Lazard Small Cap Value N Y Y N N N N
JPM Core Bond N Y Y Y Y Y Y
BT Small Company Index N N Y N N Y Y
BT International Equity Index N N Y N N Y Y
BT Equity 500 Index N N Y N N Y Y
EQ/Evergreen Portfolio N N N N N Y Y
EQ/Evergreen Foundation Portfolio Y N Y N N Y Y
EQ/Alliance Premier Growth Portfolio N N N N N Y Y
Capital Guardian Research Portfolio N N N N N Y Y
Capital Guardian U.S. Equity Portfolio N N N N N Y Y
Capital Guardian International Portfolio N N N N N Y Y
</TABLE>
- -------------------------------------------------------------------
(A) Considered a derivative security.
(B) Considered a foreign security.
(C) Written options must be "covered."
(D) Certain mortgages are considered derivatives.
(E) May not exceed 15% for temporary or emergency purposes, including to meet
redemptions (otherwise such borrowings may not exceed 5% of total assets).
-60-
<PAGE>
EQ ADVISORS TRUST
INVESTMENT STRATEGIES SUMMARY
<TABLE>
<CAPTION>
Passive Payment Real Estate Reverse
Foreign In-Kind Investment Repurchase Repurchase Securities
PORTFOLIO Inv. Comp. Bonds Trusts Agreements Agreements Lending
--------- ---------- ----- ------ ---------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
T. Rowe Price International Stock Y N N Y N Y - 33.3%
T. Rowe Price Equity Income N N N Y N Y - 33.3%
EQ/Putnam Growth & Income Value N Y N Y N Y - 25.0%
EQ/Putnam International Equity Y N N Y N Y - 25.0%
EQ/Putnam Investors Growth N N N Y N Y - 25.0%
EQ/Putnam Balanced N Y Y Y N Y - 25.0%
MFS Research N N N Y N Y - 33.3%
MFS Emerging Growth Companies N N N Y N Y - 30.0%
MFS Growth with Income N N N Y N Y - 25.0%
Morgan Stanley Emerging Markets Equity Y Y Y Y Y Y - 33.3%
Warburg Pincus Small Company Value N N N Y N Y - 20.0%
Merrill Lynch World Strategy N N N Y N Y - 20.0%
Merrill Lynch Basic Value Equity N N N Y N Y - 20.0%
Lazard Large Cap Value N N Y Y Y Y - 10.0%
Lazard Small Cap Value N N Y Y N Y - 10.0%
JPM Core Bond N Y Y Y Y Y - 33.3%
BT Small Company Index N N Y Y Y Y - 30.0%
BT International Equity Index N N Y Y Y Y - 30.0%
BT Equity 500 Index N N Y Y Y Y - 30.0%
EQ/Evergreen Portfolio N N N Y Y Y - 33.3%
EQ/Evergreen Foundation Portfolio N N Y Y Y Y - 33.3%
EQ/Alliance Premier Growth Portfolio N N Y Y N Y - 25.0%
Capital Guardian Research Portfolio N N Y Y N N
Capital Guardian U.S. Equity Portfolio N N Y Y N N
Capital Guardian International Portfolio Y N Y Y N N
<CAPTION>
Short Sales Small Zero
Against- Company Structured Swap U.S. Gov't Coupon
the-box Securities Notes(A) Trans.(A) Securities Bonds
------- ---------- -------- --------- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
T. Rowe Price International Stock N N N N Y N
T. Rowe Price Equity Income N N N N Y N
EQ/Putnam Growth & Income Value N N N N Y Y
EQ/Putnam International Equity N Y N N Y N
EQ/Putnam Investors Growth N N N N Y N
EQ/Putnam Balanced N Y N N Y Y
MFS Research N N N N Y N
MFS Emerging Growth Companies N N N N Y N
MFS Growth with Income N N N N Y Y
Morgan Stanley Emerging Markets Equity Y Y Y Y Y Y
Warburg Pincus Small Company Value Y Y N N Y N
Merrill Lynch World Strategy N N N N Y N
Merrill Lynch Basic Value Equity N N N N Y N
Lazard Large Cap Value N N N N Y N
Lazard Small Cap Value N Y N N Y N
JPM Core Bond N N N Y Y Y
BT Small Company Index N Y N N Y N
BT International Equity Index N N N Y Y N
BT Equity 500 Index N N N N Y N
EQ/Evergreen Portfolio Y Y N N Y N
EQ/Evergreen Foundation Portfolio N N N N Y N
EQ/Alliance Premier Growth Portfolio N N N N Y N
Capital Guardian Research Portfolio N Y N N Y N
Capital Guardian U.S. Equity Portfolio N Y N N Y N
Capital Guardian International Portfolio N Y N 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).
-61-
<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
(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.
(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.
(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.
(d)(6) Investment Advisory Agreement between EQ Financial Consultants,
Inc. and Morgan Stanley Asset Management Inc. dated April 1997.(4)
C-1
<PAGE>
(d)(7) Investment Advisory Agreement between EQ Financial Consultants,
Inc. and Warburg, Pincus Counsellors, Inc. dated April 1997.(4)
(d)(8) Investment Advisory Agreement between EQ Financial Consultants,
Inc. and Merrill Lynch Asset Management, L.P. dated April
1997.(4)
(d)(9) Investment Advisory Agreement between EQ Financial Consultants,
Inc. and Lazard Freres & Co. LLC dated December 9, 1997.(7)
(d)(10) Investment Advisory Agreement between EQ Financial Consultants,
Inc. and J.P. Morgan Investment Management, Inc. dated December
9, 1997.(7)
(d)(11) Investment Advisory Agreement between EQ Financial Consultants,
Inc. and Bankers Trust Global Investment Management, a unit of
Bankers Trust Company, dated December 9, 1997.(7)
(d)(12) Investment Advisory Agreement by and between EQ Financial
Consultants, Inc. and Evergreen Asset Management Corp., dated as
of December 31, 1998.
(d)(13) Form of Investment Advisory Agreement between EQ Financial
Consultants, Inc. and Alliance Capital Management L.P., dated as
of April 30, 1999.
(d)(14) Form of Investment Advisory Agreement between EQ Financial
Consultants, Inc. and Capital Guardian Trust Company, dated as
of April 30, 1999.
(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.
(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.
(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)
C-2
<PAGE>
(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.
(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.
(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.
(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.
(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.
(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.
(f) Form of Deferred Compensation Plan.(3)
(g) Custodian Agreements
(g)(1)(i) Custodian Agreement between EQ Advisors Trust and The Chase
Manhattan Bank dated April 17, 1997 and Global Custody Rider.(4)
(g)(1)(ii) Amendment No. 1 dated December 9, 1997 to the Custodian
Agreement between EQ Advisors Trust and The Chase Manhattan Bank
dated April 17, 1997.(7)
(g)(1)(iii) Amendment No. 2 dated as of December 31, 1998 to the Custodian
Agreement between EQ Advisors Trust and The Chase Manhattan Bank
dated April 17, 1997.
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<PAGE>
(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.
(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.
(h) Other Material Contracts
(h)(1) Mutual Fund Services Agreement between EQ Advisors Trust and
Chase Global Funds Services Company dated April 25, 1997.(4)
(h)(2)(i) Amended and Restated Expense Limitation Agreement between EQ
Advisors Trust and EQ Financial Consultants, Inc. dated March 3,
1998.(8)
(h)(2)(ii) Amended and Restated Expense Limitation Agreement by and between
EQ Financial Consultants, Inc. and EQ Advisors Trust dated as of
December 31, 1998.
(h)(2)(iii) Form of Amended and Restated Expense Limitation Agreement
between EQ Financial Consultants, Inc. and EQ Advisors Trust
dated as of April 30, 1999.
(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.
(h)(4)(i) Participation Agreement by and among EQ Advisors Trust, The
Equitable Life Assurance Society of the United States, Equitable
Distributors, Inc., and EQ Financial Consultants Inc. dated
April 14, 1997.(4)
(h)(4)(ii) Amendment No. 1 dated December 9, 1997 to the Participation
Agreement by and among EQ Advisors Trust, The Equitable Life
Assurance Society of the United States, Equitable Distributors,
Inc., and EQ Financial Consultants Inc. dated April 14, 1997.(7)
(h)(4)(iii) Amendment No. 2 dated as of December 31, 1998 to the
Participation Agreement by and among EQ Advisors Trust, The
Equitable Life Assurance Society of the United States, Equitable
Distributors, Inc., and EQ Financial Consultants Inc. dated
April 14, 1997.
(h)(4)(iv) Form of Amendment No. 3 dated as of April 30, 1999 to the
Participation Agreement among EQ Advisors Trust, The Equitable
Life Assurance Society of the United States, Equitable
Distributors, Inc., and EQ Financial Consultants Inc. dated
April 14, 1997.
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(h)(5) Retirement Plan Participation Agreement dated December 1, 1998
among EQ Advisors Trust, EQ Financial Consultants, Inc., with
The Equitable Investment Plan for Employees, Managers and Agents
and The Equitable Life Assurance Society of the United States.
(h)(6) Form of Amendment No. 1 to the Retirement Plan Participation
Agreement dated December 1, 1998 among EQ Advisors Trust, EQ
Financial Consultants, Inc., with The Equitable Investment Plan
for Employees, Managers and Agents and The Equitable Life
Assurance Society of the United States.
(h)(7) License Agreement Relating to Use of Name between Merrill Lynch
& Co., Inc., and EQ Advisors Trust dated April 28, 1997.(4)
(i)(1) Opinion and Consent of Katten Muchin & Zavis regarding the
legality of the securities being registered.(1)
(i)(2) Opinion and Consent of Dechert Price & Rhoads regarding the
legality of the securities being registered with respect to the
Lazard Large Cap Value Portfolio, Lazard Small Cap Value
Portfolio, and JPM Core Bond Portfolio.(5)
(i)(3) Opinion and Consent of Dechert Price & Rhoads regarding the
legality of the securities being registered with respect to the
BT Small Company Index Portfolio, BT International Equity Index
Portfolio, and BT Equity 500 Index Portfolio.(6)
(i)(4) Opinion and Consent of Dechert Price & Rhoads regarding the
legality of the securities being registered with respect to the
EQ/Evergreen Foundation Portfolio, EQ/Evergreen Portfolio, and
MFS Growth with Income Portfolio.(9)
(i)(5) Opinion and Consent of Dechert Price & Rhoads regarding the
legality of the securities being registered with respect to the
EQ/Alliance Premier Growth Portfolio, EQ/Capital Research
Portfolio, EQ/Capital U.S. Equities Portfolio and EQ/Capital
International Equities Portfolio.(10)
(j) Consent of PricewaterhouseCoopers LLP, Independent Public
Accountants.
(k) None
(l) Stock Subscription Agreement between the Trust, on behalf of the
T. Rowe Price Equity Income Portfolio, and Separate Account
FP.(3)
(m) Distribution Plan Pursuant to Rule 12b-1 for the Trust's Class
IB shares.(4)
(n) Financial Data Schedule
(o) Plan Pursuant to Rule 18f-3 under the 1940 Act.(4)
Other Exhibits:
- ---------------
Power of Attorney.(3)
Power of Attorney for Michael Hegarty.(8)
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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).
8 Incorporated herein by reference to Registrant's Registration Statement on
Form N-1A filed on March 5, 1998 (File No. 333-17217).
9. Incorporated herein by reference to Registrant's Registration Statement on
Form N-1A filed on October 15, 1998 (File No. 333-17217).
10. Incorporated herein by reference to Registrant's Registration Statement on
Form N-1A filed on February 16, 1999 (File No. 333-17217).
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 ("Equitable Companies"). Equitable Companies continues to own 100%
of Equitable's common stock as well as approximately 72% of the common stock of
Donaldson, Lufkin & Jenrette, Inc., a registered broker-dealer.
AXA is the largest shareholder of Equitable Companies. On March 1,
1999, AXA owned, directly or indirectly through its affiliates, 58.4% of the
outstanding common stock of Equitable Companies. AXA is the holding company for
an international group of insurance and related financial services companies.
AXA's insurance operations include activities in life insurance, property and
casualty insurance and reinsurance. The insurance operations are diverse
geographically, with activities principally in Western Europe, North America,
and the Asia/Pacific area and, to a lesser extent, in Africa and South America.
AXA is also engaged in asset management, investing banking, securities trading,
brokerage, real estate and
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other financial services activities principally in the United States, as well
as in Western Europe and the Asia/Pacific area.
ITEM 25. INDEMNIFICATION
Amended and Restated Agreement and Declaration of Trust ("Declaration
of Trust") and By-Laws.
Article VII, Section 2 of the Trust's Declaration of Trust of EQ
Advisors Trust ("Trust") states, in relevant part, that a "Trustee, when acting
in such capacity, shall not be personally liable to any Person, other than the
Trust or a Shareholder to the extent provided in this Article VII, for any act,
omission or obligation of the Trust, of such Trustee or of any other Trustee.
The Trustees shall not be responsible or liable in any event for any neglect or
wrongdoing of any officer, agent, employee, Manager, or Principal Underwriter
of the Trust. The Trust shall indemnify each Person who is serving or has
served at the Trust's request as a director, officer, trustee, employee, or
agent of another organization in which the Trust has any interest as a
shareholder, creditor, or otherwise to the extent and in the manner provided in
the By-Laws." Article VII, Section 4 of the Trust's Declaration of Trust
further states, in relevant part, that the "Trustees shall be entitled and
empowered to the fullest extent permitted by law to purchase with Trust assets
insurance for liability and for all expenses reasonably incurred or paid or
expected to be paid by a Trustee, officer, employee, or agent of the Trust in
connection with any claim, action, suit, or proceeding in which he or she may
become involved by virtue of his or her capacity or former capacity as a
Trustee of the Trust."
Article VI, Section 2 of the Trust's By-Laws states, in relevant part,
that "[s]ubject to the exceptions and limitations contained in Section 3 of
this Article VI, every [Trustee, officer, employee or other agent of the Trust]
shall be indemnified by the Trust to the fullest extent permitted by law
against all liabilities and against all expenses reasonably incurred or paid by
him or her in connection with any proceeding in which he or she becomes
involved as a party or otherwise by virtue of his or her being or having been
an agent." Article VI, Section 3 of the Trust's By-Laws further states, in
relevant part, that "[n]o indemnification shall be provided hereunder to [a
Trustee, officer, employee or other agent of the Trust]: (a) who shall have
been adjudicated, by the court or other body before which the proceeding was
brought, to be liable to the Trust or its Shareholders by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his or her office (collectively, "disabling
conduct"); or (b) with respect to any proceeding disposed of (whether by
settlement, pursuant to a consent decree or otherwise) without an adjudication
by the court or other body before which the proceeding was brought that such
[Trustee, officer, employee or other agent of the Trust] was liable to the
Trust or its Shareholders by reason of disabling conduct, unless there has been
a determination that such [Trustee, officer, employee or other agent of the
Trust] did not engage in disabling conduct: (i) by the court or other body
before which the proceeding was brought; (ii) by at least a majority of those
Trustees who are neither Interested Persons of the Trust nor are parties to the
proceeding based upon a review of readily available facts (as opposed to a full
trial-type inquiry); or (iii) by written opinion of independent legal counsel
based upon a review of readily available facts (as opposed to a full trial-type
inquiry); provided, however, that indemnification shall be provided hereunder
to [a Trustee, officer, employee or other agent of the Trust] with respect to
any proceeding in the event of (1) a final decision on the merits by the court
or other body before which the proceeding was brought that the [Trustee,
officer, employee or other agent of the Trust] was not liable by reason of
disabling conduct, or (2) the dismissal of the proceeding by the court or other
body before which it was brought for insufficiency of evidence of any disabling
conduct with which such [Trustee, officer, employee or other agent of the
Trust] has been charged." Article VI, Section 4 of the Trust's By-Laws also
states that the "rights of indemnification herein provided (i) may be insured
against by policies maintained by the Trust on behalf of any [Trustee, officer,
employee or other agent of the Trust], (ii) shall be severable, (iii) shall not
be exclusive of or affect any other rights to which any [Trustee, officer,
employee or other agent of the Trust] may now or hereafter be entitled and (iv)
shall inure to the benefit of [such party's] heirs, executors and
administrators."
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UNDERTAKING
Insofar as indemnification for liability arising under the Securities
Act of 1933 (the "Act") may be permitted to trustees, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a trustee, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such trustee, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF THE MANAGER AND ADVISERS
The description of EQ Financial Consultants, Inc. under the caption of
"Management of the Trust" in the Prospectus and under the caption "Investment
Management and Other Services" in the Statement of Additional Information
constituting Parts A and B, respectively, of this Registration Statement are
incorporated by reference herein.
The information as to the directors and officers of EQ Financial Consultants,
Inc. is set forth in EQ Financial Consultants, Inc.'s Form ADV filed with the
Securities and Exchange Commission on July 1, 1996 (File No.
801-14065) and amended through the date hereof, is incorporated by reference.
The information as to the directors and officers of T. Rowe Price Associates,
Inc., is set forth in T. Rowe Price Associates, Inc.'s Form ADV filed with the
Securities and Exchange Commission on March 31, 1997 (File No.
801-00856) and amended through the date hereof, is incorporated by reference.
The information as to the directors and officers of Rowe Price-Fleming
International, Inc. is set forth in Rowe Price-Fleming International, Inc.'s
Form ADV filed with the Securities and Exchange Commission on March 31, 1997
(File No. 801-14713) and amended through the date hereof, is incorporated by
reference.
The information as to the directors and officers of Putnam Investment
Management, Inc. is set forth in Putnam Investment Management, Inc.'s Form ADV
filed with the Securities and Exchange Commission on April 2, 1996 (File No.
801-07974) and amended through the date hereof, is incorporated by reference.
The information as to the directors and officers of Massachusetts Financial
Services Company is set forth in Massachusetts Financial Services Company's
Form ADV filed with the Securities and Exchange Commission on March 31, 1998
(File No. 801-17352) and amended through the date hereof, is incorporated by
reference.
The information as to the directors and officers of Morgan Stanley Asset
Management Inc. is set forth in Morgan Stanley Asset Management Inc.'s Form ADV
filed with the Securities and Exchange Commission on August 1, 1997 (File No.
801-15757) and amended through the date hereof, is incorporated by reference.
The information as to the directors and officers of Warburg Pincus Asset
Management is set forth in Warburg Pincus Asset Management, Inc.'s Form ADV
filed with the Securities and Exchange Commission on March 31, 1997 (File No.
801-07321) and amended through the date hereof, is incorporated by reference.
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<PAGE>
The information as to the directors and officers of Merrill Lynch Asset
Management, L.P. is set forth in Merrill Lynch Asset Management, L.P.'s Form
ADV filed with the Securities and Exchange Commission on March 25, 1998 (File
No. 801-11583) and amended through the date hereof, is incorporated by
reference.
The information as to the directors and officers of Lazard Asset Management (a
division of Lazard Freres & Co. LLC) is set forth in Lazard Freres & Co. LLC's
Form ADV filed with the Securities and Exchange Commission on June 9, 1997
(File No. 801-6568) and amended through the date hereof, is incorporated by
reference.
The information as to the directors and officers of J. P. Morgan Investment
Management Inc. is set forth in J.P. Morgan Investment Management Inc.'s Form
ADV filed with the Securities and Exchange Commission on March 27, 1998 (File
No. 801-21011) and amended through the date hereof, is incorporated by
reference.
The information as to the directors and officers of Evergreen Asset Management
Corp. is set forth in Evergreen Asset Management Corp.'s Form ADV filed with
the Securities and Exchange Commission on March 31, 1998 (File No.
801-46522) and amended through the date hereof, is incorporated by reference.
The information as to the directors and officers of 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.;
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;
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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.
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
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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.
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.
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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.
Richard N. Havas, Senior Vice President of Capital Guardian Trust Company,
Capital International Limited, Capital Research International and Capital
Guardian Canada, Inc.
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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.
Lionel A. Sauvage, Senior Vice President of Capital Guardian Trust Company.
Director, Capital Guardian Research Company; and Vice President, Capital
International Research, Inc.
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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-14
<PAGE>
<TABLE>
<CAPTION>
=====================================================================================================================
EQ FINANCIAL CONSULTANTS, INC.
=====================================================================================================================
NAME AND PRINCIPAL POSITIONS AND OFFICES WITH EQ POSITIONS AND OFFICES WITH
BUSINESS ADDRESS FINANCIAL CONSULTANTS, INC. REGISTRANT (EQ ADVISORS TRUST)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
DIRECTORS
* Derry E. Bishop Director
* Harvey E. Blitz Director Chief Financial Officer and
Vice President
Michael J. Laughlin Director
* Michael S. Martin Director Vice President
* Michael F. McNelis Director
* Richard V. Silver Director
* Mark R. Wutt Director
- ---------------------------------------------------------------------------------------------------------------------
OFFICERS
* Michael S. Martin Chairman of the Board and Chief Vice President
Executive Officer
* Michael F. McNelis President and Chief Operating
Officer
* Martin J. Telles Executive Vice President and Chief Vice President
Marketing Officer
* Derry E. Bishop Executive Vice President
* Harvey Blitz Executive Vice President Chief Financial Officer and
Vice President
* Thomas J. Duddy, Jr. Executive Vice President
* Fred A. Folco Executive Vice President
* William J. Green Executive Vice President
* Edward J. Hayes Executive Vice President
* Craig A. Junkins Executive Vice President
* Peter D. Noris Executive Vice President President
* Mark A. Silberman Senior Vice President and Chief
Financial Officer
* Theresa A. Nurge-Alws Senior Vice President
* Donna M. Dazzo First Vice President
* Robin K. Murray First Vice President
* Michael Brzozowski Vice President and Compliance First Vice President
Director
* Raymond T. Barry Vice President
* Claire A. Comerford Vice President
* Amy Franceschini Vice President
* Linda Funigiello Vice President
* Mark Generales Vice President
Peter R. Kornweiss Vice President
* Frank Lupo Vice President
* Rosemary Magee Vice President
* Michael McBryan Vice President
* T.S. Narayanan Vice President
* Bill Nestel Vice President
* Laura A. Pellegrini Vice President
* Dan Roebuck Vice President
* Sid Smith Vice President
* Dan Wiley Vice President
- ---------------------------------------------------------------------------------------------------------------------
C-15
<PAGE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
* 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>
<TABLE>
<CAPTION>
=====================================================================================================================
EQUITABLE DISTRIBUTORS, INC.
=====================================================================================================================
POSITIONS AND OFFICES WITH
NAME AND PRINCIPAL BUSINESS POSITIONS AND OFFICES WITH REGISTRANT (EQ EQUITABLE
ADDRESS DISTRIBUTORS, INC. ADVISORS TRUST)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
DIRECTORS
** Greg Brakovich Director
* Edward J. Hayes Director
** James A. Shepherdson, III Director
* Jose S. Suquet Director
* Charles Wilder Director
- ---------------------------------------------------------------------------------------------------------------------
OFFICERS
* Jose S. Suquet Chairman of the Board
** Greg Brakovich Co-President and Co-Chief
Executive Officer and
Managing Director
** James A. Shepherdson, III Co-President and Co-Chief
Executive Officer and Managing
Director
** Hunter Allen Senior Vice President
* Elizabeth Forget Senior Vice President
** Jennifer Hall Senior Vice President
** Al Haworth Senior Vice President
** Stuart Hutchins Senior Vice President
** Ken Jaffe Senior Vice President
** Michael McDaniel Senior Vice President
** Debora Buffington Chief Compliance Officer
* Mark A. Silberman Vice President and Chief Financial
Officer
* Raymond T. Barry Vice President
** Mark Brandenberger Vice President
* Thomas D. Bullen Vice President
** Dave Hughes Vice President
** Marty Krager Vice President
** Michelle O'Haren Vice President
=====================================================================================================================
C-16
<PAGE>
<CAPTION>
=====================================================================================================================
* Ronald R. Quist Treasurer
* Janet Hannon Secretary
* Linda J. Galasso Assistant Secretary
=====================================================================================================================
</TABLE>
(c) Inapplicable.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
Books or other documents required to be maintained by Section 31(a) of
the Investment Company Act of 1940, and the Rules promulgated thereunder, are
maintained as follows:
(a) With respect to Rules 31a-1(a); 31a-1(b)(1); (2)(a) and (b); (3); (6);
(8); (12); and 31a-1(d), the required books and records are maintained
at the offices of Registrant's Custodian:
1211 Avenue of the Americas
New York, New York 10036
(b) With respect to Rules 31a-1(a); 31a-1(b)(1), (4); (2)(C) and (D); (4);
(5); (6); (8); (9); (10); (11) and 31a-1(f), the required books and
records are currently maintained at the offices of the Registrant's
Administrator:
73 Tremont Street
Boston, Massachusetts 02108
(c) With respect to Rules 31a-1(b)(5), (6), (9) and (10) and 31a-1(f), the
required books and records are maintained at the principal offices of
the Registrant's Manager or Advisers:
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
C-17
<PAGE>
Lazard Asset Management J.P Morgan Investment Management Inc.
30 Rockefeller Plaza 522 Fifth Avenue
New York, NY 10020 New York, NY 10036
Bankers Trust Company Evergreen Asset Management Corp.
130 Liberty Street 2500 Westchester Avenue
One Bankers Trust Plaza Purchase, NY 10577
New York, NY 10006
Alliance Capital Management L.P. Capital Guardian Trust Company
1345 Avenue of the Americas 11100 Santa Monica Boulevard
New York, NY 10105 17th Floor
Los Angeles, CA 90025
ITEM 29. MANAGEMENT SERVICES: NONE.
ITEM 30. UNDERTAKINGS
Inapplicable.
C-18
<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. 10 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 29th day of April, 1999.
EQ ADVISORS TRUST
By: /s/ Peter D. Noris
-----------------------------
Peter D. Noris
President
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Post-Effective Amendment No. 10 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/ Peter D. Noris President and Trustee April 29, 1999
- -----------------------------------
Peter D. Noris
* Trustee April 29, 1999
- -----------------------------------
William T. McCaffrey
* Trustee April 29, 1999
- -----------------------------------
Michael Hegarty
* Trustee April 29, 1999
- -----------------------------------
Jettie M. Edwards
* Trustee April 29, 1999
- -----------------------------------
William M. Kearns, Jr.
* Trustee April 29, 1999
- -----------------------------------
Christopher P.A. Komisarjevsky
* Trustee April 29, 1999
- -----------------------------------
Harvey Rosenthal
* Chief Financial Officer April 29, 1999
- -----------------------------------
Harvey Blitz
* By: /s/ Peter D. Noris
-----------------------------------
Peter D. Noris
(Attorney-in-Fact)
</TABLE>
C-19
<PAGE>
EXHIBIT LIST
EXHIBIT
NUMBER DESCRIPTION
(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.
(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.
(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.
(d)(12) Investment Advisory Agreement by and between EQ Financial
Consultants, Inc. and Evergreen Asset Management Corp., dated as
of December 31, 1998.
(d)(13) Form of Investment Advisory Agreement between EQ Financial
Consultants, Inc. and Alliance Capital Management L.P., dated as
of May, 1, 1999.
(d)(14) Form of Investment Advisory Agreement between EQ Financial
Consultants, Inc. and Capital Guardian Trust Company, dated as
of May 1, 1999.
(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.
(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.
(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.
(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.
(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.
(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.
(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.
C-20
<PAGE>
(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.
(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.
(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.
(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.
(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.
(h)(2)(iv) Form of Amended and Restated Expense Limitation Agreement
between EQ Financial Consultants, Inc. and EQ Advisors Trust
dated as of May 1, 1999.
(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.
(h)(4)(iii) Amendment No. 2 dated as of December 31, 1998 to the
Participation Agreement by and among EQ Advisors Trust, The
Equitable Life Assurance Society of the United States, Equitable
Distributors, Inc., and EQ Financial Consultants Inc. dated
April 14, 1997.
(h)(4)(iv) Form of Amendment No. 3 dated as of April 30, 1999 to the
Participation Agreement among EQ Advisors Trust, The Equitable
Life Assurance Society of the United States, Equitable
Distributors, Inc., and EQ Financial Consultants Inc. dated
April 14, 1997.
(h)(5) Retirement Plan Participation Agreement dated December 1, 1998
among EQ Advisors Trust, EQ Financial Consultants, Inc., The
Equitable Investment Plan for Employees, Managers and Agents and
The Equitable Life Assurance Society of the United States.
(h)(6) Form of Amendment No. 1 to the Retirement Plan Participation
Agreement dated December 1, 1998 among EQ Advisors Trust, EQ
Financial Consultants, Inc., with The Equitable Investment Plan
for Employees, Managers and Agents and The Equitable Life
Assurance Society of the United States.
(j) Consent of PricewaterhouseCoopers LLP, Independent Public
Accountants.
(n) Financial Data Schedule.
C-21
<PAGE>
AMENDMENT NO. 2
TO
INVESTMENT MANAGEMENT AGREEMENT
AMENDMENT NO. 2 to Investment Management Agreement ("Amendment No. 2"),
dated as of December 31, 1998, between EQ Advisors Trust, a Delaware business
trust (the "Trust") and EQ Financial Consultants, Inc., a Delaware corporation
("EQ Financial")
The Trust and EQ Financial agree to modify and amend the Investment
Management Agreement (the "Original Agreement") dated as of April 14, 1997
between them, as amended by Amendment No. 1, dated as of December 9, 1997 (the
Original Agreement, together with such Amendment, the "Agreement") as follows:
1. New Portfolios. The Trust hereby appoints EQ Financial as the
investment manager of the MFS Growth with Income Portfolio, the EQ/Evergreen
Foundation Portfolio and the EQ/Evergreen Portfolio (the "New Portfolios) on the
terms and conditions contained in the Agreement.
2. Duration of Agreement.
(a) With respect to each Portfolio specified in Appendix A to the
Original Agreement, the Agreement will continue in effect until April 14, 1999
and may be continued thereafter pursuant to subsection (d) below.
(b) With respect to the JPM Core Bond Portfolio, the BT Small Company
Index Portfolio, the BT International Index Portfolio and the BT Equity 500
Index Portfolio, the Agreement will continue in effect until December 9, 1999
and may be continued thereafter pursuant to subsection (d) below.
(c) With respect to the New Portfolios, the Agreement will continue
in effect until December 31, 2000 and may be continued thereafter pursuant to
subsection (d) below.
(d) With respect to each Portfolio this Agreement shall continue in
effect annually after the date specified in subsection (a), (b) or (c), as the
case may be, only so long as such continuance is specifically approved at least
annually either by the Board of Trustees of the Trust or by a vote of a majority
of the outstanding voting securities of the Trust, provided that in either event
such continuance shall also be approved by a vote of a majority of the Trustees
of the Trust who are not interested persons of any party to the Agreement, cast
in person at a meeting called for the purpose of voting on such approval.
3. Appendix A. Appendix A to the Agreement, setting forth the Portfolios
of the Trust for which EQ Financial is appointed as the investment manager, is
hereby replaced in its entirety by Appendix A attached hereto.
1
<PAGE>
4. Appendix B. Appendix B to the Agreement, setting forth the fees
payable to EQ Financial with respect to each Portfolio, is hereby replaced in
its entirety by Appendix B attached hereto.
5. Year 2000 Preparedness. EQ Financial warrants and represents that The
Equitable Life Assurance Society of the United States ("Equitable"), EQ
Financial's sole shareholder, has adopted a written plan (the "Plan"), for Year
2000 compliance for the correct operation of its computer systems and the
computer systems, if any, of its subsidiaries, including EQ Financial (the
"Equitable Computer Systems"), that the Plan provides for the identification,
testing and, where appropriate, upgrading of the Equitable Computer Systems in
accordance with reasonable industry standards, so that both the Equitable
Computer Systems and their interfaces with third party computer systems will
function accurately and without interruption before, during and after December
31, 1999, that Equitable is actively in the process of implementing the Plan and
that EQ Financial presently has no reason to believe that the Equitable Computer
Systems and their interfaces with third party computer systems will not be able
to function accurately and without interruption before, during and after such
date. EQ Financial covenants that Equitable will continue to implement the Plan
and take such other steps in a commercially reasonable manner as may be
necessary and appropriate to be Year 2000 compliant in a timely and efficient
manner and will notify the Trust of any Year 2000 compliance problems and the
nature thereof on or before September 1, 1999 if EQ Financial determines that
the Equitable Computer Systems are not or is not likely to be Year 2000
compliant in a timely and efficient manner. The failure of the Equitable
Computer Systems to be Year 2000 compliant shall not be deemed to be a force
majeure event or provide a defense to performance hereunder.
Except as modified and amended hereby, the Agreement is hereby ratified
and confirmed in full force and effect in accordance with its terms.
IN WITNESS WHEREOF, the parties have executed and delivered this
Amendment No. 2 as of the date first above set forth.
EQ ADVISORS TRUST EQ FINANCIAL CONSULTANTS, INC.
By: By:
------------------------------ ------------------------------
Peter D. Noris Michael S. Martin
President and Trustee Chairman of the Board and
Chief Executive Officer
2
<PAGE>
APPENDIX A
TO
AMENDMENT NO. 2
TO
INVESTMENT MANAGEMENT AGREEMENT
Portfolios
----------
Portfolios In Original Agreement:
- ---------------------------------
EQ/Putnam Balanced Portfolio
EQ/Putnam Growth & Income Value Portfolio
EQ/Putnam International Equity Portfolio
EQ/Putnam Investors Growth Portfolio
Merrill Lynch Basic Value Equity Portfolio
Merrill Lynch World Strategy Portfolio
MFS Emerging Growth Companies Portfolio
MFS Research Portfolio
Morgan Stanley Emerging Markets Equity Portfolio
T. Rowe Price Equity Income Portfolio
T. Rowe Price International Stock Portfolio
Warburg Pincus Small Company Value Portfolio
Portfolios Added by Amendment No. 1:
- ------------------------------------
BT Equity 500 Index Portfolio
BT International Equity Index Portfolio
BT Small Company Index Portfolio
JPM Core Bond Portfolio
Lazard Large Cap Value Portfolio
Lazard Small Cap Value Portfolio
Portfolios Added by Amendment No. 2:
- ------------------------------------
EQ/Evergreen Foundation Portfolio
EQ/Evergreen Portfolio
MFS Growth with Income Portfolio
1
<PAGE>
APPENDIX B
TO
AMENDMENT NO. 2 TO INVESTMENT MANAGEMENT AGREEMENT
The Trust shall pay the Manager, at the end of each calendar month,
compensation computed daily at an annual rate equal to the following:
<TABLE>
<CAPTION>
Portfolio Management Fee
- --------- --------------
<S> <C>
BT Equity 500 Index Portfolio .25% of the Portfolio's average daily net assets
BT International Equity Index Portfolio .35% of the Portfolio's average daily net assets
BT Small Company Index Portfolio .25% of the Portfolio's average daily net assets
EQ/Evergreen Foundation Portfolio .63% of the Portfolio's average daily net assets
EQ/Evergreen Portfolio .75% of the Portfolio's average daily net assets
EQ/Putnam Balanced Portfolio .55% of the Portfolio's average daily net assets.
EQ/Putnam Growth & Income Value Portfolio .55% of the Portfolio's average daily net assets.
EQ/Putnam International Equity Portfolio .70% of the Portfolio's average daily net assets.
EQ/Putnam Investors Growth Portfolio .55% of the Portfolio's average daily net assets.
JPM Core Bond Portfolio .45% of the Portfolio's average daily net assets.
Lazard Large Cap Value Portfolio .55% of the Portfolio's average daily net assets.
Lazard Small Cap Value Portfolio .80% of the Portfolio's average daily net assets.
Merrill Lynch Basic Value Equity Portfolio .55% of the Portfolio's average daily net assets.
Merrill Lynch World Strategy Portfolio .70% of the Portfolio's average daily net assets.
MFS Growth with Income Portfolio .55% of the Portfolio's average daily net assets.
MFS Emerging Growth Companies Portfolio .55% of the Portfolio's average daily net assets.
MFS Research Portfolio .55% of the Portfolio's average daily net assets.
Morgan Stanley Emerging Markets Equity Portfolio 1.15% of the Portfolio's average daily net assets.
T. Rowe Price Equity Income Portfolio .55% of the Portfolio's average daily net assets.
T. Rowe Price International Stock Portfolio .75% of the Portfolio's average daily net assets.
Warburg Pincus Small Company Value Portfolio .65% of the Portfolio's average daily net assets.
</TABLE>
1
<PAGE>
FORM OF AMENDMENT NO. 3
TO
INVESTMENT MANAGEMENT AGREEMENT
FORM OF AMENDMENT NO. 3 to Investment Management Agreement ("Form of
Amendment No. 3"), dated as of April 30, 1999, between EQ Advisors Trust, a
Delaware business trust (the "Trust") and EQ Financial Consultants, Inc., a
Delaware corporation ("EQ Financial")
The Trust and EQ Financial agree to modify and amend the Investment
Management Agreement dated as of April 14, 1997 (the "Original Agreement"), as
amended by Amendment No. 1, dated as of December 9, 1997, and Amendment No. 2,
dated as of December 31, 1998 (the Original Agreement, together with such
Amendments, the "Agreement") as follows:
1. New Portfolios. The Trust hereby appoints EQ Financial as the
investment manager of the EQ/Alliance Premier Growth Portfolio, the Capital
Guardian Research Portfolio, the Capital Guardian U.S. Equity Portfolio and the
Capital Guardian International Portfolio (the "New Portfolios") on the terms and
conditions contained in the Agreement.
2. Duration of Agreement.
(a) With respect to each Portfolio specified in Appendix A to the
Original Agreement, the Agreement will continue in effect until April 14, 1999
and may be continued thereafter pursuant to subsection (e) below.
(b) With respect to the JPM Core Bond Portfolio, the BT Small Company
Index Portfolio, the BT International Index Portfolio and the BT Equity 500
Index Portfolio, the Agreement will continue in effect until December 31, 1999
and may be continued thereafter pursuant to subsection (e) below.
(c) With respect to the MFS Growth with Income Portfolio, the
EQ/Evergreen Foundation Portfolio and the EQ/Evergreen Portfolio, the Agreement
will continue in effect until December 31, 2000 and may be continued thereafter
pursuant to subsection (e) below.
(d) With respect to the New Portfolios, the Agreement will continue
in effect until April 30, 2000 and may be continued thereafter pursuant to
subsection (e) below.
(e) With respect to each Portfolio this Agreement shall continue in
effect annually after the date specified in subsection (a), (b), (c) or (d), as
the case may be, only so long as such continuance is specifically approved at
least annually either by the Board of Trustees of the Trust or by a vote of a
majority of the outstanding voting securities of the Trust, provided that in
either event such continuance shall also be approved by a vote of a majority of
the Trustees of the Trust who are not interested persons of any party to the
Agreement, cast in person at a meeting called for the purpose of voting on such
approval.
1
<PAGE>
3. Appendix A. Appendix A to the Agreement, setting forth the Portfolios
of the Trust for which EQ Financial is appointed as the investment manager, is
hereby replaced in its entirety by Appendix A attached hereto.
4. Appendix B. Appendix B to the Agreement, setting forth the fees
payable to EQ Financial with respect to each Portfolio, is hereby replaced in
its entirety by Appendix B attached hereto.
5. Year 2000 Preparedness. EQ Financial represents and warrants that The
Equitable Life Assurance Society of the United States ("Equitable"), EQ
Financial's sole shareholder, has adopted a written plan (the "Plan"), for Year
2000 compliance for the correct operation of its computer systems and the
computer systems, if any, of its subsidiaries, including EQ Financial (the
"Equitable Computer Systems"), that the Plan provides for the identification,
testing and, where appropriate, upgrading of the Equitable Computer Systems in
accordance with reasonable industry standards, so that both the Equitable
Computer Systems and their interfaces with third party computer systems will
function accurately and without interruption before, during and after December
31, 1999, that Equitable is actively in the process of implementing the Plan and
that EQ Financial presently has no reason to believe that the Equitable Computer
Systems and their interfaces with third party computer systems will not be able
to function accurately and without interruption before, during and after such
date. EQ Financial covenants that Equitable will continue to implement the Plan
and take such other steps as may be necessary and appropriate to be Year 2000
compliant in a timely and efficient manner and will promptly notify the Board of
Trustees of the Trust of any Year 2000 compliance problems and the nature
thereof on or before September 1, 1999 if EQ Financial determines that the
Equitable Computer Systems are not or is not likely to be Year 2000 compliant in
a timely and efficient manner. EQ Financial further represents and warrants that
it will provide the Board of Trustees at each Board meeting held during calendar
year 1999 and as appropriate in calendar year 2000 with detailed reports as to
the Year 2000 preparedness of the Equitable Computer Systems. The failure of the
Equitable Computer Systems to be Year 2000 compliant shall not be deemed to be a
force majeure event or provide a defense to performance hereunder.
Except as modified and amended hereby, the Agreement is hereby ratified
and confirmed in full force and effect in accordance with its terms.
IN WITNESS WHEREOF, the parties have executed and delivered this Form of
Amendment No. 3 as of the date first above set forth.
EQ ADVISORS TRUST EQ FINANCIAL CONSULTANTS, INC.
By: By:
------------------------------ ------------------------------
Peter D. Noris Michael S. Martin
President and Trustee Chairman of the Board and
Chief Executive Officer
2
<PAGE>
APPENDIX A
TO
FORM OF AMENDMENT NO. 3
TO
INVESTMENT MANAGEMENT AGREEMENT
Portfolios
----------
Portfolios In Original Agreement:
- ---------------------------------
EQ/Putnam Balanced Portfolio
EQ/Putnam Growth & Income Value Portfolio
EQ/Putnam International Equity Portfolio
EQ/Putnam Investors Growth Portfolio
Merrill Lynch Basic Value Equity Portfolio
Merrill Lynch World Strategy Portfolio
MFS Emerging Growth Companies Portfolio
MFS Research Portfolio
Morgan Stanley Emerging Markets Equity Portfolio
T. Rowe Price Equity Income Portfolio
T. Rowe Price International Stock Portfolio
Warburg Pincus Small Company Value Portfolio
Portfolios Added by Amendment No. 1:
- ------------------------------------
BT Equity 500 Index Portfolio
BT International Equity Index Portfolio
BT Small Company Index Portfolio
JPM Core Bond Portfolio
Lazard Large Cap Value Portfolio
Lazard Small Cap Value Portfolio
Portfolios Added by Amendment No. 2:
- ------------------------------------
EQ/Evergreen Foundation Portfolio
EQ/Evergreen Portfolio
MFS Growth with Income Portfolio
Portfolios Added by Form of Amendment No. 3:
- --------------------------------------------
EQ/Alliance Premier Growth Portfolio
Capital Guardian Research Portfolio
Capital Guardian U.S. Equity Portfolio
Capital Guardian International Portfolio
1
<PAGE>
APPENDIX B
TO
FORM OF AMENDMENT NO. 3
TO
INVESTMENT MANAGEMENT AGREEMENT
The Trust shall pay the Manager, at the end of each calendar month,
compensation computed daily at an annual rate equal to the following:
<TABLE>
<CAPTION>
Portfolio Management Fee
- --------- --------------
<S> <C>
BT Equity 500 Index Portfolio .25% of the Portfolio's average daily net assets
BT International Equity Index Portfolio .35% of the Portfolio's average daily net assets
BT Small Company Index Portfolio .25% of the Portfolio's average daily net assets
EQ/Alliance Premier Growth Portfolio .90% of the Portfolio's average daily net assets
Capital Guardian International Portfolio .75% of the Portfolio's average daily net assets
Capital Guardian Research Portfolio .65% of the Portfolio's average daily net assets
Capital Guardian U.S. Equity Portfolio .65% of the Portfolio's average daily net assets
EQ/Evergreen Foundation Portfolio .63% of the Portfolio's average daily net assets
EQ/Evergreen Portfolio .75% of the Portfolio's average daily net assets
EQ/Putnam Balanced Portfolio .55% of the Portfolio's average daily net assets
EQ/Putnam Growth & Income Value Portfolio .55% of the Portfolio's average daily net assets
EQ/Putnam International Equity Portfolio .70% of the Portfolio's average daily net assets
EQ/Putnam Investors Growth Portfolio .55% of the Portfolio's average daily net assets
JPM Core Bond Portfolio .45% of the Portfolio's average daily net assets
Lazard Large Cap Value Portfolio .55% of the Portfolio's average daily net assets
Lazard Small Cap Value Portfolio .80% of the Portfolio's average daily net assets
Merrill Lynch Basic Value Equity Portfolio .55% of the Portfolio's average daily net assets
Merrill Lynch World Strategy Portfolio .70% of the Portfolio's average daily net assets
MFS Growth with Income Portfolio .55% of the Portfolio's average daily net assets
MFS Emerging Growth Companies Portfolio .55% of the Portfolio's average daily net assets
MFS Research Portfolio .55% of the Portfolio's average daily net assets
Morgan Stanley Emerging Markets Equity Portfolio 1.15% of the Portfolio's average daily net assets
T. Rowe Price Equity Income Portfolio .55% of the Portfolio's average daily net assets
T. Rowe Price International Stock Portfolio .75% of the Portfolio's average daily net assets
Warburg Pincus Small Company Value Portfolio .65% of the Portfolio's average daily net assets
</TABLE>
1
<PAGE>
AMENDMENT NO. 1
TO
INVESTMENT ADVISORY AGREEMENT
AMENDMENT NO. 1 to Investment Advisory Agreement ("Amendment No. 1"),
dated as of December 31, 1998, between EQ Financial Consultants, Inc., a
Delaware corporation ("EQ Financial") and Massachusetts Financial Services
Company, a Delaware corporation (the "Adviser").
EQ Financial and the Adviser agree to modify and amend the Investment
Advisory Agreement (the " Agreement") dated as of April 14, 1997 between them as
follows:
1. New Portfolio. EQ Financial hereby appoints the Adviser as the
investment adviser of the MFS Growth with Income Portfolio (the "New Portfolio)
on the terms and conditions contained in the Agreement.
2. Duration of Agreement. Section 9 of the Agreement is replaced in its
entirety as follows:
(a) The Agreement became effective with respect to the MFS Emerging
Growth Companies Portfolio and the MFS Research Portfolio on April 14, 1997 and
will become effective with respect to the New Portfolio on the date of this
Amendment.
(b) The Agreement will continue in effect with respect to the MFS
Emerging Growth Companies Portfolio and the MFS Research Portfolio until April
14, 1999 and may be continued thereafter pursuant to subsection (d) below.
(c) The Agreement will continue in effect with respect to the New
Portfolio until December 31, 2000 and may be continued thereafter pursuant to
subsection (d) below.
(d) With respect to each Portfolio this Agreement shall continue in
effect annually after the date specified in subsection (b) or (c), as the case
may be, only so long as such continuance is specifically approved at least
annually either by the Board of Trustees or by a majority of the outstanding
voting securities of the Portfolio, provided that in either event such
continuance shall also be approved by the vote of a majority of the Trustees of
the EQ Advisors Trust who are not "interested persons" (as defined in the
Investment Company Act) (the "Independent Trustees") of any party to the
Agreement cast in person at a meeting called for the purpose of voting on such
approval. The required shareholder approval of the Agreement or of any
continuance of the Agreement shall be effective with respect to a Portfolio if a
majority of the outstanding voting securities of the series (as defined in Rule
18f-2(h) under the Investment Company Act) of shares of such Portfolio votes to
approve the Agreement or its continuance, notwithstanding that the Agreement or
its continuance may not have been approved by a majority of the outstanding
voting securities of (a) any other portfolio affected by the Agreement or (b)
all the portfolios of the Trust.
1
<PAGE>
3. Appendix A. Appendix A to the Agreement, setting forth the Portfolios
of the Trust for which the Adviser is appointed as the investment adviser and
the fees payable to the Adviser with respect to each Portfolio, is hereby
replaced in its entirety by Appendix A attached hereto.
4. Ratification. Except as modified and amended hereby, the Agreement is
hereby ratified and confirmed in full force and effect in accordance with its
terms.
IN WITNESS WHEREOF, the parties have executed and delivered this
Amendment No. 1 as of the date first above set forth.
EQ FINANCIAL CONSULTANTS, MASSACHUSETTS FINANCIAL
INC. SERVICES COMPANY
By: By:
----------------------------- -----------------------------
Peter D. Noris Name
Executive Vice President Title:
2
<PAGE>
APPENDIX A
TO
AMENDMENT NO. 1
TO
INVESTMENT ADVISORY AGREEMENT
Portfolio Advisory Fee
--------- ------------
MFS Emerging Growth Companies Portfolio .40% of the Portfolio's average
daily net assets up to and including
$150 million; .375% of the
Portfolio's average daily net assets
over $150 million and up to and
including $300 million; and .35% of
the Portfolio's average daily net
assets in excess of $300 million.
MFS Research Portfolio .40% of the Portfolio's average
daily net assets up to and including
$150 million; .375% of the
Portfolio's average daily net assets
over $150 million and up to and
including $300 million; and .35% of
the Portfolio's average daily net
assets in excess of $300 million.
MFS Growth with Income Portfolio .40% of the Portfolio's average
daily net assets up to and including
$150 million; .375% of the
Portfolio's average daily net assets
over $150 million and up to and
including $300 million; and .35% of
the Portfolio's average daily net
assets in excess of $300 million.
1
<PAGE>
INVESTMENT ADVISORY AGREEMENT
AGREEMENT, dated as of December 31, 1998, by and between EQ Financial
Consultants, Inc., a Delaware corporation ("EQ Financial" or the "Manager"), and
Evergreen Asset Management Corp., a New York corporation (the "Adviser").
WHEREAS, EQ Advisors Trust (the "Trust") is registered as an investment
company under the Investment Company Act of 1940, as amended (the "Investment
Company Act");
WHEREAS, the Trust's shareholders are and will be separate accounts
maintained by insurance companies for variable life insurance policies and
variable annuity contracts (the "Policies") under which income, gains, and
losses, whether or not realized, from assets allocated to such accounts are, in
accordance with the Policies, credited to or charged against such accounts
without regard to other income, gains, or losses of such insurance companies;
WHEREAS, the Trust is and will continue to be a series fund having two
or more investment portfolios, each with its own investment objectives, policies
and restrictions;
WHEREAS, EQ Financial is registered as an investment adviser under the
Investment Advisers Act of 1940, as amended ("Advisers Act") and is the
investment manager to the Trust;
WHEREAS, the Adviser is registered as an investment adviser under the
Advisers Act;
WHEREAS, the Investment Company Act prohibits any person from acting as
an investment adviser to a registered investment company except pursuant to a
written contract (the "Agreement"); and
WHEREAS, the Board of Directors of the Trust and EQ Financial desire to
retain the Adviser to render investment advisory services to the portfolios to
be known as Evergreen Foundation Portfolio and Evergreen Portfolio (each a
"Portfolio" and collectively, the "Portfolios") in the manner and on the terms
hereinafter set forth, which Portfolios are more particularly described in
Post-Effective Amendment No. 7 to the Registration Statement on Form N-1A for
the Trust filed with the Securities and Exchange Commission on October 15, 1998;
NOW, THEREFORE, EQ Financial and the Adviser agree as follows:
1. APPOINTMENT OF ADVISER
The Manager hereby appoints the Adviser to act as investment adviser for
each Portfolio and to manage the investment and reinvestment of the assets of
each Portfolio, subject to the supervision of the Trustees of the Trust and the
terms and conditions of this Agreement. The Adviser will be an independent
contractor and will have no authority to act for or represent the Trust or
Manager in any way or otherwise be deemed an agent of the Trust or Manager
except as expressly authorized in this Agreement or another writing by the
Trust, Manager and the Adviser.
1
<PAGE>
2. SERVICES TO BE RENDERED BY THE ADVISER TO THE TRUST
A. The Adviser will manage the investment and reinvestment of the assets
of each Portfolio and determine the composition of the assets of each Portfolio,
subject always to the direction and control of the Trustees of the Trust and the
Manager and in accordance with the provisions of the Trust's registration
statement, as amended from time to time. In fulfilling its obligations to manage
the investment and reinvestment of the assets of each Portfolio, the Adviser
will:
(i) obtain and evaluate pertinent economic, statistical,
financial, and other information affecting the economy generally and
individual companies or industries, the securities of which are included
in the Portfolio or are under consideration for inclusion in the
Portfolio;
(ii) formulate and implement a continuous investment program for
the Portfolio (a) consistent with the investment objectives, policies
and restrictions of the Portfolio as stated in the Trust's Agreement and
Declaration of Trust, By-Laws, and such Portfolio's currently effective
Prospectus and Statement of Additional Information ("SAI") as amended
from time to time, and (b) in compliance with the requirements
applicable to both regulated investment companies and segregated asset
accounts under Subchapters M and L of the Internal Revenue Code of 1986,
as amended;
(iii) take whatever steps are necessary to implement the
investment program for the Portfolio by the purchase and sale of
securities and other investments authorized under the Trust's Agreement
and Declaration of Trust, By-Laws, and such Portfolio's currently
effective Prospectus and SAI, including the placing of orders for such
purchases and sales;
(iv) regularly report to the Trustees of the Trust and the
Manager with respect to the implementation of the investment program
and, in addition, provide such statistical information and special
reports concerning the Portfolio and/or important developments
materially affecting the investments held, or contemplated to be
purchased, by the Portfolio, as may reasonably be requested by the
Manager or the Trustees of the Trust, including attendance at Board of
Trustees Meetings, as reasonably requested, to present such information
and reports to the Board;
(v) provide determinations of the fair value of certain portfolio
securities when market quotations are not readily available for the
purpose of calculating the Portfolio's net asset value in accordance
with procedures and methods established by the Trustees of the Trust;
(vi) provide any and all information, records and supporting
documentation about accounts the Adviser manages that have investment
objectives, policies, and strategies substantially similar to those
employed by the Adviser in managing the Portfolio which may be
reasonably necessary, under applicable laws, to allow the Portfolio or
its agent to present information concerning the Adviser's prior
performance in the Prospectus and the
2
<PAGE>
SAI of the Portfolio and any permissible reports and materials prepared
by the Portfolio or its agent; and
(vii) establish appropriate interfaces with the Trust's
administrator and Manager in order to provide such administrator and
Manager with all necessary information requested by the administrator
and Manager.
B. The Adviser, at its expense, will furnish: (i) all necessary
investment and management facilities and investment personnel, including
salaries, expenses and fees of any personnel required for it to faithfully
perform its duties under this Agreement; and (ii) administrative facilities,
including bookkeeping, clerical personnel and equipment necessary for the
efficient conduct of the investment affairs of each Portfolio (excluding that
necessary for the determination of net asset value and shareholder accounting
services).
C. The Adviser will select and may enter into agreements with brokers
and dealers to effect all portfolio transactions subject to the conditions set
forth herein. The Adviser will place all necessary orders with brokers, dealers,
or issuers, and will negotiate brokerage commissions if applicable. The Adviser
is directed at all times to seek to execute brokerage transactions for each
Portfolio in accordance with such policies or practices as may be established by
the Board of Trustees and described in the Trust's currently effective
Prospectus and SAI, as amended from time to time. In placing orders for the
purchase or sale of investments for each Portfolio, in the name of the Portfolio
or its nominees, the Adviser shall use its best efforts to obtain for the
Portfolio the most favorable price and best execution available, considering all
of the circumstances, and shall maintain records adequate to demonstrate
compliance with this requirement. During the term of this Agreement the Advisor
will, at its own cost and expense, retain Plexus Group, Inc. or another service
provider acceptable to the Manager and the Trust (as the case may be "Plexus")
to analyze the quality of all listed and over-the-counter portfolio transactions
effected by the Adviser or any affiliate thereof as a broker on behalf of the
Portfolios during each quarter and to evaluate the efficiency of the trading
strategies and trade executions of the Advisor and such affiliates in effecting
such transactions during each such quarter compared to trading strategies and
trade executions for similar transactions of similar difficulty effected by
brokers generally on behalf of unaffiliated institutional investors. The Advisor
will direct Plexus to deliver reports of its findings to the Manager and the
Trust on a quarterly basis. In addition the Advisor will, at least twenty (20)
days prior to each regularly scheduled quarterly meeting of the Board of
Trustees of the Trust deliver to the Manager and the Trust its own report on the
quality and efficiency of the portfolio transactions effected by the Adviser or
any affiliate thereof as a broker or a dealer during the immediately preceding
quarter, summarizing the conclusions of the Plexus report for such immediately
preceding quarter and providing such additional information with respect to
broker execution as the Advisor wishes to bring to the attention of the Manager
and the Trust.
D. Subject to the appropriate policies and procedures approved by the
Board of Trustees, the Adviser may, to the extent authorized by Section 28(e) of
the Securities Exchange Act of 1934, cause each Portfolio to pay a broker or
dealer that provides brokerage or research services to the Manager, the Adviser,
and the Portfolio an amount of commission for effecting a portfolio transaction
in excess of the amount of commission another broker or dealer would have
charged
3
<PAGE>
for effecting that transaction if the Adviser determines, in good faith,
that such amount of commission is reasonable in relationship to the value of
such brokerage or research services provided viewed in terms of that particular
transaction or the Adviser's overall responsibilities to each Portfolio or its
other advisory clients. To the extent authorized by said Section 28(e) and the
Trust's Board of Trustees, the Adviser shall not be deemed to have acted
unlawfully or to have breached any duty created by this Agreement or otherwise
solely by reason of such action. In addition, subject to seeking the most
favorable price and best execution available, the Adviser may also consider
sales of shares of the Trust as a factor in the selection of brokers and
dealers.
E. On occasions when the Adviser deems the purchase or sale of a
security to be in the best interest of the Portfolios as well as other clients
of the Adviser, the Adviser to the extent permitted by applicable laws and
regulations, may, but shall be under no obligation to, aggregate the securities
to be purchased or sold to attempt to obtain a more favorable price or lower
brokerage commissions and efficient execution. In such event, allocation of the
securities so purchased or sold, as well as the expenses incurred in the
transaction, will be made by the Adviser in the manner the Adviser considers to
be the most equitable and consistent with its fiduciary obligations to each
Portfolio and to its other clients.
The Adviser will maintain all accounts, books and records with respect
to the Portfolios as are required of an investment adviser of a registered
investment company pursuant to the Investment Company Act and Advisers Act and
the rules thereunder.
F. The Adviser may from time to time delegate certain of the duties and
services to be provided by the Adviser hereunder to an affiliate of the Adviser,
provided that such delegation of such duties and services would not be
considered to be an assignment of the Agreement under the Investment Company Act
or the Advisers Act and the conditions of the Section 2.F are satisfied. Any
such delegation shall be at the Advisor's sole cost and expense. No such
delegation shall relieve the Adviser of any of its obligations hereunder, and
the Adviser shall continue to be fully liable to the Manager and the Trust for
the performance of its obligations hereunder in all respects as if no such
delegation had occurred. At least fifteen (15) days prior to any such
delegation, the Adviser shall give written notice to the Manager and the Trust,
describing in reasonable detail the affiliate in question, its relationship to
the Adviser, the nature of the duties and services to be delegated, and the fees
payable in connection therewith, together with the written opinion of
independent counsel reasonably satisfactory to the Manager that such delegation
of the Adviser's duties and services under this Agreement does not constitute an
assignment under the Investment Company Act or the Advisers Act. The Adviser
shall within fifteen (15) days following such proposed transfer deliver to the
Manager and the Trust original executed counterparts of the documents effecting
such delegation. The Adviser shall thereafter report to the Manager and the
Trust on a quarterly basis on the duties and services being performed by such
affiliate and the fees paid to such affiliate by the Adviser and shall certify
the delegation of the duties and services by the Adviser to the affiliate
continues to be in compliance with this paragraph 2.F.
4
<PAGE>
3. COMPENSATION OF ADVISER
The Manager will pay the Adviser, with respect to each Portfolio, the
compensation specified in Appendix A to this Agreement. Payments shall be made
to the Adviser on the first day of each month; however, this advisory fee will
be calculated on the daily average value of each Portfolio's assets and accrued
on a daily basis.
4. LIABILITY OF ADVISER
Neither the Adviser nor any of its directors, officers, or employees
shall be liable to the Manager for any loss suffered by the Manager resulting
from its acts or omissions as Adviser to the Portfolios, except for losses to
the Manager or the Trust resulting from willful misconduct, bad faith, or gross
negligence in the performance of, or from reckless disregard of, the duties of
the Adviser or any of its directors, officers or employees. The Adviser, its
directors, officers or employees shall not be liable to the Manager or the Trust
for any loss suffered as a consequence of any action or inaction of other
service providers to the Trust in failing to observe the instructions of the
Adviser, provided such action or inaction of such other service providers to the
Trust is not a result of the willful misconduct, bad faith or gross negligence
in the performance of, or from reckless disregard of, the duties of the Adviser
under this Agreement.
5. NON-EXCLUSIVITY
The services of the Adviser to the Portfolios and the Trust are not to
be deemed to be exclusive, and the Adviser shall be free to render investment
advisory or other services to others (including other investment companies) and
to engage in other activities. It is understood and agreed that the directors,
officers, and employees of the Adviser are not prohibited from engaging in any
other business activity or from rendering services to any other person, or from
serving as partners, officers, directors, trustees, or employees of any other
firm or corporation, including other investment companies.
6. SUPPLEMENTAL ARRANGEMENTS
The Adviser may enter into arrangements with other persons affiliated
with the Adviser for the provision of certain personnel and facilities to the
Adviser to better enable it to fulfill its duties and obligations under this
Agreement. Notwithstanding the foregoing, the Adviser shall not delegate to, or
enter into any arrangement with any person (other than persons to whom such
delegation would be permitted in accordance with paragraphs 2.F. and 10 hereof)
to provide investment adviser services to the Portfolios or to manage any of the
assets of the Portfolios.
7. REGULATION
The Adviser shall submit to all regulatory and administrative bodies
having jurisdiction over the services provided pursuant to this Agreement any
information, reports, or other material which any such body by reason of this
Agreement may request or require pursuant to applicable laws and regulations.
5
<PAGE>
8. RECORDS
The records relating to the services provided under this Agreement shall
be the property of the Trust and shall be under its control; however, the Trust
shall furnish to the Adviser such records and permit it to retain such records
(either in original or in duplicate form) as it shall reasonably require in
order to carry out its duties. In the event of the termination of this
Agreement, such records shall promptly be returned to the Trust by the Adviser
free from any claim or retention of rights therein. The Adviser shall keep
confidential any information obtained in connection with its duties hereunder
and disclose such information only if the Trust has authorized such disclosure
or if such disclosure is expressly required or requested by applicable federal
or state regulatory authorities.
9. DURATION OF AGREEMENT
This Agreement shall become effective with respect to each Portfolio on
the later of the date of its execution or the date of the commencement of the
Portfolio. This Agreement will continue in effect for a period more than two
years from the date of its execution only so long as such continuance is
specifically approved at least annually by the Board of Trustees provided that
in such event such continuance shall also be approved by the vote of a majority
of the Trustees who are not "interested persons" (as defined in the Investment
Company Act) ("Independent Trustees") of any party to this Agreement cast in
person at a meeting called for the purpose of voting on such approval.
10. ASSIGNMENT OF AGREEMENT
This Agreement nor any interest in this Agreement may be assigned.
Notwithstanding the foregoing, this Agreement and/or any interest in the
Agreement may be transferred or delegated to another entity, provided that (i)
the Adviser has provided not less than sixty (60) days prior written notice to
EQ Financial and the Trust of such intended action, (ii) such transfer to
another entity of the duties and services to be provided by the Adviser under
this Agreement does not constitute an assignment of the Agreement under the
Investment Company Act or Advisers Act, (iii) the Adviser shall within fifteen
(15) days following such proposed transfer deliver to the Manager and the Trust
original executed counterparts of the documents effecting such transfer or
delegation, as the case may be, and (iv) the written opinion of independent
counsel reasonably satisfactory to the Manager that such transfer of the
Adviser's duties and services under this Agreement does not constitute an
assignment under the Investment Company Act or the Advisers Act. In addition the
Adviser shall pay all costs and expenses of the Manager and the Trust of any
filings with regulatory authorities and communications with owners of variable
contracts or others holding interests in variable contracts supported by the
Trust, including without limitation printing and mailing costs, which may be
required as a result of such transfer or delegation. As used herein, transfer
shall include common law assignment.
11. TERMINATION OF AGREEMENT
This Agreement may be terminated at any time, without the payment of any
penalty, by the Board of Trustees, including a majority of the Independent
Trustees, by the vote of a majority
6
<PAGE>
of the outstanding voting securities of such Portfolio, on sixty (60) day's
written notice to the Manager and the Adviser, or by the Manager or Adviser on
sixty (60) day's written notice to the Trust and the other party. This Agreement
will automatically terminate, without the payment of any penalty, in the event
of its assignment (as defined in the Investment Company Act) or in the event the
Investment Management Agreement between the Manager and the Trust is assigned or
terminates for any other reason. This Agreement will also terminate upon written
notice to the other party that the other party is in material breach of this
Agreement, unless the other party in material breach of this Agreement cures
such breach to the reasonable satisfaction of the party alleging the breach
within thirty (30) days after written notice.
12. PROVISION OF CERTAIN INFORMATION BY ADVISER
The Adviser will promptly notify the Manager in writing of the
occurrence of any of the following events:
the Adviser fails to be registered as an investment adviser under the
Advisers Act or under the laws of any jurisdiction in which the Adviser is
required to be registered as an investment adviser in order to perform its
obligations under this Agreement;
the Adviser is served or otherwise receives notice of any action, suit,
proceeding, inquiry, or investigation, at law or in equity, before or by any
court, public board, or body, involving the affairs of the Trust; and/or
the chief executive officer or controlling stockholder of the Adviser or
the portfolio manager of any Portfolio changes or there is otherwise an actual
change in control or management of the Adviser.
13. USE OF ADVISER'S NAME
The Manager will not use the Adviser's name (or that of any affiliate)
in Trust literature without prior review and approval by the Adviser, which may
not be unreasonably withheld or delayed.
14. AMENDMENTS TO THE AGREEMENT
Except to the extent permitted by the Investment Company Act or the
rules or regulations thereunder or pursuant to any exemptive relief granted by
the Securities and Exchange Commission ("SEC"), this Agreement may be amended by
the parties only if such amendment, if material, is specifically approved by the
vote of a majority of the outstanding voting securities of the affected
Portfolio or Portfolios (unless such approval is not required by Section 15 of
the Investment Company Act as interpreted by the SEC or its staff) and by the
vote of a majority of the Independent Trustees cast in person at a meeting
called for the purpose of voting on such approval. The required shareholder
approval shall be effective with respect to a Portfolio if a majority of the
outstanding voting securities of such Portfolio vote to approve the amendment,
notwithstanding that the amendment may not have been approved by a majority of
the outstanding voting securities of any other Portfolio affected by the
amendment or all the portfolios of the Trust.
7
<PAGE>
15. ENTIRE AGREEMENT
This Agreement contains the entire understanding and agreement of the
parties with respect to the Portfolios.
16. YEAR 2000 PREPAREDNESS
The Adviser warrants and represents that the Adviser has adopted a
written plan for Year 2000 compliance for the correct operation of the Adviser's
computer systems because of the approaching millennium (the "Plan"), that the
Plan provides for the identification, testing and, where appropriate, upgrading
of the Adviser's computer systems, in accordance with reasonable industry
standards, so that both the Adviser's computer systems and their interfaces with
third party computer systems will function accurately and without interruption
before, during and after December 31, 1999 and that the Adviser is actively in
the process of implementing the Plan and presently has no reason to believe that
the Adviser's computer systems and their interfaces with third party computer
systems will not be able to function accurately and without interruption before,
during and after such date. The Adviser will continue to implement the Plan and
take such other steps in a commercially reasonable manner as may be necessary
and appropriate to be Year 2000 compliant in a timely and efficient manner and
will notify the Manager and the Trust of any Year 2000 compliance problems and
the nature thereof on or before September 1, 1999 if the Adviser determines that
it is not or is not likely to be Year 2000 compliant in a timely and efficient
manner. The failure of the Adviser to be Year 2000 compliant shall not be deemed
to be a force majeure event or provide a defense to performance hereunder.
17. HEADINGS
The headings in the sections of this Agreement are inserted for
convenience of reference only and shall not constitute a part hereof.
18. NOTICES
All notices required to be given pursuant to this Agreement shall be
delivered or mailed to the last known business address of each applicable party
in person or by registered mail or a private mail or delivery service providing
the sender with notice of receipt. The specific person to whom notice shall be
provided for each party will be specified in writing to the other party. Notice
shall be deemed given on the date delivered or mailed in accordance with this
paragraph.
19. SEVERABILITY
Should any portion of this Agreement for any reason be held to be void
in law or in equity, the Agreement shall be construed, insofar as is possible,
as if such portion had never been contained herein.
20. GOVERNING LAW
The provisions of this Agreement shall be construed and interpreted in
accordance with the laws of the State of Delaware, or any of the applicable
provisions of the Investment Company
8
<PAGE>
Act. To the extent that the laws of the State of Delaware, or any of the
provisions in this Agreement, conflict with applicable provisions of the
Investment Company Act, the latter shall control.
Any question of interpretation of any term or provision of this
Agreement having a counterpart in or otherwise derived from a term or provision
of the Investment Company Act shall be resolved by reference to such term or
provision of the Investment Company Act and to interpretations thereof, if any,
by the United States courts or, in the absence of any controlling decision of
any such court, by rules, regulations or orders of the SEC validly issued
pursuant to the Investment Company Act. Specifically, the terms "vote of a
majority of the outstanding voting securities," "interested persons,"
"assignment," and "affiliated persons," as used herein shall have the meanings
assigned to them by Section 2(a) of the Investment Company Act. In addition,
where the effect of a requirement of the Investment Company Act reflected in any
provision of this Agreement is relaxed by a rule, regulation or order of the
SEC, whether of special or of general application, such provision shall be
deemed to incorporate the effect of such rule, regulation or order.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers as of the date first mentioned above.
EQ FINANCIAL CONSULTANTS, INC. EVERGREEN ASSET MANAGEMENT CORP.
By: By:
-------------------------------- --------------------------------
Name: Peter D. Noris Name:
Title: Executive Vice President Title:
9
<PAGE>
APPENDIX A
TO
ADVISORY AGREEMENT
WITH
EVERGREEN ASSET MANAGEMENT CORP.
Portfolio Advisory Fee
- --------- ------------
Evergreen Foundation Portfolio .425% of the Portfolio's average daily net
assets
Evergreen Portfolio .55% of the Portfolio's average daily net
assets
1
<PAGE>
FORM OF INVESTMENT ADVISORY AGREEMENT
AGREEMENT, dated as of May 1, 1999, by and between EQ Financial
Consultants, Inc., a Delaware corporation (the "Manager"), and Alliance Capital
Management L.P., a Delaware limited partnership (the "Adviser").
WHEREAS, EQ Advisors Trust (the "Trust") is registered as an investment
company under the Investment Company Act of 1940, as amended (the "Investment
Company Act");
WHEREAS, the Trust's shareholders are and will be separate accounts
maintained by insurance companies for variable life insurance policies and
variable annuity contracts under which income, gains, and losses, whether or not
realized, from assets allocated to such accounts are, in accordance with such
policies and contracts, credited to or charged against such accounts without
regard to other income, gains, or losses of such insurance companies;
WHEREAS, the Trust is and will continue to be a series fund having two
or more investment portfolios, each with its own investment objectives, policies
and restrictions;
WHEREAS, the Manager is registered as an investment adviser under the
Investment Advisers Act of 1940, as amended ("Advisers Act"), and is the
investment manager to the Trust;
WHEREAS, the Adviser is registered as an investment adviser under the
Advisers Act;
WHEREAS, the Investment Company Act prohibits any person from acting as
an investment adviser to a registered investment company except pursuant to a
written contract; and
WHEREAS, the Board of Directors of the Trust and the Manager desire that
the Manager retain the Adviser to render investment advisory services to the
portfolios to be known as EQ/Alliance Premier Growth Portfolio (the "Portfolio")
in the manner and on the terms hereinafter set forth, which Portfolio is more
particularly described in Post-Effective Amendment No. 8 to the Registration
Statement on Form N-1A for the Trust filed with the Securities and Exchange
Commission (the "SEC") on February 16. 1999;
NOW, THEREFORE, the Manager and the Adviser agree as follows:
1. APPOINTMENT OF ADVISER
The Manager hereby appoints the Adviser to act as investment adviser for
the Portfolio, subject to the supervision and control of the Manager and the
Trustees of the Trust, and in accordance with the terms and conditions of this
Agreement. The Adviser
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will be an independent contractor and will have no authority to act for or
represent the Trust or the Manager in any way or otherwise be deemed an agent of
the Trust or the Manager except as expressly authorized in this Agreement or
another writing by the Trust, the Manager and the Adviser.
2. SERVICES TO BE RENDERED BY THE ADVISER TO THE TRUST
A. As investment adviser to the Portfolio, the Adviser will manage the
investment and reinvestment of the assets of the Portfolio and determine the
composition of the assets of the Portfolio, subject always to the supervision
and control of the Manager and the Trustees of the Trust.
B. As part of the services it will provide hereunder, the Adviser will:
(i) obtain and evaluate pertinent economic, statistical,
financial, and other information affecting the economy generally and
individual companies or industries, the securities of which are included
in the Portfolio or are under consideration for inclusion in the
Portfolio;
(ii) formulate and implement a continuous investment program for
the Portfolio;
(iii) take whatever steps are necessary to implement the
investment program for the Portfolio by the purchase and sale of
securities and other investments, including the placing of orders for
such purchases and sales;
(iv) keep the Trustees of the Trust and the Manager fully
informed in writing on an ongoing basis of all material facts concerning
the investment and reinvestment of the assets in the Portfolio, the
Adviser and its personnel and operations, make regular and special
written reports of such additional information concerning the same as
may reasonably be requested from time to time by the Manager or the
Trustees of the Trust and attend meetings with the Manager and/or the
Trustees, as reasonably requested, to discuss the foregoing,
(v) provide determinations of the fair value of certain portfolio
securities when market quotations are not readily available for the
purpose of calculating the Portfolio's net asset value in accordance
with procedures and methods established by the Trustees of the Trust;
(vi) provide any and all information, records and supporting
documentation about accounts the Adviser manages that have investment
objectives, policies, and strategies substantially similar to those
employed by the Adviser in managing the Portfolio which may be
reasonably necessary, under applicable laws, to allow the Portfolio or
its agent to present information concerning the Adviser's prior
performance in the Trust Prospectus and SAI (as
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hereinafter defined) and any permissible reports and materials prepared
by the Portfolio or its agent; and
(vii) cooperate with and provide reasonable assistance to the
Manager, the Trust administrator, the Trust's custodian and foreign
custodians, the Trust's transfer agent and pricing agents and all other
agents and representatives of the Trust and the Manager, keep all such
persons fully informed as to such matters as they may reasonably deem
necessary to the performance of their obligations to the Trust and the
Manager, provide prompt responses to reasonable requests made by such
persons and establish appropriate interfaces with each so as to promote
the efficient exchange of information.
C. In furnishing services hereunder, the Adviser shall be subject to,
and shall perform in accordance with, the Trust's Agreement and Declaration of
Trust, as the same may be hereafter modified and/or amended from time to time
(the "Trust Declaration"), the By-Laws of the Trust , as the same may be
hereafter modified and/or amended from time to time (the "By-Laws"), the
currently effective Prospectus and Statement of Additional Information of the
Trust filed with the SEC, as the same may be hereafter modified, amended and/or
supplemented (the "Prospectus and SAI"), the Investment Company Act, with the
requirements applicable to both regulated investment companies and segregated
asset accounts under Subchapters M and L of the Internal Revenue Code of 1986,
as amended, all other applicable state and federal securities and other laws,
all regulations with respect to the foregoing, the policies and procedures
adopted from time to time by the Board of Trustees of the Trust and the written
instructions of the Manager.
D. The Adviser, at its expense, will furnish: (i) all necessary
investment and management facilities and investment personnel, including
salaries, expenses and fees of any personnel required for it to faithfully
perform its duties under this Agreement; and (ii) administrative facilities,
including bookkeeping, clerical personnel and equipment necessary for the
efficient conduct of the investment affairs of the Portfolio (excluding that
necessary for the determination of net asset value and shareholder accounting
services).
E. The Adviser will select brokers and dealers to effect all portfolio
transactions subject to the conditions set forth herein. The Adviser will place
all necessary orders with brokers, dealers, or issuers, and will negotiate
brokerage commissions if applicable. The Adviser is directed at all times to
seek to execute brokerage transactions for the Portfolio in accordance with such
policies or practices as may be established by the Board of Trustees and
described in the Trust's Prospectus and SAI. In placing orders for the purchase
or sale of investments for the Portfolio, in the name of the Portfolio or its
nominees, the Adviser shall use its best efforts to obtain for the Portfolio the
most favorable price and best execution available, considering all of the
circumstances, and shall maintain records adequate to demonstrate compliance
with this requirement.
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F. Subject to the appropriate policies and procedures approved by the
Board of Trustees, the Adviser may, to the extent authorized by Section 28(e) of
the Securities Exchange Act of 1934, cause the Portfolio to pay a broker or
dealer that provides brokerage or research services to the Manager, the Adviser,
and the Portfolio an amount of commission for effecting a portfolio transaction
in excess of the amount of commission another broker or dealer would have
charged for effecting that transaction if the Adviser determines, in good faith,
that such amount of commission is reasonable in relationship to the value of
such brokerage or research services provided viewed in terms of that particular
transaction or the Adviser's overall responsibilities to the Portfolio or its
other advisory clients. To the extent authorized by said Section 28(e) and the
Trust's Board of Trustees, the Adviser shall not be deemed to have acted
unlawfully or to have breached any duty created by this Agreement or otherwise
solely by reason of such action. In addition, subject to seeking the most
favorable price and best execution available, the Adviser may also consider
sales of shares of the Trust as a factor in the selection of brokers and
dealers.
G. On occasions when the Adviser deems the purchase or sale of a
security to be in the best interest of the Portfolio as well as other clients of
the Adviser, the Adviser to the extent permitted by applicable laws and
regulations, may, but shall be under no obligation to, aggregate the securities
to be purchased or sold to attempt to obtain a more favorable price or lower
brokerage commissions and efficient execution. In such event, allocation of the
securities so purchased or sold, as well as the expenses incurred in the
transaction, will be made by the Adviser in the manner the Adviser considers to
be the most equitable and consistent with its fiduciary obligations to the
Portfolio and to its other clients.
H. The Adviser will maintain all accounts, books and records with
respect to the Portfolio as are required of an investment adviser of a
registered investment company pursuant to the Investment Company Act and
Advisers Act and the rules thereunder and shall file with the SEC all forms
pursuant to Section 13 of the Securities Exchange Act of 1934, as amended, with
respect to the discretionary management of the assets of the Portfolio.
3. COMPENSATION OF ADVISER
The Manager will pay the Adviser an advisory fee with respect to the
Portfolio at the annual rate specified in Appendix A to this Agreement. The
advisory fee due and payable hereunder on account of any day shall be calculated
by multiplying the net asset value of the Portfolio at the close of the
immediately preceding business day (as defined in the Prospectus and SAI) by the
annual rate specified in Appendix A and dividing the result by the number of
days in the year. The advisory fee due and payable hereunder on account of the
days in any calendar month shall be due and payable within ten (10) business
days following the end of such calendar month.
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4. LIABILITY OF ADVISER
Except as may otherwise be provided by the Investment Company Act or any
other federal securities law, the Adviser shall not be liable for any losses,
claims, damages, liabilities or litigation (including legal and other expenses)
incurred or suffered by the Manager or the Trust as a result of any error of
judgment or mistake of law with respect to the Portfolio, except that nothing in
this Agreement shall operate or purport to operate in any way to exculpate,
waive or limit the liability of the Adviser for, and the Adviser shall indemnify
and hold the Trust, the Manager, all affiliated persons thereof (within the
meaning of Section 2(a)(3) of the Investment Company Act) and all controlling
persons (as described in Section 15 of the Securities Act of 1933) harmless from
and against, any and all losses, claims, damages, liabilities or litigation
(including legal and other expenses) incurred or suffered by any of such persons
arising out of or based on (a) any willful misconduct, bad faith, reckless
disregard or gross negligence of the Adviser in the performance of any if its
duties or obligations hereunder or (b) any untrue statement of a material fact
contained in the Prospectus and SAI, or the omission to state therein a material
fact known to the Adviser which was required to be stated therein or necessary
to make the statements therein not misleading, if such a statement or omission
was made in reliance upon information furnished to the Trust by the Adviser.
5. NON-EXCLUSIVITY
The services of the Adviser to the Portfolio and the Trust are not to be
deemed to be exclusive, and the Adviser shall be free to render investment
advisory or other services to others (including other investment companies) and
to engage in other activities. It is understood and agreed that the directors,
officers, and employees of the Adviser are not prohibited from engaging in any
other business activity or from rendering services to any other person, or from
serving as partners, officers, directors, trustees, or employees of any other
firm or corporation, including other investment companies.
6. SUPPLEMENTAL ARRANGEMENTS
The Adviser may from time to time employ or associate with itself any
person it believes to be particularly fitted to assist it in providing the
services to be performed by the Adviser hereunder, provided that no such person
shall perform any services with respect to the Portfolio which would constitute
an assignment or require a written advisory agreement pursuant the Investment
Company Act. Any compensation payable to such persons such be the sole
responsibility of the Advisor, and neither the Manager nor the Trust shall have
any obligations with respect thereto.
7. REGULATION
The Adviser shall submit to all regulatory and administrative bodies
having jurisdiction over the services provided pursuant to this Agreement any
information,
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reports, or other material which any such body by reason of this Agreement may
request or require pursuant to applicable laws and regulations.
8. RECORDS
The records relating to the services provided under this Agreement shall
be the property of the Trust and shall be under its control; however, the Trust
shall furnish to the Adviser such records and permit it to retain such records
(either in original or in duplicate form) as it shall reasonably require in
order to carry out its duties. In the event of the termination of this
Agreement, such records shall promptly be returned to the Trust by the Adviser
free from any claim or retention of rights therein. The Manager and the Adviser
shall keep confidential any information obtained in connection with its duties
hereunder and disclose such information only if the Trust has authorized such
disclosure or if such disclosure is expressly required or requested by
applicable federal or state regulatory authorities.
9. DURATION OF AGREEMENT
This Agreement shall become effective with respect to the Portfolio on
the later of the date of its execution or the date of the commencement of the
Portfolio. This Agreement will continue in effect for a period more than two
years from the date of its execution only so long as such continuance is
specifically approved at least annually by the Board of Trustees provided that
in such event such continuance shall also be approved by the vote of a majority
of the Trustees who are not "interested persons" (as defined in the Investment
Company Act) ("Independent Trustees") of any party to this Agreement cast in
person at a meeting called for the purpose of voting on such approval.
10. TERMINATION OF AGREEMENT
This Agreement may be terminated at any time, without the payment of any
penalty, by the Board of Trustees, including a majority of the Independent
Trustees, by the vote of a majority of the outstanding voting securities of the
Portfolio, on sixty (60) day's written notice to the Manager and the Adviser, or
by the Manager or Adviser on sixty (60) day's written notice to the Trust and
the other party. This Agreement will automatically terminate, without the
payment of any penalty, in the event of its assignment (as defined in the
Investment Company Act) or in the event the Investment Management Agreement
between the Manager and the Trust is assigned or terminates for any other
reason. This Agreement will also terminate upon written notice to the other
party that the other party is in material breach of this Agreement, unless the
other party in material breach of this Agreement cures such breach to the
reasonable satisfaction of the party alleging the breach within thirty (30) days
after written notice.
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11. PROVISION OF CERTAIN INFORMATION BY ADVISER
The Adviser will promptly notify the Manager in writing of the
occurrence of any of the following events:
A. the Adviser fails to be registered as an investment adviser under the
Advisers Act or under the laws of any jurisdiction in which the Adviser is
required to be registered as an investment adviser in order to perform its
obligations under this Agreement;
B. the Adviser is served or otherwise receives notice of any action,
suit, proceeding, inquiry, or investigation, at law or in equity, before or by
any court, public board, or body, involving the affairs of the Trust; and/or
C. the chief executive officer or controlling stockholder of the Adviser
or the portfolio manager of the Portfolio changes or there is otherwise an
actual change in control or management of the Adviser.
12. USE OF ADVISER'S NAME
The Manager will not use the Adviser's name (or that of any affiliate)
in Trust literature without prior review and approval by the Adviser, which may
not be unreasonably withheld or delayed.
13. YEAR 2000 PREPAREDNESS
The Adviser warrants and represents that the Adviser has adopted a
written plan for Year 2000 compliance for the correct operation of the Adviser's
computer systems because of the approaching millennium (the "Plan"), that the
Plan provides for the identification, testing and, where appropriate, upgrading
of the Adviser's computer systems, in accordance with reasonable industry
standards, so that both the Adviser's computer systems and their interfaces with
third party computer systems will function accurately and without interruption
before, during and after December 31, 1999 and that the Adviser is actively in
the process of implementing the Plan and presently has no reason to believe that
the Adviser's computer systems and their interfaces with third party computer
systems will not be able to function accurately and without interruption before,
during and after such date. The Adviser will continue to implement the Plan and
take such other steps as may be necessary and appropriate to be Year 2000
compliant in a timely and efficient manner and will notify the Manager and the
Trust of any Year 2000 compliance problems and the nature thereof on or before
September 1, 1999 if the Adviser determines that it is not or is not likely to
be Year 2000 compliant in a timely and efficient manner. The failure of the
Adviser to be Year 2000 compliant shall not be deemed to be a force majeure
event or provide a defense to performance hereunder.
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14. AMENDMENTS TO THE AGREEMENT
Except to the extent permitted by the Investment Company Act or the
rules or regulations thereunder or pursuant to any exemptive relief granted by
the Securities and Exchange Commission ("SEC"), this Agreement may be amended by
the parties only if such amendment, if material, is specifically approved by the
vote of a majority of the outstanding voting securities of the Portfolio (unless
such approval is not required by Section 15 of the Investment Company Act as
interpreted by the SEC or its staff) and by the vote of a majority of the
Independent Trustees cast in person at a meeting called for the purpose of
voting on such approval. The required shareholder approval shall be effective
with respect to the Portfolio if a majority of the outstanding voting securities
of the Portfolio vote to approve the amendment, notwithstanding that the
amendment may not have been approved by a majority of the outstanding voting
securities of any other Portfolio affected by the amendment or all the
portfolios of the Trust.
15. ASSIGNMENT
No assignment (as that term is defined in the Investment Company Act)
shall be made by the Adviser without the prior written consent of the Trust and
the Manager. Notwithstanding the foregoing, no assignment shall be deemed to
result from any changes in the directors, officers or employees of the Adviser
except as may be provided to the contrary in the Investment Company Act. The
Adviser agrees that it will notify the Trust and the Manager of from any changes
in the directors, officers or employees of the Adviser within a reasonable time
thereafter.
16. ENTIRE AGREEMENT
This Agreement contains the entire understanding and agreement of the
parties with respect to the Portfolio.
17. HEADINGS
The headings in the sections of this Agreement are inserted for
convenience of reference only and shall not constitute a part hereof.
18. NOTICES
All notices required to be given pursuant to this Agreement shall be
delivered or mailed to the last known business address of each applicable party
in person or by registered mail or a private mail or delivery service providing
the sender with notice of receipt. The specific person to whom notice shall be
provided for each party will be specified in writing to the other party. Notice
shall be deemed given on the date delivered or mailed in accordance with this
paragraph.
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19. SEVERABILITY
Should any portion of this Agreement for any reason be held to be void
in law or in equity, the Agreement shall be construed, insofar as is possible,
as if such portion had never been contained herein.
20. GOVERNING LAW
The provisions of this Agreement shall be construed and interpreted in
accordance with the laws of the State of Delaware, or any of the applicable
provisions of the Investment Company Act. To the extent that the laws of the
State of Delaware, or any of the provisions in this Agreement, conflict with
applicable provisions of the Investment Company Act, the latter shall control.
21. INTERPRETATION
Any question of interpretation of any term or provision of this
Agreement having a counterpart in or otherwise derived from a term or provision
of the Investment Company Act shall be resolved by reference to such term or
provision of the Investment Company Act and to interpretations thereof, if any,
by the United States courts or, in the absence of any controlling decision of
any such court, by rules, regulations or orders of the SEC validly issued
pursuant to the Investment Company Act. Specifically, the terms "vote of a
majority of the outstanding voting securities," "interested persons,"
"assignment," and "affiliated persons," as used herein shall have the meanings
assigned to them by Section 2(a) of the Investment Company Act. In addition,
where the effect of a requirement of the Investment Company Act reflected in any
provision of this Agreement is relaxed by a rule, regulation or order of the
SEC, whether of special or of general application, such provision shall be
deemed to incorporate the effect of such rule, regulation or order.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers as of the date first mentioned above.
EQ FINANCIAL CONSULTANTS, INC. ALLIANCE CAPITAL MANAGEMENT L.P.
By: By: ALLIANCE CAPITAL MANAGEMENT
----------------------------- CORPORATION, its General Partner
Peter D. Noris
Executive Vice President By:
-----------------------------
Mark R. Manley
Assistant Secretary
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APPENDIX A
To
INVESTMENT ADVISORY AGREEMENT
With
ALLIANCE CAPITAL MANAGEMENT L.P.
Portfolio Annual Advisory Fee
- --------- -------------------
EQ/Alliance Premier Growth .50% of the Portfolio's daily net assets
Portfolio
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FORM OF INVESTMENT ADVISORY AGREEMENT
AGREEMENT, dated as of May 1, 1999, by and between EQ Financial
Consultants, Inc., a Delaware corporation (the "Manager"), and Capital Guardian
Trust Company, a California corporation (the "Adviser").
WHEREAS, EQ Advisors Trust (the "Trust") is registered as an investment
company under the Investment Company Act of 1940, as amended (the "Investment
Company Act");
WHEREAS, the Trust's shareholders are and will be separate accounts
maintained by insurance companies for variable life insurance policies and
variable annuity contracts under which income, gains, and losses, whether or not
realized, from assets allocated to such accounts are, in accordance with such
policies and contracts, credited to or charged against such accounts without
regard to other income, gains, or losses of such insurance companies;
WHEREAS, the Trust is and will continue to be a series fund having two
or more investment portfolios, each with its own investment objectives, policies
and restrictions;
WHEREAS, the Manager is registered as an investment adviser under the
Investment Advisers Act of 1940, as amended ("Advisers Act") and is the
investment manager to the Trust;
WHEREAS, the Adviser is a bank under Section 202(a)(2) of the Advisers
Act and is therefore exempt under the Advisers Act from the registration and
annual Form ADV filing requirements for investment advisers;
WHEREAS, the Investment Company Act prohibits any person from acting as
an investment adviser to a registered investment company except pursuant to a
written contract; and
WHEREAS, the Board of Directors of the Trust and the Manager desire that
the Manager retain the Adviser to render investment advisory services to the
portfolios to be known as Capital Guardian Research Portfolio, Capital Guardian
U.S. Equities Portfolio and Capital Guardian International Equities Portfolio
(each such portfolio being hereinafter referred to individually and collectively
as the "Portfolio", as the context may require) in the manner and on the terms
hereinafter set forth, which Portfolio is more particularly described in
Post-Effective Amendment No. 8 to the Registration Statement on Form N-1A for
the Trust filed with the Securities and Exchange Commission (the "SEC") on
February 16. 1999;
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NOW, THEREFORE, the Manager and the Adviser agree as follows:
1. APPOINTMENT OF ADVISER
The Manager hereby appoints the Adviser to act as investment adviser for
the Portfolio, subject to the supervision and control of the Manager and the
Trustees of the Trust, and in accordance with the terms and conditions of this
Agreement. The Adviser will be an independent contractor and will have no
authority to act for or represent the Trust or the Manager in any way or
otherwise be deemed an agent of the Trust or the Manager except as expressly
authorized in this Agreement or another writing by the Trust, the Manager and
the Adviser.
2. SERVICES TO BE RENDERED BY THE ADVISER TO THE TRUST
A. As investment adviser to the Portfolio, the Adviser will manage the
investment and reinvestment of the assets of the Portfolio and determine the
composition of the assets of the Portfolio, subject always to the supervision
and control of the Manager and the Trustees of the Trust.
B. As part of the services it will provide hereunder, the Adviser will:
(i) obtain and evaluate pertinent economic, statistical,
financial, and other information affecting the economy generally and
individual companies or industries, the securities of which are included
in the Portfolio or are under consideration for inclusion in the
Portfolio;
(ii) formulate and implement a continuous investment program for
the Portfolio;
(iii) take whatever steps are necessary to implement the
investment program for the Portfolio by the purchase and sale of
securities and other investments, including the placing of orders for
such purchases and sales;
(iv) keep the Trustees of the Trust and the Manager fully
informed on an ongoing basis of all facts concerning the investment and
reinvestment of the assets in the Portfolio, the Adviser and its
personnel and operations which the Adviser determines in its reasonable
judgment to be material, make regular and special written reports of
such additional information concerning the Portfolio as may reasonably
be requested from time to time by the Manager or the Trustees of the
Trust and attend meetings with the Manager and/or the Trustees, as
reasonably requested, to discuss the foregoing,
(v) provide pricing information to the Trust to assist the Trust
in making determinations of the fair value of certain portfolio
securities when market quotations are not readily available for the
purpose of calculating the
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Portfolio's net asset value in accordance with procedures and methods
established by the Trustees of the Trust;
(vi) provide relevant investment results information (in
composite form) about accounts the Adviser manages that have investment
objectives, policies, and strategies substantially similar to those
employed by the Adviser in managing the Portfolio which may be
reasonably necessary, under applicable laws, to allow the Portfolio or
its agent to present information concerning the Adviser's prior
performance (1) in the Trust Prospectus and SAI (as hereinafter defined)
and (2) with the prior review and consent of the Adviser which shall not
be unreasonably withheld, in any permissible reports and materials
prepared by the Portfolio or its agent. It is understood that in
providing the above composites, the Adviser shall have no duty to
prepare such composites in a manner that meets SEC or other applicable
disclosure requirements which are solely the responsibility of the
Manager; and
(vii) cooperate with and provide reasonable assistance to the
Manager, the Trust administrator, the Trust's custodian and foreign
custodians, the Trust's transfer agent and pricing agents and all other
agents and representatives of the Trust and the Manager, provide such
information with respect to the Portfolios as they may reasonably
request from time to time in the performance of their obligations to the
Trust and the Manager, provide prompt responses to reasonable requests
made by such persons and establish appropriate interfaces with each so
as to promote the efficient exchange of information.
C. In furnishing services hereunder, the Adviser shall be subject to,
and shall perform in accordance with, but only to the extent the same reasonably
relates to the Portfolios and are consistent with the scope of the Adviser's
obligations as reasonably contemplated in the other provisions of this
Agreement, (1) the Trust's Agreement and Declaration of Trust, as the same may
be hereafter modified and/or amended from time to time (the "Trust
Declaration"), (2) the By-Laws of the Trust , as the same may be hereafter
modified and/or amended from time to time (the "By-Laws"), (3) the currently
effective Prospectus and Statement of Additional Information of the Trust filed
with the SEC, as the same may be hereafter modified, amended and/or supplemented
(the "Prospectus and SAI"), (4) the Investment Company Act, with the
requirements applicable to both regulated investment companies and segregated
asset accounts under Subchapters M and L of the Internal Revenue Code of 1986,
as amended, (5) all other applicable state and federal securities and other
laws, (6) all regulations with respect to the foregoing, (7) the Trust's
Compliance Manual and other policies and procedures adopted from time to time by
the Board of Trustees of the Trust and (8) the written instructions of the
Manager.
D. The Adviser, at its expense, will furnish: (i) all necessary
investment and management facilities and investment personnel, including
salaries, expenses and fees of any personnel required for it to faithfully
perform its duties under this Agreement; and (ii)
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administrative facilities, including bookkeeping, clerical personnel and
equipment necessary for the efficient conduct of the Adviser's duties under this
Agreement.
E. The Adviser will select brokers and dealers to effect all portfolio
transactions subject to the conditions set forth herein. The Adviser will place
all necessary orders with brokers, dealers, or issuers, and will negotiate
brokerage commissions if applicable. The Adviser is directed at all times to
seek to execute brokerage transactions for the Portfolio in accordance with such
policies or practices as may be established by the Board of Trustees and
described in the Trust's Prospectus and SAI, subject to the Adviser seeking to
obtain best execution. In placing orders for the purchase or sale of investments
for the Portfolio, in the name of the Portfolio or its nominees, the Adviser
shall use its best efforts to obtain for the Portfolio the most favorable price
and best execution available, considering all of the circumstances, and shall
maintain records adequate to demonstrate compliance with this requirement.
F. Subject to the appropriate policies and procedures approved by the
Board of Trustees, the Adviser may, to the extent authorized by Section 28(e) of
the Securities Exchange Act of 1934, cause the Portfolio to pay a broker or
dealer that provides brokerage or research services to the Manager, the Adviser,
and the Portfolio an amount of commission for effecting a portfolio transaction
in excess of the amount of commission another broker or dealer would have
charged for effecting that transaction if the Adviser determines, in good faith,
that such amount of commission is reasonable in relationship to the value of
such brokerage or research services provided viewed in terms of that particular
transaction or the Adviser's overall responsibilities to the Portfolio or its
other advisory clients. To the extent authorized by said Section 28(e) and the
Trust's Board of Trustees, the Adviser shall not be deemed to have acted
unlawfully or to have breached any duty created by this Agreement or otherwise
solely by reason of such action. In addition, subject to seeking the most
favorable price and best execution available, the Adviser may also consider
sales of shares of the Trust as a factor in the selection of brokers and
dealers.
G. On occasions when the Adviser deems the purchase or sale of a
security to be in the best interest of the Portfolio as well as other clients of
the Adviser, the Adviser to the extent permitted by applicable laws and
regulations, may, but shall be under no obligation to, aggregate the securities
to be purchased or sold to attempt to obtain a more favorable price or lower
brokerage commissions and efficient execution. In such event, allocation of the
securities so purchased or sold, as well as the expenses incurred in the
transaction, will be made by the Adviser in the manner the Adviser considers to
be the most equitable and consistent with its fiduciary obligations to the
Portfolio and to its other clients.
H. The Adviser will maintain all accounts, books and records with
respect to the Portfolio as are required of an investment adviser of a
registered investment company pursuant to the Investment Company Act and the
rules thereunder and shall file with the
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SEC all forms pursuant to Section 13 of the Securities Exchange Act of 1934, as
amended, with respect to the discretionary management of the assets of the
Portfolio.
3. COMPENSATION OF ADVISER
The Manager will pay the Adviser an advisory fee with respect to the
Portfolio on a quarterly basis in arrears at the annual rate specified in
Appendix A to this Agreement. The advisory fee due and payable hereunder on
account of any day shall be calculated by multiplying the net asset value of the
Portfolio at the close of the immediately preceding business day (as defined in
the Prospectus and SAI) by the annual rate specified in Appendix A and dividing
the result by the number of days in the year. The advisory fee due and payable
hereunder on account of the days in any calendar quarter shall be due and
payable within ten (10) business days following the end of such calendar
quarter.
4. LIABILITY AND INDEMNIFICATION
(a) Except as may otherwise be provided by the Investment Company Act or
any other federal securities law, the Adviser shall not be liable for any
losses, claims, damages, liabilities or litigation (including legal and other
expenses) incurred or suffered by the Manager or the Trust as a result of any
error of judgment or mistake of law by the Adviser with respect to the
Portfolio, except that nothing in this Agreement shall operate or purport to
operate in any way to exculpate, waive or limit the liability of the Adviser
for, and the Adviser shall indemnify and hold harmless the Trust, the Manager,
all affiliated persons thereof (within the meaning of Section 2(a)(3) of the
Investment Company Act) and all controlling persons (as described in Section 15
of the Securities Act of 1933) (collectively, the "Manager Indemnitees") against
any and all losses, claims, damages, liabilities or litigation (including
reasonable legal and other expenses) to which any of the Manager Indemnities may
become subject under the Securities Act of 1933, the Investment Company Act, the
Advisers Act, or under any other statute, at common law or otherwise arising out
of or based on (a) any willful misconduct, bad faith, reckless disregard or
gross negligence of the Adviser in the performance of any if its duties or
obligations hereunder or (b) any untrue statement of a material fact contained
in the Prospectus and SAI, proxy materials, reports, advertisements, sales
literature, or other materials pertaining to the Portfolio or the omission to
state therein a material fact known to the Adviser which was required to be
stated therein or necessary to make the statements therein not misleading, if
such statement or omission was made in reliance upon information furnished to
the Manager or the Trust by an Adviser Indemnitee (as defined below) for use
therein.
(b) Except as may otherwise be provided by the Investment Company Act or
any other federal securities law, the Manager and the Trust shall not be liable
for any losses, claims, damages, liabilities or litigation (including legal and
other expenses) incurred or suffered by the Adviser as a result of any error of
judgment or mistake of law by the Manager with respect to the Portfolio, except
that nothing in this Agreement shall
16
<PAGE>
operate or purport to operate in any way to exculpate, waive or limit the
liability of the Manager for, and the Manager shall indemnify and hold harmless
the Adviser, all affiliated persons thereof (within the meaning of Section
2(a)(3) of the Investment Company Act) and all controlling persons (as described
in Section 15 of the Securities Act of 1933) (collectively, the "Adviser
Indemnitees") against any and all losses, claims, damages, liabilities or
litigation (including reasonable legal and other expenses) to which any of the
Adviser Indemnities may become subject under the Securities Act of 1933, the
Investment Company Act, the Advisers Act, or under any other statute, at common
law or otherwise arising out of or based on (a) any willful misconduct, bad
faith, reckless disregard or gross negligence of the Manager in the performance
of any if its duties or obligations hereunder or (b) any untrue statement of a
material fact contained in the Prospectus and SAI, proxy materials, reports,
advertisements, sales literature, or other materials pertaining to the Portfolio
or the omission to state therein a material fact known to the Manager which was
required to be stated therein or necessary to make the statements therein not
misleading, unless such statement or omission was made in reliance upon
information furnished to the Manager or the Trust by an Adviser Indemnitee for
use therein.
5. NON-EXCLUSIVITY
The services of the Adviser to the Portfolio and the Trust are not to be
deemed to be exclusive, and the Adviser shall be free to render investment
advisory or other services to others (including other investment companies) and
to engage in other activities. It is understood and agreed that the directors,
officers, and employees of the Adviser are not prohibited from engaging in any
other business activity or from rendering services to any other person, or from
serving as partners, officers, directors, trustees, or employees of any other
firm or corporation, including other investment companies.
6. SUPPLEMENTAL ARRANGEMENTS
The Adviser may from time to time employ or associate with itself any
person it believes to be particularly fitted to assist it in providing the
services to be performed by the Adviser hereunder, provided that no such person
shall perform any services with respect to the Portfolio which would constitute
an assignment or require a written advisory agreement pursuant to the Investment
Company Act. Any compensation payable to such persons such be the sole
responsibility of the Advisor, and neither the Manager nor the Trust shall have
any obligations with respect thereto.
7. REGULATION
The Adviser shall submit to all regulatory and administrative bodies
having jurisdiction over the services provided pursuant to this Agreement any
information, reports, or other material which any such body by reason of this
Agreement may request or require pursuant to applicable laws and regulations.
17
<PAGE>
8. RECORDS
The records relating to the services provided under this Agreement shall
be the property of the Trust and shall be under its control; however, the Trust
shall furnish to the Adviser such records and permit it to retain such records
(either in original or in duplicate form) as it shall reasonably require in
order to carry out its duties. In the event of the termination of this
Agreement, such records shall promptly be returned to the Trust by the Adviser,
upon request, free from any claim or retention of rights therein. The Adviser
shall keep confidential any information obtained in connection with its duties
hereunder and disclose such information only if the Trust has authorized such
disclosure or if such disclosure is expressly required or requested by
applicable federal or state regulatory authorities.
9. DURATION OF AGREEMENT
This Agreement shall become effective with respect to the Portfolio on
the date hereof. This Agreement shall be for a period of two years and shall
continue from year to year thereafter but only so long as each such continuance
is specifically approved at least annually by the vote of a majority of the
Board of Trustees and by the vote of a majority of the Trustees who are not
"interested persons" (as defined in the Investment Company Act) ("Independent
Trustees") of any party to this Agreement cast in person at a meeting called for
the purpose of voting on such approval.
10. TERMINATION OF AGREEMENT
This Agreement may be terminated at any time, without the payment of any
penalty, by the Board of Trustees, including a majority of the Independent
Trustees, by the vote of a majority of the outstanding voting securities of the
Portfolio, on sixty (60) day's written notice to the Manager and the Adviser, or
by the Manager or Adviser on sixty (60) day's written notice to the Trust and
the other party. This Agreement will automatically terminate, effective upon
notice to the Adviser, without the payment of any penalty, in the event of its
assignment (as defined in the Investment Company Act) or in the event the
Investment Management Agreement between the Manager and the Trust is assigned or
terminates for any other reason. This Agreement will also terminate upon written
notice to the other party that the other party is in material breach of this
Agreement, unless the other party in material breach of this Agreement cures
such breach to the reasonable satisfaction of the party alleging the breach
within thirty (30) days after written notice.
11. PROVISION OF CERTAIN INFORMATION BY ADVISER
The Adviser will promptly notify the Manager in writing of the
occurrence of any of the following events:
18
<PAGE>
A. the Adviser fails to be a bank under Section 202(a)(2) of the
Advisers Act or ceases to be exempt under the Advisers Act from the registration
and annual Form ADV filing requirements for investment advisers;
B. the Adviser is served or otherwise receives notice of any action,
suit, proceeding, inquiry, or investigation, at law or in equity, before or by
any court, public board, or body, involving the affairs of the Trust (excluding
class action suits in which the Trust is a member of the plaintiff class by
reason of the Portfolio's ownership of shares in the defendant); and/or
C. the chief executive officer or controlling stockholder of the Adviser
or the portfolio managers of the Portfolio changes or there is otherwise an
actual change in control or a material change in management of the Adviser.
12. USE OF ADVISER'S NAME
The parties agree that the name "Capital Guardian Trust Company", the
names of the Adviser's affiliates within The Capital Group Companies, Inc., and
any derivative or logo or trademark or service mark or trade name (including,
but not limited to, the American Funds Group of mutual funds) are the valuable
property of the Adviser and its affiliates. The Manager and the Trust shall have
the right to use such name(s), derivatives, logos, trademarks or service marks
or trade names only with the prior written approval of the Adviser, which
approval shall not be unreasonably withheld or delayed so long as this Agreement
is in effect. The Adviser hereby consents to the names "Capital Guardian
Research Portfolio", "Capital Guardian U.S. Equity Portfolio" and "Capital
Guardian International Portfolio" as, respectively, the designated name of each
Portfolio.
Upon termination of this Agreement, the Manager and the Trust shall
forthwith cease to use such name(s), derivatives, logos, trademarks or service
marks or trade names. The Manager and the Trust agree that they will review with
the Adviser any advertisement, sales literature, or notice prior to its use that
makes reference to the Adviser or its affiliates or any such name(s),
derivatives, logos, trademarks, service marks or trade names so that the Adviser
may review the context in which it is referred to, it being agreed that the
Adviser shall have no responsibility to ensure the adequacy of the form or
content of such materials for purposes of the 1940 Act or other applicable laws
and regulations. If the Manager or the Trust makes any unauthorized use of the
Adviser's name(s), derivatives, logos, trademarks or service marks or trade
names, the parties acknowledge that the Adviser shall suffer irreparable harm
for which monetary damages are inadequate and thus, the Adviser shall be
entitled to injunctive relief.
13. YEAR 2000 PREPAREDNESS
The Adviser warrants and represents that the Adviser has adopted a
written plan for Year 2000 compliance for the correct operation of the Adviser's
computer systems
19
<PAGE>
before, during and after December 31, 1999 (the "Plan"), that the Plan provides
for the identification, testing and, where appropriate, upgrading of the
Adviser's computer systems, in accordance with reasonable industry standards, so
that both the Adviser's computer systems and their interfaces with third party
computer systems are designed to function accurately and without interruption
before, during and after December 31, 1999 and that the Adviser is actively in
the process of implementing the Plan and presently has no reason to believe that
the Adviser's computer systems and their interfaces with third party computer
systems will not be able to function accurately and without interruption before,
during and after such date. The Adviser will continue to implement the Plan in a
timely and efficient manner and will notify the Manager and the Trust of any
Year 2000 compliance problems and the nature thereof on or before September 1,
1999 if the Adviser determines that it is not or is not likely that its computer
systems and interfaces with third party systems will operate correctly before,
during and after December 31, 1999. The failure of any of the Adviser's computer
systems and/or any interfaces with third party computer systems to operate
correctly before, during and after December 31, 1999 shall not be deemed to be a
force majeure event or provide a defense to performance hereunder.
14. REPRESENTATIONS
(a) The Manager hereby warrants and represents to the Adviser that (a)
it has obtained all applicable licenses, permits, registrations and approvals
that may be required in order to serve in its designated capacities with respect
to the Portfolio, and shall continue to keep current such licenses, permits,
registrations and approvals for so long as this Agreement is in effect; (b) it
is not prohibited by the 1940 Act or other applicable laws and regulations from
performing the services contemplated by this Agreement; (c) it will immediately
notify the Adviser of the occurrence of any event that would disqualify it from
serving in its designated capacities with respect to the Portfolio; and (d) this
Agreement has been duly and validly authorized, executed and delivered on behalf
of the Manager and is a valid and binding agreement of the Manager enforceable
in accordance with its terms.
(b) The Adviser hereby warrants and represents to the Manager that (a)
it is a bank under Section 202(a)(2) of the Advisers Act and is exempt under the
Advisers Act from the registration and annual Form ADV filing requirements for
investment advisers, (b) it has obtained all applicable licenses, permits,
registrations and approvals that may be required in order to serve in its
designated capacities with respect to the Portfolio, and shall continue to keep
current such licenses, permits, registrations and approvals for so long as this
Agreement is in effect; (c) it is not prohibited by the 1940 Act or other
applicable laws and regulations from performing the services contemplated by
this Agreement; (d) it will immediately notify the Manager of the occurrence of
any event that would disqualify it from serving in its designated capacities
with respect to the Portfolio; and (e) this Agreement has been duly and validly
authorized, executed and delivered on behalf of the Adviser and is a valid and
binding agreement of the Adviser enforceable in accordance with its terms.
20
<PAGE>
15. AMENDMENTS TO THE AGREEMENT
Any amendments to this Agreement must be in writing and signed by both
the Manager and the Adviser. Further, except to the extent permitted by the
Investment Company Act or the rules or regulations thereunder or pursuant to any
exemptive relief granted by the Securities and Exchange Commission ("SEC"), this
Agreement may be amended by the parties only if such amendment, if material, is
specifically approved by the vote of a majority of the outstanding voting
securities of the Portfolio (unless such approval is not required by Section 15
of the Investment Company Act as interpreted by the SEC or its staff) and by the
vote of a majority of the Independent Trustees cast in person at a meeting
called for the purpose of voting on such approval. The required shareholder
approval shall be effective with respect to the Portfolio if a majority of the
outstanding voting securities of the Portfolio vote to approve the amendment,
notwithstanding that the amendment may not have been approved by a majority of
the outstanding voting securities of any other Portfolio affected by the
amendment or all the portfolios of the Trust.
16. ENTIRE AGREEMENT
This Agreement contains the entire understanding and agreement of the
parties with respect to the Portfolio.
17. HEADINGS
The headings in the sections of this Agreement are inserted for
convenience of reference only and shall not constitute a part hereof.
18. NOTICES
All notices required to be given pursuant to this Agreement shall be
delivered or mailed to the last known business address of each applicable party
in person or by registered mail or a private mail or delivery service providing
the sender with notice of receipt. The specific person to whom notice shall be
provided for each party will be specified in writing to the other party. Notice
shall be deemed given on the date delivered or mailed in accordance with this
paragraph.
19. SEVERABILITY
Should any portion of this Agreement for any reason be held to be void
in law or in equity, the Agreement shall be construed, insofar as is possible,
as if such portion had never been contained herein.
20. GOVERNING LAW
21
<PAGE>
The provisions of this Agreement shall be construed and interpreted in
accordance with the laws of the State of Delaware, or any of the applicable
provisions of the Investment Company Act. To the extent that the laws of the
State of Delaware, or any of the provisions in this Agreement, conflict with
applicable provisions of the Investment Company Act, the latter shall control.
21. INTERPETATION
Any question of interpretation of any term or provision of this
Agreement having a counterpart in or otherwise derived from a term or provision
of the Investment Company Act shall be resolved by reference to such term or
provision of the Investment Company Act and to interpretations thereof, if any,
by the United States courts or, in the absence of any controlling decision of
any such court, by rules, regulations or orders of the SEC validly issued
pursuant to the Investment Company Act. Specifically, the terms "vote of a
majority of the outstanding voting securities," "interested persons,"
"assignment," and "affiliated persons," as used herein shall have the meanings
assigned to them by Section 2(a) of the Investment Company Act. In addition,
where the effect of a requirement of the Investment Company Act reflected in any
provision of this Agreement is relaxed by a rule, regulation or order of the
SEC, whether of special or of general application, such provision shall be
deemed to incorporate the effect of such rule, regulation or order.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers as of the date first mentioned above.
EQ FINANCIAL CONSULTANTS, CAPITAL GUARDIAN TRUST
INC. COMPANY
By: By:
----------------------------- -----------------------------
Peter D. Noris Name
Executive Vice President Title:
22
<PAGE>
APPENDIX A
To
INVESTMENT ADVISORY AGREEMENT
With
CAPITAL GUARDIAN TRUST COMPANY
Portfolio Annual Advisory Fee
Capital Guardian Research .50% of the Portfolio's daily net assets
Portfolio up to and including $150 million; .45% of
the Portfolio's daily net assets over
$150 million and up to and including $300
million; .35% of the Portfolio's daily
net assets over $300 million and up to
and including $500 million; and .30% of
the Portfolio's daily net assets in
excess of $500 million.
Capital Guardian U.S. Equities .50% of the Portfolio's daily net assets
Portfolio up to and including $150 million; .45% of
the Portfolio's daily net assets over
$150 million and up to and including $300
million; .35% of the Portfolio's daily
net assets over $300 million and up to
and including $500 million; and .30% of
the Portfolio's daily net assets in
excess of $500 million.
Capital Guardian International .65% of the Portfolio's daily net assets
Equities Portfolio up to and including $150 million; .55% of
the Portfolio's daily net assets over
$150 million and up to and including $300
million; .45% of the Portfolio's daily
net assets over $300 million and up to
and including $500 million; and .40% of
the Portfolio's daily net assets in
excess of $500 million.
23
<PAGE>
AMENDMENT NO. 2
TO
DISTRIBUTION AGREEMENT
EQ FINANCIAL CONSULTANTS, INC. / CLASS 1A SHARES
AMENDMENT NO. 2 to Distribution Agreement ("Amendment No. 2"), dated as
of December 31, 1998, between EQ Advisors Trust, a Delaware business trust (the
"Trust") and EQ Financial Consultants, Inc., a Delaware corporation (the
"Distributor").
The Trust and the Distributor agree to modify and amend the Distribution
Agreement relating to Class 1A Shares (the "Original Agreement") dated as of
April 14, 1997 between them, as amended by Amendment No. 1, dated as of December
9, 1997 (the Original Agreement, together with such Amendment, the "Agreement")
as herein provided. All terms used in this Amendment No. 2, unless defined
herein to the contrary, shall have the meaning given such terms in the
Agreement.
1. New Portfolios The Trust hereby authorizes the Distributor to
participate in the distribution of Class 1A Shares of the MFS Growth with Income
Portfolio, the Evergreen Foundation Portfolio and the Evergreen Portfolio (the
"New Portfolios) on the terms and conditions contained in the Agreement.
2. Duration of Agreement as to New Portfolios This Agreement shall
continue in effect until December 31, 1999 with respect to the New Portfolios
and thereafter will continue annually with respect only so long as such
continuance is specifically approved at least annually either by (a) the Board
of Trustees of the Trust or (b) persons having voting rights in respect of the
Trust, by the vote stated in Section 11 of the Original Agreement, voted in
accordance with the provisions contained in the Participation Agreement (as
defined in the Original Agreement) or any policies on conflicts adopted by the
Board of Trustees; provided, however, that in either event such continuance
shall also be approved by a vote of a majority of the Trustees of the Trust who
are not interested persons of any party to the Agreement, cast in person at a
meeting called for the purpose of voting on such approval.
3. Appendix A. Appendix A to the Agreement, setting forth the Portfolios
of the Trust for which the Distributor is authorized to distribute Class 1A
Shares, is hereby replaced in its entirety by Appendix A attached hereto.
Except as modified and amended hereby, the Agreement is hereby ratified
and confirmed in full force and effect in accordance with its terms.
IN WITNESS WHEREOF, the parties have executed and delivered this
Amendment No. 2 as of the date first above set forth.
EQ ADVISORS TRUST EQ FINANCIAL CONSULTANTS, INC.
By: By:
----------------------------- -----------------------------
Peter D. Noris Michael S. Martin
President and Trustee Chairman of the Board and
Chief Executive Officer
24
<PAGE>
APPENDIX A
TO
AMENDMENT NO. 2
TO
DISTRIBUTION AGREEMENT
CLASS 1A SHARES
Portfolios
----------
Portfolios In Original Agreement:
- ---------------------------------
EQ/Putnam Growth & Income Value Portfolio
EQ/Putnam International Equity Portfolio
EQ/Putnam Investors Growth Portfolio
EQ/Putnam Balanced Portfolio
Merrill Lynch World Strategy Portfolio
Merrill Lynch Basic Value Equity Portfolio
MFS Research Portfolio
MFS Emerging Growth Companies Portfolio
Morgan Stanley Emerging Markets Equity Portfolio
T. Rowe Price International Stock Portfolio
T. Rowe Price Equity Income Portfolio
Warburg Pincus Small Company Value Portfolio
Portfolios Added by Amendment No. 1:
- ------------------------------------
BT Equity 500 Index Portfolio
BT International Equity Index Portfolio
BT Small Company Index Portfolio
JPM Core Bond Portfolio
Lazard Small Cap Value Portfolio
Lazard Large Cap Value Portfolio
Portfolios Added by Amendment No. 2:
- ------------------------------------
EQ/Evergreen Foundation Portfolio
EQ/Evergreen Portfolio
MFS Growth with Income Portfolio
1
<PAGE>
FORM OF AMENDMENT NO. 3
TO
DISTRIBUTION AGREEMENT
EQ FINANCIAL CONSULTANTS, INC. / CLASS IA SHARES
FORM OF AMENDMENT NO. 3 to Distribution Agreement ("Form of Amendment
No. 3"), dated as of April 30, 1999, between EQ Advisors Trust, a Delaware
business trust (the "Trust") and EQ Financial Consultants, Inc., a Delaware
corporation (the "Distributor").
The Trust and the Distributor agree to modify and amend the Distribution
Agreement relating to Class IA Shares dated as of April 14, 1997 (the "Original
Agreement"), as amended by Amendment No. 1, dated as of December 9, 1997, and
Amendment No. 2, dated as of December 31, 1998 (the Original Agreement, together
with such Amendments, the "Agreement") as herein provided. All terms used in
this Form of Amendment No. 3, unless defined herein to the contrary, shall have
the meaning given such terms in the Agreement.
1. New Portfolios. The Trust hereby authorizes the Distributor to
participate in the distribution of Class IA Shares of the EQ/Alliance Premier
Growth Portfolio, the Capital Guardian Research Portfolio, the Capital Guardian
U.S. Equity Portfolio and the Capital Guardian International Portfolio (the "New
Portfolios") on the terms and conditions contained in the Agreement.
2. Duration of Agreement. This Agreement shall continue in effect until
April 30, 2000 with respect to the New Portfolios and until April 14, 2000 with
respect to all other Portfolios and thereafter will continue annually with
respect only so long as such continuance is specifically approved at least
annually either by (a) the Board of Trustees of the Trust or (b) persons having
voting rights in respect of the Trust, by the vote stated in Section 11 of the
Original Agreement, voted in accordance with the provisions contained in the
Participation Agreement (as defined in the Original Agreement); provided,
however, that in either event such continuance shall also be approved by a vote
of a majority of the Trustees of the Trust who are not interested persons of any
party to the Agreement, cast in person at a meeting called for the purpose of
voting on such approval.
3. Appendix A. Appendix A to the Agreement, setting forth the Portfolios
of the Trust for which the Distributor is authorized to distribute Class IA
Shares, is hereby replaced in its entirety by Appendix A attached hereto.
Except as modified and amended hereby, the Agreement is hereby ratified
and confirmed in full force and effect in accordance with its terms.
IN WITNESS WHEREOF, the parties have executed and delivered this Form of
Amendment No. 3 as of the date first above set forth.
EQ ADVISORS TRUST EQ FINANCIAL CONSULTANTS, INC.
By: By:
----------------------------- -----------------------------
Peter D. Noris Michael S. Martin
President and Trustee Chairman of the Board and
Chief Executive Officer
1
<PAGE>
APPENDIX A
TO
FORM OF AMENDMENT NO. 3
TO
DISTRIBUTION AGREEMENT
CLASS IA SHARES
Portfolios
----------
Portfolios In Original Agreement:
- ---------------------------------
EQ/Putnam Growth & Income Value Portfolio
EQ/Putnam International Equity Portfolio
EQ/Putnam Investors Growth Portfolio
EQ/Putnam Balanced Portfolio
Merrill Lynch World Strategy Portfolio
Merrill Lynch Basic Value Equity Portfolio
MFS Research Portfolio
MFS Emerging Growth Companies Portfolio
Morgan Stanley Emerging Markets Equity Portfolio
T. Rowe Price International Stock Portfolio
T. Rowe Price Equity Income Portfolio
Warburg Pincus Small Company Value Portfolio
Portfolios Added by Amendment No. 1:
- ------------------------------------
BT Equity 500 Index Portfolio
BT International Equity Index Portfolio
BT Small Company Index Portfolio
JPM Core Bond Portfolio
Lazard Small Cap Value Portfolio
Lazard Large Cap Value Portfolio
Portfolios Added by Amendment No. 2:
- ------------------------------------
EQ/Evergreen Foundation Portfolio
EQ/Evergreen Portfolio
MFS Growth with Income Portfolio
Portfolios Added by Form of Amendment No. 3:
- --------------------------------------------
EQ/Alliance Premier Growth Portfolio
Capital Guardian Research Portfolio
Capital Guardian U.S. Equity Portfolio
Capital Guardian International Portfolio
1
<PAGE>
AMENDMENT NO. 2
TO
DISTRIBUTION AGREEMENT
EQ FINANCIAL CONSULTANTS, INC. / CLASS 1B SHARES
AMENDMENT NO. 2 to Distribution Agreement ("Amendment No. 2"), dated as
of December 31, 1998, between EQ Advisors Trust, a Delaware business trust (the
"Trust") and EQ Financial Consultants, Inc., a Delaware corporation (the
"Distributor").
The Trust and the Distributor agree to modify and amend the Distribution
Agreement relating to Class 1B Shares (the "Original Agreement") dated as of
April 14, 1997 between them, as amended by Amendment No. 1, dated as of December
9, 1997 (the Original Agreement, together with such Amendment, the "Agreement")
as herein provided. All terms used in this Amendment No. 2, unless defined
herein to the contrary, shall have the meaning given such terms in the
Agreement.
1. New Portfolios. The Trust hereby authorizes the Distributor to
participate in the distribution of Class 1B Shares of the MFS Growth with Income
Portfolio, the Evergreen Foundation Portfolio and the Evergreen Portfolio (the
"New Portfolios) on the terms and conditions contained in the Agreement.
2. Duration of Agreement as to New Portfolios. This Agreement shall
continue in effect until December 31, 1999 with respect to the New Portfolios
and thereafter will continue annually with respect only so long as such
continuance is specifically approved at least annually either by (a) the Board
of Trustees of the Trust or (b) persons having voting rights in respect of the
Trust, by the vote stated in Section 11 of the Original Agreement, voted in
accordance with the provisions contained in the Participation Agreement (as
defined in the Original Agreement) or any policies on conflicts adopted by the
Board of Trustees; provided, however, that in either event such continuance
shall also be approved by a vote of a majority of the Trustees of the Trust who
are not interested persons of any party to the Agreement, cast in person at a
meeting called for the purpose of voting on such approval.
3. Appendix A. Appendix A to the Agreement, setting forth the Portfolios
of the Trust for which the Distributor is authorized to distribute Class 1B
Shares, is hereby replaced in its entirety by Appendix A attached hereto.
Except as modified and amended hereby, the Agreement is hereby ratified
and confirmed in full force and effect in accordance with its terms.
IN WITNESS WHEREOF, the parties have executed and delivered this
Amendment No. 2 as of the date first above set forth.
EQ ADVISORS TRUST EQ FINANCIAL CONSULTANTS, INC.
By: By:
----------------------------- -----------------------------
Peter D. Noris Michael S. Martin
President and Trustee Chairman of the Board and
Chief Executive Officer
1
<PAGE>
APPENDIX A
TO
AMENDMENT NO. 2
TO
DISTRIBUTION AGREEMENT
CLASS 1B SHARES
Portfolios
----------
Portfolios In Original Agreement:
- ---------------------------------
EQ/Putnam Growth & Income Value Portfolio
EQ/Putnam International Equity Portfolio
EQ/Putnam Investors Growth Portfolio
EQ/Putnam Balanced Portfolio
Merrill Lynch World Strategy Portfolio
Merrill Lynch Basic Value Equity Portfolio
MFS Research Portfolio
MFS Emerging Growth Companies Portfolio
Morgan Stanley Emerging Markets Equity Portfolio
T. Rowe Price International Stock Portfolio
T. Rowe Price Equity Income Portfolio
Warburg Pincus Small Company Value Portfolio
Portfolios Added by Amendment No. 1:
- ------------------------------------
BT Equity 500 Index Portfolio
BT International Equity Index Portfolio
BT Small Company Index Portfolio
JPM Core Bond Portfolio
Lazard Small Cap Value Portfolio
Lazard Large Cap Value Portfolio
Portfolios Added by Amendment No. 2:
- ------------------------------------
EQ/Evergreen Foundation Portfolio
EQ/Evergreen Portfolio
MFS Growth with Income Portfolio
1
<PAGE>
FORM OF AMENDMENT NO. 3
TO
DISTRIBUTION AGREEMENT
EQ FINANCIAL CONSULTANTS, INC. / CLASS IB SHARES
FORM OF AMENDMENT NO. 3 to Distribution Agreement ("Form of Amendment
No. 3"), dated as of April 30, 1999, between EQ Advisors Trust, a Delaware
business trust (the "Trust") and EQ Financial Consultants, Inc., a Delaware
corporation (the "Distributor").
The Trust and the Distributor agree to modify and amend the Distribution
Agreement relating to Class IB Shares dated as of April 14, 1997 (the "Original
Agreement"), as amended by Amendment No. 1, dated as of December 9, 1997, and
Amendment No. 2, dated as of December 31, 1998 (the Original Agreement, together
with such Amendments, the "Agreement") as herein provided. All terms used in
this Form of Amendment No. 3, unless defined herein to the contrary, shall have
the meaning given such terms in the Agreement.
1. New Portfolios. The Trust hereby authorizes the Distributor to
participate in the distribution of Class IB Shares of the EQ/Alliance Premier
Growth Portfolio, the Capital Guardian Research Portfolio, the Capital Guardian
U.S. Equity Portfolio and the Capital Guardian International Portfolio (the "New
Portfolios") on the terms and conditions contained in the Agreement.
2. Duration of Agreement. This Agreement shall continue in effect until
April 30, 2000 with respect to the New Portfolios and until April 14, 2000 with
respect to all other Portfolios and thereafter will continue annually with
respect only so long as such continuance is specifically approved at least
annually either by (a) the Board of Trustees of the Trust or (b) persons having
voting rights in respect of the Trust, by the vote stated in Section 11 of the
Original Agreement, voted in accordance with the provisions contained in the
Participation Agreement (as defined in the Original Agreement); provided,
however, that in either event such continuance shall also be approved by a vote
of a majority of the Trustees of the Trust who are not interested persons of any
party to the Agreement, cast in person at a meeting called for the purpose of
voting on such approval.
3. Appendix A. Appendix A to the Agreement, setting forth the Portfolios
of the Trust for which the Distributor is authorized to distribute Class IB
Shares, is hereby replaced in its entirety by Appendix A attached hereto.
Except as modified and amended hereby, the Agreement is hereby ratified
and confirmed in full force and effect in accordance with its terms.
IN WITNESS WHEREOF, the parties have executed and delivered this Form of
Amendment No. 3 as of the date first above set forth.
EQ ADVISORS TRUST EQ FINANCIAL CONSULTANTS, INC.
By: By:
----------------------------- -----------------------------
Peter D. Noris Michael S. Martin
President and Trustee Chairman of the Board and
Chief Executive Officer
1
<PAGE>
APPENDIX A
TO
FORM OF AMENDMENT NO. 3
TO
DISTRIBUTION AGREEMENT
CLASS IB SHARES
Portfolios
----------
Portfolios In Original Agreement:
- ---------------------------------
EQ/Putnam Growth & Income Value Portfolio
EQ/Putnam International Equity Portfolio
EQ/Putnam Investors Growth Portfolio
EQ/Putnam Balanced Portfolio
Merrill Lynch World Strategy Portfolio
Merrill Lynch Basic Value Equity Portfolio
MFS Research Portfolio
MFS Emerging Growth Companies Portfolio
Morgan Stanley Emerging Markets Equity Portfolio
T. Rowe Price International Stock Portfolio
T. Rowe Price Equity Income Portfolio
Warburg Pincus Small Company Value Portfolio
Portfolios Added by Amendment No. 1:
- ------------------------------------
BT Equity 500 Index Portfolio
BT International Equity Index Portfolio
BT Small Company Index Portfolio
JPM Core Bond Portfolio
Lazard Small Cap Value Portfolio
Lazard Large Cap Value Portfolio
Portfolios Added by Amendment No. 2:
- ------------------------------------
EQ/Evergreen Foundation Portfolio
EQ/Evergreen Portfolio
MFS Growth with Income Portfolio
Portfolios Added by Form of Amendment No. 3:
- --------------------------------------------
EQ/Alliance Premier Growth Portfolio
Capital Guardian Research Portfolio
Capital Guardian U.S. Equity Portfolio
Capital Guardian International Portfolio
1
<PAGE>
AMENDMENT NO. 2
TO
DISTRIBUTION AGREEMENT
EQUITABLE DISTRIBUTORS, INC. / CLASS 1A SHARES
AMENDMENT NO. 2 to Distribution Agreement ("Amendment No. 2"), dated as
of December 31, 1998, between EQ Advisors Trust, a Delaware business trust (the
"Trust") AND Equitable Distributors, Inc., a Delaware corporation (the
"Distributor").
The Trust and the Distributor agree to modify and amend the Distribution
Agreement relating to Class 1A Shares (the "Original Agreement") dated as of
April 14, 1997 between them, as amended by Amendment No. 1, dated as of December
9, 1997 (the Original Agreement, together with such Amendment, the "Agreement")
as herein provided. All terms used in this Amendment No. 2, unless defined
herein to the contrary, shall have the meaning given such terms in the
Agreement.
1. New Portfolios The Trust hereby authorizes the Distributor to
participate in the distribution of Class 1A Shares of the MFS Growth with Income
Portfolio, the Evergreen Foundation Portfolio and the Evergreen Portfolio (the
"New Portfolios) on the terms and conditions contained in the Agreement.
2. Duration of Agreement as to New Portfolios This Agreement shall
continue in effect until December 31, 1999 with respect to the New Portfolios
and thereafter will continue annually with respect only so long as such
continuance is specifically approved at least annually either by (a) the Board
of Trustees of the Trust or (b) persons having voting rights in respect of the
Trust, by the vote stated in Section 11 of the Original Agreement, voted in
accordance with the provisions contained in the Participation Agreement (as
defined in the Original Agreement) or any policies on conflicts adopted by the
Board of Trustees; provided, however, that in either event such continuance
shall also be approved by a vote of a majority of the Trustees of the Trust who
are not interested persons of any party to the Agreement, cast in person at a
meeting called for the purpose of voting on such approval.
3. Appendix A. Appendix A to the Agreement, setting forth the Portfolios
of the Trust for which the Distributor is authorized to distribute Class 1A
Shares, is hereby replaced in its entirety by Appendix A attached hereto.
Except as modified and amended hereby, the Agreement is hereby ratified
and confirmed in full force and effect in accordance with its terms.
IN WITNESS WHEREOF, the parties have executed and delivered this
Amendment No. 2 as of the date first above set forth.
EQ ADVISORS TRUST EQUITABLE DISTRIBUTORS, INC.
By: By:
----------------------------- -----------------------------
Peter D. Noris Michael S. Martin
President and Trustee Chairman of the Board and
Chief Executive Officer
1
<PAGE>
FORM OF AMENDMENT NO. 3
TO
DISTRIBUTION AGREEMENT
EQUITABLE DISTRIBUTORS, INC. / CLASS IA SHARES
FORM OF AMENDMENT NO. 3 to Distribution Agreement ("Form of Amendment
No. 3"), dated as of April 30, 1999, between EQ Advisors Trust, a Delaware
business trust (the "Trust") and Equitable Distributors, Inc., a Delaware
corporation (the "Distributor").
The Trust and the Distributor agree to modify and amend the Distribution
Agreement relating to Class IA Shares dated as of April 14, 1997 (the "Original
Agreement"), as amended by Amendment No. 1, dated as of December 9, 1997, and
Amendment No. 2, dated as of December 31, 1998 (the Original Agreement, together
with such Amendments, the "Agreement") as herein provided. All terms used in
this Form of Amendment No. 3, unless defined herein to the contrary, shall have
the meaning given such terms in the Agreement.
1. New Portfolios. The Trust hereby authorizes the Distributor to
participate in the distribution of Class IA Shares of the EQ/Alliance Premier
Growth Portfolio, the Capital Guardian Research Portfolio, the Capital Guardian
U.S. Equity Portfolio and the Capital Guardian International Portfolio (the "New
Portfolios") on the terms and conditions contained in the Agreement.
2. Duration of Agreement. This Agreement shall continue in effect until
April 30, 2000 with respect to the New Portfolios and until April 14, 2000 with
respect to all other Portfolios and thereafter will continue annually with
respect only so long as such continuance is specifically approved at least
annually either by (a) the Board of Trustees of the Trust or (b) persons having
voting rights in respect of the Trust, by the vote stated in Section 11 of the
Original Agreement, voted in accordance with the provisions contained in the
Participation Agreement (as defined in the Original Agreement); provided,
however, that in either event such continuance shall also be approved by a vote
of a majority of the Trustees of the Trust who are not interested persons of any
party to the Agreement, cast in person at a meeting called for the purpose of
voting on such approval.
3. Appendix A. Appendix A to the Agreement, setting forth the Portfolios
of the Trust for which the Distributor is authorized to distribute Class IA
Shares, is hereby replaced in its entirety by Appendix A attached hereto.
Except as modified and amended hereby, the Agreement is hereby ratified
and confirmed in full force and effect in accordance with its terms.
IN WITNESS WHEREOF, the parties have executed and delivered this Form of
Amendment No. 3 as of the date first above set forth.
EQ ADVISORS TRUST EQUITABLE DISTRIBUTORS, INC.
By: By:
----------------------------- -----------------------------
Peter D. Noris Michael S. Martin
President and Trustee Chairman of the Board and
Chief Executive Officer
1
<PAGE>
APPENDIX A
TO
FORM OF AMENDMENT NO. 3
TO
DISTRIBUTION AGREEMENT
CLASS IA SHARES
Portfolios
----------
Portfolios In Original Agreement:
- ---------------------------------
EQ/Putnam Growth & Income Value Portfolio
EQ/Putnam International Equity Portfolio
EQ/Putnam Investors Growth Portfolio
EQ/Putnam Balanced Portfolio
Merrill Lynch World Strategy Portfolio
Merrill Lynch Basic Value Equity Portfolio
MFS Research Portfolio
MFS Emerging Growth Companies Portfolio
Morgan Stanley Emerging Markets Equity Portfolio
T. Rowe Price International Stock Portfolio
T. Rowe Price Equity Income Portfolio
Warburg Pincus Small Company Value Portfolio
Portfolios Added by Amendment No. 1:
- ------------------------------------
BT Equity 500 Index Portfolio
BT International Equity Index Portfolio
BT Small Company Index Portfolio
JPM Core Bond Portfolio
Lazard Small Cap Value Portfolio
Lazard Large Cap Value Portfolio
Portfolios Added by Amendment No. 2:
- ------------------------------------
EQ/Evergreen Foundation Portfolio
EQ/Evergreen Portfolio
MFS Growth with Income Portfolio
Portfolios Added by Form of Amendment No. 3:
- --------------------------------------------
EQ/Alliance Premier Growth Portfolio
Capital Guardian Research Portfolio
Capital Guardian U.S. Equity Portfolio
Capital Guardian International Portfolio
1
<PAGE>
AMENDMENT NO. 2
TO
DISTRIBUTION AGREEMENT
EQUITABLE DISTRIBUTORS, INC. / CLASS 1B SHARES
AMENDMENT NO. 2 to Distribution Agreement ("Amendment No. 2"), dated as
of December 31, 1998, between EQ Advisors Trust, a Delaware business trust (the
"Trust") AND Equitable Distributors, Inc., a Delaware corporation (the
"Distributor").
The Trust and the Distributor agree to modify and amend the Distribution
Agreement relating to Class 1B Shares (the "Original Agreement") dated as of
April 14, 1997 between them, as amended by Amendment No. 1, dated as of December
9, 1997 (the Original Agreement, together with such Amendment, the "Agreement")
as herein provided. All terms used in this Amendment No. 2, unless defined
herein to the contrary, shall have the meaning given such terms in the
Agreement.
1. New Portfolios. The Trust hereby authorizes the Distributor to
participate in the distribution of Class 1B Shares of the MFS Growth with Income
Portfolio, the Evergreen Foundation Portfolio and the Evergreen Portfolio (the
"New Portfolios) on the terms and conditions contained in the Agreement.
2. Duration of Agreement as to New Portfolios. This Agreement shall
continue in effect until December 31, 1999 with respect to the New Portfolios
and thereafter will continue annually with respect only so long as such
continuance is specifically approved at least annually either by (a) the Board
of Trustees of the Trust or (b) persons having voting rights in respect of the
Trust, by the vote stated in Section 11 of the Original Agreement, voted in
accordance with the provisions contained in the Participation Agreement (as
defined in the Original Agreement) or any policies on conflicts adopted by the
Board of Trustees; provided, however, that in either event such continuance
shall also be approved by a vote of a majority of the Trustees of the Trust who
are not interested persons of any party to the Agreement, cast in person at a
meeting called for the purpose of voting on such approval.
3. Appendix A. Appendix A to the Agreement, setting forth the Portfolios
of the Trust for which the Distributor is authorized to distribute Class 1B
Shares, is hereby replaced in its entirety by Appendix A attached hereto.
Except as modified and amended hereby, the Agreement is hereby ratified
and confirmed in full force and effect in accordance with its terms.
IN WITNESS WHEREOF, the parties have executed and delivered this
Amendment No. 2 as of the date first above set forth.
EQ ADVISORS TRUST EQUITABLE DISTRIBUTORS, INC.
By: By:
----------------------------- -----------------------------
Peter D. Noris Michael S. Martin
President and Trustee Chairman of the Board and
Chief Executive Officer
1
<PAGE>
APPENDIX A
TO
AMENDMENT NO. 2
TO
DISTRIBUTION AGREEMENT
CLASS 1B SHARES
Portfolios
----------
Portfolios In Original Agreement:
- ---------------------------------
EQ/Putnam Growth & Income Value Portfolio
EQ/Putnam International Equity Portfolio
EQ/Putnam Investors Growth Portfolio
EQ/Putnam Balanced Portfolio
Merrill Lynch World Strategy Portfolio
Merrill Lynch Basic Value Equity Portfolio
MFS Research Portfolio
MFS Emerging Growth Companies Portfolio
Morgan Stanley Emerging Markets Equity Portfolio
T. Rowe Price International Stock Portfolio
T. Rowe Price Equity Income Portfolio
Warburg Pincus Small Company Value Portfolio
Portfolios Added by Amendment No. 1:
- ------------------------------------
BT Equity 500 Index Portfolio
BT International Equity Index Portfolio
BT Small Company Index Portfolio
JPM Core Bond Portfolio
Lazard Small Cap Value Portfolio
Lazard Large Cap Value Portfolio
Portfolios Added by Amendment No. 2:
- ------------------------------------
EQ/Evergreen Foundation Portfolio
EQ/Evergreen Portfolio
MFS Growth with Income Portfolio
1
<PAGE>
FORM OF AMENDMENT NO. 3
TO
DISTRIBUTION AGREEMENT
EQUITABLE DISTRIBUTORS, INC. / CLASS IB SHARES
FORM OF AMENDMENT NO. 3 to Distribution Agreement ("Form of Amendment
No. 3"), dated as of April 30, 1999, between EQ Advisors Trust, a Delaware
business trust (the "Trust") AND Equitable Distributors, Inc., a Delaware
corporation (the "Distributor").
The Trust and the Distributor agree to modify and amend the Distribution
Agreement relating to Class IB Shares dated as of April 14, 1997 (the "Original
Agreement"), as amended by Amendment No. 1, dated as of December 9, 1997, and
Amendment No. 2, dated as of December 31, 1998 (the Original Agreement, together
with such Amendments, the "Agreement") as herein provided. All terms used in
this Form of Amendment No. 3, unless defined herein to the contrary, shall have
the meaning given such terms in the Agreement.
1. New Portfolios. The Trust hereby authorizes the Distributor to
participate in the distribution of Class IB Shares of the EQ/Alliance Premier
Growth Portfolio, the Capital Guardian Research Portfolio, the Capital Guardian
U.S. Equity Portfolio and the Capital Guardian International Portfolio (the "New
Portfolios") on the terms and conditions contained in the Agreement.
2. Duration of Agreement. This Agreement shall continue in effect until
April 30, 2000 with respect to the New Portfolios and until April 14, 2000 with
respect to all other Portfolios and thereafter will continue annually with
respect only so long as such continuance is specifically approved at least
annually either by (a) the Board of Trustees of the Trust or (b) persons having
voting rights in respect of the Trust, by the vote stated in Section 11 of the
Original Agreement, voted in accordance with the provisions contained in the
Participation Agreement (as defined in the Original Agreement); provided,
however, that in either event such continuance shall also be approved by a vote
of a majority of the Trustees of the Trust who are not interested persons of any
party to the Agreement, cast in person at a meeting called for the purpose of
voting on such approval.
3. Appendix A. Appendix A to the Agreement, setting forth the Portfolios
of the Trust for which the Distributor is authorized to distribute Class IB
Shares, is hereby replaced in its entirety by Appendix A attached hereto.
Except as modified and amended hereby, the Agreement is hereby ratified
and confirmed in full force and effect in accordance with its terms.
IN WITNESS WHEREOF, the parties have executed and delivered this Form of
Amendment No. 3 as of the date first above set forth.
EQ ADVISORS TRUST EQUITABLE DISTRIBUTORS, INC.
By: By:
----------------------------- -----------------------------
Peter D. Noris Michael S. Martin
President and Trustee Chairman of the Board and
Chief Executive Officer
1
<PAGE>
APPENDIX A
TO
FORM OF AMENDMENT NO. 3
TO
DISTRIBUTION AGREEMENT
CLASS IB SHARES
Portfolios
Portfolios In Original Agreement:
- ---------------------------------
EQ/Putnam Growth & Income Value Portfolio
EQ/Putnam International Equity Portfolio
EQ/Putnam Investors Growth Portfolio
EQ/Putnam Balanced Portfolio
Merrill Lynch World Strategy Portfolio
Merrill Lynch Basic Value Equity Portfolio
MFS Research Portfolio
MFS Emerging Growth Companies Portfolio
Morgan Stanley Emerging Markets Equity Portfolio
T. Rowe Price International Stock Portfolio
T. Rowe Price Equity Income Portfolio
Warburg Pincus Small Company Value Portfolio
Portfolios Added by Amendment No. 1:
- ------------------------------------
BT Equity 500 Index Portfolio
BT International Equity Index Portfolio
BT Small Company Index Portfolio
JPM Core Bond Portfolio
Lazard Small Cap Value Portfolio
Lazard Large Cap Value Portfolio
Portfolios Added by Amendment No. 2:
- ------------------------------------
EQ/Evergreen Foundation Portfolio
EQ/Evergreen Portfolio
MFS Growth with Income Portfolio
Portfolios Added by Form of Amendment No. 3:
- --------------------------------------------
EQ/Alliance Premier Growth Portfolio
Capital Guardian Research Portfolio
Capital Guardian U.S. Equity Portfolio
Capital Guardian International Portfolio
1
<PAGE>
AMENDMENT NO. 2
TO
CUSTODIAN AGREEMENT
Amendment No. 2, dated as of December 31, 1998 ("Amendment"), to the
Custodian Agreement dated as of April 14, 1997 ("Original Agreement") by and
between EQ Advisors Trust and The Chase Manhattan Bank.
The parties hereto agree that Appendix A to the Original Agreement is
replaced in its entirety by Appendix A attached hereto.
Except as modified and amended hereby, the Original Agreement is hereby
ratified and confirmed in full force and effect in accordance with its terms.
IN WITNESS WHEREOF, the parties have executed and delivered this
Amendment as of the date first above set forth.
EQ ADVISORS TRUST THE CHASE MANHATTAN BANK
By: By:
---------------------------- ----------------------------
Name: Peter D. Noris Name: John K. Breitweg
Title: President and Trustee Title: Vice President
1
<PAGE>
APPENDIX A
TO
AMENDMENT NO. 2
TO
CUSTODIAN AGREEMENT
PORTFOLIOS AND CLASSES COVERED BY CUSTODIAN AGREEMENT
Portfolios Classes
---------- -------
BT Equity 500 Index Portfolio Class IA and Class 1B
BT International Equity Index Portfolio Class IA and Class 1B
BT Small Company Index Portfolio Class IA and Class 1B
EQ/Putnam Balanced Portfolio Class IA and Class 1B
EQ/Putnam Growth & Income Value Portfolio Class IA and Class 1B
EQ/Putnam International Equity Portfolio Class IA and Class 1B
EQ/Putnam Investors Growth Portfolio Class IA and Class 1B
EQ/Evergreen Foundation Portfolio Class IA and Class 1B
EQ/Evergreen Portfolio Class IA and Class 1B
JPM Core Bond Portfolio Class IA and Class 1B
Lazard Large Cap Value Portfolio Class IA and Class 1B
Lazard Small Cap Value Portfolio Class IA and Class 1B
Merrill Lynch Basic Value Equity Portfolio Class IA and Class 1B
Merrill Lynch World Strategy Portfolio Class IA and Class 1B
MFS Emerging Growth Companies Portfolio Class IA and Class 1B
MFS Growth with Income Portfolio Class IA and Class 1B
MFS Research Portfolio Class IA and Class 1B
Morgan Stanley Emerging Markets Equity Portfolio Class IA and Class 1B
T. Rowe Price Equity Income Portfolio Class IA and Class 1B
T. Rowe Price International Stock Portfolio Class IA and Class 1B
Warburg Pincus Small Company Value Portfolio Class IA and Class 1B
1
<PAGE>
FORM OF AMENDMENT NO. 3
TO
CUSTODIAN AGREEMENT
Form of Amendment No. 3, dated as of April 30, 1999 ("Amendment"), to
the Custodian Agreement dated as of April 14, 1997 ("Original Agreement"), as
amended by Amendment No. 1, dated as of December 9, 1997, and Amendment No. 2,
dated as of December 31, 1998 (collectively the "Agreement") by and between EQ
Advisors Trust and The Chase Manhattan Bank.
The parties hereto agree that Appendix A to the Agreement is replaced in
its entirety by Appendix A attached hereto.
Except as modified and amended hereby, the Agreement is hereby ratified
and confirmed in full force and effect in accordance with its terms.
IN WITNESS WHEREOF, the parties have executed and delivered this Form of
Amendment No. 3 as of the date first above set forth.
EQ ADVISORS TRUST THE CHASE MANHATTAN BANK
By: By:
---------------------------- ----------------------------
Name: Peter D. Noris Name: John K. Breitweg
Title: President and Trustee Title: Vice President
1
<PAGE>
APPENDIX A
TO
FORM OF AMENDMENT NO. 3
TO
CUSTODIAN AGREEMENT
PORTFOLIOS AND CLASSES COVERED BY CUSTODIAN AGREEMENT
Portfolios Classes
---------- -------
BT Equity 500 Index Portfolio Class IA and Class IB
BT International Equity Index Portfolio Class IA and Class IB
BT Small Company Index Portfolio Class IA and Class IB
EQ/Alliance Premier Growth Portfolio Class IA and Class IB
Capital Guardian International Portfolio Class IA and Class IB
Capital Guardian Research Portfolio Class IA and Class IB
Capital Guardian U.S. Equity Portfolio Class IA and Class IB
EQ/Putnam Balanced Portfolio Class IA and Class IB
EQ/Putnam Growth & Income Value Portfolio Class IA and Class IB
EQ/Putnam International Equity Portfolio Class IA and Class IB
EQ/Putnam Investors Growth Portfolio Class IA and Class IB
EQ/Evergreen Foundation Portfolio Class IA and Class IB
EQ/Evergreen Portfolio Class IA and Class IB
JPM Core Bond Portfolio Class IA and Class IB
Lazard Large Cap Value Portfolio Class IA and Class IB
Lazard Small Cap Value Portfolio Class IA and Class IB
Merrill Lynch Basic Value Equity Portfolio Class IA and Class IB
Merrill Lynch World Strategy Portfolio Class IA and Class IB
MFS Emerging Growth Companies Portfolio Class IA and Class IB
MFS Growth with Income Portfolio Class IA and Class IB
MFS Research Portfolio Class IA and Class IB
Morgan Stanley Emerging Markets Equity Portfolio Class IA and Class IB
T. Rowe Price Equity Income Portfolio Class IA and Class IB
T. Rowe Price International Stock Portfolio Class IA and Class IB
Warburg Pincus Small Company Value Portfolio Class IA and Class IB
1
<PAGE>
AMENDED AND RESTATED GLOBAL CUSTODY RIDER
TO
DOMESTIC CUSTODY AGREEMENT FOR
MUTUAL FUNDS
We hereby request you, The Chase Manhattan Bank ("Chase" or "Delegate"),
to provide to us, EQ Advisors Trust ("Trust"), on behalf of each of the Trust's
separate series ("Portfolios") designated in Appendix A to the Domestic Custody
Agreement, Global Custody Services subject to the terms of our Domestic Custody
Agreement with you, and the terms herein. If there is any conflict between the
terms in our domestic Custody Agreement and the terms in this Amended and
Restated Global Custody rider ("Rider") with regard to your providing Global
Custody Services to us, the terms of this Rider shall govern. All capitalized
terms not defined herein shall have the meaning a set forth in the Domestic
Custody Agreement. The terms of this Rider shall be effective as of the date
stated below.
WHEREAS, pursuant to the provisions of Rule 17f-5(b) under the
Investment Company Act of 1940, as amended ("1940 Act" and subject to the terms
and conditions set forth herein, the Board of Trustees ("Board") of the Trust
desires to delegate to the Delegate, and the Delegate hereby agrees to accept
and assume, certain responsibilities described herein concerning Assets, as
defined in Section 1(b) hereof, held outside the United States.
NOW THEREFORE, in consideration of the premises and of the mutual
agreements contained herein, the parties hereto agree as follows:
Maintenance of Financial Assets and Cash Outside the United States
Unless our instructions specifically require another location acceptable
to you:
Financial Assets shall be held in the country or other
jurisdiction in which the principal trading market for such Financial
Assets are located, where such Financial Assets are to be presented for
payment or where such Financial Assets are acquired; and
cash shall be credited to an account in a country or other
jurisdiction in which such cash may be legally deposited or is the legal
currency for the payment of public or private debts.
Financial Assets and cash hereinafter shall be referred to collectively
as "Assets".
Cash may be held pursuant to instructions in either interest or
non-interest bearing accounts as may be available for the particular currency.
To the extent you can comply with our instructions to you, you are authorized to
maintain cash balances on deposit for us with you or one of your "Affiliates" at
such reasonable rates of interest as may from time to time be paid on such
accounts, or in non-interest bearing accounts as we may direct, if acceptable to
you. For purposes hereof, the term "Affiliate" shall mean an entity controlling,
controlled by, or under common control with you.
1
<PAGE>
If we wish to have any of the Assets held in the custody of an
institution other than the established Subcustodians as defined in Section 2
hereof (or their securities depositories), such arrangement must be authorized
by a written agreement, signed by you and us.
Subcustodians and Securities Depositories.
You may act under this Rider through the Subcustodians listed in
Schedule A hereto that are branches of a U.S. Bank, with which you have entered
into subcustodial agreements. You may act under this Rider through the
Subcustodians listed in Schedule B hereto that are Eligible Foreign Custodians
(hereinafter defined), with which you have entered into subcustodian agreements
or with your own branches. You may act under this Rider through the Compulsory
Depositories listed in Schedule C hereto. At our request, you may, but need not,
add to Schedule B an Eligible Foreign Custodian (hereinafter defined) that is
either a bank or a securities depository that is not a Compulsory Depository (as
defined herein) where you have not acted as Foreign Custody Manager (hereinafter
defined) with respect to the selection thereof. You shall notify us in writing
in the event that you agree to add any such entity. We authorize you to hold
Assets recorded to the Custody Account in accounts that you have established
with one or more of your branches or Subcustodians. You and the Subcustodians
are authorized to hold any of the Financial Assets in your accounts with any
securities depository in which you or they participate, subject in the case of a
Compulsory Depository to the provisions set forth in section 9(e) hereof.
You may add new, replace or remove Subcustodians. We shall be given
reasonable notice by you of any amendment to Schedules A or B. Subcustodians
also may be added to Schedule A or B by all written instructions of the Trust
that are accepted in writing by you in your sole and absolute discretion as
amendments to Schedule A or B. Upon our request, you shall identify the name,
address and principal place of business of any Subcustodian of our Assets and
the name and address of the governmental agency or other regulatory authority
that supervises or regulates such Subcustodian.
To be a Subcustodian of Assets maintained outside the United States, the
Subcustodian chosen must be either a branch of a U.S. Bank or an Eligible
Foreign custodian, which are further defined as follows:
"U.S. Bank" shall mean a qualified U.S. bank, as defined in Rule
17f-5(a)(7) under the 1940 Act;
"Eligible Foreign Custodian" shall have the meaning set forth in
Rule 17f-5(a)(1).
Use of Subcustodian.
You shall identify the Assets on your books as belonging to us.
A Subcustodian shall hold our Assets together with assets belonging to
other of your customers in accounts identified on such Subcustodian's books as
for the exclusive benefit of your customers.
2
<PAGE>
Any Assets in the accounts held by a Subcustodian shall be subject only
to the instruction of you or your agent. Any Financial Assets held with a
securities depository for the account of a Subcustodian shall be subject only to
the directions of such Subcustodian.
Any agreement you enter into with a Subcustodian for holding your
customers' assets shall provide: (i) for indemnification or insurance
arrangements (or any combination of the foregoing) such that the Trust and its
Portfolios will be adequately protected against the risk of loss of the Assets
held in accordance with such agreement; (ii) that the Assets shall not be
subject to any right, charge, security interest, lien or claim of any kind in
favor of such Subcustodian or its creditors, except a claim of payment for their
safe custody or administration or, in the case of cash deposits, liens or rights
in favor of creditors of the Subcustodian arising under bankruptcy, insolvency
or similar laws; (iii) that beneficial ownership of the Assets shall be freely
transferable without the payment of money or value other than for safe custody
or administration; (iv) that adequate records will be maintained identifying the
Assets as belonging to the Trust, on behalf of its Portfolios, or as being held
by a third party for the benefit of the Trust, on behalf of its Portfolios; (v)
that the Trust's independent public accountants will be given access to those
records or confirmation of the contents of those records, and (vi) that the
Trust will receive periodic reports with respect to the safekeeping of the
Assets, including, but not limited to, notification of any transfer of the
Assets to or from the account of a Portfolio or a third party account containing
the Assets held for the benefit of the Portfolio. In lieu of any or all of the
provisions set forth in (i) though (vi) above, such agreement may contain such
other provisions that Chase, as the Foreign Custody Manager, determines will
provide, in their entirety, the same or greater level of care and protection for
the Assets as the provisions set forth in (i) through (vi) above in their
entirety. Where financial Assets are deposited by a Subcustodian with a
securities depository, you shall cause the Subcustodian to identify on its books
as belonging to you, as agent, the Financial Assets shown on the Subcustodian's
account on the books of such securities depository. The foregoing shall not
apply to the extent of any special agreement or arrangement made by us with any
particular Subcustodian.
Global Securities Account Transactions.
Financial Assets shall be transferred, exchanged or delivered by you or
the Subcustodian upon receipt by you of instructions that include all
information required by you. Settlement and payment for Financial Assets
received for, and delivery of Financial Assets out of, the Custody Account may
be made in accordance with the customary or established securities trading or
securities processing practices and procedures in the jurisdiction or market in
which the transaction occurs, including, without limitation, delivery of
Financial Assets to a purchaser, dealer or their agents against a receipt with
the expectation of receiving later payment and free delivery. Delivery of
Financial Assets out of the Custody Account may be made in any manner
specifically required by our instructions acceptable to you.
All collections of funds or other property paid or distributed in
respect of Financial Assets in the Custody Account shall be made at our risk.
You shall have no liability for any loss occasioned by delay in the actual
receipt of notice by you or by Subcustodians of any payment, redemption or other
transaction regarding Financial Assets in the Custody Account in respect of
which you have agreed to take any action under the Agreement.
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Corporate Actions; Proxies; Tax Reclaims.
Corporate Actions
Whenever you receive information concerning the Financial Assets,
which requires discretionary action by the beneficial owner of the
Financial Assets (other than a proxy), such as subscription rights,
bonus issues, stock repurchase plans and rights offerings, or legal
notices or other material intended to be transmitted to Financial Assets
holders ("Corporate Actions"), you shall give us notice of such
Corporate Actions to the extent that your central corporate actions
department has actual knowledge of a Corporate Action in time to notify
your customers.
When a rights entitlement or a fractional interest resulting from
a rights issue, stock dividend, stock split or similar Corporate Action
is received that bears an expiration date, you shall endeavor to obtain
instructions from us or an Authorized Officer, but if instructions are
not received in time for you to take timely action, or actual notice of
such Corporate Action was received too late to seek instructions, you
are authorized to sell such rights entitlement or fractional interest
and to credit the Cash Account with the proceeds or take any other
action you deem, in good faith, to be reasonable and appropriate, in
which case you shall be held harmless for any such action.
Proxy Voting. You shall provide proxy voting services, if selected by
us, in accordance with the terms of the Proxy Voting Services Rider hereto.
Proxy voting services may be provided by you or, in whole or in part, by one or
more third parties appointed by you (which may be your Affiliates); provided
that you shall be liable for the performance of any such third party to the same
extent as you would have been if you performed such services yourself.
Tax Reclaims.
Subject to the provisions hereof, you shall apply for a reduction
of withholding tax and any refund of any tax paid or tax credits which
apply in each applicable market in respect of income payments on
Financial Assets for our benefit which you believe may be available to
us.
The provision of tax reclaim services by you is conditional upon
your receiving from us or to the extent beneficially owned by others,
the beneficial owners, of Financial Assets (A) a declaration of its
identify and place of residence and (B) certain other documentation (pro
forma copies of which are available from you). We acknowledge that, if
you do not receive such declarations, documentation and information,
additional United Kingdom taxation shall be deducted from all income
received in respect of Financial Assets issued outside the United
kingdom and that U.S. non-resident alien tax or U.S. backup withholding
tax shall be deducted from U.S. source income. We shall provide to you
such documentation and information as you may require in connection with
taxation, and warrant that, when given, this information shall be true
and correct in every respect, not misleading in any way, and contain all
material information. We
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undertake to notify you immediately if any such information requires
updating or amendment.
You shall not be liable to us or any third party for any taxes,
fines or penalties payable by you or us, and shall be indemnified
accordingly, whether these result from the inaccurate completion of
documents by us or any third party, or as a result of the provision to
you or any third party of inaccurate or misleading information or the
withholding of material information by us or any other third party, or
as a result of any delay of any revenue authority or any other matter
beyond your control.
We confirm that you are authorized to deduct from any cash
received or credited to the Cash Account any taxes or levies required by
any revenue or governmental authority for whatever reason in respect of
the Custody Account.
You shall perform tax reclaim services only with respect to
taxation levied by the revenue authorities of the countries notified to
us from time to time and you may, by notification in writing, at your
absolute discretion, supplement or amend the markets in which the tax
reclaim services are offered. Other than as expressly provided in this
sub-clause, you shall have no responsibility with regard to our tax
position or status in any jurisdiction.
Confirm that you are authorized to disclose any information
requested by any revenue authority or any governmental body in relation
to us or the Financial Assets and/or cash held for us.
Tax reclaim services may be provided by you or, in whole or in
part, by one or more third parties appointed by you (which may be your
Affiliates); provided that you shall be liable for the performance of
any such third party to the same extent as you would have been if you
performed such services yourself.
Nominees.
Financial Assets which are ordinarily held in registered form may be
registered in a nominee name of yours, a Subcustodian, or a securities
depository, as the case may be. You may without notice to us cause any such
Financial Assets to cease to be registered in the name of any such nominee and
to be registered in our name. We agree to hold you, the Subcustodians listed on
Schedule A and B, Compulsory Depositories, and your and their respective
nominees harmless from any liability arising directly or indirectly from your or
their status as a mere record holder of Financial Assets in the Custody Account.
Standard of Care.
With respect to Section 7 of the Domestic Custody Agreement, delete the
second paragraph under "Custodian Responsibility" and insert, in lieu thereof,
the following:
You shall use reasonable care with respect to your obligations and the
safekeeping of our Assets hereunder. You shall be liable to us for any loss
which shall occur as the result of the
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failure of a Subcustodian listed in Schedules A and B (except that you shall
have no liability for the performance of a Compulsory Depository as defined in
Section 9(e) hereof and listed in Schedule C) to exercise reasonable care with
respect to the safekeeping of Assets where such loss results directly from the
failure of a Subcustodian to use reasonable care in the provision of custodial
services by it in accordance with the standards in its local market or from the
willful default of such Subcustodian in the provision of custodial services by
it. In the event of any loss to us by reason of the failure of you or a
Subcustodian listed in Schedules A and B to utilize reasonable care you shall be
liable to us only to the extent of our direct damages, to be determined based on
the market value of the Assets which are the subject of the loss at the date of
discovery of such loss and without reference to any special conditions or
circumstances. You shall have no liability whatsoever for any special, indirect
or consequential damages of any kind whatsoever (including, but not limited to,
lost profits) suffered by us in connection with the transactions contemplated
hereby and the relationship established hereby even if you have been advised as
to the possibility of the same and regardless of the form of the action through
which any such claim for damages may be made. As long as you shall have been in
compliance with your obligations under Rule 17f-5 to determine that each
Subcustodian listed on Schedule A and B has the requisite financial strength to
provide reasonable care for the Trust's Assets, you shall not be responsible for
the insolvency of any Subcustodian which is not a branch or your Affiliate.
With respect to Section 7 of the Domestic Custody Agreement, add the
following at the end of the "Custodian Responsibility" section:
You shall be entitled to rely, and may act, upon the advice of counsel
(who may be counsel for us) on all matters and shall be without liability for
any action reasonably taken or omitted pursuant to such advice.
Without limiting anything else contained in this section, you shall not
be liable for any loss which results from: 1) the general risk of investing, or
2) investing or holding Assets in a particular country including, but not
limited to, nationalization, expropriation or other governmental actions;
regulation of the banking or securities industry; currency restrictions,
devaluations or fluctuations; and market conditions which prevent the orderly
execution of securities transactions or affect the value of Assets.
You hereby warrant to us that in your opinion, after due inquiry, the
established procedures to be followed by each of your branches and each branch
of a qualified U.S. Bank holding our Assets pursuant hereto afford protection
for such Assets at least equal to that afforded by your established procedures
with respect to similar securities held by you and your securities depositories
in New York.
You hereby warrant to us that in your opinion, after due inquiry, the
established procedures to be followed by each Subcustodian or each
non-Compulsory Depository (as listed in Schedule A and B) holding our Assets
pursuant hereto shall be subject to reasonable care, based on the standards
applicable to custodians in the relevant market, after having considered all
factors relevant to the safekeeping of such Assets, including without limitation
those factors set forth in Rule 17f-5 under the 1940 Act.
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At our election we will be entitled to be subrogated to your rights with respect
to any claims you may have against a Subcustodian or Compulsory Depository as a
consequence of any loss, damage, cost, expenses, liabilities or claim incurred
by us if and to the extent that we have not been made whole by you for any such
loss, damage, expense, liability or claim; it being understood that the
foregoing does not constitute a representation by you that subrogation will be
permitted by applicable law.
Fees and Expenses.
We agree to pay you for Global Custody Services hereunder the fees set
forth in Schedule E hereto or such other amounts as may be agreed upon in
writing, together with your reasonable out-of-pocket or incidental expenses,
including, but not limited to, legal fees.
Miscellaneous.
Foreign Exchange Transactions. To facilitate the administration of our
trading and investment activity, you are authorized to enter into spot or
forward foreign exchange contracts with us or an Authorized Officer for us and
may also provide foreign exchange through your Affiliates or Subcustodians.
Instructions including standing instructions, may be issued with respect to such
contracts but you may establish rules or limitations concerning any foreign
exchange facility made available. In all cases where you and your Affiliates or
Subcustodians enter into a foreign exchange contract related to the Custody
Account, the terms and conditions of the then current foreign exchange contract
used by you or your Affiliate or Subcustodian and, to the extent not
inconsistent, the Agreement shall apply to such transaction.
Certification of Residency, etc. We certify that we are a resident of
the United States and agree to notify you of any changes in residency. You may
rely upon this certification or the certification of such other facts as may be
required to administer your obligations under this Rider and the Agreement. We
shall indemnify you against all losses, liability, damages, claims or demands
arising directly or indirectly from any such certifications.
Access to Records. You shall allow our independent public accountant
reasonable access to records relating to the Custody Account as is required in
connection with their examination of books and records pertaining to our
affairs. Subject to restrictions under applicable law, you shall also obtain an
undertaking to permit our independent public accountants reasonable access to
the records of any Subcustodian which has physical possession of any Financial
Assets as may be required in connection with the examination of our books and
records. Upon our reasonable request, you shall furnish such reports (or
portions thereof) of your system of internal accounting controls applicable to
your duties hereunder. You shall endeavor to obtain and furnish us with such
similar reports as it may reasonably request with respect to each Subcustodian
holding Assets.
Our Representation. We represent that the Financial Assets being placed
in your custody are subject to the 1940 Act, as the same may be amended from
time to time.
Compliance with SEC Rule 17f-5.
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Our Board hereby delegates to you, and you hereby accept the
delegation to you, of the obligation to perform as our "Foreign Custody
Manager" (as that term is defined in SEC Rule 17f-5(a)(2)), both for the
purpose of selecting Eligible Foreign Custodians (as that term is
defined in SEC Rule 17f-5(a)(1)), and as the same may be amended from
time to time, or that have otherwise been made exempt pursuant to an SEC
exemptive order) to hold Assets and of evaluating the contractual
arrangements with such eligible Foreign Custodians (as set forth in SEC
Rule 17f-5(c)(2)); provided that, the term Eligible Foreign Custodian
shall not include any "Compulsory Depository". A Compulsory Depository
shall mean a foreign securities depository or clearing agency the use of
which is compulsory because; (i) its use is required by law or
regulation, (ii) securities cannot be withdrawn from the depository, or
(iii) maintaining securities outside the depository is not consistent
with prevailing custodial practices in the country which the depository
serves. Compulsory Depositories used by you as of the date hereof are
set forth in Schedule C hereto, and as the same may be amended on notice
to us from time to time.
In connection with the foregoing, you shall:
provide written reports notifying our Board of the placement of Assets with
particular Eligible Foreign Custodians (including the Subcustodians listed in
Schedules A and B) and of any material change in the arrangements with such
Eligible Foreign Custodians, with such reports to be provided to our Board at
such times as the Board deems reasonable and appropriate based on the
circumstances of our foreign custody arrangements (and until further notice from
us such reports shall be provided no less frequently than quarterly with respect
to the placement of Assets with particular Eligible Foreign Custodians and
promptly upon the occurrence of any material change in the arrangements with
such Eligible Foreign Custodians);
exercise such reasonable care, prudence and diligence in performing as our
Foreign Custody Manager as a person having responsibility for the safekeeping of
Assets would exercise;
in selecting an Eligible Foreign Custodian, first have determined that Assets
placed and maintained in the safekeeping of such Eligible Foreign Custodian
shall be subject to reasonable care, based on the standards applicable to
custodians in the relevant market, after having considered all factors relevant
to the safekeeping of such Assets, including, without limitation, those factors
set forth in Rule 17f-5(c)(1)(i)-(iv) under the 1940 Act;
determine that the written agreement with the Eligible Foreign Custodian (or, in
the case of an Eligible Foreign Custodian that is a foreign non-Compulsory
Depository or clearing agency, such written agreement, the rules or established
practices or procedures of the foreign non-Compulsory Depository or clearing
agency, or any combination of the foregoing) requires that each Eligible Foreign
Custodian will provide reasonable care for Assets held by that Eligible Foreign
Custodian based on the standards applicable to custodians in the relevant
market; and
have established a system to monitor the continued appropriateness of
maintaining Assets with particular Eligible Foreign Custodians and of the
governing contractual arrangements; it being understood, however, that in the
event that you shall have determined that the existing Eligible Foreign
Custodian in a given country would no longer afford Assets reasonable care and
that no
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other Eligible Foreign Custodian in that country would afford reasonable
care, you shall promptly so advise us and shall then act in accordance with our
instructions with respect to the disposition of the affected Assets. You shall
also monitor Compulsory Depositories and shall advise the Trust of any material
negative change in the performance of, or arrangements with, any Compulsory
Depository as the same would adversely affect the custody of Assets.
Subject to paragraphs (e)(2)(i)-(v) above, you are hereby authorized to
place and maintain Assets on our behalf with Eligible Foreign Custodians
pursuant to a written contract deemed appropriate by you.
Except as expressly provided herein, we shall be solely
responsible to assure that the maintenance of Assets hereunder complies
with the rules, regulations, interpretations and exemptive orders
promulgated by or under the authority of the SEC.
You represent to us that you are a U.S. Bank as defined in Rule
17f-5(a)(7). We represent to you that: (i) the Assets being placed and
maintained in your custody are subject to the 1940 Act, as the same may
be amended from time to time; (ii) our Board has determined that it is
reasonable to rely on you to perform as our Foreign Custody Manager; and
(iii) the Board of the Trust or the investment adviser for each
Portfolio shall have determined that we may maintain Assets in each
country in which our Assets shall be held hereunder and determined to
accept the risks arising therefrom (including, but not limited to, a
country's financial infrastructure (and including any Compulsory
Depository operating in such country), prevailing custody and settlement
practices, laws applicable to the safekeeping and recovery of Assets
held in custody, and the likelihood of nationalization, currency
controls and the like (collectively ("Country Risk")).
You shall provide to us such information relating to Country Risk
as is specified in Schedule D hereto. We hereby acknowledge that: (i)
such information is solely designed to inform us of market conditions
and procedures, but is not intended as a recommendation to invest or not
invest in particular markets; and (ii) you have gathered the information
from sources you consider reliable, but that you shall have no
responsibility for inaccuracies or incomplete information.
The provisions of this Rider applicable to the parties based on
compliance with Rule 17f-5 shall be in force to the extent Rule 17f-5 or
portions or Rule 17f-5 are in effect. To the extent any portion of the
Rule is suspended or revoked, the parties shall not be responsible for
compliance with such portion of the Rule: (a) for the period of time
during which the suspension or revocation is applicable; (b) to the
extent compliance with the applicable portion of the Rule would be
unfeasible; (c) to the extent the parties agree that noncompliance with
any such provision will not harm or impose an undue burden on the Trust
or its shareholders; and (d) to the extent the parties agree in writing
to any change in procedures as a result of the suspension or revocation.
If any portion of Rule 17f-5 is suspended or revoked, those provisions
of the prior Global Custody Rider that were applicable to any duties and
responsibilities of the parties with respect to such provisions of the
Rule will continue in effect, as appropriate, until such provisions are
no longer suspended or revoked or unless otherwise agreed to in writing
by the parties.
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THE CHASE MANHATTAN BANK
By:
----------------------------------
Name: John K. Breitweg
Title: Vice President
Date:
--------------------------------
EQ ADVISORS TRUST
By:
----------------------------------
Name : Peter D. Noris
Title: President and Trustee
Date:
--------------------------------
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AMENDED AND RESTATED EXPENSE LIMITATION AGREEMENT
AMENDED AND RESTATED EXPENSE LIMITATION AGREEMENT, effective as of
December 31, 1998 by and between EQ Financial Consultants, Inc. (the "Manager")
and EQ Advisors Trust (the "Trust"), on behalf of each series of the Trust set
forth in Schedule A attached hereto (each a "Portfolio," and collectively, the
"Portfolios").
WHEREAS, the Trust is a Delaware business trust organized under the
Amended and Restated Agreement and Declaration of Trust ("Declaration of
Trust"), and is registered under the Investment Company Act of 1940, as amended
(the "1940 Act"), as an open-end management company of the series type, and each
Portfolio is a series of the Trust; and
WHEREAS, the Trust and the Manager have entered into an Investment
Management Agreement dated April 14, 1997, as amended ("Management Agreement"),
pursuant to which the Manager provides investment management services to each
Portfolio for compensation based on the value of the average daily net assets of
each such Portfolio; and
WHEREAS, the Trust and the Manager have determined that it is
appropriate and in the best interests of each Portfolio and its shareholders to
maintain the expenses of each Portfolio at a level below the level to which each
such Portfolio would normally be subject during its start-up period and,
therefore, initially entered into an Expense Limitation Agreement, dated as of
April 14, 1997, as amended,("Expense Limitation Agreement") in order to maintain
each Portfolio's expense ratios at the levels specified therein; and
WHEREAS, three new Portfolios, MFS Growth with Income Portfolio,
EQ/Evergreen Foundation Portfolio and EQ/Evergreen Portfolio (collectively, the
"New Portfolios"), are being added to the Trust;
WHEREAS, the Trust and the Manager desire to maintain the expenses of
each New Portfolio at a level below the level to which each such Portfolio would
normally be subject during its start-up period; and
WHEREAS, the Trust and the Manager desire to modify the Expense
Limitation Agreement to document the agreement of the Manager to be liable for
the excess expenses of each New Portfolio;
NOW THEREFORE, the parties hereto agree that the Expense Limitation
Agreement is hereby modified, amended and restated in its entirety as of the
date hereof as follows:
Expense Limitation.
Applicable Expense Limit. To the extent that the aggregate expenses of
every character incurred by a Portfolio in any fiscal year, including but not
limited to investment management fees of the Manager (but excluding interest,
taxes, brokerage commissions, other expenditures which are capitalized in
accordance with generally accepted accounting principles, other extraordinary
expenses not incurred in the ordinary course of such Portfolio's business and
amounts payable pursuant to a plan adopted in accordance with Rule 12b-1 under
the 1940 Act) ("Portfolio Operating Expenses"), exceed the Operating Expense
Limit, as defined in Section 1.2 below, such excess amount (the "Excess Amount")
shall be the liability of the Manager.
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Operating Expense Limit. The maximum Operating Expense Limit in any year
with respect to each Portfolio shall be the amount specified in Schedule A based
on a percentage of the average daily net assets of each Portfolio.
Method of Computation. To determine the Manager's liability with respect
to the Excess Amount, each month the Portfolio Operating Expenses for each
Portfolio shall be annualized as of the last day of the month. If the annualized
Portfolio Operating Expenses for any month of a Portfolio exceed the Operating
Expense Limit of such Portfolio, the Manager shall first waive or reduce its
investment management fee for such month by an amount sufficient to reduce the
annualized Portfolio Operating Expenses to an amount no higher than the
Operating Expense Limit. If the amount of the waived or reduced investment
management fee for any such month is insufficient to pay the Excess Amount, the
Manager may also remit to the appropriate Portfolio or Portfolios an amount
that, together with the waived or reduced investment management fee, is
sufficient to pay such Excess Amount.
Year-End Adjustment. If necessary, on or before the last day of the
first month of each fiscal year, an adjustment payment shall be made by the
appropriate party in order that the amount of the investment management fees
waived or reduced and other payments remitted by the Manager to the Portfolio or
Portfolios with respect to the previous fiscal year shall equal the Excess
Amount.
Reimbursement of Fee Waivers and Expense Reimbursements.
Reimbursement. If in any year during which the total assets of a
Portfolio are greater than $100 million and in which the Management Agreement is
still in effect, the estimated aggregate Portfolio Operating Expenses of such
Portfolio for the fiscal year are less than the Operating Expense Limit for that
year, subject to quarterly approval by the Trust's Board of Trustees as provided
in Section 2.2 below, the Manager shall be entitled to reimbursement by such
Portfolio, in whole or in part as provided below, of the investment management
fees waived or reduced and other payments remitted by the Manager to such
Portfolio pursuant to Section 1 hereof. The total amount of reimbursement to
which the Manager may be entitled (the "Reimbursement Amount") shall equal, at
any time, the sum of all investment management fees previously waived or reduced
by the Manager and all other payments remitted by the Manager to the Portfolio,
pursuant to Section 1 hereof, during any of the previous five (5) fiscal years,
less any reimbursement previously paid by such Portfolio to the Manager,
pursuant to Sections 2.2 or 2.3 hereof, with respect to such waivers,
reductions, and payments. The Reimbursement Amount shall not include any
additional charges or fees whatsoever, including, e.g., interest accruable on
the Reimbursement Amount.
Board Approval. No reimbursement shall be paid to the Manager with
respect to any Portfolio pursuant to this provision in any fiscal quarter,
unless the Trust's Board of Trustees has determined that the payment of such
reimbursement is in the best interests of such Portfolio and its shareholders.
The Trust's Board of Trustees shall determine quarterly in advance whether any
reimbursement may be paid to the Manager with respect to any Portfolio in such
quarter.
Method of Computation. To determine each Portfolio's payments, if any,
to reimburse the Manager for the Reimbursement Amount, each month the Portfolio
Operating Expenses of each Portfolio shall be annualized as of the last day of
the month. If the annualized Portfolio Operating Expenses of a Portfolio for any
month are less than the Operating Expense Limit of such Portfolio, such
Portfolio, only with the prior approval of the Trust's Board of Trustees, shall
pay to the Manager an amount sufficient to increase the annualized Portfolio
Operating Expenses of that Portfolio to an amount no greater than the Operating
Expense Limit of that Portfolio, provided that such amount paid to the Manager
will in no event exceed the total Reimbursement Amount.
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Year-End Adjustment. If necessary, on or before the last day of the
first month of each fiscal year, an adjustment payment shall be made by the
appropriate party in order that the actual Portfolio Operating Expenses of a
Portfolio for the prior fiscal year (including any reimbursement payments
hereunder with respect to such fiscal year) do not exceed the Operating Expense
Limit.
Term and Termination of Agreement.
This Agreement shall continue in effect with respect to all Portfolios
other than the New Portfolios until April 14, 1999 and with respect to the New
Portfolios until December 31, 1999. This Agreement shall thereafter continue in
effect with respect to each Portfolio (including the New Portfolios) from year
to year provided such continuance is specifically approved by a majority of the
Trustees of the Trust who (i) are not "interested persons" of the Trust or any
other party to this Agreement, as defined in the 1940 Act, and (ii) have no
direct or indirect financial interest in the operation of this Agreement
("Non-Interested Trustees"). Nevertheless, this Agreement may be terminated by
either party hereto, without payment of any penalty, upon ninety (90) days'
prior written notice to the other party at its principal place of business;
provided that, in the case of termination by the Trust, such action shall be
authorized by resolution of a majority of the Non-Interested Trustees of the
Trust or by a vote of a majority of the outstanding voting securities of the
Trust.
Miscellaneous.
Captions. The captions in this Agreement are included for convenience of
reference only and in no other way define or delineate any of the provisions
hereof or otherwise affect their construction or effect.
Interpretation. Nothing herein contained shall be deemed to require the
Trust or the Portfolios to take any action contrary to the Trust's Declaration
of Trust or By-Laws, or any applicable statutory or regulatory requirement to
which it is subject or by which it is bound, or to relieve or deprive the
Trust's Board of Trustees of its responsibility for and control of the conduct
of the affairs of the Trust or the Portfolios.
Definitions. Any question of interpretation of any term or provision of
this Agreement, including but not limited to the investment management fee, the
computations of net asset values, and the allocation of expenses, having a
counterpart in or otherwise derived from the terms and provisions of the
Management Agreement or the 1940 Act, shall have the same meaning as and be
resolved by reference to such Management Agreement or the 1940 Act.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be signed
by their respective officers thereunto duly authorized and their respective
corporate seals to be hereunto affixed, as of the day and year first above
written.
EQ ADVISORS TRUST
ON BEHALF OF
EACH OF ITS SERIES
By:
---------------------------------
Peter D. Noris
President and Trustee
EQ FINANCIAL CONSULTANTS, INC.
By:
---------------------------------
Peter D. Noris
Executive Vice President
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SCHEDULE A
OPERATING EXPENSE LIMITS
This Agreement relates to the following Portfolios of the Trust:
Maximum Operating
Name of Portfolio Expense Limit
BT Equity 500 Index Portfolio .30%
BT International Equity Index Portfolio .55%
BT Small Company Index Portfolio .35%
EQ/Putnam Balanced Portfolio .65%
EQ/Putnam Growth & Income Value Portfolio .60%
EQ/Putnam International Equity Portfolio .95%
EQ/Putnam Investors Growth Portfolio .60%
EQ/Evergreen Foundation Portfolio .70%
EQ/Evergreen Portfolio .80%
JPM Core Bond Portfolio .55%
Lazard Large Cap Value Portfolio .65%
Lazard Small Cap Value Portfolio .95%
Merrill Lynch Basic Value Equity Portfolio .60%
Merrill Lynch World Strategy Portfolio .95%
MFS Emerging Growth Companies Portfolio .60%
MFS Growth with Income Portfolio .60%
MFS Research Portfolio .60%
Morgan Stanley Emerging Markets Equity Portfolio 1.50%
T. Rowe Price Equity Income Portfolio .60%
T. Rowe Price International Stock Portfolio .95%
Warburg Pincus Small Company Value Portfolio .75%
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FORM OF
AMENDED AND RESTATED EXPENSE LIMITATION AGREEMENT
AMENDED AND RESTATED EXPENSE LIMITATION AGREEMENT, effective as of May
1, 1999 by and between EQ Financial Consultants, Inc. (the "Manager") and EQ
Advisors Trust (the "Trust"), on behalf of each series of the Trust set forth in
Schedule A attached hereto (each a "Portfolio," and collectively, the
"Portfolios").
WHEREAS, the Trust is a Delaware business trust organized under the
Amended and Restated Agreement and Declaration of Trust ("Declaration of
Trust"), and is registered under the Investment Company Act of 1940, as amended
(the "1940 Act"), as an open-end management company of the series type, and each
Portfolio is a series of the Trust;
WHEREAS, the Trust and the Manager have entered into an Investment
Management Agreement dated April 14, 1997, as amended ("Management Agreement"),
pursuant to which the Manager provides investment management services to each
Portfolio for compensation based on the value of the average daily net assets of
each such Portfolio;
WHEREAS, the Trust and the Manager have determined that it is
appropriate and in the best interests of each Portfolio and its shareholders to
maintain the expenses of each Portfolio at a level below the level to which each
such Portfolio would normally be subject during its start-up period and,
therefore, initially entered into an Expense Limitation Agreement, dated as of
April 14, 1997, as amended ("Expense Limitation Agreement"), in order to
maintain each Portfolio's expense ratios at the Maximum Annual Operating Expense
Limit (as hereinafter defined) specified for such Portfolio in Schedule A
hereto;
WHEREAS, the Trust and the Manager desire to extend the term of the
Expense Limitation Agreement, as so amended for an additional year, with respect
to all Portfolios, regardless of the present expiration date of the Expense
Limitation Agreement as to such Portfolios;
WHEREAS, the Trust and the Manager desire to increase the Maximum Annual
Operating Expense Limits for certain Portfolios to reflect changes in the Trust
and the growth of those Portfolios since their inception as well as the original
intent of the parties that the Maximum Annual Operating Expense Limits be
continued only so long as necessary to support Portfolios during their start-up
period;
WHEREAS, four new Portfolios, EQ/Alliance Premier Growth Portfolio,
Capital Guardian U.S. Equity Portfolio, Capital Guardian Research Portfolio and
Capital Guardian International Portfolio (collectively, the "New Portfolios"),
are being added to the Trust;
WHEREAS, the Trust and the Manager desire to maintain the expenses of
each New Portfolio at the Maximum Annual Operating Expense Limit specified for
such Portfolio in Schedule A during its start-up period; and
WHEREAS, the Trust and the Manager desire to modify the Expense
Limitation Agreement to document the agreement of the Manager to be liable for
the excess expenses of each New Portfolio;
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NOW THEREFORE, the parties hereto agree that the Expense Limitation
Agreement is hereby modified, amended and restated in its entirety as of the
date hereof as follows:
Expense Limitation.
Applicable Expense Limit. To the extent that the aggregate expenses of
every character incurred by a Portfolio in any fiscal year, including but not
limited to investment management fees of the Manager (but excluding interest,
taxes, brokerage commissions, other expenditures which are capitalized in
accordance with generally accepted accounting principles, other extraordinary
expenses not incurred in the ordinary course of such Portfolio's business and
amounts payable pursuant to a plan adopted in accordance with Rule 12b-1 under
the 1940 Act) ("Portfolio Operating Expenses"), exceed the Maximum Annual
Operating Expense Limit, as defined in Section 1.2 below, such excess amount
(the "Excess Amount") shall be the liability of the Manager.
Maximum Annual Operating Expense Limit. The Maximum Annual Operating
Expense Limit with respect to each Portfolio shall be the amount specified in
Schedule A based on a percentage of the average daily net assets of each
Portfolio.
Method of Computation. To determine the Manager's liability with respect
to the Excess Amount, each month the Portfolio Operating Expenses for each
Portfolio shall be annualized as of the last day of the month. If the annualized
Portfolio Operating Expenses for any month of a Portfolio exceed the Maximum
Annual Operating Expense Limit of such Portfolio, the Manager shall first waive
or reduce its investment management fee for such month by an amount sufficient
to reduce the annualized Portfolio Operating Expenses to an amount no higher
than the Maximum Annual Operating Expense Limit. If the amount of the waived or
reduced investment management fee for any such month is insufficient to pay the
Excess Amount, the Manager may also remit to the appropriate Portfolio or
Portfolios an amount that, together with the waived or reduced investment
management fee, is sufficient to pay such Excess Amount.
Year-End Adjustment. If necessary, on or before the last day of the
first month of each fiscal year, an adjustment payment shall be made by the
appropriate party in order that the amount of the investment management fees
waived or reduced and other payments remitted by the Manager to the Portfolio or
Portfolios with respect to the previous fiscal year shall equal the Excess
Amount.
Reimbursement of Fee Waivers and Expense Reimbursements.
Reimbursement. If in any year during which the total assets of a
Portfolio are greater than $100 million and in which the Management Agreement is
still in effect, the estimated aggregate Portfolio Operating Expenses of such
Portfolio for the fiscal year are less than the Maximum Annual. Operating
Expense Limit for that year, subject to quarterly approval by the Trust's Board
of Trustees as provided in Section 2.2 below, the Manager shall be entitled to
reimbursement by such Portfolio, in whole or in part as provided below, of the
investment management fees waived or reduced and other payments remitted by the
Manager to such Portfolio pursuant to Section 1 hereof. The total amount of
reimbursement to which the Manager may be entitled (the "Reimbursement Amount")
shall equal, at any time, the sum of all investment management fees previously
waived or reduced by the Manager and all other payments remitted by the Manager
to the Portfolio, pursuant to Section 1 hereof, during any of the previous five
(5) fiscal years, less any reimbursement previously paid by such Portfolio to
the Manager, pursuant to Sections 2.2 or 2.3 hereof, with respect to such
waivers, reductions, and payments. The Reimbursement Amount shall not include
any additional charges or fees whatsoever, including, e.g., interest accruable
on the Reimbursement Amount.
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Board Approval. No reimbursement shall be paid to the Manager with
respect to any Portfolio pursuant to this provision in any fiscal quarter,
unless the Trust's Board of Trustees has determined that the payment of such
reimbursement is in the best interests of such Portfolio and its shareholders.
The Trust's Board of Trustees shall determine quarterly in advance whether any
reimbursement may be paid to the Manager with respect to any Portfolio in such
quarter.
Method of Computation. To determine each Portfolio's payments, if any,
to reimburse the Manager for the Reimbursement Amount, each month the Portfolio
Operating Expenses of each Portfolio shall be annualized as of the last day of
the month. If the annualized Portfolio Operating Expenses of a Portfolio for any
month are less than the Maximum Annual Operating Expense Limit of such
Portfolio, such Portfolio, only with the prior approval of the Trust's Board of
Trustees, shall pay to the Manager an amount sufficient to increase the
annualized Portfolio Operating Expenses of that Portfolio to an amount no
greater than the Maximum Annual Operating Expense Limit of that Portfolio,
provided that such amount paid to the Manager will in no event exceed the total
Reimbursement Amount.
Year-End Adjustment. If necessary, on or before the last day of the
first month of each fiscal year, an adjustment payment shall be made by the
appropriate party in order that the actual Portfolio Operating Expenses of a
Portfolio for the prior fiscal year (including any reimbursement payments
hereunder with respect to such fiscal year) do not exceed the Maximum Annual
Operating Expense Limit.
Term and Termination of Agreement.
This Agreement shall continue in effect with respect to all Portfolios
(including the New Portfolios) until May 1, 2000 and shall thereafter continue
in effect with respect to each Portfolio (including the New Portfolios) from
year to year provided such continuance is specifically approved by a majority of
the Trustees of the Trust who (i) are not "interested persons" of the Trust or
any other party to this Agreement, as defined in the 1940 Act, and (ii) have no
direct or indirect financial interest in the operation of this Agreement
("Non-Interested Trustees"). Nevertheless, this Agreement may be terminated by
either party hereto, without payment of any penalty, upon ninety (90) days'
prior written notice to the other party at its principal place of business;
provided that, in the case of termination by the Trust, such action shall be
authorized by resolution of a majority of the Non-Interested Trustees of the
Trust or by a vote of a majority of the outstanding voting securities of the
Trust.
Miscellaneous.
Captions. The captions in this Agreement are included for convenience of
reference only and in no other way define or delineate any of the provisions
hereof or otherwise affect their construction or effect.
Interpretation. Nothing herein contained shall be deemed to require the
Trust or the Portfolios to take any action contrary to the Trust's Declaration
of Trust or By-Laws, or any applicable statutory or regulatory requirement to
which it is subject or by which it is bound, or to relieve or deprive the
Trust's Board of Trustees of its responsibility for and control of the conduct
of the affairs of the Trust or the Portfolios.
Definitions. Any question of interpretation of any term or provision of
this Agreement, including but not limited to the investment management fee, the
computations of net asset values, and the allocation of expenses, having a
counterpart in or otherwise derived from the terms and provisions of the
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Management Agreement or the 1940 Act, shall have the same meaning as and be
resolved by reference to such Management Agreement or the 1940 Act.
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed
by their respective officers thereunto duly authorized and their respective
corporate seals to be hereunto affixed, as of the day and year first above
written.
EQ ADVISORS TRUST
ON BEHALF OF
EACH OF ITS SERIES
By:
-------------------------------
Peter D. Noris
President and Trustee
EQ FINANCIAL CONSULTANTS, INC.
By:
-------------------------------
Peter D. Noris
Executive Vice President
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SCHEDULE A
MAXIMUM ANNUAL OPERATING EXPENSE LIMITS
This Agreement relates to the following Portfolios of the Trust:
Name of Portfolio Maximum Annual
Operating Expense
Limit
BT Equity 500 Index Portfolio .30%
BT International Equity Index Portfolio .55%
BT Small Company Index Portfolio .35%
Capital Guardian International Portfolio .95%
Capital Guardian U.S. Equity Portfolio .70%
Capital Guardian Research Portfolio .70%
EQ/Alliance Premier Growth Portfolio .90%
EQ/Putnam Balanced Portfolio .65%
EQ/Putnam Growth & Income Value Portfolio .60%
EQ/Putnam International Equity Portfolio .95%
EQ/Putnam Investors Growth Portfolio .60%
EQ/Evergreen Foundation Portfolio .70%
EQ/Evergreen Portfolio .80%
JPM Core Bond Portfolio .55%
Lazard Large Cap Value Portfolio .65%
Lazard Small Cap Value Portfolio .95%
Merrill Lynch Basic Value Equity Portfolio .60%
Merrill Lynch World Strategy Portfolio .95%
MFS Emerging Growth Companies Portfolio .60%
MFS Growth with Income Portfolio .60%
MFS Research Portfolio .60%
Morgan Stanley Emerging Markets Equity Portfolio 1.50%
T. Rowe Price Equity Income Portfolio .60%
T. Rowe Price International Stock Portfolio .95%
Warburg Pincus Small Company Value Portfolio .75%
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EQ ADVISORS TRUST
ORGANIZATIONAL EXPENSE
REIMBURSEMENT AGREEMENT
This Agreement is made as of the 31st day of December, 1998, by and
between EQ Financial Consultants, Inc. (the "Manager") and EQ Advisors Trust
(the "Trust"), on behalf of the MFS Growth with Income Portfolio, the
EQ/Evergreen Foundation Portfolio and the EQ/Evergreen Portfolio (the "New
Portfolios), each of which is a new series of the Trust.
WHEREAS, the Trust is registered as an open-end diversified management
investment company under the Investment Company Act of 1940, as amended, and
WHEREAS, there have been certain necessary organizational expenses
incurred as a part of such process, which are proper expenses of the New
Portfolios, that have been and will in the future be paid by the Manager and
affiliated companies of the Manager, by reason of the fact that each New
Portfolio was not capitalized when such expenses were incurred (such expenses
hereinafter referred to as "Organizational Expenses");
NOW THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed as follows:
1. Effective as of the initial public offering of shares of each New
Portfolio, the Trust shall be obligated to reimburse and pay to the Manager, or
such affiliated companies of the Manager as the Manager may designate, the
amounts expended and to be expended by the Manager and its affiliates for
Organizational Expenses.
2. Such reimbursements shall be paid by the Trust promptly upon the
demand of the Manager. Upon demand for payment, the Manager shall present copies
of invoices of receipts, copies of canceled checks or other evidence of payment
of the Organizational Expenses for which it is demanding reimbursement from the
Trust.
EQ ADVISORS TRUST
ON BEHALF OF EACH OF THE NEW
PORTFOLIOS
By:
-------------------------------
Peter D. Noris
President and Trustee
EQ FINANCIAL CONSULTANTS, INC.
By:
-------------------------------
Peter D. Noris
Executive Vice President
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<PAGE>
AMENDMENT NO. 2
TO
PARTICIPATION AGREEMENT
Amendment, dated as of December 31, 1998 ("Amendment"), to Participation
Agreement dated as of April 14, 1997 ("Original Agreement") by and among EQ
Advisors Trust, The Equitable Life Assurance Society of the United States,
Equitable Distributors, Inc. and EQ Financial Consultants, Inc. (collectively,
the "Parties").
The Parties hereby agree that Schedule B to the Original Agreement is
replaced in its entirety by the schedule attached hereto entitled "Schedule B".
Except as modified and amended hereby, the Original Agreement is hereby
ratified and confirmed in full force and effect in accordance with its terms.
IN WITNESS WHEREOF, the parties have executed and delivered this
Amendment as of the date first above set forth.
EQ ADVISORS TRUST THE EQUITABLE LIFE ASSURANCE
SOCIETY OF THE UNITED STATES
By:
-----------------------------
Name: Peter D. Noris By:
Title: President and Trustee -----------------------------
Name: Peter D. Noris
Title: Executive Vice President
and Chief Investment Officer
EQUITABLE DISTRIBUTORS, INC. EQ FINANCIAL CONSULTANTS, INC.
By: By:
----------------------------- -----------------------------
Name: Jerome S. Golden Name: Michael S. Martin
Title: Chairman of the Board Title: Chairman of the Board
and Chief Executive Officer
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SCHEDULE B
TO
AMENDMENT NO. 2 TO PARTICIPATION AGREEMENT
DESIGNATED PORTFOLIOS AND CLASSES
PORTFOLIOS OF
EQ ADVISORS TRUST
Portfolios Classes
---------- -------
BT Equity 500 Index Portfolio Class IA and Class 1B
BT International Equity Index Portfolio Class IA and Class 1B
BT Small Company Index Portfolio Class IA and Class 1B
EQ/Putnam Balanced Portfolio Class IA and Class 1B
EQ/Putnam Growth & Income Value Portfolio Class IA and Class 1B
EQ/Putnam International Equity Portfolio Class IA and Class 1B
EQ/Putnam Investors Growth Portfolio Class IA and Class 1B
EQ/Evergreen Foundation Portfolio Class IA and Class 1B
EQ/Evergreen Portfolio Class IA and Class 1B
JPM Core Bond Portfolio Class IA and Class 1B
Lazard Large Cap Value Portfolio Class IA and Class 1B
Lazard Small Cap Value Portfolio Class IA and Class 1B
Merrill Lynch Basic Value Equity Portfolio Class IA and Class 1B
Merrill Lynch World Strategy Portfolio Class IA and Class 1B
MFS Emerging Growth Companies Portfolio Class IA and Class 1B
MFS Growth with Income Portfolio Class IA and Class 1B
MFS Research Portfolio Class IA and Class 1B
Morgan Stanley Emerging Markets Equity Portfolio Class IA and Class 1B
T. Rowe Price Equity Income Portfolio Class IA and Class 1B
T. Rowe Price International Stock Portfolio Class IA and Class 1B
Warburg Pincus Small Company Value Portfolio Class IA and Class 1B
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<PAGE>
FORM OF AMENDMENT NO. 3
TO
PARTICIPATION AGREEMENT
Form of Amendment No. 3, dated as of April 30, 1999 ("Amendment"), to
Participation Agreement dated as of April 14, 1997 ("Original Agreement") as
amended by Amendment No. 1, dated as of December 9, 1997, and Amendment No. 2,
dated as of December 31, 1998 (collectively the "Agreement") by and among EQ
Advisors Trust, The Equitable Life Assurance Society of the United States,
Equitable Distributors, Inc. and EQ Financial Consultants, Inc. (collectively,
the "Parties").
The Parties hereby agree that Schedule B to the Agreement is replaced in
its entirety by the schedule attached hereto entitled "Schedule B".
Except as modified and amended hereby, the Agreement is hereby ratified
and confirmed in full force and effect in accordance with its terms.
IN WITNESS WHEREOF, the parties have executed and delivered this Form of
Amendment No. 3 as of the date first above set forth.
EQ ADVISORS TRUST THE EQUITABLE LIFE ASSURANCE
SOCIETY OF THE UNITED STATES
By:
-----------------------------
Name: Peter D. Noris By:
Title: President and Trustee -----------------------------
Name: Peter D. Noris
Title: Executive Vice President
and Chief Investment Officer
EQUITABLE DISTRIBUTORS, INC. EQ FINANCIAL CONSULTANTS, INC.
By: By:
----------------------------- -----------------------------
Name: Jerome S. Golden Name: Michael S. Martin
Title: Chairman of the Board Title: Chairman of the Board
and Chief Executive Officer
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<PAGE>
SCHEDULE B
TO
FORM OF AMENDMENT NO. 3 TO PARTICIPATION AGREEMENT
DESIGNATED PORTFOLIOS AND CLASSES
PORTFOLIOS OF
EQ ADVISORS TRUST
Portfolios Classes
---------- -------
BT Equity 500 Index Portfolio Class IA and Class IB
BT International Equity Index Portfolio Class IA and Class IB
BT Small Company Index Portfolio Class IA and Class IB
EQ/Alliance Premier Growth Portfolio Class IA and Class IB
EQ/Capital Guardian International Equities Portfolio Class IA and Class IB
EQ/Capital Guardian Research Portfolio Class IA and Class IB
EQ/Capital Guardian U.S. Equities Portfolio Class IA and Class IB
EQ/Putnam Balanced Portfolio Class IA and Class IB
EQ/Putnam Growth & Income Value Portfolio Class IA and Class IB
EQ/Putnam International Equity Portfolio Class IA and Class IB
EQ/Putnam Investors Growth Portfolio Class IA and Class IB
EQ/Evergreen Foundation Portfolio Class IA and Class IB
EQ/Evergreen Portfolio Class IA and Class IB
JPM Core Bond Portfolio Class IA and Class IB
Lazard Large Cap Value Portfolio Class IA and Class IB
Lazard Small Cap Value Portfolio Class IA and Class IB
Merrill Lynch Basic Value Equity Portfolio Class IA and Class IB
Merrill Lynch World Strategy Portfolio Class IA and Class IB
MFS Emerging Growth Companies Portfolio Class IA and Class IB
MFS Growth with Income Portfolio Class IA and Class IB
MFS Research Portfolio Class IA and Class IB
Morgan Stanley Emerging Markets Equity Portfolio Class IA and Class IB
T. Rowe Price Equity Income Portfolio Class IA and Class IB
T. Rowe Price International Stock Portfolio Class IA and Class IB
Warburg Pincus Small Company Value Portfolio Class IA and Class IB
2
<PAGE>
RETIREMENT PLAN
PARTICIPATION AGREEMENT
AMONG
EQ ADVISORS TRUST,
EQ FINANCIAL CONSULTANTS, INC.,
THE EQUITABLE INVESTMENT PLAN FOR EMPLOYEES, MANAGERS AND AGENTS
AND
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
THIS AGREEMENT, made and entered into as of the 1st day of December,
1998 by and among EQ ADVISORS TRUST, a business trust organized under the laws
of the State of Delaware (the "Trust"), EQ FINANCIAL CONSULTANTS, INC., a
Delaware corporation (the "Distributor") and the Officers Committee on Benefit
Plans, as Plan Fiduciary of the EQUITABLE INVESTMENT PLAN FOR EMPLOYEES,
MANAGERS AND AGENTS, a New York trust (the "Plan") and THE EQUITABLE LIFE
ASSURANCE SOCIETY OF THE UNITED STATES, a New York corporation ("Equitable").
WHEREAS, the Trust engages in business as an open-end management
investment company and is available to act as the investment vehicle for the
separate accounts ("Separate Accounts") of both affiliated and unaffiliated life
insurance companies ("Insurance Companies") in connection with the sale of
variable life insurance policies, variable annuity contracts and certificates
relating to such policies or contracts ("Variable Contracts") and for tax
qualified retirement plans ("Qualified Plans"); and
WHEREAS, the beneficial interests in the Trust are divided into series
of shares, (each a "Portfolio"), each representing the interest in a particular
managed portfolio of securities and other assets, and each Portfolio is divided
or may be divided into one or more classes of shares, i.e., currently the Class
IA shares and the Class IB shares, or such other classes of shares as may be
created in the future (the "Classes"); and
WHEREAS, the Trust is registered as an open-end management investment
company under the 1940 Act, and shares of its Portfolios are registered under
the Securities Act of 1933, as amended (the "1933 Act"); and
WHEREAS, the Securities and Exchange Commission (the "SEC") has granted
the Trust exemptions from the provisions of Sections 9(a), 13(a), 15(a), and
15(b) of the Investment Company Act of 1940, as amended (the "1940 Act") and
Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent necessary to
permit shares of the Trust and each of its Portfolios and Classes to be sold to
and held by Separate Accounts funding Variable Contracts of Insurance Companies
and to Qualified Plans; (the "Shared Funding Exemptive Order"); and
3
<PAGE>
WHEREAS, the Distributor is registered as a broker-dealer with the SEC
under the Securities Exchange Act of 1934, as amended (the "1934 Act"), and is a
member in good standing of the National Association of Securities Dealers, Inc.
(the "NASD"); and
WHEREAS, the Distributor is also the investment manager to the Trust
(the "Manager") and is duly registered with the SEC as an investment adviser
under the Investment Advisers Act of 1940, as amended, and is registered or
exempt from registration under all applicable state securities laws; and
WHEREAS, the Plan is a duly organized, validly existing trust under the
laws of New York State and a qualified retirement plan under the Internal
Revenue Code of 1986, as amended (the "Tax Code"), and the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"); and
WHEREAS, the Trust and the Distributor desire to make available to the
Plan the Class 1A shares of the following Portfolios (the "Designated
Portfolios") of the Trust for purchase on the terms and conditions hereinafter
set forth:
o T. Rowe Price Equity Income Portfolio
o MFS Emerging Growth Companies Portfolio
o Warburg Pincus Small Company Value Portfolio
o BT International Equity Index Portfolio; and
WHEREAS, the Plan desires to invest in Class 1A shares of the Designated
Portfolios if directed to do so by any Plan participants and the Distributor is
authorized to sell Class 1A shares of the Designated Portfolios to the Plan on
the terms and conditions hereinafter set forth; and
WHEREAS, Equitable is the sponsor of the Plan and desires to give Plan
participants the opportunity to invest in the Designated Portfolios through the
Plan;
NOW, THEREFORE, in consideration of their mutual promises, the Trust,
the Distributor and the Plan hereby agree as follows:
ARTICLE I. Sale of Trust Shares
1.1. The Trust shall make Class 1A shares of the Designated Portfolios
available for purchase by the Plan at the net asset value per share on those
days on which the Trust calculates the net asset value per share of the
Designated Portfolios pursuant to rules of the SEC. The Trust will use
reasonable efforts to calculate the net asset value per share of Class 1A shares
of the Designated Portfolios on each day on which the New York Stock Exchange is
open for trading. Notwithstanding the foregoing, the Board of Trustees of the
Trust (the "Board") may refuse to sell shares of Class 1A shares of any
Designated Portfolio to the Plan or suspend or terminate the offering of shares
of Class 1A shares of any Designated Portfolio to the Plan if such action is
required by law or by regulatory authorities or is, in the sole discretion of
the Board acting in good
4
<PAGE>
faith and in light of its fiduciary duties under federal and any applicable
state laws, necessary in the best interests of the Trust or its shareholders.
1.2. The Distributor, as a principal underwriter of the Trust, will sell
Class 1A shares of the Designated Portfolios to the Plan. Purchase by the Plan
of Class 1A shares of the Designated Portfolios on behalf of Plan participants
will be effected by purchase orders made by the Plan to the Distributor and will
be executed by the Distributor on a daily basis at the net asset value of the
Class 1A Shares next computed after receipt by the Trust or its designee of such
purchase order. For purposes of this Section 1.2, Equitable will not be
considered the designee of the Trust for receipt of purchase orders, and receipt
by Equitable shall not constitute receipt by the Trust for purposes of
calculating each Designated Portfolio's net asset value per share for the Class
1A shares.
1.3. The Trust, at the request of the Plan, will redeem for cash or
in-kind any full or fractional Class IA shares of the Designated Portfolios held
from time to time by the Plan. The Trust will execute such requests on a daily
basis at the net asset value of the Class IA shares of the Designated Portfolios
in question next computed after receipt by the Trust or its designee of a
redemption request from the Plan. All redemptions requests will be processed and
payment with respect thereto normally will be made within seven (7) days after
receipt by the Trust or its designee of a redemption request in good order,
unless otherwise permitted under the 1940 Act. For purposes of this Section 1.3,
Equitable shall not be considered the designee of the Trust for receipt of
requests for redemption, and receipt by Equitable shall not constitute receipt
by the Trust or its designee for purposes of calculating the net asset value per
share of any Designated Portfolio.
1.4. All purchases and redemptions of Class 1A shares of the Designated
Portfolios shall be made in accordance with the provisions of the most recent
Trust prospectus for the Class 1A shares of the Designated Portfolios (the
"Prospectus').
1.5. The Plan shall pay for Class 1A shares of Designated Portfolios
purchased by it on the same business day the Plan makes a purchase order for the
purchase of such shares in accordance with Section 1.2 hereof. "Business Day"
shall mean any day on which the New York Stock Exchange is open for trading and
on which the Trust calculates the net asset value of its Class 1A shares
pursuant to the rules of the SEC. Payment shall be in federal funds transmitted
by wire.
1.6. Issuance and transfer of Class 1A shares of the Designated
Portfolios will be by book entry only. Stock certificates will not be issued to
the Plan. Class 1A shares purchased by the Plan will be recorded in an
appropriate title.
1.7. The Trust shall furnish same day notice (by wire or telephone,
followed by written confirmation) of any income dividends or capital gain
distributions payable on the Class 1A shares of the Designated Portfolios. At
the election of the Plan, all income dividends and capital gain distributions
paid on the Class 1A shares of any Designated Portfolio shall be paid in
additional Class 1A shares of such Designated Portfolio The Trust shall provide
notification to the Plan of the number of shares issued as payment of dividends
and/or distributions by the end of the next Business Day after the issuance of
such dividends and/or distributions. The Trust shall provide
5
<PAGE>
advance notice to Plan of each date on which the Trust reasonably expects to
make a dividend or distribution payment; normally this notice will be given at
least ten (10) days in advance of the ex-dividend date. The Plan may by prior
written notice to the Trust received by the Trust at least ten (10) days prior
to such payment elect to receive income dividends and capital gain distributions
in cash in lieu of Class 1A shares.
1.8. The Trust shall make the net asset value of the Class 1A shares of
each Designated Portfolio available to the Plan on a daily basis as soon as
reasonably practical after the net asset value per share of the Class 1A shares
is calculated (normally by 6:30 p.m. New York time) and shall use its best
efforts to make such net asset value per share available by 7:00 p.m. New York
time.
ARTICLE II. Warranties and Covenants
2.1. The Trust warrants, represents and covenants, as the case may be,
that (a) it is a lawfully organized and validly existing business trust under
the laws of the State of Delaware, (b) it does and will comply, in all material
respects, with requirements applicable to the Trust under the 1940 Act, (c) to
the best of its knowledge, Class 1A shares sold pursuant to this Agreement shall
be: (1) registered under the 1933 Act; (2) duly authorized for issuance; and (3)
sold in compliance with and all applicable federal securities laws, and (d) the
Trust is and shall remain registered under the 1940 Act. The Trust will amend
the registration statement for its shares (the "Registration Statement") under
the 1933 Act and the 1940 Act from time to time as required in order to effect
the continuous offering of Class 1A shares of the Designated Portfolios. This
requirement shall not, however, in any manner limit the Trust's ability to cease
offering Class 1A shares of any Designated Portfolio, provided such action
complies with applicable laws and regulations.
2.2. The Trust warrants, represents and covenants that: (a) it currently
has elected to qualify as a regulated investment company under Subchapter M of
the Tax Code; (b) it will make every effort to maintain such qualification
(under Subchapter M or any successor or similar provision); (c) it will notify
Equitable and the Plan immediately upon having a reasonable basis for believing
that it has ceased to so qualify or that it might not so qualify in the future;
and (d) it will seek to minimize any damages and to rectify its failure to so
qualify promptly. The Trust acknowledges that any failure to qualify as a
regulated investment company will eliminate the ability of the Separate Accounts
to avail themselves of the "look through" provisions of Section 817(h) of the
Tax Code and that, as a result, the Variable Contracts will almost certain fail
to qualify as life insurance and annuity contracts under Section 817(h) of the
Tax Code.
2.3. The Trust warrants, represents and covenants that it will at all
times invest money from the Separate Accounts and the Plan in such a manner as
to assure that the Variable Contracts will be treated as variable annuity or
variable life insurance contracts under the Tax Code and the regulations issued
thereunder. Without limiting the scope of the foregoing, the Trust represents
that it will at all times comply with Section 817(h) of the Tax Code and
Treasury Regulation 1.817-5, relating to the diversification requirements for
variable annuity, endowment, or life insurance contracts, and any amendments or
other modifications to such Section or Regulations. In the event of a breach of
this Section 2.3 by the Trust, the Trust will take all reasonable steps: (a) to
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<PAGE>
immediately notify all parties of such breach; and (b) to adequately diversify
the Trust's assets so as to achieve compliance within the grace period afforded
by Regulation 1.817-5.
2.4. The Distributor warrants, represents and covenants, as the case may
be, that (a) it is lawfully organized and validly existing under the laws of the
State of Delaware, (b) it does and will comply in all material respects with
requirements applicable to the Distributor under 1934 Act and NASDR rules and
regulations, (c) it is a member in good standing of the NASD, (d) it is
registered as a broker-dealer with the SEC and all necessary states, (e) it will
sell and distribute the Trust's shares in accordance with the laws of the State
of New York and all applicable federal and state securities laws, including
without limitation the 1933 Act, the 1934 Act, the 1940 Act, and all applicable
rules of the NASD, and (f) the Distributor is and will, in its capacity as the
Manager, remain duly registered under all applicable federal and state
securities laws and will perform its obligations to the Trust in compliance with
any and all applicable federal and state securities laws in all material
respects.
2.5. Equitable, the Trust and the Distributor each warrants, represents
and covenants, as the case may be, that all its trustees, directors, officers,
employees, investment managers and investment advisers, and other
individuals/entities dealing with the money and/or securities of the Trust are
and shall continue to be at all times covered by a blanket fidelity bond or
similar coverage for the benefit of the Trust in an amount not less than the
minimal coverage required by Rule 17g-(1) of the 1940 Act or such related
provisions as may be promulgated from time to time. The aforesaid fidelity bond
shall include coverage for larceny and embezzlement and shall be issued by a
reputable bonding company.
2.6. Equitable and the Plan warrant, represent and covenant, as the case
may be, to the Trust and the Distributor that (a) the Plan has been since its
inception and will continue to be a "qualified pension or retirement plan"
within the meaning of Treasury Regulation 1.817-5(f)(iii) and a qualified plan
within the meaning of Section 401(a) of the Tax Code (collectively, a "Qualified
Plan") and (b) the named fiduciary of the Plan has furnished and will from time
to time furnish the Trust with a copy of the Plan's most recently issued IRS
determination letter on the Plan's status as a Qualified Plan under Section
401(a). Equitable and the Plan acknowledge and confirm that the present and
continuing status of the Plan as a Qualified Plan is critical to the
shareholders of the Trusts that are Separate Accounts and that the Trust is
expressly relying on the foregoing warranties and covenants of the Plan in
agreeing to sell shares to the Plan pursuant hereto. The named fiduciary of the
Plan will notify the Trust promptly at any time hereafter upon having a
reasonable basis to believe that the Plan has ceased to qualify or may
subsequently cease to qualify as a Qualified Plan.
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ARTICLE III. Prospectuses and Proxy Statements; Voting
3.1. The Trust or its Distributor shall provide the Plan with as many
printed copies of the Trust's current Prospectus and Statement of Additional
Information and any supplements thereto for the Class 1A shares of the
Designated Portfolios (the "Trust's SEC Disclosure Materials") as the Plan may
reasonably request for Plan participants then invested in Class 1A shares of the
Designated Portfolios ("Current Participants"). If requested by the Plan in lieu
thereof, the Trust or the Distributor shall provide camera-ready film containing
the Prospectus and Statement of Additional Information for the Class 1A shares
and such other assistance as is reasonably necessary in order for the Plan once
each year (or more frequently if any of the Prospectus and Statement of
Additional Information for the Class 1A shares is amended during the year) to
distribute the Trust's SEC Disclosure Materials to Current Participants. In
addition, with respect to the Trust's SEC Disclosure Materials provided by the
Plan to Current Participants in order to update disclosure as required by the
1933 Act and/or the 1940 Act, the cost of preparing, printing, mailing or
otherwise distributing the Trust's SEC Disclosure Materials to Current
Participants will be borne by the Trust. Furthermore, if in such case the Plan
or the Distributor is provided with camera-ready film of the Trust's SEC
Disclosure Materials in lieu of printed documents, the Trust shall promptly,
upon request, reimburse the Plan or the Distributor, as the case may be, for the
printing, mailing and other costs incurred in distributing of those documents to
Current Participants. The Plan and the Distributor shall provide the Trust with
such information as may be reasonably requested by the Trust to assure that the
Trust expenses do not include any costs or expenses with respect to the
printing, mailing or other distribution of the Trust's SEC Disclosure Materials
to Plan Participants other than Current Participants.
3.2. Neither Equitable nor the Plan may alter the form of the Trust's
SEC Disclosure Materials, Annual and Semi-Annual Reports to shareholders, proxy
statements or other Trust documents without the prior approval of the Trust.
Equitable or the Plan, as appropriate, will bear all costs associated with such
alteration.
3.3. If required by Form N-1A, the Trust's Prospectus shall state that
the Statement of Additional Information for the for the Class 1A shares of the
Designated Portfolios is available from the Distributor or the Plan (or in the
Trust's discretion, the Prospectus shall state that such Statement of Additional
Information is available from the Trust).
3.4. The Trust, at its expense, shall provide the Plan with copies of
its proxy statements, Annual and Semi-Annual Reports to shareholders, and other
communications to shareholders in such quantities as the Plan shall reasonably
require for mailing or otherwise distributing such materials to Current
Participants and shall assume all expenses associated with mailing or otherwise
distributing those materials. In the alternative, the Trust shall reimburse the
Plan for its costs in printing, mailing and distributing such materials to
Current Participants.
3.5. If and to the extent required by law or as required as a condition
to any exemptive or no-action relief granted by the SEC or the SEC staff to the
Trust, the Plan shall:
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(a) solicit voting instructions from Current Participants;
(b) vote the Trust shares for the Class 1A shares of the
Designated Portfolios in accordance with instructions received from
Current Participants; and
(c) vote Trust shares for the Class 1A shares of the Designated
Portfolios for which no instructions have been received in the same
proportion as Trust shares for the for the Class 1A shares of the
Designated Portfolios for which instructions have been received so long
as and to the extent that the SEC continues to interpret the 1940 Act to
require pass-through voting privileges for Current Participants. The
Plan reserves the right to vote Class 1A shares of the Designated
Portfolios in its own right, to the extent permitted by law. The Plan
will be responsible for calculating voting privileges in a manner
consistent with any standards adopted by the Board, from time to time,
and provided to the Plan.
3.6. The Trust will comply with all provisions of the 1940 Act requiring
voting by shareholders and in particular the Trust will comply with Section
16(c) of the 1940 Act as well as with Sections 16(a) and, if and when
applicable, Section 16(b). Further, the Trust will act in accordance with the
SEC or SEC staff's written interpretation concerning the requirements of Section
16(a) with respect to periodic elections of Trustees and with whatever rules the
SEC may promulgate with respect thereto.
ARTICLE IV. Sales Material and Information
4.1. The Distributor shall furnish, or shall cause to be furnished, to
the Trust or its designee, the form of each piece of sales literature or other
promotional material in which the Trust, the Manager or the Distributor are
named prior to its first use. No such material shall be used if the Trust or its
designee reasonably objects to its use after the Trust's receipt of such
material.
4.2. Neither Equitable nor the Plan will give any information or make
any representations or statements on behalf of the Trust or concerning the Trust
to other than the information or representations contained in or accurately
derived from the Registration Statements, prospectus or Statement of Additional
Information for the Trust, as such Registration Statements, prospectus or
Statement of Additional Information may be amended or supplemented from time to
time, or in reports or proxy statements for the Trust, or in sales literature or
other promotional material approved by the Trust or its designee, except with
the permission of the Trust or its designees.
4.3. The Trust or the Distributor, or their respective designees, shall
furnish, or shall cause to be furnished, to Equitable and the Plan or their
designees, the form of each piece of sales literature or other promotional
material in which the Plan is named prior to its use. No such material shall be
used if the Plan or its designees reasonably objects to its use after receipt of
such material.
4.4. The Trust will provide to Equitable and the Plan at least one
complete copy of each Registration Statement, prospectus, Statement of
Additional Information, report, proxy statement,
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item of sales literature or other promotional material, application for
exemptions, request for a no-action letter or amendment to any of the above that
relates to the Class 1A shares of the Designated Portfolios contemporaneously
with the filing of such document with the SEC, the NASD or any other regulatory
authority.
4.5. For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to, any of the
following that refer to the Trust or any affiliate of the Trust: advertisements
(including materials published or designed for use in a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, electronic messages or
communications or other public media), sales literature (i.e., any written
communication distributed or made generally available to customers or the
public, including brochures, circulars, research reports, market letters, form
letters, seminar texts, reprints or excerpts of any other advertisement, sales
literature, or published article), educational or training materials or other
communications distributed or made generally available to some or all agents or
employees, and Registration Statements, SEC Disclosure Materials, shareholder
reports, and proxy materials. However, it is anticipated that materials provided
solely: (a) internally to Equitable's or the Distributors' own employees or
counsel; or (b) to certain designated third parties and that are not designed to
be provided or communicated in any manner to the general public (e.g., training
materials provided to distributors or agents) will not be filed with the SEC,
the NASD, or any state securities or insurance regulatory authorities, although
such materials will be prepared in accordance with applicable laws.
ARTICLE V. Fees and Expenses
5.1. No fee or other compensation shall be payable by any party to the
other under this Agreement.
5.2. All expenses incident to performance by the Trust under this
Agreement, including without limitation expenses of the Trust as described in
Article III hereof, shall be paid by the Trust. Without limiting the foregoing,
all Trust shares shall be registered and authorized for issuance at Trust
expense prior to their sale in accordance with applicable federal law, and the
Trust shall bear all expenses with respect to: registration and qualification of
the Trust's shares; preparation and filing of the Trust's Registration
Statements, SEC Disclosure Materials, proxy materials and reports; setting in
type, printing, mailing or otherwise distributing the SEC Disclosure Materials,
proxy materials and Semi-Annual and Annual Reports sent to Current Participants
(including the costs of setting in type, printing, mailing or otherwise
distributing prospectuses that constitute Annual Reports); the preparation of
all statements and notices required by any federal or state law; and all taxes
on the issuance or transfer of the Trust's shares.
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ARTICLE VI. Potential Conflicts
6.1. The Board will monitor the Trust for the existence of any material
irreconcilable conflict between the interests of different Trust shareholders. A
material irreconcilable conflict may arise for a variety of reasons, including:
(a) an action by any state insurance regulatory authority; or (b) a change in
applicable federal or state insurance, tax, or securities laws or regulations,
or a public ruling, private letter ruling, no-action or interpretative letter,
or any similar action by insurance, tax, or securities regulatory authorities;
or (c) an administrative or judicial decision in any relevant proceeding; or (d)
the manner in which the investments of any Designated Portfolio are being
managed; or (e) a difference in voting instructions given different Trust
shareholders; or (f) a decision by a Trust shareholder to disregard the voting
instructions of its beneficial owners. The Board shall promptly inform the Plan
if it determines that a material irreconcilable conflict exists and the
implications thereof.
6.2. Equitable and the Plan each will report any potential or existing
conflicts, of which it is aware, to the Board. Equitable and the Plan will also
assist the Board in carrying out its responsibilities under any Shared Funding
Exemptive Order, by providing the Board with all information concerning the Plan
reasonably necessary for the Board to consider any issues raised. This includes,
but is not limited to, any obligation by the Plan to inform the Board whenever
the voting instructions of Current Participants are disregarded. The
responsibilities of Equitable and the Plan under this Section 6.2 will be
carried out with a view only to the interests of Current Participants.
6.3. If it is determined by a majority of the Board, or a majority of
its disinterested Trustees, that a material irreconcilable conflict exists, the
Plan and other Trust shareholders shall, at their expense and to the extent
reasonably practicable (as determined by a majority of the disinterested
Trustees), take whatever steps are necessary to remedy or eliminate the material
irreconcilable conflict, up to and including: (a) redeeming its shares from the
Trust and reinvesting its assets in another investment medium or submitting the
question of whether such withdrawal should be implemented to a vote of all
affected beneficial owners or (b) establishing a new registered management
investment company. The Plan's responsibilities under this Section 6.3 will be
carried out with a view only to the interests of Current Participants.
6.4. If a material irreconcilable conflict were ever to arise because of
a decision by the Plan to disregard the voting instructions of Current
Participants with respect to a Designated Portfolio and that decision represents
a minority position or would preclude a majority vote, the Plan may be required,
at the Trust's election, to redeem the Plan's investment in such Designated
Portfolio and terminate this Agreement with respect to such Delegated
Portfolio); provided, however, that such redemption and termination will be
limited to the extent required by the foregoing material irreconcilable conflict
as determined by a majority of the disinterested members of the Board. No charge
or penalty shall be imposed as a result of such redemption. Any such redemption
and termination must take place within six (6) months after the Trust gives
written notice that this provision is being implemented.
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6.5. For purposes of this Article 6, a majority of the disinterested
members of the Board shall determine whether any proposed action adequately
remedies any material irreconcilable conflict, but in no event will the Trust be
required to establish a new funding medium for any shareholder including the
Plan. In the event that the Board determines that any proposed action does not
adequately remedy any material irreconcilable conflict with respect to a
Designated Portfolio, then the Plan will redeem its shares in such Designated
Portfolio and terminate this Agreement with respect to such Portfolio within six
(6) months after the Board informs the Plan in writing of the foregoing
determination; provided, however, that such withdrawal and termination shall be
limited to the extent required by any such material irreconcilable conflict as
determined by a majority of the disinterested members of the Board.
6.6. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended,
or Rule 6e-3 is adopted, to provide exemptive relief from any provision of the
1940 Act or the rules promulgated thereunder with respect to mixed or shared
funding (as defined in the Shared Funding Exemptive Order) on terms and
conditions materially different from those contained in the Shared Funding
Exemptive Order, then: (a) the Trust and/or the Plan, as appropriate, shall take
such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T), as
amended, and Rule 6e-3, as adopted, to the extent such rules are applicable; (b)
Sections 3.4, 3.5, 6.1, 6.2, 6.3, 6.4, and 6.5 of this Agreement shall continue
in effect only to the extent that terms and conditions substantially identical
to such Sections are contained in such Rule(s) as so amended or adopted; and (c)
this Agreement shall be otherwise amended by the Trust, without the need for any
consent of the other parties, as required by such change in law.
ARTICLE VII. Indemnification
7.1. Indemnification By the Plan Except as provided to the contrary in
Section 7.4 or 7.5 hereof, Equitable and the Plan shall jointly and severally
indemnify and hold harmless the Trust, each member of the Board, the
Distributor, the trustees, directors and officers thereof and each person, if
any, who controls any such person within the meaning of Section 15 of the 1933
Act (collectively, the "Indemnified Parties" for purposes of this Section 7.1)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of Equitable and the Plan), investigation
of claims or litigation (including legal and other expenses), to which the
Indemnified Parties may become subject under any statute, regulation, at common
law or otherwise, insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof) or settlements are related to, arise
out of or are based upon:
(i) the failure (intentional or otherwise) of the Plan at any
time to be or to continue to be a Qualified Plan as defined in Section
2.4 hereof;
(ii) the sale or acquisition of the Class 1A shares of the
Designated Portfolios and (1) arise out of or are based upon any untrue
statements or alleged untrue statements of any material fact made by
Equitable or the Plan or any person under its control or the omission or
the alleged omission to state a material fact required to be stated or
necessary to make such statements not misleading, unless such statement
or omission or alleged statement or omission was made in reliance upon
and in conformity with information
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furnished by the Trust or the Distributor to Equitable or the Plan for
use in connection with the sale or distribution of Class 1A shares of
the Designated Portfolios; or (2) arise out of or as a result of
warranties or representations (other than warranties or representations
contained in a Registration Statement, any SEC Disclosure Materials or
sales literature of the Trust not supplied by the Plan or persons under
its control) or wrongful conduct of Equitable or the Plan or any of
such, with respect to the sale or distribution of Class 1A shares of the
Designated Portfolios; or (3) arise out of any untrue statement or
alleged untrue statement of a material fact contained in a Registration
Statement, any SEC Disclosure Materials or sales literature of the Trust
or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading , but only if such a statement or omission was
made in reliance upon information furnished to the Trust or the
Distributor by Equitable or the Plan or persons under their control; or
(iii) arise as a result of any failure by the Plan to provide the
services or furnish the materials required to be provided or furnished
by it under the terms of this Agreement; or
(iv) arise out of or result from any material breach of any
representation and/or warranty made by Equitable or the Plan in this
Agreement or arise out of or result from any other material breach of
this Agreement by Equitable or the Plan.
7.2. Indemnification by the Distributor Except as provided to the
contrary in Section 7.4 or 7.5 hereof, the Distributor shall indemnify and hold
harmless the Plan, its trustees, the Trust, the Board and their officers and
each person, if any, who controls the Plan within the meaning of Section 15 of
the 1933 Act (collectively, the "Indemnified Parties" for purposes of this
Section 7.2) against any and all losses, claims, damages, liabilities (including
amounts paid in settlement with the written consent of the Distributor),
investigation of claims or litigation (including legal and other expenses) to
which the Indemnified Parties may become subject under any statute, regulation,
at common law or otherwise, insofar as such losses, claims, damages, liabilities
or expenses (or actions in respect thereof) or settlements are related to, arise
out of or are based upon
(i) the sale or acquisition of Class 1A shares of the Designated
Portfolios by the Plan and (1) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in
a Registration Statement, any SEC Disclosure Materials or sales
literature of the Trust or arise out of or are based upon the omission
or the alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, but only if such statement or omission or such alleged
statement or omission was made in reliance upon and in conformity with
information furnished by the Distributor to the Trust for use in a
Registration Statement, any SEC Disclosure Materials or sales literature
of the Trust or otherwise for use in connection with the sale or
acquisition of Class 1A shares of the Delegated Portfolios by the Plan;
or (2) arise out of any untrue statement or alleged untrue statement of
a material fact contained in a Registration Statement, any SEC
Disclosure Materials or sales literature of the Trust or the omission or
alleged omission to state therein a material fact required to be stated
therein or
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necessary to make the statement or statements therein not misleading,
but only if such statement or omission was made in reliance upon
information furnished to the Plan or the Trust by the Distributor; or
(ii) any failure by the Distributor to provide the services and
furnish the materials required to be provided or furnished by the
Distributor under the terms of this Agreement; or
(iii) arise out of or result from any material breach of any
representation and/or warranty made by the Distributor in this Agreement
or arise out of or result from any other material breach of this
Agreement by the Distributor.
7.3. Indemnification By the Trust Except as provided to the contrary in
Section 7.4 or 7.5 hereof, the Trust shall indemnify and hold harmless the Plan
and each of its trustees and officers, the Distributor, the directors and
officers thereof and each person, if any, who controls any such person within
the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" for purposes of this Section 7.3) against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with the written
consent of the Trust), investigation of claims or litigation (including legal
and other expenses) to which the Indemnified Parties may become subject under
any statute, regulation, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect thereof) or
settlements result from the gross negligence, bad faith or willful misconduct of
the Board or any member thereof, are related to, arise out of or are based upon:
(i) any failure by the Trust to provide the services and furnish
the materials required to be provided or furnished by it under the terms
of this Agreement (including a failure to comply with the
diversification and other qualification requirements specified in
Article VI of this Agreement); or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Trust in this Agreement or
arise out of or result from any other material breach of this Agreement
by the Trust.
7.4. No party indemnifying another under this Article 7 (an
"Indemnitor") shall be liable hereunder with respect to any losses, claims,
damages, liabilities, or litigation incurred or assessed against an Indemnified
Party arising from such Indemnified Party's willful misfeasance, bad faith, or
gross negligence in the performance of such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations and duties
under this Agreement or to the Plan, the Trust or the Distributor, whichever is
applicable.
7.5. No Indemnitor shall not be liable hereunder with respect to any
claim made against an Indemnified Party unless such Indemnified Party shall have
notified the Indemnitor in writing within a reasonable time after the summons or
other first legal process giving information of the nature of the claim shall
have been served upon such Indemnified Party (or after such Indemnified Party
shall have received notice of such service on any designated agent), but failure
to notify the
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Indemnitor of any such claim shall not relieve the Indemnitor from any liability
which it may have to the Indemnified Party against whom such action is brought
otherwise than on account of this Article 7. In case any such action is brought
against the Indemnified Parties, the Indemnitor will be entitled to participate,
at its own expense, in the defense thereof. The Indemnitor shall also shall be
entitled to assume the defense thereof, with counsel reasonably satisfactory to
the party named in the action. After notice from the Indemnitor to such party of
the Indemnitor's election to assume the defense thereof, the Indemnified Party
shall bear the fees and expenses of any additional counsel retained by it, and
the Indemnitor will not be liable to such party under this Agreement for any
legal or other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
7.6. Each Indemnitor hereunder agrees promptly to notify the other
parties hereto of the commencement of any material litigation or proceedings
against it or any of its respective officers, directors or trustees in
connection with this Agreement, the issuance or sale of the Class 1A shares of
the Designated Portfolios, the operation of the Plan or the sale or acquisition
of any other shares of the Trust.
ARTICLE VIII. Applicable Law
8.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of New York.
8.2. This Agreement shall be subject to the provisions of the 1933,
1934, and 1940 Acts, the Tax Code and the rules and regulations and rulings
thereunder, including such exemptions from those statutes, rules, and
regulations as the SEC may grant (including, but not limited to, any Shared
Funding Exemptive Order) and the terms hereof shall be interpreted and construed
in accordance therewith.
ARTICLE IX. Termination
9.1. This Agreement shall continue in full force and effect until the
first to occur of:
(a) termination by any party, with or without cause, upon six (6)
months' advance written notice delivered to the other parties; or
(b) termination by the Plan upon thirty (30) days' written notice to
the Trust and the Distributor with respect to any Designated
Portfolio of the Plan's determination that shares of such
Designated Portfolio are not reasonably available to meet the
requirements of the Plan or are not consistent with the Plan's
obligations to Current Participants; or
(c) termination by the Plan upon thirty (30) days' written notice to
the Trust and the Distributor with respect to any Designated
Portfolio in the event the Class 1A shares thereof are not
registered, issued or sold in accordance with applicable federal
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<PAGE>
and/or state law or such law precludes the use of such shares as
an underlying investment media of the Plan; or
(d) termination by either the Trust or the Distributor by written
notice to Equitable and the Plan, if the Trust or the Distributor
shall determine, in its sole judgment exercised in good faith,
that Equitable or the Plan have suffered a material adverse
change in their business, operations, financial condition, or
prospects since the date of this Agreement or are the subject of
material adverse publicity; but no termination shall be effective
under this subsection (d) until Equitable and the Plan have been
afforded a reasonable opportunity to respond to a statement by
the Trust or the Distributor concerning the reason for notice of
termination hereunder; or
(e) termination by either Equitable or the Plan by written notice to
the Trust and the Distributor, if either Equitable or the Plan
determines, in its sole judgment exercised in good faith, that
either the Trust or the Distributor has suffered a material
adverse change in its business, operations, financial condition,
or prospects since the date of this Agreement or is the subject
of material adverse publicity; but no termination shall be
effective under this subsection (e) until the Trust or the
Distributor have been afforded a reasonable opportunity to
respond to a statement by the Plan concerning the reason for
notice of termination hereunder; or
(f) termination by either the Trust or the Distributor by written
notice to Equitable and the Plan, if the Trust or the Distributor
shall determine, in its sole judgment exercised in good faith,
that the Plan has ceased to be or may in the future cease to be a
Qualified Plan as defined in Section 2.4 hereof.
9.2. Notwithstanding any termination of this Agreement, the Trust and
the Distributor shall, at the option of the Plan, continue to make available
additional shares of the Trust to the Plan pursuant to the terms and conditions
of this Agreement, with respect to all Current Participants on the effective
date of termination (the "Continuing Participants"). Specifically, without
limitation, the Plan shall be permitted to reallocate investments in the
Designated Portfolios, redeem Class 1A shares of the Designated Portfolios,
and/or purchase additional Class 1A shares of the Designated Portfolios in
accordance with the instructions of Continuing Participants. The parties agree
that this Section 9.2 shall not apply to any terminations under Article VI and
the effect of such Article VI terminations shall be governed by Article VI of
this Agreement.
9.3. The Plan shall not redeem Class 1A shares of the Designated
Portfolios except: (a) as necessary to implement the directions of Current
Participants; (b) as required by federal and/or state laws or regulations or
judicial or other legal precedent of general application (hereinafter referred
to as a "Legally Required Redemption"); or (c) as permitted pursuant to Section
26(b) of the 1940 Act or otherwise pursuant to an order of the SEC. Upon
request, the Plan shall promptly furnish to the Trust and the Distributor the
opinion of counsel for the Plan (which counsel shall be reasonably satisfactory
to the Trust and the Distributor) to the effect that any redemption pursuant to
clause (b) above is a Legally Required Redemption or any redemption pursuant to
clause (b) is permitted without first obtaining an order of the SEC pursuant to
Section 26(b) or any other
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provision of the 1940 Act. Furthermore, as may be in the best interests of the
Current Participants, as determined by the Plan, the Plan shall not prevent Plan
participants from investing through the Plan in any Designated Portfolio
otherwise available under this Agreement without first giving the Trust or the
Distributor written notice of its intention to do so.
9.4. The terms and conditions of the following provisions of this
Agreement shall survive termination of this Agreement: Sections 1.3 to 1.10 of
Article I (governing the pricing and redemption of shares); Article II
(Warranties and Covenants); Sections 3.1 through 3.4 and 3.6 of Article III
(Prospectuses and Proxy Statements, and Voting); Articles IV through IX (Sales
Material and Information; Fees and Expenses; Potential Conflicts;
Indemnification; and Applicable Law); Article X (Notices); and Sections 11.1,
11.2, and 11.5 through 11.8 of Article XI (Miscellaneous).
ARTICLE X. Notices
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to the Trust:
EQ Advisors Trust
1290 Avenue of the Americas
New York, New York 10104
Attention: Peter D. Noris
If to the Distributor:
EQ Financial Consultants, Inc.
1290 Avenue of the Americas
New York, New York 10104
Attention: Michael F. McNelis
If to the Plan:
The Equitable Investment Plan
The Equitable Life Assurance Society of the United States
1290 Avenue of the Americas
New York, New York 10104
Attention: Robin Murray
If to Equitable:
The Equitable Life Assurance Society of the United States
1290 Avenue of the Americas
New York, New York 10104
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Attention: Peter D. Noris
ARTICLE XI. Miscellaneous
11.1. All persons dealing with the Trust must look solely to the
property of the Trust for the enforcement of any claims against the Trust as
neither the Board (or its members), officers, agents, or shareholders shall
assume any personal liability for obligations entered into on behalf of the
Trust. All persons asserting claims against the Plan shall look solely to the
property of the Plan as neither the trustees thereof nor any of its officers,
agents, or participants shall assume any personal liability for obligations
entered into on behalf of the Plan.
11.2. Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the Plan participants and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate, or utilize such names and
addresses and other confidential information until such time as it may come into
the public domain without the express written consent of the affected party.
Without limiting the foregoing, no party hereto shall disclose any information
that such party has been advised is proprietary, except such information that
such party is required to disclose by any appropriate governmental authority
(including without limitation the SEC, the NASD, the Department of Labor, and
state securities or insurance regulators).
11.3. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
11.4. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
11.5. If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule, or otherwise, the remainder of the Agreement
shall not be affected thereby.
11.6. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD, the Department of Labor and state securities or insurance regulators) and
shall permit such authorities reasonable access to its books and records in
connection with any investigation or inquiry relating to this Agreement or the
transactions contemplated hereby.
11.7. The rights, remedies, and obligations contained in this Agreement
are cumulative and are in addition to any and all rights, remedies, and
obligations, at law or in equity, to which the parties hereto are entitled under
federal and state laws.
11.8. This Agreement or any of the rights and obligations hereunder may
not be assigned by any party without the prior written consent of all parties
hereto; provided, however, that the Distributor may assign this Agreement or any
rights or obligations hereunder to any affiliate of or
18
<PAGE>
company under common control with the Distributor (but in such event the
Distributor shall continue to be liable under Article VIII of this Agreement for
any indemnification due to the Plan, and the assignee shall also be liable), if
such assignee is duly licensed and registered to perform the obligations of the
Distributor under this Agreement.
11.9. The Plan shall furnish, or shall cause to be furnished, to the
Trust upon request copies of the following reports:
(a) The Plan's annual statements (prepared under statutory accounting
principles) and annual reports (prepared under generally accepted accounting
principles ("GAAP"), if any), as soon as practical and in any event within
ninety (90) days after the end of each fiscal year;
(b) any material financial statement, notice, or report of the Plan
sends to Plan participants, as soon as practical after the delivery thereof to
such Plan participants;
(c) any financial or other reports or filings of the Plan filed with the
Department of Labor, the SEC or any other governmental regulator, as soon as
practical after the filing thereof; and
(d) any other report submitted to the Plan by independent accountants in
connection with any annual, interim, or special audit made by them of the books
of the Plan, as soon as practical after the receipt thereof; but nothing in this
subsection shall require the Plan to disclose any information that is privileged
or which, if disclosed, would put the Plan at a competitive disadvantage or is
both: (a) confidential; and (b) not material to the Plan's financial condition.
11.10. At the request of any party to this Agreement, each other party
will make available to the requesting party's independent auditors and/or
representatives of the appropriate regulatory agencies, all records, data, and
access to operating procedures that may be reasonably requested in connection
with compliance and regulatory requirements related to this Agreement or any
party's obligations under this Agreement.
11.11. Any controversy or claim arising out of or relating to this
Agreement, or breach thereof, shall be settled by arbitration in a forum jointly
selected by the relevant parties (but if applicable law requires some other
forum, then such other forum) in accordance with the Commercial Arbitration
Rules of the American Arbitration Association, and judgment upon the award
rendered by the arbitrators may be entered in any court having jurisdiction
thereof.
19
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed in its name and on its behalf by its duly authorized
representative as of the date specified below.
EQ ADVISORS TRUST THE EQUITABLE INVESTMENT PLAN FOR
EMPLOYEES, MANAGERS AND AGENTS
By:
-------------------------------
Name: Peter D. Noris By: Officers Committee on Benefit
Title: President and Trustee Plans, as Plan Fiduciary
By:
-------------------------------
EQ FINANCIAL CONSULTANTS, INC. Name: Michael Hegarty
Title: Chairman
By:
-------------------------------
Name: Michael S. Martin
Title: Chairman of the Board THE EQUITABLE LIFE ASSURANCE SOCIETY
and Chief Executive Officer OF THE UNITED STATES
By:
-------------------------------
Name: Gary Billings
Title: Senior Vice President,
Human Resources
20
<PAGE>
FORM OF AMENDMENT NO. 1
TO
PARTICIPATION AGREEMENT
Form of Amendment No. 1, dated as of April 30, 1999 ("Amendment"), to
Participation Agreement dated as of December 1, 1998 ("Original Agreement")
among EQ Advisors Trust, The Equitable Life Assurance Society of the United
States, Equitable Financial Consultants, Inc. and The Equitable Investment Plan
for Employees, Managers and Agents (collectively, the "Parties").
The Parties hereby agree that Schedule B to the Original Agreement is
replaced in its entirety by the schedule attached hereto entitled "Schedule B".
Except as modified and amended hereby, the Original Agreement is hereby
ratified and confirmed in full force and effect in accordance with its terms.
IN WITNESS WHEREOF, the parties have executed and delivered this Form of
Amendment No. 1 as of the date first above set forth.
EQ ADVISORS TRUST THE EQUITABLE LIFE ASSURANCE
SOCIETY OF THE UNITED STATES
By:
- -------------------------------
Name: Peter D. Noris By:
Title: President and Trustee -------------------------------
Name: Peter D. Noris
Title: Executive Vice President
and Chief Investment Officer
EQ FINANCIAL CONSULTANTS, INC. THE EQUITABLE INVESTMENT
PLAN FOR EMPLOYEES, MANAGERS AND AGENTS
By:
-------------------------------
Name: Michael S. Martin By: Officers Committee on Benefit
Title: Chairman of the Board Plans, as Plan Fiduciary
and Chief Executive Officer
By:
-------------------------------
Name: Michael Hegarty
Title: Chairman
1
<PAGE>
SCHEDULE B
TO
FORM OF AMENDMENT NO. 1 TO PARTICIPATION AGREEMENT
DESIGNATED PORTFOLIOS AND CLASSES
PORTFOLIOS OF
EQ ADVISORS TRUST
Portfolios Classes
---------- -------
BT Equity 500 Index Portfolio Class IA and Class IB
BT International Equity Index Portfolio Class IA and Class IB
BT Small Company Index Portfolio Class IA and Class IB
EQ/Alliance Premier Growth Portfolio Class IA and Class IB
EQ/Capital Guardian International Equities Portfolio Class IA and Class IB
EQ/Capital Guardian Research Portfolio Class IA and Class IB
EQ/Capital Guardian U.S. Equities Portfolio Class IA and Class IB
EQ/Putnam Balanced Portfolio Class IA and Class IB
EQ/Putnam Growth & Income Value Portfolio Class IA and Class IB
EQ/Putnam International Equity Portfolio Class IA and Class IB
EQ/Putnam Investors Growth Portfolio Class IA and Class IB
EQ/Evergreen Foundation Portfolio Class IA and Class IB
EQ/Evergreen Portfolio Class IA and Class IB
JPM Core Bond Portfolio Class IA and Class IB
Lazard Large Cap Value Portfolio Class IA and Class IB
Lazard Small Cap Value Portfolio Class IA and Class IB
Merrill Lynch Basic Value Equity Portfolio Class IA and Class IB
Merrill Lynch World Strategy Portfolio Class IA and Class IB
MFS Emerging Growth Companies Portfolio Class IA and Class IB
MFS Growth with Income Portfolio Class IA and Class IB
MFS Research Portfolio Class IA and Class IB
Morgan Stanley Emerging Markets Equity Portfolio Class IA and Class IB
T. Rowe Price Equity Income Portfolio Class IA and Class IB
T. Rowe Price International Stock Portfolio Class IA and Class IB
Warburg Pincus Small Company Value Portfolio Class IA and Class IB
2
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 10 to the registration statement on Form N-1A (the "Registration
Statement") of our report dated February 17, 1999, relating to the financial
statements and financial highlights appearing in the December 31, 1998 Annual
Report to Shareholders of EQ Advisors Trust, which are also incorporated by
reference into the Registration Statement. We also consent to the reference to
us under the heading "Financial Highlights" in the Prospectuses and under the
heading "Other Services-Independent Accountant" in the Statement of Additional
Information.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
April 26, 1999
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<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,308,752
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<DIVIDEND-INCOME> 1,561,724
<INTEREST-INCOME> 1,005,517
<OTHER-INCOME> 31,782
<EXPENSES-NET> (978,620)
<NET-INVESTMENT-INCOME> 1,620,403
<REALIZED-GAINS-CURRENT> 5,652,703
<APPREC-INCREASE-CURRENT> (239,779)
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<DISTRIBUTIONS-OF-GAINS> (5,704,532)
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<NUMBER-OF-SHARES-REDEEMED> (3,467,476)
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<ACCUMULATED-NII-PRIOR> 12,476
<ACCUMULATED-GAINS-PRIOR> (23,202)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 632,783
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,214,788
<AVERAGE-NET-ASSETS> 115,066,308
<PER-SHARE-NAV-BEGIN> 11.58
<PER-SHARE-NII> 0.12
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<OTHER-ITEMS-ASSETS> 3,565,190
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<OTHER-ITEMS-LIABILITIES> 3,688,462
<TOTAL-LIABILITIES> 3,688,462
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 29,940,774
<SHARES-COMMON-STOCK> 2,802,280
<SHARES-COMMON-PRIOR> 1,765,917
<ACCUMULATED-NII-CURRENT> (117,119)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,669,496)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,476,803
<NET-ASSETS> 30,630,962
<DIVIDEND-INCOME> 230,167
<INTEREST-INCOME> 487,278
<OTHER-INCOME> 8,359
<EXPENSES-NET> (308,329)
<NET-INVESTMENT-INCOME> 417,475
<REALIZED-GAINS-CURRENT> (1,565,854)
<APPREC-INCREASE-CURRENT> 2,563,344
<NET-CHANGE-FROM-OPS> 1,414,965
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (223,866)
<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 1,987,470
<NUMBER-OF-SHARES-REDEEMED> (972,049)
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<GROSS-ADVISORY-FEES> 179,486
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<GROSS-EXPENSE> 412,797
<AVERAGE-NET-ASSETS> 25,650,746
<PER-SHARE-NAV-BEGIN> 10.31
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<PAID-IN-CAPITAL-COMMON> 71,835,655
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<SHARES-COMMON-PRIOR> 2,305,399
<ACCUMULATED-NII-CURRENT> 4,600
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 606,975
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,529,955
<NET-ASSETS> 75,977,185
<DIVIDEND-INCOME> 667,576
<INTEREST-INCOME> 1,169,302
<OTHER-INCOME> 19,172
<EXPENSES-NET> (442,374)
<NET-INVESTMENT-INCOME> 1,413,676
<REALIZED-GAINS-CURRENT> 1,270,027
<APPREC-INCREASE-CURRENT> 2,688,773
<NET-CHANGE-FROM-OPS> 5,372,476
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,348,214)
<DISTRIBUTIONS-OF-GAINS> (827,467)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,930,052
<NUMBER-OF-SHARES-REDEEMED> (2,169,078)
<SHARES-REINVESTED> 181,291
<NET-CHANGE-IN-ASSETS> 50,123,597
<ACCUMULATED-NII-PRIOR> (13,681)
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<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 269,939
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<GROSS-EXPENSE> 612,353
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<PER-SHARE-NII> 0.25
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<NAME> EQ ADVISORS TRUST
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<NAME> EQ/PUTNAM INVESTORS GROWTH PORTFOLIO
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<NAME> EQ ADVISORS TRUST
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<NAME> T. ROWE PRICE EQUITY INCOME PORTFOLIO, CLASS 1A
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<NAME> EQ ADVISORS TRUST
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<NAME> T. ROWE PRICE EQUITY INCOME PORTFOLIO, CLASS 1B
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<NAME> EQ ADVISORS TRUST
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<NAME> T. ROWE PRICE INTERNATIONAL STOCK PORTFOLIO
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<NAME> EQ ADVISORS TRUST
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<NAME> WARBURG PINCUS SMALL COMPANY VALUE PORTFOLIO - CLASS IA
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<NAME> EQ ADVISORS TRUST
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<NAME> WARBURG PINCUS SMALL COMPANY VALUE PORTFOLIO - CLASS IB
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